By Peter @Newton Bell, 3 December 2016

After a quick introduction to Clean Gold by Suzette McFaul, Sean Janzer, and myself in the short interview here, we turned to the company’s presentation material. We went through Clean Gold’s presentation deck for over an hour and had a broad-ranging conversation about the business. There are many interesting aspects of the business and I encourage you to learn about it by reading the transcript below. 

SM: Hello, I am Suzette McFaul and I am the founder of Clean Gold Community Solutions. My background is in economic development and enterprise development. This particular project that we’re sharing with you is based on sustainable, profitable businesses. No different from what we’ve been doing for the last twenty-five years. This one has a great opportunity that we’re able to share with investors and that’s why I’m here with you today.

SM: Sean Janzer is with us, as well. Sean, would you please introduce yourself briefly?

SJ: Sure, thanks Suzette. I’ve been working Suzette for the last couple years and we’ve worked on a couple projects together. When she told me about Clean Gold, I found it really interesting and wanted to get involved with it. I come from a finance background -- have been in finance for the last ten years, working out of Victoria, BC. I have a number of different roles, but I’ve been mainly working in private equity and helping companies with strategic planning and getting capitalized. That’s what I’m doing with Clean Gold -- helping them work with investors.

SM: Clean Gold is seeking to get an investment of $1.5M USD from the private sector. We want to stay a private company and we’re looking for private equity investors. This particular project is going to put a gold processing plant in Ecuador. SEF was invited by the Ecuadorian Government, the Canadian Government, and the community to go into Ecuador two years ago to help with economic development and enterprise development around the artisanal miner sector.

SM: After we went into the country, we were very successful working with artisanal miners and seeing what was happening. We worked with the University of British Columbia, the UN, and several NGOs. A year later, we were invited back to Ecuador from a community that was just north of where we had worked before. It was the same story -- artisanal miners looking to create strong enterprises. They’ve been doing artisanal gold mining for centuries. They’re sitting on huge amounts of gold, but they don’t know how to get it to market. They don’t know how to technically get it through the processing systems so that it is environmentally healthier, but is also wealthier.

SM: We looked at it and asked “how can we help you?” The miners talked about economic development, they said “you helped our neighbours, can you help us?” Yes, we can help them. And now we are looking at an opportunity where we can help them process the gold in a way where they are economically stronger. That is how we were invited back into the community to help them do that.

SM: Our methodology is basically to bring in clean gold processing. In other words, not using mercury. The mercury is harming the artisanal miners and it doesn’t allow them to get a good amount of gold out of the ore. And, at the same time, creating a community that is behind us. Now we can show them how to process the gold, show them how to work with the community, and become wealthier because of that. What we needed was the money to put into this project and that’s what led to the team of people that we have associated with this company now.

PB: If I could interrupt for a second. 2014 -- any comments on that? That was a controversial year down there in Ecuador.

SM: Well, Kinross had been working with the Ecuadorian Government and they were looking at a windfall tax of seventy percent. The new government took away the seventy percent because they were losing those miners that were coming in and setting up. Dynasty Metals stayed in Ecuador throughout that time and tried to continue to work with the Government. But the windfall tax went away, then Lundin picked up from Kinross a very large asset for a lot less investment than Kinross paid for it. Our mining engineer with Clean Gold was actually working on the Fruta del Norte project.

PB: And what was it like being there at that time?

SM: We were there on a different level. Mining companies are our customers. We’ve been working with mining companies for the last six years. Lundin happens to be one of our customers and we work with them on the soft side of mining, rather than the hard side. As you know, without taking care of that -- you can’t mine. It was interesting to see that the Ecuadorian Government was putting a lot of effort into mining, in itself. They had changed their tune. “Let’s get rid of the big tax regime, let’s open up our doors, we want new mining companies coming in.” The fact that they picked up the phone and said “we need Canadian help” is exciting. It is probably the same reason that Lundin looked at it as well. The Canadian Government then got involved and asked “how can we entice Canadian mining companies to come back into Ecuador as we know that the time is right?”

SM: We continue to hear mining companies say that “there is a lot of ore sitting in Ecuador and no-one’s touched it before -- there’s opportunity there.” Big companies are starting to come down to Ecuador, but we can go where the big mining companies can’t. Artisanal miners only go where there is really high-grade ore, number one. Second, they go where the big mining companies can`t go, where there is no drilling. This is all surface mining. They are picking up that twenty percent that large miners will never, ever pick up. That’s the sweet spot that we’re looking at. As long as you take the tax regime away, there’s no political unrest, you’re working with US dollars -- there are a lot of great aspects. Same time zone, western hemisphere makes it easier to get to.

PB: And you’re speaking about being in Ecuador in the past with SEF Canada, is that right?

SM: Yes, that’s right. SEF Canada has been doing economic development and creating communities that are strong and independent from a mine site. That’s how we worked with Lundin in the last five years. SEF comes in, helps creates jobs, helps create enterprises that are sustainable. Sustainable Economic Futures. It’s really cool.

SM: Here we have artisanal miners that are picking up the ore and processing it in archaic ways, mostly with mercury. That is hurting them, poisoning their children and all the terrible things that happen. What’s worse is that it’s not economically viable. They’re only getting forty percent of the gold out of the rock! Now, we can put a processing plant in and get ninety -- up to ninety-five percent of the gold out in our research with our team.

SM: The second concern is that these poor miners can’t get it to market. They don’t even have a banking system. They’re carrying gold in their pockets, little nuggets if they’re lucky enough to get the nuggets. And then they have issues with theft. If they actually get to the jeweler, then they’re getting maybe sixty percent of the spot price. They can’t go from A to Z, and yet they’ve got all this opportunity for improvement. They don’t need a big mining company to go in and tell them what to do. That’s something we’ve known for twenty five years -- you can’t go in and tell a community what to do. What you need to do is build the capacity for them to do it for themselves.

SM: In this case, the model is so different that we are going to partner with them and help them get through that economic piece that they’re looking for, in terms of creating their own mining enterprise that will be sustainable. You can hear that we’re pretty passionate about this when we get talking about it. You see the numbers, and that’s where we see the opportunity. The miners have an opportunity, the investors have an opportunity, and the whole community wins by doing this.

SM: We’ve done a five year projection here and I will let Sean speak to that.

SJ: This is a condensed summary of the financial modelling done for this particular project. This is a one-hundred tonne per day plant, $1,100/ounce gold with a 90% recovery rate with this model. You can see year zero has a bit of a ramp up. There’s lead time on the equipment and ramping up the amount of ore being fed in before we get up to the full 24-hours and 100 tpd operation.

SJ: Looking at year one, you can see 360 days of operation. Gross revenue coming in from gold recovery of just over $10M dollars. We are paying the miners a portion, 20% up front, for the ore. We can talk about it more, but the ore supply and security is very important to us.

PB: Thanks -- that number had jumped out at me. I wondered if it was low. Happy to talk more about the ore cost numbers there.

SJ: It gets interesting there, but will make more sense after we work our way down through all of the numbers. We are working with a select group of miners in a joint venture and these projections are a cash flow projection, not an income statement to one part or the other. The joint venture is with the miners, 50-50 between Clean Gold and the group of miners we have contacted down there. We do pay them, partially, up front for the ore based off an assay. We also allocate 1% of the gross revenue to the community foundation, which will be led by SEF. It will help with non-mine economic development. There are operating costs within the plant and management costs, all down in Ecuador. We allocated a row for losses, which is not risk mitigation -- it’s risk acknowledgment. We are acknowledging that there will be losses. Then we get down to the EBITDA, which is $6.7M in year one. That will be split with the miners because this is a joint venture. Of the $6.7M, they are going to receive $3.35M in addition to the up front payments they receive from delivery of ore. There is an alignment in the success of the plant there, if you will.

SM: I could speak briefly to the cost of ore and why it looks this way. The miners, right now, are paid in cash. Without getting cash up front, they’re not going to be able eat. There’s no other way for them to hold that money, other than cash, which comes back to the risk of theft. We’re going to actually help set up a banking system so that they can have a banking card for the first time in their life. When we start splitting the profits at the end of the month, that’s where they’re going to use the banking system. They’re going to have “happy wife, happy life” because they’re actually going to have money to come home with at the end of the day. They need that cash upfront to feed their family. They’re used to seeing cash. If we took that away from them, then I think the model would be unsuccessful. That’s why it was set up that way. And the second part, as Sean said, is that it’s set up as a joint venture. They are going to put in assets into the project --their land or concessions, and their ore. At the end of the day, we’re splitting all the profits with them.

SJ: At the end of the day, we have to make it more profitable for them to participate in our model. Based off the research we’ve done and what we’re hearing from the artisanal gold council, they’re looking at a 30-40% recovery rate at present. Under their current processes, they’re looking at approximately $3M to $4M revenue total. With our model, we’re providing them with $5.5M+. There’s the first win for them.

SM: It could be even less than that for them. When we were down there in 2013-2014, the artisanal miners were taking home $400 per month on average. That’s a big difference. They are actually going to have a resource curse for themselves.

SM: The other side that we could speak to here is that our processing expert worked with the artisanal miners for two and a half years. She studied what they were doing and the recovery rates.

PB: And those guys who were making $400 per month -- it doesn’t sound like a lot to me, but I wonder if it is a significant amount of money, locally?

SM: No. It’s not bad because you can get a meal for $6, but going from $400 to millions is a big jump. All of a sudden, you can afford to put your children through education and do other things. They’re still living under huts, so to speak.

PB: And a question about how many artisanal miners are involved in the projections here and your expectations of their ore production versus what they are doing now?

SJ: In brief, this region of San Salvador produces approximately 250 tonnes per day. With our focus on ore security, we have made sure we that have a surplus in local production. Targeting processing of 100 tonnes per day gives us that room.

PB: So, 100 tonnes per day into the plant -- how many people would be supplying those tonnes?

SM: That comes from seven surface mines. There are almost double that number in the area. Out of the seven mines, the mine holder also has several miners underneath them. We’ve already had that conversation about “who wants in to the JV and what are you going to put in to be part of it?”

PB: The cost of the raw ore from the miners, is that an upfront payment to them when they deliver?

SM: Yes, they are going to drive up, drop off the ore, it’s going to be assayed and then weighed. There will be a lab on site, which they will actually own through the JV. They’re not going to question the lab that they own. They’re going to see the grade at that point, they’re going to get a little chit sheet that shows how much ore they brought today and what grade it is. We will provide some cash then and more at the end of the month after it is processed. It has to be really equitable. They don’t have that model within themselves, so we have to help them through that process.

PB: I would imagine that the whole coordination thing is always a challenge. They’re probably competing with each other a lot and getting them to work together is not easy in the best of times.

SM: That’s why we actually start with the SEF model. It makes sure that the community comes together, as a whole -- the wives, the children, the uncle, the neighbour. If Pedro and Jose have some difficulties in reconciling who brought in what ore, then we have things in place to deal with that. We have that taken care of because of what we refer to as “same room, same path.”

PB: OK, I think I get it here -- the miners are getting an upfront payment for the delivery of ore and then a payment at the back end with a share of profits.

SJ: Yes, they’re the upfront supplier and one of the owners for the joint venture. So they get an initial payment for cost of goods and a secondary payment as a share of profits.

PB: You mentioned why the losses number is there, any comment on the magnitude of it?

SM: The standard mining companies lose a shipment per year, so it was based on that. Once the ore is dumped into the processing equipment, it is a closed loop. You can’t put your hand in and take some of the gold out. When it goes through the smelter, it actually goes into a gold room and we have three sets of security all the way through. That one loss is probably equivalent to someone coming in with guns and holding up the armored car service.

PB: You mentioned closed-loop, any comment on the processing there? I’m not a mining engineer myself, but always curious about that stuff.

SM: We have the flowsheet. The next step is to get our metallurgical tests complete and revise the sheet. We know that the grade of the ore is 12 grams per tonne, but our plan is done with 10 grams to allow some discrepancy there. For our cap-ex, we looked at the most it could cost us to bring in that equipment. Once we get that test back, it will confirm what the worst case scenario is and help us determine if we can save in cap-ex. We’re not going in guns blazing with this community. They know we’re coming in and we need to get the investment secured first. Once we have the investment, we can go back in and start the process with them.

PB: Maybe a hardball question around the geology here, I wonder about the homogeneity or continuity of the grade. Rocks can be pretty variable, but I suspect that these artisanal miners are pretty good at tracking those veins!

SM: Yes, generally. They are going to have to be batch-tested. And that’s where Adriana Gonclaves has relevant experience -- three years on the ground actually doing that with artisanal miners. That’s where her expertise will be very valuable -- how do you batch it, how do you make the most out of it? In her thesis, which was based on three years working with artisanal miners in Ecuador, she shows that she is able to consistently recover up to 95% of the gold there.

PB: I suspect that could be rubbing point there -- say, someone drops off some ore and then they are told “no, it’s not what you thought it was”. Or if people’s ores get mixed together then it could become a contentious point.

SM: They will see it and they will win, regardless, because they own the plant! We’ve considered all of those scenarios. Our team, which we will talk about later, has 40 years of experience working with artisanal miners. We have 25 years of experience working with communities around those areas, where conflict happens amongst families and miners. That’s our expertise. You can buy expertise, you can’t buy they community and the work with artisanal miners. It’s just that simple. That’s the key to success with what we’re talking about and we want to show you how we’re going to do it because there aren’t many companies that can go out there do it the same way.

PB: Again, the mining companies do not really have a focus on community in the same way. It has to be more than a business transaction.

SJ: This is how the share structure looks. The top there shows the parent company, Clean Gold Community Solutions. A Canadian-based company with 11.5M shares issued and outstanding. It has a bit of cash there, which we are using for the metallurgical testing and ramp-up costs. We are actually operating on the ground with another company, which is a subsidiary, Clean Gold Community Solutions Ecuador 1. This is where we will be taking the investment in, since we want investors to have direct exposure with the debenture to all the assets of that company.

SJ: The “Exit Strategy” section on the next slide really helps us get into this stuff here. 

SJ: The way we structured the investment is to give them the greatest amount of security. Look at our discussion here today, a lot of the back-forth is around the security of the investment. The investment has to be highly profitable, but we want to focus on the security of the investment first. Especially with surface mining, we want to make sure that they can get paid back right away. In the future, we will be very profitable, but we’re mostly concerned about the near future here first. We decided to do a debenture and preferred share combo for added security. With the debenture, we will use cash sweeps to pay investors a flat rate of interest -- basically a balloon interest payment of $900,000 off their $1.5M, which is 60%. Then we will pay the $1.5M of principal down, which is actually $1,499,999 because we are concurrently issuing preferred shares at a dollar a share only to those debenture holders. The preferred shares give them carried interest of 15% of net profits, which are paid in preference. If there are ever any issues, then they are in the first position there. There is no other debt to be anticipated to be in that company.

PB: Any comments on the balance sheets of the partners in Ecuador? The Solutions Ecuador 1 will be in partnership with a local company.

SJ: They will be working in a JV. The artisanal miners will not own any part of Ecuador 1. Ecuador 1 will be completely owned by the common shareholders and preferred shareholders. It’s just a Canadian company operating in Ecuador in a joint venture.

PB: So, how many corporate entities are there on the Ecuadorian side of things there?

SM: There will be one company and the miners, themselves, will own that company.

PB: And what will be the assets of Ecuador 1?

SM: They will be the JV agreement and the equipment.

PB: Anything else held on the miners’ behalf there?

SM: The miners assets will be the concession and the land. They’re putting that into the JV. That’s how they get to be part of the processing plant.

SJ: They have no ownership interest in the equipment or the infrastructure that we’re building down there. That will be owned completely by Ecuador 1.

PB: And this is an area where there are other miners in the area?

SM: There are other miners in the area and they may be able to process our ore through the processing plant.

PB: Just wondering about stranded assets down there.

SJ: That’s an important concern for us. We’re working with EDC to make sure that we’re insured as much as we can be. It can insure against political risk and the inability to seize the assets if there is expropriation for whatever reason by the Government. Suzette has tight relationships with Global Affairs to make sure that our Canadian interests are protected first.

SM: Ecuador is actually low-risk. It’s just the mining windfall tax that has everybody crazy on the mining sector.

PB: I didn’t see any mention of security costs or anything there, where are they included?

SJ: Operational costs, certainly.

SM: The other thing is that there is insurance available locally and through CHUB, including natural disasters, robbery, fire -- the whole realm of insurance is available there.

SM: What we’ve been finding is that a lot of the funds going towards ‘impact investing’ have actually been doing better than the other funds available out there. This one speaks to the heart and the chequebook. We’re not only helping investors get a great return on investments, but we’re creating a healthier and wealthier community. That’s really where a lot of people are looking to invest their funds today, not just the chequebook but to the heart.

SM: It also gives us partnership. The Artisanal Gold Council, the NGOs, the World Bank -- next week we’re talking about this project with the World Bank in Washington, DC. Those are the type of people who are interested in what we are doing and potentially back us up. Those kind of relationships really help us make sure that this is going to be smoother sailing than most business opportunities with artisanal gold miners.  

SM: Our model is unique. We’ve seen junior companies go in and try to work with artisanal miners to create cash flow that they can use for exploration. But they are junior mining companies! The artisanal miners are calling them sharks and it’s just not working -- they don’t have the security of getting the ore. As much as they have the best intentions at hand with the local miners, they don’t have what we are bringing to the table. It’s a true joint venture. It’s a true ownership model.

SM: We understand how artisanal miners work. We’ve been engaging in community business projects for 25 years -- never had a failure. People ask, how can you say that? I can actually show you, through case studies, that we’ve never had a failure.

SM: We are better managed. We’ve put together the three pieces of the business here. We have the best community team, worldwide. We also have a world renowned technical team. We have a business team, not just miners, a business team that comes from the legal and financial standpoint. This isn’t just about putting money into the market and hoping for a great return, this is about really creating a business. It’s very different, in terms of our model, and it takes away a lot of the risks that people are talking about. We’re putting money back into the community -- a happy community is going to save us at the end of the day! It’s the community that’s going to stand up and say “hey, we’re going to protect these people.” We’ve got those long-term partnerships in the business model, which will help answer a lot of the questions that people have about investing in Clean Gold.

PB: If I can interject here -- it seems clear to me that this not the typical risk profile for retail investors in mining companies and I wonder if you have reached out to any of the gold companies? There may be some good reasons for them to consider investing here.

SM: Absolutely, we did a conference about it two years ago, “LSM vs ASM”. The large scale miners have difficulties with artisanal miners in their backyard. They are looking for solution-based opportunities -- having someone else to work with artisanal miners. The answer to your question is “absolutely, yes, those conversations are taking place as we speak.” That is part of the conversation in Washington, DC. We’ve been talking with a large mining company in Colombia right now about this. The connections with the University of British Columbia in the mining-engineering departments have given us the credibility to have those conversations worldwide with large companies.

PB: Exciting!

SM: They could be potential investors in this project, moving forward.

SJ: We haven’t been idle on the capital-raising side. We have been talking to a number of different mining companies, private and public companies, for investment. We have some active conversations there.

PB: Even some potential for in-kind contributions, there. You never know who has a mill with a bit of excess capacity. And another thing that came up for me was around your comment “a smoother relationship than most” when it comes to working with the artisanal miners. Just wonder if there are any examples of things that didn’t go smoothly.

SM: The junior mining companies trying to do toll-milling -- just look in Peru.

PB: Right. How much was that Peruvian toll milling really about trying to work with artisanal miners? That is not so clear to me.

SM: Without the artisanal miners, they didn’t have the ore. Without the ore, they didn’t have the gold production. They raised the money in public markets, they made the investment, and it was all a great idea because they knew the financial model worked. The only piece they didn’t have was the community and miner relationship.

SJ: This comes back to ore security, having that secure supply.

SM: The conflict is worldwide between mining companies and communities. The artisanal miners just add to the complexity of that relationship. This is really where our expertise is. You can’t go into a community and say “I’m going to give you some jobs, give me your gold, you’re going to be richer and we’re all going to be happy.” It doesn’t work that way. And that’s where we differentiate ourselves. It’s not a toll-milling operation.

PB: It wasn’t so clear to me that the Peruvian toll milling was really all about artisanal miners, I had thought there was more developed industrial partners for the delivery of ore. Thanks for clarifying there.

SM: Of course, we’re talking about gold! Gold has been around forever and people hoard gold when times are tough. Gold goes up when people are scared -- gold goes up, you get more artisanal miners and you get more ore. Our sensitivity analysis shows that that we are still profitable even if gold prices goes down because we’re not mining, but the people who are mining can do it very cheaply. The gold is in the ground and they know how to get it out very well. Gold and people, love it.

PB: You mentioned black market there, my impression is that artisanal miners are involved in the black market and would just ask for any comments there.

SM: Yes, they are. They don’t have a choice. For one, it’s the only way to sell it. With our business, we will be selling through. And we are aware of the cartel operations. There is very little of that in Ecuador, compared with other Latin American countries, but it would be foolish to say that it is not around. Our whole business model includes a contingency of 10% in case the cartels do show up and take their 10%.

SM: We’ve encountered the cartel throughout the past 25 years. Every country we go into, it exists.

PB: Canada, even!

SM: Everybody in the room -- put your hand up if you had to pay somebody off. Really, it’s like taxes. If you came to Canada and had to pay what we pay in taxes, the cartel looks cheap. Make more money, give them more money, they’re happier. What is really cool is that we can take care of their children, their wives, aunts, and take care of the community. Now we have a happy community. There is no conflict, no resistance. It’s not pretty that they exists and the black market exists, but if we know what we’re dealing with then we can make sure that it’s well taken care of. 

SM: Here’s the supply. We know that they are processing about 250 tonnes per day in this community. Our business model is built on 100 and we’re going to stay there because that keeps us under the law of small-scale mining. Anything over 100 tonnes gets into the next level, we don’t want to go down that path.

SM: There’s also a big area for me, on a personal level, is to help diversify children away from being involved in the mining space. That’s a big win out of this. Not just getting rid of mercury, but making sure that we have the right people mining and mining properly.

PB: So, that photo looks like a large-scale mining operation there. I’m looking around the edges there, wondering if I can see any artisanal miners there...

SM: Well, we actually don’t want to show them working around there. Our website has some pictures from the operations there. As much as we should show the public the truth of the situation, how dire it is, it’s difficult to do that in a way that is sensitive.

SJ: It’s real -- that’s how fifteen million-plus people make their daily meal. It’s not irrelevant.

 

SM: To talk about our team, I like to start with SEF Canada and our experience worldwide. This is the best possible Canadian team. The next thing is the best possible technical team. We partnered with the University of British Columbia. Who is the best of the best in the world? We have Dr. Marcello Veiga, who is world-renowned. He has forty years of working in artisanal mining towns around the world. He’s seen it all, he’s worked with them all. He’s from Brazil, so he’s got some authenticity in the Latin American communities. He’s leading our technical team.

SM: Underneath him is the mining engineer who worked with Lundin down in Ecuador, Javier Nava. He has also worked in community, so he has experiences on both sides there. And then we have Adriana. She has a double Master’s -- chemical engineer and mining engineer degrees – and worked for three years on the ground in Ecuador with the miners processing their ore. She has the relationship with the processors, the relationship with the miners, and can consistently bring over 90% of the gold out of the ore. We have three researchers out of the University of British Columbia through Mitacs who are putting skin in the game to make sure that this project is working.

SM: We’ve got the community team, we’ve got the technical team, we needed the business team. Who will we get to be part of this project that is the best of the best? We’ve got Dr. Peter Bradshaw, who is world-renowned. He is a geologist, mining-hall-of-famer, has been running companies for many years and very successful at it. Those are the kind of guys that are behind this project -- they are bankable and credible.

SM: When we say that we’ve got the best team, I really believe nobody else has got the team that we have in terms of expertise, relationships with the community. It all comes full circle. 

SM: Moving on to the risks in this particular project, I will let Sean take it here because he’s the numbers guy and has taken me to task several times with risk mitigation here.

SJ: We’ve talked about some of these before, but it’s worth going through them again. First, there is currency risk. We are a Canadian company and we’re going to be dealing in US dollars. We’re not going to be hedging the US dollars -- I don’t think this project is of sufficient size to do that. We want to acknowledge that there is that risk.

SJ: We’ve talked about political risk and how we plan to mitigate that. We will insure it with EDC, but we want to use the political influence and the political capital that we have with Global Affairs Canada to improve the communities. Not to mention, creating more taxes for Ecuador. We are doing that -- extracting more gold, putting it through real channels and giving them more taxes.

SM: Not just more taxes -- really, it’s taxes for the first time! They’ve never paid taxes before in their lives and now the local government is getting taxes for the first time.

PB: And to follow with that, any comment on discussions with the Ecuadorian Government?

SM: The Ecuadorian Government can’t wait for us to come down! They were our first funder to come into the community in the first place. Our conversations are ongoing and welcome there.

SJ: We have advisory team members that can help us with the Government of Ecuador there. Beyond that, the gold price is part of the risk profile. It will increase or decrease the rate of return on this project. Of course, there is a break even -- it’s pretty low, below $400/ounce. We’re still seeing reasonable profitability at $700/ounce. I look at that and say “OK - if we have a band at $700 and our current projections are at $1,100, then we’re pretty happy.”

SJ: Of course, there is operational risk. Hitting our key efficiencies, not having issues with equipment at the plant. We can insure it with CHUB and the local insurers, but it is a risk of any business -- having successful operations, HR, and all those things.

SM: I want to add to the discussion on Ecuador because that comes up a lot. It’s like “Ecuador, really?” What’s wrong with Ecuador? You brought it up with Lundin and Kinross, but that was because of the mining and windfall tax. Aside from that, the last time that they had local political risk it was 1980 and somebody threw a couple rocks. It’s just not happening. Natural disasters -- we know there have been earthquakes, but I don’t know what the fear factor is about doing business in Ecuador.

SM: When we looked at what EDC would charge us to insure against these risks, their fees start at 0.25% and go up to 3%. After they did their calculations, Ecuador came it at less than 1%. It’s not a risky country! Why Ecuador? Because it’s a great place with a lot of gold, we have great relationships and know that we can take care of a lot of the risk factors that come up in the businesses.

PB: I saw this mention of ‘insensitivity’ to gold price. Curious what kind of contracting may be going on there or any further colour on that?

SM: A lot of gold processing companies pay the miner for the ore based on the market price on the day of delivery. If the market price is up and you’re paying on that day, then you could lose money when you actually go to sell it. We don’t pay until we sell it. Whatever the market price is -- that’s how we pay back to the miners because it’s a joint venture, not a toll milling operation.

SJ: We share that risk with the miners.

PB: I wonder how that compares with what the miners are used to getting?

SM: We have done some work on the ground there. When we were there in 2014, the University of British Columbia deployed twelve researchers there to find out what they were used to getting and how it was being done. Adriana was one of the people there and her thesis shows exactly what they are used to getting. We put together a simplified chart of what they are getting and how they are getting it, in Ecuador and around the world. Working with us is the best way that they can possibly get money for their ore.

PB: And is that upfront payment going to be enough for them? Enough to induce them to give up the ore and take the uncertainty around the payment on the profit share.

SM: That’s a conversation that we’ve already had with them. This is not theoretical. We have had this conversation with them already and not everybody signed up! That’s the bottom line. “Who wants in on this particular model? What are you going to put in for it?” Some could put in their land, their concession, and it made sense for them. For others, it didn’t. But that’s good because then we would have to look at building two plants at one time. Eventually, they’re going to look at it and say “wait a minute, we want what he has -- how do we get in?” We know that from our community model. That’s how they got a hold of us in the first place, saying “hey, what you did you for them down there -- we want you to come up and do it for us!”

SM: We actually had a call from Zimbabwe -- artisanal miners who talked to another miner and said “can you get a hold of those guys in Canada because I hear that this is what they’re gonna do -- can they come and help us?” The worst case scenario is that the phone rings off the hook (knock on wood) and their method of communication is faster than the internet. They like the model.

PB: Any comment on who signed up and who didn’t?

SM: Not yet. That will play out and we’ll have to come back to that. When we get closer, in our relationships with them, those kinds of stories will come out -- who and why.

PB: And a final question around timelines here. Any comment on how long you have been pursuing the fundraising and how long it would take to get to year zero from where you’re at now?

SJ: I engaged with Suzette on this round of financing just over a month ago. We have a few lines in the water. This plan has been taking shape over two years, putting together the team and doing the research. Now, everything is in place to get this capitalized and now we’re working through the interest. It’s a capital raise, so you never know. The interest looks good, but we’ll find out. Once the company gets capitalized, we’re simply looking at the lead time for equipment, which is about 3 months, plus setup, plus a bit of ramp up in production as we move towards 100 tonnes per day. From the time of capitalization to the time of being fully up to speed should be about 6-8 months. From that time forward, the interest and principal payback on the debenture is probably less than a year.

PB: Exciting. And any comments on whether this is for accredited investors in Canada?

SJ: Right now, we are running it as an accredited-only financing. But Canada has this great, new crowdfunding exemption and because this is an interesting project with cool social aspects, that is a channel that we’ve looked at. If nothing else, I think it would be a lot of fun to spread the message that way. Other than that, there’s no plan to do an OM or anything else at that point.

PB: Well, thanks very much for going through the presentation in some detail with me here. I think the background in community development makes you uniquely positioned to achieve something special with Clean Gold. Thanks again.

SM: Our pleasure, Peter.