After an initial interview with Mr. Dustin Angelo, President and CEO of Anaconda Mining (TSXV:ANX), I have been watching the company's progress. 

Anaconda is a small gold mining company that intrigues me because it is pulling itself up by it’s bootstraps. After raising equity in 2016 for the first time in five years, the company has 209M shares outstanding and a market cap of approximately $15M based on the current share price of $0.07. The company released the full financials for Q2 FY 2017 last week, which show a cash and equivalents of $480K, total debts of $934K, and net working capital of $1.75M. You can find out more on the company’s website here.

Anaconda has a pipeline of projects from greenfield to production and I asked Mr. Angelo to help me understand how the company prioritizes the different projects. I also asked him about the potential to expand the current pit, whether they are high-grading their mine, and much more. Read on to find out what Mr. Angelo had to say about the company's recent activities and plans for the future.


P: Since the last time we talked, there have been several updates from the company. The Phase 1 results at Viking, the Q2 FY 2017 update, the announcement of Phase 2 drilling at Argyle, the resignation of the CFO, and more news on the aggregates project. To start, I'd like to give you a couple minutes to run us through everything from your perspective.

D: Thanks, Peter. Great to be talking with you. The two most important pieces of news are probably the update on the aggregates project and the top-line numbers for our second quarter that ended in November.

D: The aggregates project continues to thrive. We received final release from the Canadian Environmental Assessment agency, which said that no further environmental assessment was necessary for the Point Rousse port facility project. We now have all of our permits and authorizations in place. The project has been going very well since it started in September and we've shipped over one million-tonnes of waste rock. It's a great thing for the community, the other companies that are involved, and it has been a boon to the area.

D: In terms of financials, the first quarter was lackluster in terms of sales volume. It was the first quarter in a long time where we sold less than 3,000 ounces of gold. However, the second quarter was much-improved with nearly 4,400 ounces of sales. The main cause of that increase was an increase in through-put at our mill and relatively better grade. We averaged a little over 1,300 tonnes per operating day, which is a record, and grade was up about 15% to 20% compared to the first quarter.

D: The more tonnes we can put through the mill, the more profitable we can be. As we've talked about in the past, our goal is to increase grade going into the mill. If we are successful in finding deposits that have higher grade, then we can generate an immediate boost to the bottom line because we will be doing higher tonnage and higher grade, which will produce more ounces on the same fixed-cost structure.

D: The mill continues to perform well. We continue to make improvements to it with every quarter that goes by. We continue to fortify the infrastructure that we have in the mill, the port facility, and our tailings facility. That asset base continues to be strong.

D: As you mentioned, we started Phase 2 exploration at the Argyle prospect. We're pretty excited about Argyle as the first round of drilling was really good and we see some potential to make this the next deposit on the Ming's Bight Peninsula at our Point Rousse Project. 

P: Great, lots to get into there. To start off -- one thing that puzzles me with the aggregates project is how it affects mining costs. Any comments on how to connect the cost per ounce of gold production and the revenue from the waste rock?

D: The waste rock in the aggregates project does two things for us. We have a cost saving from a mining operation standpoint because we move the waste rock less distance, and we have revenue from selling the rock as aggregate. Let me explain a bit more here.

D: We look at the waste rock on a per tonne basis because we're moving total material around the mining operation. We typically spend $3.50-$4.00 per tonne to move material out of that pit. That's the all-in cost of mining, mucking, blasting, and mining-related administrative costs. For simple math, look at $4/tonne costs against $0.60/tonne revenue -- we're effectively saving 15% on those tonnes. Not every tonne, but the waste tonnage. In that sense, the project is an offset to the cost it would take to put the waste rock into the waste pile.

D: Another thing that the waste rock project does for us is change the transportation costs. This is harder for outsiders to quantify but is clear to us, internally. We're now moving the waste rock to stockpiles at the port that are closer to our pit, compared with other waste dumps. The waste dumps are farther away from the mine than the port, so we're shortening our haul distance on any waste rock out of the pit. That is a source of cost savings. Together, the aggregates project gives us an additional revenue stream from the sales and a cost saving from a mining operation standpoint.

P: I wonder about going a step further and connecting these savings and your cost of gold production. I imagine that you could dig into the strip ratio to get some relationship between the waste rock versus ore to break it down further.

D: Well, our strip ratio is decreasing as we go farther into the pit. We expect, as we move into the second half of our fiscal year, that we will see a strip ratio of a little over 3:1. For comparison, our first quarter was tough from a mining perspective because we were mining at 8:1 strip ratio. We're looking at reducing that by 5 points, which is a lot of cost we will not incur because we don’t have to move that additional waste rock.

D: There is a relationship between the strip ratio and the expenses, and the aggregate project is an offset to those expenses. As we go deeper in the pit, we certainly have a lot more haul distance because we're lower down, but we have a tremendous offset because the amount of waste rock we are moving is a lot less.

P: Great. I will stay tuned to see how the aggregates project affects the financials going forward. I understand that the mine has highly variable grade, so the large reduction in the strip ratio will soften the impact of that variability.

D: Our grade has been variable from day one. It can range anywhere from less than 1 gram to 2.5 grams. Over the life of the project, the Pine Cove pit has probably been around 1.7 grams per tonne. The latter half of the life, unfortunately, has been less than that. We've been mining material at around 1.3 grams per tonne recently. What we've done to offset that is increase our throughput. Being over 1,300 tonnes per operating day now is a big improvement to offset the loss in grade. Effectively, we've been able to produce the same amount of ounces per year and the loss in grade has been offset by the increase in throughput.

P: I recall digging through the old numbers and seeing 15,000 ounces gold production per year. You're around 16,000 now. And, in our last interview, you talked about increasing the throughput by tweaking things, without incurring additional cap-ex.

D: That's exactly it. The higher throughput has been achieved by being able to manage the load between the crusher and the ball mill. We continue to do that and the second quarter of this fiscal year is an example of how we're able to improve even more.

D: This second quarter has been the first full quarter where we have had the mill automation running. The automation has helped create a more steady flow through the grinding circuit, which has helped increase throughput. We continue to come up with ideas on how to improve the crushing side of the game, which will help with product sizing going into the grinding mill and help with throughput.

P: I recall hearing something about GPS on the excavation equipment. Any comment on grade control?

D: Grade control has been very good for a long time. Our engineering group has done a fantastic job on that side. We've been employing different types of technology to help with grade control. We feel like we reconcile pretty well to our block model.

P: Does any of that drilling ever give you any insight into the ability to extend the pit?

D: We've slowly extended the pit. We added an area called the "Pine Cove Pond", which is on the southern portion of the main pit. We've gone a bit further north than originally expected. We haven't added multiple years, but we have added a bit more life to it.

D: As the years go by, circumstances change. The gold price, how much we can put through the mill, and other things change what we define as ore. Six years ago, some rock that would have been classified as waste is now ore. The ability to have higher throughput, improvements to our costs structure, and a higher gold price have helped change things for the better. We've done the best we can to get as much out of the pit as we can.

P: Looking back at some of the old technical reports, the stratigraphy of the Pine Cove mine looked a little nasty to my mind. It seems hard to say how continuous things are there.

D: Well, I'm not a geologist. I'm an accountant. What I have learned over time, with respect to the geology in the pit and the immediate area, is that it is very complex.

D: I think there have been four deformation periods in this area. You've got a lot of rock that has been thrusted and torn up. It's not an easy puzzle to put together. What has been an advantage for us is that we have this open pit and we can see the geology. We can literally look underground over a couple hundred meters, vertically. That has been helpful from a regional perspective.

D: We've done various research projects on the open pit in terms of the geology and the chemistry to try to help us with the regional exploration. All that has helped identify the key characteristics and develop geological models that fit the area, which helps us to be more effective and efficient in exploration.

P: Great to hear, thanks. A high-level question for you here around the difference between the depth of the exploration holes versus the pit. It seemed that some of the exploration is more shallow than the pit, any comment on why that is the case?

D: There are a lot of different variables to consider here, but the basics are that we are looking for something at shallow depth that we can mine as an open pit. For example, Argyle is shallow and it's shallow-dipping. We like that because it would suggest that we could expect to have a low strip ratio in mining there. That low strip ratio, together with the fact that Argyle is only about 4KM from the mill, are key reasons that Argyle is a priority for us.

P: And one more high-level question for you here. There's a potential criticism that you risk impairing your deposits by selectively mining the higher-grade sections. I'd be curious if you have any comments on that?

D: High-grading is a luxury for companies with larger deposits, where they can go to various areas and extract selectively. Anaconda has one open pit and it's hard to consider us high-graders at this point. Generally speaking, we haven't been high-grading. I would like to get to the point where I have the luxury of considering that, but we're not there yet.

P: Right, I think I'm on the same page with you there.

D: At Stog'er Tight, we did a test case of a small pod that was high-grade but that wasn't really high-grading a mine because it was a test-case. If we're going to mine at Pine Cove, or Stog'er Tight, or Argyle, on a consistent basis with a full-scale mine plan then we're subject to whatever mine plan we put in place there. We're not at a point where we could have such a high-grade option and, even if we did, it would shorten the life of the mine! We don’t want to shorten the life of our mine.

P: Indeed. To shift gears a bit, I would like to identify the way I understand the projects and make sure I'm on the same page as you, and then we can go through them in some detail. Current mine -- Pine Cove. We've talked about that a bit already. Older focus -- Stog'er Tight.

D: Stog'er Tight was the second deposit that we did a 43-101 on back in October 2015 and announced in December 2015. That was the second deposit in the portfolio at the Point Rousse Project. The resource estimate was about 50,000 ounces of gold, 25,000 each indicated and inferred.

D: We have plans to mine a portion of the Stog'er Tight deposit over the next 2.5 years. It is part of our near-term mine plan. Over the next 2.5 years, we intend to source ore from Pine Cove and Stog'er Tight.

P: And was that where you got the 10,000 tonne bulk sample?

D: Yes.

P: OK, that makes sense. Thanks.

D: We've been doing additional exploration at Stog'er Tight, as well. Over the summer and the early fall of 2016, we stepped out from the known resource at Stog'er Tight. We had mixed results. We found some extension to the strike length of the known deposit, other areas that had mineralization that will require follow up, and even discovered newer areas that could be good drill targets.

D: However, despite some good areas, we didn’t get the continuity in thickness and grade in certain areas that would allow us to expand the known Stog'er Tight deposit to the point of building a five-year mine plan. From an exploration perspective, these new areas around Stog'er Tight are now ranked below Argyle because of the varied results. We think there is more potential to build out that next deposit at Argyle versus Stog'er Tight.

D: Stog'er Tight has a known resource. It has a permit there and we're expanding the permit. We're going to be mining some of that going forward because it's near surface and close to the mill. It is one of those things we can always go back to -- we can pick away at it -- but there's no long-term mine plan in place for Stog'er Tight right now.

P: OK. You said that, from an exploration perspective, Stog'er Tight got bumped down. Is it fair to say that, from a development perspective, it's still ranked highly?

D: Yes. There is a discrete area of the known deposit that is in development right now. It is the step-out areas that have been relegated below Argyle.

P: And those step-out areas are the Corkscrew Road, Mine Road, the West Zone…

D: The 278 Zone and all that.

P: Phew. Thanks -- there are a few moving parts here so I appreciate you walking me through it all.

D: My pleasure. If you don't live it and breathe it every day, then it can be hard to follow.

P: Any comment on the potential amount of tonnage or timeline that you might see for the Stog'er Tight deposit there?

D: I would say that in the next 2+ years, it will be part of the overall feed source for the mill.

P: And would we see any additional technical reports on that before it goes into production?

D: I don’t think so. We have a resource on it, so we can talk about it publicly. We have our own internal study on it, but that may be it.

P: It's permitted -- did someone try to mine it in the past?

D: There has been some historical bulk sampling done on it in the past. We got the permit after we took control and now we're expanding it.

P: Great, I will stay tuned for news there! Let's talk about Argyle, which is close to Stog'er Tight and the Pine Cove mill. You announced recently that the second phase of drilling had started.

D: Yes, we haven't reported the results yet as we don’t have all the assays. We hope to report on those soon, no later than the end of January. 

P: Looking back to the Phase 1 drill results, Argyle seems pretty small in comparison to some of the others you are looking at.

D: Well, in the first round of drilling with 22 holes on a greenfield area we outlined strike length of 410 meters and 100 meters down dip. I think that is a pretty good start. To give you a sense of comparison, the strike of Pine Cove is probably around 300.

P: That's helpful, thanks. I say small, but maybe a better word is 'contained' or 'simple'. It doesn’t seem to have as much faulting and structural stuff going on.

D: Argyle is very much like Stog'er Tight in terms of its geology. It carries a bit of complexity to it. It's the top of the list right now for continuing exploration. It's got a lot of good features -- it's shallow, it's close to the mill -- it just needs to be bigger and to hang together. We are working to get a deposit on it.

P: I'm looking back at a cross section from Argyle and I see it shows at surface. And there's the grade variability again, 8+ grams at surface, then two holes relatively close to each other at 30M where one has 0.3 grams and the other has 6 grams. Yikes.

D: That's the nature of mineralization in the area. Argyle is similar to Pine Cove in that there is a lot of variability.

P: Any comment on continuity across strike?

D: Too early to tell. We're encouraged by what we're seeing, but it depends on assay results from the next drill results.

P: How many holes are in that area now after both rounds?

D: 40+ holes.

P: Well, I hope it proves fruitful! 

P: Going back to the basics again, Argyle is a top priority for you now in terms of exploration. My sense is that Viking is also a priority for exploration.  The Viking Project is similar to the Stog'er Tight project in that both have a 43-101 deposit and you have recently done additional exploration nearby with hopes of extending the deposit. The Viking Project has the Thor Deposit, which someone else established and you updated, I believe. Let's get into Viking a bit here.

D: The Viking Project is around the same size as the Point Rousse Project in terms of property control. Viking has a known deposit, the Thor Deposit, and most of our efforts in this first phase of exploration at Viking focused on trying to find other Thor-like deposits in the area.

D: We didn’t initially focus on trying to expand Thor. We did extend the strike length of Thor a bit, about 100 meters north, but our main focus was on grassroots type exploration. We went out into areas where soil anomalies and geophysics generated drill targets, which was a higher risk exploration. We could have drilled right around Thor and continued to hit the easy targets, but we wanted to go out and see whether we could find more areas like Thor.

D: We found widespread mineralization in a big system at Viking, but the areas like Thor's Cross or the Viking Trend couldn't deliver the grade. We found big intervals of mineralization, but they were 20 meters of 0.5 grams, for example. Unfortunately, that's not enough. It was successful in terms of finding mineralization, but we weren't able to find the grade. Mixed results there.

D: What we're thinking about for the next stage of Viking is going back to Thor and trying to expand it to a deposit that we can mine for 5+ years at a rate of 30,000 ounces per year. That would justify developing the project immediately. That's the plan that's on the table right now, but we are not drilling tomorrow. We have got to get our ducks in a row before we do that.

P: Well, I recall that Point Rousse is 6,500 hectares. And for Viking to be a similar size -- that's pretty large. Given the complexity of the geology, my sense is that it's hard to be disappointed when you don’t have success immediately with greenfield exploration.

D: You're right. We try to temper our disappointment, but we still want to hit on every hole. There's a lot of smoke out there. All the signs are out there, we're in the right geological setting. We're near a major fault system. All that seems to be leading us in the right direction but we haven't hit the right mineralization yet. We believe there is more than one other Thor deposit, we just have to find it.

P: Best of luck with it! Going back to the technical report for the Thor deposit, there is a map with all the drill hole locations and a couple cross sections. I'm always surprised by the high-grade hits that pop up here and there.

D: Thor is a nice little deposit. At a half-gram cutoff, there are over 100,000 ounces there. When you look at the indicated resource, about 60% is at 3 grams or more. We were trying to find more of that type of material around the project area. Having the existing deposit is helpful and it is the reason that we went out elephant hunting for bigger things farther away.

P: Do you find those higher-grade hits at Pine Cove, Stog'er Tight, and Argyle, as well?

D: Yes, I think you see even more variability at Stog'er Tight than Pine Cove. Again, my geology is limited but that's my understanding.

P: Well, the big issue for Anaconda is to find something that is mineable.

D: If Viking was where Argyle is, then we'd be mining it. Even though Viking is only 100,000 ounces at a half-gram cutoff, we could justify putting it into production if it were that close to the mill because we wouldn’t need all the infrastructure.  

D: Argyle is close, but it doesn’t have a known deposit yet. If Argyle and Viking were flipped, then we would have more clarity over our production for the next 3-5 years. We've got clarity over the next 3 years, roughly, but we're trying to build towards years 4, 5, 6, and beyond. Our challenge has always been to establish the ounces.

D: There are only two ways to get the ounces -- explore for them and get them yourself, or buy them. We are using the two-pronged approach, where we are exploring and looking at M&A. We can look at more options now because we have the port. Maybe we can go farther afield! Projects farther away may work for us, if we can send the ore back to the mill by water.

P: Well, you acquired Viking back in February 2016 and then put a technical report out in August. It looks like you've been moving pretty quickly there.

D: We've done a lot of meterage there. We want to do more. We need to regroup and figure out the plans for the next stage based on what we know.

P: And when did you acquire Argyle?

D: We did the majority of the option deals at the Point Rousse project, the whole Ming's Bight peninsula, back in the 2011-2013 time frame. It was an area that was under-explored relative to the other areas on the peninsula. We did basic soil sampling, then followed up with trenching, made the discovery Argyle, and came back in recently with drilling.

P: The size and number of targets on Point Rousse is mind boggling there. I wonder, to what degree do you think that you could generate additional sources of ore there?

D: It's certainly a possibility. Our geologists did a thorough review of the Point Rousse project and came up with 47 different targets. We're working our way through them.

P: OK. So, Stog'er Tight and Thor are the most advanced with resource estimates and the others help fill out the pipeline that we've talked about before.

D: Yes. In terms of the pipeline, the Pine Cove pit is in operation, Stog'er Tight and Thor are development areas. And the rest of the projects are at exploration stages, including the Argyle Project. We have the entire pipeline there. 

P: In the past interview, you mentioned how the market wants to see your ounces proved at higher categories. Any comments on the timing of advancing those deposits and the priorities?

D: In general, the upgrading of the categories happens based on our operating needs. The exploration will be driven by the operating side -- if there is a known deposit that we want to bring into production, then we have to do additional drilling to shore up a mine plan. That drilling improves the categorization. Generally, if we're establishing a mine plan for a deposit then it should be categorized as reserves.

P: Which is your timeline and not necessarily the market's timeline. That can be a source of tension, I imagine. What stage are Stog'er Tight and Viking at?

D: They both have indicated and inferred resources. We're still at the stage where we need to determine if we can get 5+ years from them -- if we can, then we will do additional work to increase the confidence on the deposits.

P: It seems to me that it also depends on whether you need the markets to underwrite some of the development costs or whether you can continue to bootstrap it. The need for financing may affect how you prioritize the upgrading of the categories.

D: For Viking, our plan would be to put a concentrator over there and we would finance it externally. You're right -- that would drive how much more confirmatory drilling we would have to do.

P: The scale of the financing there -- it's not a billion-dollar mine. But would it be beyond what you could fund internally?

D: Yes.

P: Well, let's save a detailed discussion of the financials for another day. In closing, would you like to comment on the two new projects that Anaconda acquired in November, 2016, called Great Northern and Tilt Cove?

D: They each have some particular characteristics that made them attractive to us. 

D: The Tilt Cove property is east of the Pine Cove mill -- it's in an area called the Nugget Pond Horizon, which has a similar geological setting to the Goldenville Horizon at the Point Rousse Project. The Nugget Pond Horizon also hosts the old Nugget Pond Mine, which produced ore with around 11 grams per tonne gold. We're looking for more of that high-grade material. Tilt Cove is about 60KM east of our mill but, if we can find deposits that carry that kind of grade, then it is feasible to truck it back to the mill.

D: The Great Northern Project is similar in size to Viking and Point Rousse. We optioned part of that and then staked a substantial amount of land, ourselves. There was trenching done there that intrigued us very much. 

D: The Great Northern project is along the same fault system as Viking and right in the middle of our property is the Rattling Brook deposit, which has about 500,000 ounces. Now, Rattling Brook is owned by someone else and we didn’t buy it, but we think that deposit is a great indicator of the potential of the area and are very excited to be working there.

D: When you think about our pipeline of projects, the new acquisitions are at the back end in the exploration stage. We will do a modest amount of work on them to keep them moving along and try to determine the potential there.

P: We talked about it in the last interview, as well, but the acquisition terms seem to be low-cost on the front end, at least. There is a cash of $200,000 for each one.  

D: Yes, and we offered shares as well. That payment is due over three years. In terms of cost of entry, it's pretty low.

P: Well, you've got people talking about the large land package that you've assembled out there.

D: We have nearly 20,000 hectares of property now. It's essentially four project areas that are in close geographic proximity to our Pine Cove Mill. Our strategy is to build resources and leverage the mill. We are working off fault systems with geologic settings known to have gold deposition. The theoretical geological parameters are there, we need to go find those deposits and mine them.

P: The image of an inchworm comes to mind a bit.

D: (Laughs) I'm afraid some investors have that image, too.

P: (Laughs) Well, you've got quite a lot of stuff to deal with there. You don’t want to get overextended in terms of operations and you've got to be careful about raising new capital.

D: One of the hardest things to do, as a manager, is to manage your capital. Unfortunately, we made it harder for ourselves by adding more projects but we need to be able to find more ounces. The only way to find more ounces is by looking! We want to be looking in lots of places -- the more ground you have, the better.

P: Seems that you've had a great accomplishment just moving things forward over the past five years. It's been a tough time for gold miners, but you've been making progress.

D: We try to take advantage of the timing and our ability to strike the right deal.

P: Well, thanks for taking the time to talk with me here today.

D: You're welcome. Thank you for taking an interest and helping tell our story. Goodbye.