Thank you Douglas Mereilles for another interview on South Atlantic Gold $SAO! Learn more about the company here, https://southatlanticgold.com/
And thanks to John Fahmy for joining me on the interview to ask some questions. Good work, John! https://twitter.com/JohnFahmyGold
P: Hello I'm Peter Bell and I'm here with Mr. Douglas Meirelles of South Atlantic Gold. Hello Douglas.
D: Hi Peter. How are you doing?
P: Very well, thanks. Nice to be talking with you. As a special treat, I've got John Fahmy with us here, too. Hi John!
D: Hello guys pleasure to be with you.
P: Great. South Atlantic Gold, John and I have been investing for a while, well before it was Julian. We like the new direction the company is taking with you Douglas.
D: Thanks, yes. Since the last time we spoke, we established the earn-in agreement with Jaguar and mobilized very quickly on field work in Pedra Branca. We started drilling and started trenching aggressively. At the same time, we also started re-assaying the historical diamond drilling cores and that has been going very well. I believe we're going to have some news on that soon. I'm not sure on the results themselves yet, but we're going to have some news on that soon. Additionally, we rebranded the company, as well. We're now South Atlantic Gold as the name reflects the focus of the company.
D: I would also like to mention Big Kidd. Big Kidd is an amazing asset and we have some possible opportunities for it. We can farm it out or we can raise some cash to do additional drilling. We are considering both options at this point and even some offers on Big Kidd. We have not fully earned into Pedra Branca yet so we are not rushing things or decisions with Big Kidd at this point.
D: In terms of other updates, I would like to talk to you a bit more about Pedra Branca - This is a massive asset. Once we actually got our boots on the ground, we realized that the relevant geological trend is 42 kilometres long. We've been focusing on the low-hanging fruit on areas that previously had very good indications from Jaguar’s results and previous explorers. We've been very excited with the initial results so far. We've put out news releases on only a couple of results from the RC drilling and the trench results and they were excellent. What's interesting here is that these results are all new results -- they are adding to what the previous explorer did. And in the next little while, I expect we're going to have more interesting news about this asset.
P: Well done. John, first thoughts?
J: It's been awfully quiet but I think that the market eventually is going to catch on to the story once there's a little bit more of a promotional angle to everything as we are extremely undervalued. We're sitting at sub $10 million market-cap and we're valued at $5 million so you know if we're valuing the gold at roughly $10 per ounce here, we should easily be $7.5 million market-cap at the very least so it's absolutely ridiculous how cheap this asset is now.
D: It is, John. And people have been calling me and asking about news flow. It's really unfortunate that what has been holding us back is the laboratories themselves. We've been trying to push laboratories to send us the assay results in many different ways and I'm glad that we're now getting some serious assay results, but due to covid, the laboratories all over the world are operating at minimal or reduced capacity. It makes our work a little bit tough here, but as soon as we start to receive more results, we will push the marketing further. Also, we recently closed a deal with Red Cloud and I cannot comment on the terms of that agreement due to confidentiality clauses, but I can say that Red Cloud is in this with us as partners. We're not effectively having a cash disbursement with them at this point, but we all expect there is going to be a big push with marketing to enable the next financing and possibly, the phase two exploration program.
P: Red Cloud has a pretty sophisticated community around them who can look at the historic work and do some homework themselves to get a sense for the historic resources and what might happen next. The option agreement specifies that you have to spend $1 million USD to earn 75% and then you get to 100% by delivering the 43-101. I had wondered how much of that 43-101 is the old data versus new data, but I have an answer based on what you said there and it is going to be more than just the historic stuff.
D: It’s too early to say, but what we have been finding so far has been encouraging. The press releases we have put out are adding to previous results. The question is, “Are the previous results valid?” At this point, we have no idea how much of the historical data is going to be is going to be part of a 43-101 or not. I believe this to be one major achievement for South Atlantic Gold and specifically Pedra Branca. Considering a best case scenario would be that we find that the historical drilling results are exactly what we all expect them to be, or even better than what we expected them to be and if we add new extensions to it. Remember that this is a very large land package at 39,000 hectares.
P: There is a 2016 report by NRG Metals and it says that it's on Pedra Branca, but that’s not on the same project that you're looking at.
D: You've been digging around, which is good, but if I am not mistaken that report focused roughly 10 kilometres to east.
P: Is that part of your land package?
P: Okay. So you have all this data from Jaguar -- you know the timing on when that work was done and what QA/QC you can do on that now. Time goes by right and these 43-101 reports take a while. Do you have a sense of how much of that stuff you're going to be able to use?
D: Our approach strategy comes from experience -- we’ve got a very experienced team on the ground, experienced management and an experienced board -- and what we decided to do was actually re-assay the entire mineralized intercepts from historical drilling. Regardless of previous reports about Jaguar’s results and whether we can validate them or not, we decided to re-assay all the mineralized intercepts. Now, we're just waiting for those results.
P: That's a huge amount of lab work. Sometimes you see juniors and they seem like they don't want to spend money at the assay lab. But if you're shipping rock to the lab and you think it's going to run, then what's the problem? Keep going and you're going to produce headline news results with assays. Especially in situations like this where you have these thousands and thousands of meters of drilling -- over nine kilometers of diamond drill holes previously worked by Jaguar, Xstrata, and Falconbridge. That's a lot of core to look at and to re-log, let alone assaying it! This is a humongous undertaking. The budget for this is substantial, but it means that there's a barrage of news flow coming. You could probably get a few dozen news releases out of it if you wanted, or you could be a bit quieter and just put it all in the new 43-101.
D: Exactly, Peter. Now you're getting the sense of our company and our catalysts here as well.
P: I'm glad to hear you say it. A lot of times people don't want to do that -- they'll go with representative samples or random samples and miss out on the more promotional angles here.
D: One thing I can tell you is we did not re-assay rocks that had no gold in drilling from areas off the mineralized trend.
P: That’s OK. It’s a large area and with all this drilling, I think you have a pretty good sense of when they were in the right targets and when they were not.
D: Initially, we didn't have that sense. When you mobilize a team on the ground, you don't have that in-depth knowledge, but our team mobilized quickly and they’ve been working constantly on the field. We’ve done over ten thousand meters -- that's ten kilometres -- of trenching already. The trenches are interesting because you can’t actually use them for a 43-101, but it does gives you an indication as to where the mineralized zones are located. We're using this technique extensively, since it's very cheap to do trenches in Brazil. I'd believe it's a fifth of the price of trenches here in Canada.
P: I love it. I love it! Especially the option terms where you have to earn in US dollars. That one million in spending moves around with whatever the Real is doing; it's a tailwind in a strong dollar scenario.
D: That is true. We didn't expect the Real to be so undervalued, to be honest.
P: It's chaotic! The world is full of chaos right now and the US Dollar plays in the flight to safety scénario. All these things may change in the future, but for now it’s the same old, same old.
D: Yes, Peter. That’s one of the things that's really important for us. The Real variation has been an opportunity because the prices in Brazil take time to readjust. Not long ago, the Real was around three to one, but lately it reached even six to one USD!
P: And the cost of trenching didn’t change. The cost of the assay lab didn’t change either! Oh boy.
J: I had one question, Douglas. There's initially a 75% earn-in with Jaguar Mining for the project with the provision to get to 100%. Do we have a timeline for when we’re going to reach the 100% earn-in stage?
D: That's a very good question. I believe in the next three to four months we'll be there. That's when we have an idea of how our next phase of exploration is going to proceed. There's a lot of work that goes into such studies and it will be on the next phase for us. The other thing that’s interesting is that we have a long-term goal to become developers and we're steadily pushing to achieve this goal. Our current investors and the new shareholders have an opportunity to come along as we go through certain “jumps" in our market capitalization until we our long-term goal. We're going forward with a development story and I think it's a tremendous opportunity for shareholders. Our whole team works with a sense of urgency to move South Atlantic toward our goals.
P: A fast track to PFS is always a good place to start! And standing on the shoulders of Jaguar is good, too. How has the working relationship been with them so far?
D: The relationship is excellent. The exploration teams in Brazil all know each other and they can talk between each other without having to worry about confidential situations due to our earn-in agreement. We've been meeting with Jaguar exploration team regularly through the established technical committee and it's going well. Jaguar seems very happy with the work and the progress that we made so far.
P: Do they have any stock in South Atlanticc?
D: Not yet.
P: Hmm. I wonder if that will change.
D: Well, Jaguar is now worth $780 million dollars I believe. We are very small for Jaguar, currently. Maybe we'll get to a point in the next financing where they may participate.
P: They didn't ask for a ROFR or any special rights to participate in future financings on this property deal with you?
D: They do have a 25% buy-back for two and a half times our expenditures. I can't say anything for Jaguar, but, looking at the history of projects and earn-in agreements similar to ours, I think it's highly unlikely that they will exercise their back-in right. It would make much more sense to invest in our company as a whole instead of buying into Pedra Branca.
P: But then they have to play ball with you as management. They have to figure out if you want them to be shareholders? How much equity you will give them and at what price? They're not out there in the market trying to work a buy order to pick up SAO. If they're going to get a position, then it's going to be in a financing and that relationship with you becomes everything.
D: I think our previous relationship with Jaguar has been very good. Personally, I've been at Jaguar mines many times before and know a few of their management and board members from previous deals.
P: How is South Atlantic for working capital right now?
D: I believe we are about half-way through our earn-in agreement with Jaguar, as per our recent releases. But going forward, even after the program completes, we're going to have some working capital to keep things going until we conclude the next financing.
P: You raised two million canadian not long ago. And the money going out to Red Cloud -- the news release said ten thousand dollars a month. What's the overhead like here for cash burn?
D: I can't comment on the details of the agreement, it is a very good agreement for us for our current cash position. In the next MDA and financials, we will have more info on that.
P: What next for South Atlantic Gold? Forward, I guess. Lots of stuff happening -- it's nice to have a simple plan.
D: I believe we are different from our peers on the TSX-V because there are a lot of exploration companies that want to stay exploration companies. We are a little bit different because we are a growth story. In parallel, we’re constantly looking at assets in Brazil that have never been mined, but there are so many opportunities out there. I came across a privately owned mining company who are producing 40,000-60,000 ounces annually for the past 12 years. They're just a family-owned business and I'm talking to them. This is just one example. Brazil has over 3,000 mines operating and registered with the government. I think Canada has less than half that (not counting quarries) It tells you the story that Brazil is still an “untapped" mining and resource opportunity.
P: Small mines, too! That gets me excited because small mines are often under-capitalized. If they've been able to survive at that scale and pull 50% profit margins on a 100 million dollar top line for 10 years? It may be small scale, but what a bullish setup that is for public markets to look at. I think about the potential to sustain that scale or increase it -- lots of ways to win there!
D: Yes, and the point I was trying to convey is that we've done this before. There's a way you can do business in Brazil. There have been other companies that failed horribly in-country. Was it an asset problem? No, the gold is in the ground. The issue is everything else that comes around, which people usually refer to as the “Brazilian cost of doing business”, and I believe that's our key advantage here, as we’ve been successful before.
P: Brazil is not for beginners! John, do you see anybody talking about South Atlantic?
J: The story has been buried so far. It's quiet but I think once you get going and the story is put more into the light as news flow starts hitting the market, it is going to get interesting.
D: I think you're going to see more from us. The laboratory has been a challenge, but I believe new results are coming soon.
P: John, it's good to be early! And don't forget -- you might be right. You might be right. Thanks for the update on the plan and the execution Douglas. I'm very impressed.
D: Thank you very much Peter. I hope to have some things here to talk about again soon.
Watch for more from SAO.