Congratulations to my childhood friend Brian Gregg for doing his first interview of a junior mining CEO! And thanks for letting me do my first ever interview as CEO of a public company. What fun.
Find the video here,
Believe it or not, I did a 3-hour audio recording to prepare for this call with Brian. I spent two hours going over one of Rick's questions, "How are you going to make me money on the deal and when will I make it?" Thanks Rick Rule for the questions and thanks Brian Gregg for spurring me to do all this work to explain my thinking on what next for Kermode.
Find the transcript of my 3-hour prep call below and at this link:
https://docs.google.com/document/d/1CVzGAh2oJrownTP-tFT_rMLdG-SaajtKBjzBfATODNQ/edit#
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To: PUBLIC
From: Peter Bell
Date: 2021-11-30
RE: Rick Rule’s 8 Questions
https://apod. Nasa. Gov/apod/image/2111/M101_hst1280.jpg
RICK RULE “EIGHT QUESTIONS FOR JR MINING CEO BEFORE YOU INVEST”
1 What are the company's goals, and what strategies will it use to reach them?
2 How are you going to make me money on this deal, and when will I make it?
3 What can go wrong, how will I know what is going wrong and what will you do if it goes wrong?
4 What is the current liquidation value of your company versus the market capitalization?
5 Who else will you tell this story to, how will you tell them, and when?
6 Tell me about your management team and directors, especially their past success in mining and markets.
7 Who owns this company? How much did they, or will they, pay for it, and when can they sell it?
8 How much money do you have, how much money do you need to succeed, and how are you going to get it?
https://cdn-ceo-ca. S3. Amazonaws. Com/1gps1sj-%40newton%2C%2019%20Nov%202021%2C%2013-18.url
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Peter Bell answers 2021-11-23
https://drive. Google. Com/drive/u/0/folders/1dr4VosNCMKpml2H9FyT2NAJhnM-FaBpv
This file:
https://docs. Google. Com/document/d/1CVzGAh2oJrownTP-tFT_rMLdG-SaajtKBjzBfATODNQ/
1 What are the company's goals and what strategies will it use to reach them? (10 Minutes)
To: Public
From: Peter Bell
Date: November 23rd, 2021
RE: Rick Rule 8 questions
Number one. What are the company's goals and what strategies do we use to reach them?
My goals are high-quality exploration news flow.
The strategies are ultra-aggressive, junior mining management principles.
That's pretty general, but the word torque comes to mine. Not because of the Canadian public company $TORQ but because of the financial concept of convexity and upside. The potential payoff of successful exploration results is skewed positively. They have excess kurtosis or fat tails, which means that the big wins are really rare. And large. It's a sparse data set that I'm looking at. There are very few comparable statistics for “wins” relative to “attempts,” but I think the strategies can be copied from the winners because there are relatively few of them. The strategies can be applied in systematic ways as part of a junior mining public company. I want to deliver exploration success, and I want to learn from the winners.
There is some kind of playbook that can be developed as to how to finance, operate, and promote a junior mining company. There's not just one playbook. There's a bunch of playbooks. The more exhaustive, encyclopedia-like knowledge that you have, the better.
In detail, the playbook I'm using for Kermode right now could be called the “small ante push.” Or a small stack bully strategy? I don't know if that makes sense at the poker table but so far, I'm the only new working capital into Kermode since I took it over. We haven't done any financing. I've put debt in. And we have cash. I put as much debt as we have cash in the company, and I'm trying to buy another +5% of the company on this debt financing strategy. The shares-for-debt file was created by the old team in May 2020 and still isn’t closed with the exchange? It does not give me warrants, which is unfortunate, but it does give me a low “cost base”. I first bought stock in Kermode at one cent. Five million shares for fifty grand? That investment opportunity was a gift to me. I wasn’t CEO when I did that, but I am now.
I’m still waiting for exchange approval on the shares-for-debt. I'm supposed to be getting shares at 1.5 cents, which is equivalent to a sub-two million dollar market cap. I'm buying another five percent of the company? Can I buy 10% of the company for less than two hundred grand? Yes, please.
The financing strategy I'm using can become an exothermic reaction, financially. Can we generate news flow that attracts investment sufficient to raise more capital to generate more news? And does the news get better? The more activity, the better the results? Positive feedback loops? The best projects get better the more you work them.
Originally, my goal was for Kermode to get in compliance with the listing contract with the exchange. And the point of being public is generating high-quality news flow. The strategy I have been using so far is working on projects in Nevada with Robert Carrington on a mine he’s owned since 1983. He have started work on it with two-person crew using his grandson. It's Robert Carrington and his grandson at the site working on our due diligence program right now. He may hire his son as well. All that is not material. I'm saying it's not material for them to be doing due diligence on the Rye Patch mine. It's a five-acre plot of patented claims. It's not gonna be an expedited transaction if and when we do it. The LOI hasn't been press released because it hasn't been signed, but work is ongoing on this project.
The goal of generating high-quality news flow is specifically related to Rye Patch. We have a playbook described in our news release about Eastgate where we said we're going to go underground and scan the mine. New things in old places? It’s like “Star Trek” technology with the LiDAR for a digital model. What is total tonnage of production, pre-1880 at the Rye Patch Mine? Let’s find out.
So far Kermode has press released results of work at Eastgate.
Turns out it was not the right thing to do that work at first for several reasons. Mainly, Carrington doesn't know that mine. Repairing the underground workings and figuring out where to go underground requires a lot of background work and increases the cost of action at Eastgate, whereas he can go to Rye Patch and hit the ground running because he’s owned that mine since 1983. It’s been optioned once before from 2011-2015 by a Canadian company called Red Ore who started the deal when it was a private company and then went public, but stopped working on it.
Red Ore signed with Gold Range on April 20, 2011 and paid US$20,000 for the Rye Patch Mine project. Then they paid US$ 20,000 in 2012, $30,000 in 2013, $50,000 in 2014, and then dropped the property before the $100,000 due in 2015? They made a total of $120,000 payments on the property. They reported “Exploration and evaluation Expenditures” of $268,191 for their US properties in 2011? And they reported “assets” in the US of $106,217 in 2011. And “Operating liabilities” of $221,390 in the US? Add up those numbers to say the gross spending by Red Ore at Rye Patch was on the order of $150,000 from 2011-2015 on property payments and $600,000 from 2011-2015 on exploration in the US? Call it a total of $750,000 with 80% into exploration costs? That’s what I want to hear.
A lot of the work Red Ore did at Rye Patch was not done on the patented claim. They did MMI soil geochem and drilled a target on ground that is currently staked by Argonaut Gold Inc. Back in 2011 the Red Ore private company also had an option on “Pogonip” from Robert Carrington’s company Gold Range. At the time, there was “17 patented lode claims and 58 unpatented mining claims covering approximately 1,800 acres of Nevada’s prolific Battle Mountain-Eureka Trend” in that project and it was a cheaper lease schedule than Rye Patch. Red Ore dropped the Pogonip before the dropped Rye Patch, I think, but the public record is incomplete. From what I can find.
Pogonip had a 4% royalty. It was close to the Mount Hamilton project. It may even been part of that one today, which is owned by Sandstorm Gold? They have a royalty on Mount Hamilton now alongside Wateron. It’s over a million ounces of gold in development?
That Mount Hamilton property deal pays Gold Range on the order of USD $500,00 per year today. Every year as a lease payment, not a purchase deal. What? Yes, and the property payments can be offset against royalty payments. So they are “recoupable” subject to conditions. Very different from the typical Canadian property deal. Is that a relevant comparable?
Was the Pogonip any good for Red Ore? I looked around at the area online and found something called “Treasure Hill”. Yes, please. Looking at a ten kilometre area around Mount Hamilton Mine is bullish. A lot of the ground is in the Humboldt-Toiyabe National Forest, which makes the patented claims all the more important.
Anyway, Carrington goes to Eastgate and his LiDAR scanner broke the first day he went to scan.
They had to ship him another scanner unit to replace his one while it got fixed back in England. He’s got the backup now, and work is going at Rye Patch. He's been underground a few days before Thanksgiving. I don't know what’s happening day-day. I haven't heard from him in the last 24 hours. I assume he's working his ass off because that’s how he usually operates. The last thing I heard from him was that the underground workings were bigger than he remembered.
And I've tasked him with an assignment to come up with a full 3D model surface and underground of the mine workings and to produce a better estimate of the tonnage of historical production. Then, we can proceed to generate a “conceptual estimate” of the grade and tonnage remaining at the site, and that is something we can put in a press release under 43-101.
We will do a conceptual estimate before we do a resource estimate because the resource estimate costs a lot of money and requires a lot of drilling. It’s a lot of work to get a resource, but we can do a conceptual estimate based on the 3D model combined with geological mapping, some geophysics, and a lot of geochemistry.
A simple exploration playbook is an array of strategies we use to generate high-quality news flow at a project.
Our field crew is pretty elite and set for small-scale, high-impact work. Even though it’s Robert and his grandson so far. When will his son do work at site? Or his dad? Imagine if we have four generations of Carrington family working with us at the Rye Patch Mine. Please!
The amount of news that Carrington can generate himself underground with the scanners is outrageous. It's great. People won't understand it because they'll look at the pictures and say, “What does it mean?” Or maybe somebody will get the AutoCAD file and will understand it. We will use the cloud to share the AutoCAD files that Carrington makes in the news release. Maybe somebody will understand how to open that file and look at it, and they'll say, “Oh, wow. That's cool.” And we will add to it over time with more geochemistry.
We will do trial mining because we have patented mining rights. This is part of our strategy because the goal is to generate news. And it's not just exploration news. I like exploration because I like upside, but production matters too. Especially if you have a natural buyer like we do with Argonaut at the Rye Patch.
If we show assays with a hundred ounces silver per tonne underground on our patented claim, then what happens? If our neighbor Argonaut gets taken over and we have a small production campaign doing underground drilling, then what? What if we are starting small with select sampling from the underground mine face with electrical equipment? An electrical rock saw, what is that? There are very detailed strategies that go all the way through to the mathematical formulas and the types of metallurgical testing on your assays. The Rye Patch gives us a lot of choices on a contract basis because it’s Nevada, and there are lots of mining contractors around. And Carrington can help us navigate relationships with contractors.
Bulk sampling from the mine face with an associated drill program; how long does that take? How many millions of dollars do we have to spend money to build the underground development to get there? Well, they already exist. And we have mining rights because it's in Nevada with a patented claim.
Accelerated production timeline?
Contract mining and toll milling off-site? Yes, please! What next?
How deep do these strategy sets go? Call it an uncountable set. It's unknowable because these things are more a function of our creativity than what you can glean from the system of other people. It’s all up for debate, but there is a system in the goals and strategies. So far, this is 10 minutes where I'm going on about one question and just getting started. Lots more to say about the goals and the strategies.
Maybe one thing I'll say is about losses.
Losses are important. You don’t want to ignore them. You want to study them.
I want to have a management scorecard.
It's great to have goals and strategies but to reach them is everything. So how do you know if you're reaching your goals? If you're doing your strategy correctly, then the system comes into it. You want to measure whether you're reaching the goals and using the strategy in the right way. Are you consistently using the strategy the same way? Are your success or failures more random or systematic?
Are you reaching your goals? Clearly? Or what! Measurement is a big part of a strategy. It’s like the reflexive aspect of strategy and why strategies are a practice rather than a product. You can produce strategic information packages or playbooks for exploration or promotion or management, and those are “products,” but there is an ongoing strategy development practice that has to do with measuring your performance. And part of measuring your performance has to do with measuring your outcomes versus your goals. Are you hitting the mark? There’s more to it, but there’s a whole bunch of fun business management strategy stuff that comes into this topic: what are the company's goals, and what strategies will it use to achieve them. On and on. Should I stop and do the next question? Probably if they're each 10 minutes. Yes, okay! Thank you.
2 How are you going to make me money on this deal, and when will I make it? (2 Hours)
To: Public
From: Peter Bell
Date: November 23rd, 2021
RE: Rick Rule 8 questions
Number two. How are you going to make me money on this deal? And when am I going to make money?
Make money, make money, and make money again?
If you listen to my 10 minutes plus to answer the first question, then you know that even the phrasing of this question bears high levels of emotional impact. As a language, people define money in different ways. We're talking about currency, but there is more to it than that. There is an emotional aspect to the junior mining business. There is “tribe” and “identity” with this stuff. Money, the value of money, and the definition of money are relevant to how we make this deal into a win.
The ethos of adventure we get in mining exploration is like gambling. Believe it or not, the history of mathematics is deeply tied up with gambling. These are profound aspect of human history. As is mining. It’s esoteric on the gambling side but that leads into the academic study of financial markets, which can actually be very practical! A page out of the contrarian playbook.
It's terrible for me to take issue with the question before I answer it. But it must be done, even though any answer is incomplete. Rick will tell you the questions are incomplete, too. They are meant to be guides for lines of questioning rather than an interview script. But it’s something.
What is the point of this question? How do we make money on this deal?
I think it is about news flow.
What makes a stock go up? The answer is news flow. Headlines with big numbers. Detailed data sets that show Mister Market something he’s never seen before. Bullish news flow is the answer. And when do you want the news to go out? Now, please.
Ideally, there was news yesterday. Or today.
If you're spending millions of dollars over time, then how much work are you getting done? And at what pace? Can you press release the results of that work?
If you have a continuous operation, why can't you live stream? Because you can't get internet? Bad answer. Why am I talking about a live stream from the project site? Because I'm talking about what makes the stock go up. Novo Resources 2017 is a moment for the history books. They did some wild promotional campaigns. How much money they made for people in the market was wild. A video feed from Australia to Colorado during a conference to dig up nuggets at site? Yes, of course. How many people who are investing in junior mining stocks know about that story? Probably most, but not all. I think it's a legendary part of financial media history.
Novo Resources is just another stock now. How many hundred million dollars should it be valued at? I don't know. I can't tell the market what to do. Are you gonna make a 10 bag around that stock? I don't know. You will probably make a 10 bagger on Newfound Gold first, even though it already has a billion-dollar market cap. What are the odds for what happens next to the stock?
If you want to make money on the stock in the junior mine business, then you have to be in the financings. You have to get the warrants. All that comes back to the goals and strategies. The financing side always wants to make money on the deal and they have to make sure they buy the stock the right way. They want to buy it at the lowest price possible with the biggest warrant package as well. No accelerator clause on the warrants. No escalating strike price. No short term expiry. It’s important to play ball with the street. The people who finance the company deserve special treatment to get the best chances for the sweetest win. At least, that’s what I want when I invest in junior mining companies. I like deals with generous terms because it reflects an abundance mindset.
People talk about the four-month hold on the stock issued in a financing. I usually hold stock over a year when I buy junior mining stocks myself, but I make a decision whether to keep buying them after 6 months or so.
What can a stock do in four months? A lot! In a supportive market with a bullish discovery, a stock can go up five times in four months. Does that increase in valuation last? That’s up for debate.
What can a company do in four months? Again, a lot!
What can we do at the Rye Patch Mine, for example? Can Robert Carrington deliver a digital model of the old mine ready to share online for free in four months? I’d guess it’s more like four weeks from Robert to build a first-pass model. Then we can do more geochemistry, geophysics, and geological mapping to improve the digital model over a four month period. Imagine a bunch of that work generates bullish results? From there, it's a question of opening the taps. If you have the money to spend, then the Rye Patch will absorb the spending! Immediately, too.
Production news flow is my goal. Even if you're not doing “commercial production”, you can be telling a production story for Mister Market. One way to win is to publish bullish exploration news that advances a story about contract mining and toll milling at the Rye Patch Mine patented claim.
It's aways a question of whether the market obliges you when you finance. Are you in sync with the market? Where's the market versus you and your financing cycle? The market cycles create these financing windows that open and close over time. It’s important to know if you are funding with the market or against it.
These are all relevant questions to say how you're going to make money on the stock. But Rick Rule’s question is multifaceted. To some degree, what he's asking about is what makes stock prices go up.
It’s a pretty simple question. When? There's a classic line about predictions that says, “Never say what will happen and when it will happen. Always say one or the other, but don't say both.” I’ve heard Rick Rule mention that quote, so it’s funny his question asks for it this way. Is Rick asking for the impossible? Of course, that’s the beauty of these questions. There are traps in these questions. If someone is overly confident then you bet Rick is interested in finding that out as soon as possible. Asking about what will make the stock go up is a great way to test for over-confidence. Is over-confidence in a CEO a bullish or bearish feature? I wonder.
We can talk about the past, or we can talk about the future. If you're talking about making money, then we are talking about the future. Look at what Kermode has in it right now. Not much. It’s hard to spend any money on that company the way it’s been run in the past. Do we care about the fact that it is listed as a public company?
What is the ongoing cost of running Kermode? Look at the history of that company with 30 years and a $12 million accumulated deficit. That’s less than a $12 million accumulated deficit for 30 years. Like $400,000 a year? It's a pretty low-cost operation going back to the 1990s.
How much exploration did they ever do? Studying the history of this stuff is relevant to understanding the shape of things to come.
They sold one project in Newfoundland for about three hundred grand cash. Technically, they sold it for $500,000 in stock of Anaconda Mining ANX, but that stock went down by 40% in the four-six months when they held it. Imagine. The total project spend on that one in Newfoundland was approximately three million $3M. They spent three million dollars on a project in Newfoundland and drilled off a half-million ounces back in 2006-2008, then they sold it for a 90% loss in 2018?
And then they sold part of an interest in the Eastgate project in Nevada for USD$250,000 in 2015? What happened to that money? It didn't go into exploration from what I can see in the Kermode financials. I don’t see CAD$100,000 exploration spending over five years 2016-2021 at Kermode under prior management?
Since 2018, they brought around $500,000 into the company and spent $30,000 on exploration? What? That seems a little hard to believe.
And they still left the company with tremendous debt.
Why did I join the board of Kermode? Why did I become CEO? Because I think we can do better. How am I gonna make money on this stock? By doing better.
Exploration results are one thing, but sometimes corporate issues are more important. And you can check whether a stock is healthy or not? Kermode Resources is not a healthy stock. The company is not very good, either. I always love to joke that a stock and a company are two different things.
If you're trying to make money in the stock, where do you start? Where do you end?
Junior money is not a buy-and-hold business. It's a buy-and-keep-buying business. Yes, you have to sell stock too, but that’s complicated depending on tax treatments and idiosyncractic stuff like that. There are a whole bunch of questions.
Are you gonna have an ongoing relationship with this company? Are you gonna buy it once and forget about it?
Are you buying in the financing? Do you buy in the markets?
All that stuff is driven by news flow. You make money when the company has bullish news flow. It’s really simple. News flow in a prime stock with a healthy, effective promotion in a supportive bull market. What’s better?
Imagine how many junior mining companies are a going concern. Not many, I think. The stock goes up and down for what reason? What is the fiction of Howe Street? The fiction is what you write.
What is your story?
When will I make it? When will I make it? When…
If you look at the Kermode company right now, then it doesn't look like anything. Still waters run deep. Maybe. If you can buy stock at a $500,000 valuation, then that's bullish. Do you want 20% for a hundred grand? Yes, please. What does it cost to build a shell? And what’s the difference between the benefit of a blank new shell versus the costs of the skeletons in the closet for Kermode?
That's a tradeoff I care about as CEO of Kermode. I think it’s related to my fiduciary duty, as well. When I joined the board of directors, I took responsibility for representing shareholder's interest. I'm still on the board and now I get to execute.
And what does that mean? It means I'm running a public company. Or is it running me? We'll see. We'll see.
How are you going to make me money on this deal? And when will I make it? I ask myself this question every morning. Then I go find the best people to work on the best properties produce the best situations. Positive rewards with multipliers can work wonders. Strategies and playbooks are what help us create multipliers in these deals.
Thank you, America. Thank you, Doug Casey. Thank you, Rick Rule. These guys have contributed is right to public discourse in the junior mining business. I have a lot of respect for the community out there and all the information people have accumulated over time.
The knowledge is out there. Good ideas travel well. We make money by taking the strategies used by these winners and applying them ourselves or improving on them. Combine that with our own inventions?
Strategies to tackle new opportunities.
Most people wouldn't try old things, but anything can happen in a mining bull market.
New things in old places, or old things in new places, new things in old places, or old things. In new places, one more time, new things in old places or old things in new places, that's how you win in junior, my business and right now Kermode has nothing going on nowhere.
But behind the scenes, there's stuff cooking with this Rye Patch Mine from Carrington. That’s an “old place” because it's a mine from the 1860s. But it's a new place because it was 2011 the last time anyone did any meaningful work? It's a “new place” in terms of the market. The last one on this thing was worked by the company who leased the Rye Patch before us. They didn't work the old mine. They went and drilled a geochemical target a few hundred meters away. Great!
But they did report one sample from the old mine that was a super high-grade, ultra-high grade project. Go in there and talk to Carrington. He says, “Nobody wanted this property because it's only five acres but….” And you say, “Okay, let’s make a deal.” So the public company comes out with this surprising deal on this land package that nobody else would have taken, and then what? Imagine a hypothetical where your neighbor, who surrounds you, gets taken over, and you have a high-grade discovery similar to what the guys had in 2011 at Rye Patch. Except, instead of finding a surface, you find it at the underground mine site. You go underground to start drilling from underground and do trial mining underground.
You'll work things and toll milling offsite. What? Yes, please! Structural stability and mine safety is everything. I'm talking about contract mining in Nevada. Is that crazy? No, not at all. Will we press announce a call for tender from contractors some day?
I don't know. I don't know how complicated you want to get with it. It depends if Robert Carrington can deliver the crew. Maybe he can, maybe not. I don't know. There's a lot of opportunity for him in Nevada. We are working with four generations of his family, after all. His father, son, and grandson? Cool.
And this work is funded privately by me as a debt. If you buy Kermode stock in the market right now, how do you get filled? There's not a lot on the offer. How do you?
Do you want to participate in the financings? What financing? What are we gonna do? We're two and a half bid. We could do around 30 million shares under the TSX Venture special relief rules if we trade at one penny bid. We can issue shares at one cent and warrants at five. We could do a three-year term or five years. Transferable. No callable provisions nor acceleration clause. No acceleration clause.
I don't like the five-cent warrant. It’s probably better to roll the stock back. But the basic scénario is assuming it's just the one-cent share price and the five-cent warrant strike price. This is under special relief from the TSX-V. The money can’t be used for management fees or IR from this funding, but we can make a win by it.
What does that look like?
What does the payoff profile of that financial contract look like? It's a pretty big tail. Have a strike price five times higher than the then the purchase price. The five-cent strike is only like a five-million valuation at this point. Free money?
Maybe it's $7M or $10M post-money. Is that expensive? Ten million may be expensive for Kermode. Even if we're generating bullish news flow, there's a whole bunch of companies with five million valuation on the market right now. It's fierce. I don't see a lot of them generating much news we're talking about, though.
How are you going to make me money on this deal? And when will I make it? How are you going to make me money on this deal? And when will I make it?
Right? If somebody buys us off in the market, I don't have a good answer to that. You're it. You’re at the women of the market. If you buy in the financings and we can structure them properly from an investment perspective. That's how you make money in a potentially systematic way.
When you're funding the company, you get more influence over what the money gets spent on. When the money gets spent on things that generate news, you have a chance that the stock catches a bid on the news. Right. If you do this work, right, you have a good project. One, two, three.
When you're in the financings, there isn't a good answer to that question. The devil is in the details. Is it going to work? Is it not? Is the market going to care about the work we do or not? How long can we sit at that poker table? Or blackjack or whatever card game we are playing? Is there a better analogy? Are we playing roulette? Are we playing craps? Like, what is the best gambling analogy for a funding program for Kermode Resources today?
I don't know. I don’t gamble in casinos, but I know they can pay heavily in winning scenarios. The payoff is clear, and that's why I aggressively put money into companies like Kermode. I bought over five percent at once and I want to convert my other debts into shares. I want to get up over 10% of the company.
Please!
How long do I keep 10% before I get diluted down? I don't know how I get bigger. Can I go to 15%? Can I go to 20%? That's what I'm thinking of. How do I get and make money in this deal by getting a bigger position and driving it forward into winning territory? Five acres is an unusually small land position. How much is that worth to Argonaut, say? Or what is it worth to Kermode? If it's the difference between Kermode getting delisted and surviving, then it's worth a lot to us. If it helps us get valued on a normalized basis as like a ten-million-dollar pubco then that’s a bullish rerate. There are now a lot of stocks below a five million market cap, so maybe that’s a better number.
Maybe I'm just looking at the worst of the worst, but everything I’m seeing is on sale. It's a great time to be a buyer, but you have got to be sure you're buying the right stuff. If your money goes into someone’s pockets then that’s no good. But if your cash generates news flow, then you’ve got a chance for a winning scénario, and that's what you have when you do the financings.
For example, some of the money that I put in as debt has been wasted. The main push is starting with this digital model of the Rye Patch Mine and a hunt for high-grade samples. If we're able to beat the best old numbers from 2011 with 4,000 grams of tonne silver in a rock sample, then that would be bullish. If we can get 5,000 grams, a tonne at the old mine face, then what?
We’ve satisfied our option obligations this year in BC. See this question of budgets. If you're providing the financing, then you're involved in the budget.
And if you're involved in management, then you're even more involved in the budget. For me to provide debt is like grabbing the steering wheel in a major way. The exchange doesn't like you to keep doing shares for debt so I can’t plan on funding the company through debt more. These companies need ongoing equity financing.
If you're buying this deal, then please buy the equity financing. There are exemptions for all kinds of people to get into it if they want to. It's a very sophisticated, high-risk investment not for the average person. It is open to accredited investors and others with some exemptions for people investing less than fifteen thousand dollars. I've been there. I’ve done a bunch of investments, less than $15,000 in private placements. I've done tiny amounts that brokers would have a hard time with, but I did directly with the company.
If there are a hundred times as many people who would do five thousand each, then that's a lot more paperwork than five people who do a hundred grand each. I don’t see junior mining financings filling up with lots of small investors, but I’m open to it. New technology to do the financing documents with Capiche.com changes the administrative costs and opens up new strategies. There are crowdfunding platforms. If this recording reaches many people via the internet who have smaller amounts of money than the typical junior mining investor but are more sophisticated, then they’re welcome to our next financing. I’d love to rally an unconventional community of shareholders around this deal.
You have to think about who else is investing in the deal and if you're investing with other people like you. That's what I try to do. When I’m speculating in junior mining stocks, I try to invest in situations where people like me are involved. I’m looking for similar ethics and morality, commitment, and perspective. Generally, I want to invest alongside people who are richer and more successful than me so that I can learn from them. Can we bring that attitude to Kermode?
Maybe the accounting records are not as clear as they could be and things are not press released on the best timeline? I’m an investor, and I’d love to know more current info about the companies I invest in.
Don’t forget that even if your news flow is up-to-date and current and best of best in class, the market may not care. You can be there telling your story well and get no attention for it. If sometimes you don't tell your story as good as you could, you got to give yourself some space to figure out how to fix it, and you got to help this improve it when these deals have missed steps. Even in my management of this deal so far, there have been missteps. We've inherited a really complicated mess, so for me to invest on a debt basis is just crazy. It’s a distressed situation. That's not for everyone.
Am I gonna make money on this deal?
The last time I bought shares in Kermode was on the public market around four cents each. Now it’s two and a half cents bid. I'm offside. Or am I?
Suppose I purchased five million at a penny and then a hundred fifty thousand at five cents. If my marginal position is tiny relative to my average position, then it doesn't matter much. The more you can get loaded up at the right price, the more it protects your downside. Let the upside run.
And what drives the price up? It’s not just about price. It’s about buying. More and more buying keeps the stock up. Junior mining companies have a lot of natural sellers. Think of how many sellers there are in Kermode? Like 90% of the stockholders are sellers. Is it that bad? I don't know. Maybe it's more. Maybe 120%! Maybe there's a naked short potential. There could be. That short hasn't hit the bid yet, but maybe that's because there are no bids really to speak of.
Why would anybody buy this deal?
I believe one of the best things to do is to get your share price up over a dollar, as Seabridge did early in Rudi Fronk’s leadership. The dilution goes down a bunch if you can finance at higher prices. If you consistently deliver news flow attempts and have a supportive market, then it’s a great recipe. Not many companies do what Seabridge has done, but they didn't always succeed with the drill bit.
Seabridge had some success with the pen when they bought and sold some projects. Their deals were smart, but they reversed one deal in legendary fashion. They had previously optioned off what is now their big KSM project. Rudi had to get it back! What a bullish move to get the project back. Did that make money for shareholders? How many people told him he was making a mistake when he fought to get that project back. One of the things that helped was it, they had access to capital to do it, and they did at a higher share price.
Then you typical penny dreadful. If you like the role for a high-class junior mining company, it kind of doesn't exist or has a small set of comparables.
And you don't need that unique massive win to make money on the stock. Buy a stock at two, and it goes to three? Some people do that. They could do that a lot. I want to have market makers in the stock to help make money on this deal?
If you buy the financings and have a win, then what does the win look like? Work backward. Share prices up convincingly because something happened. What happened? There was a takeover?
There were a few takeovers. Imagine a scenario again where Argonaut goes, and the Rye Patch district changes hands again? All of a sudden, Barrick is there, and this little tiny 5-acre plot is doing something weird, producing all this news in the middle of nowhere. What does that mean in the market?
What timeline does it take for that to happen?
Hypothetically, contract mining basis a Rye Patch and the takeover of the neighbor could happen quickly. These are patented claims in Nevada. This is the premier mining industry in the world. It’s not easy to operate there, necessarily, but there's potential for big wins. A lot of comparables for big wins. If you think about all the texture, the history of the mining industry, Nevada, all the deal flow knowledge from Carrington? Talk to Robert about how the structure of this deal positions him to make money? How does an investor make money in this deal?
Then I would say the best investments I've had in the junior mine business have been really powerful experiences. They didn't happen without me noticing. I was involved in them to a great degree. Now with me as CEO, it is a very strange experience.
For what it’s worth, I finished an executive education designation in the first class of a new program at the UBC mining school funded by Peter Bradshaw. Wow! BRIMM is great.
Great timing for me to get an executive education diploma in mining. I was in the test class guinea pig cohort full year-long program, a dozen classes? That was an investment of time and effort that I am grateful for. But, of course, it’s very small compared to what will happen for Kermode at Rye Patch if we're able to put this thing in gear and make it work but related, right?
Because my training has to do, with my competencies to do the job. When are we going to make it? When this is the biggest question went, when how quickly things spiral out of control on timelines,
The best-laid plans, quick to go awry. What do you have to keep them in line?
Well, that's in the stars. It's what this fate is their fate in the junior mining business. Sure. Why not destiny karma? The results of action. Sure. Right. Like how are how we, how are you going to make me money on this deal? And when will we make it?
I make you money in this deal by funding the company as per the Rick Rule investment program. And you make it on the Rick Rule timeline. The best junior mining stocks are one decision stocks, and that's just decision is to just buy-and-keep-buying.
That's for the financings. Just keep accumulating these warrant books who concentrated warrants and equity positions in discovery stories, super, super powerful financial returns. That's the goal.
When might make it that question that answers and tells you whether the takeover is the one decision star you keep buying it, he keeps accumulating these warrants and the stock. Then there's a takeover at all times highs. Who holds that long? Management? How many founders are around? The right answer is it doesn't matter, right answer. Is that it doesn't matter. You don't have to hold it entirely from the start through to a takeover. You can make money on these stocks a lot more, just in much smaller timelines. There's a much simpler story for how this was a win rather than what to take over.
Just the rewrite of a discovery. Well, the best projects get better the more you work on them. So the next round of funding you do arguably adds more value than the last. But, on the other hand, if the next round is larger than the last, then you're getting a double whammy.
A double whammy on the upside. Sheesh, that's bullish.
Raising larger amounts at higher prices. It's less dilution to your position, and if the spending keeps magnifying, whoo! That’s how you get these billion-dollar exploration companies. God, wonderful. If you can sustain exceptional news flow and play ball with the street. Yup, that's a deal. You want to buy and keep buying; some people say you should never sell.
I say that's a bag holder quote. If you want to talk about that, call 1-800 never sell 1-800-NVR-SELL. Never sell! A classic Bag Holder Quotes. That’s a mistake because all these junior mining stocks are made to sell. These stocks are never bought. They are always to be sold.
In the history of my investment career, I’ve found that people don’t invest like me. I typically don't buy on in the market, only in financings. That's a whole other topic of money. What's your personal investment strategy? What's your corporate strategy for this public company? Right?
And who are you? I'm talking to the general public, and I'm trying to take as much care as possible to express that there are cautionary statements on all this stuff. And forward-looking statements where things may not come to pass as I've described.
The individual needs and interests of whoever may be listening to this and how they are positioned to speculate on this situation. Those are unknowable questions from where I'm standing.
But I can talk about what I would do. If I was you, if I would talk about what I would do, what I am doing, I can talk about what I am doing. What I, what I plan to do.
It's a small, simple team.
On the executive side, John Fahmy is the corporate secretary. He is around 25 years old and deserves a lot of credit. Ask if he's made any money on Kermode yet, and he'd say no? He hasn't had the income, and he hasn't sold any stock, so he hasn’t realized any profit yet. He has some stock options. What are those worth with strike at five cents? He has no warrants. He had 1% of the company, but that's not enough to get paid, right. Is it?
The scenario I'm looking at for John at Kermode is expanded in scope because of the more significant level of commitment because I have a shared responsibility.
I'd say John does too as an executive, but what is that mean? Is that mean he has to agree with everything I say? No, that's not what it means at all. It means he has to represent the interests of shareholders as an executive company. He had it has to do.
What's in the best interests of people in the company, rather than management, and I'm CEO and management. Am I right? Am I wrong? Let's go. I got here because somebody else was slacking. I rallied another board, we got voted in, and here we are. It's a mess. I expect to turn this situation around from the half penny bid with 60 million shares out when I joined it to whatever it's gonna be in the future? Could it be a five-dollar bid with ten million shares out, fully diluted?
I want less than 10 million shares out. I want to have less than 10 million shares out, and I want a multi-dollar bid for this company. So if you're buying it at pennies, how much do you get rolled back? And how much does your future investment balance that out?
I don't know. I like to be early, and I'm committed to this deal myself. How would you make money in this deal? If you're buying the financing and we have bullish exploration results, then this loops back.
If there's a takeover in the area, then that helps, too. We're in a hot part of Nevada? With this LOI, the ground we're looking at is anchored by five acres of patented claims at the Rye Patch mine. That is surrounded by Argonaut.
Then there's another part of the land package, too. The staked claims out there have nobody around us. What? Another old mine. Is it worth having a look there?
How do you make money on that? Oh, you generate bullish news flow keep the company listed, right? Do the proper promotion. Play ball with the street. Buy shares in the financing and tell me how to do it or watch me do it. See if I do it right or see if I do a terrible job. Then, if I do a good job tell me and come help! That's the way you make money on this deal. If you're somebody who knows how to do this job better than me, then please buy the deal and come tell me how to do it better. If you're not somebody who knows how to do this job better than me, then buy it anyway because it's a huge upside gamble.
Like get professional help before you do it and decide if it's right for you. I'm putting my money where my mouth is as much as I can. Pushing my boundaries, and I think we have a chance for a win. I believe we can make this work. I believe we can be a winning case study in the future.
And it's happening. I do believe it's the Rye Patch with Carrington starting work there. Now for due diligence, if we show that this mine is 60,000 tonnes, that will be a very good technical success, in my opinion. The street may not appreciate it, but we'll release the AutoCAD model. That's a matter of weeks, and the clock has started already. If we can get that done to a high degree of competency in a month and a half. January 2022, you're publishing a data set in mid-January or mid-December. What's the date? I don't know. The question is, do you do that before the financing? Or after up for debate, it remains to be seen Carrington's doing something that he's done once before.
And this is a very different setting, see, and he's doing it on his own, just start with then. That's where are we in comparison to the industry. What? Playbook. Is this if you're funding this work like I am. Then you look at what these work programs can accomplish if best-case outcome.
And for me, as a promoter, it's about imagining. The vision of where we could go,
By the dream, that's what I'm doing. Then the challenges to make it a reality and we won't, we won't get there, but we may get a piece of it, or we may accomplish something bigger than we ever dreamed of, I bigger than I dream. So what is a real win look like here?
How deep could this go? Well, what about a four-month timeline? Are you selling the stock for four months? If you're doing financing now, it's selling the stock for four months. Please tell me now because you are totally welcome to be in the deal, but I'd like to know.
Like, what?
If you're going to invest in this deal, please do it again and again if things get better. This is the Rick Rule questionnaire. You can be right on a finance angle here with one of these companies, whether as a gambler or a company-builder. There's a place for you at the table here somewhere. So let’s make a deal.
But the answer is how these people are going to make money for this deal. When they're going to make it is greatly varied. It's at their whim, just some degree, and even some people will make a loss. So how do you make this into a winning situation? I can't guarantee that there's a win coming or that somebody is gonna make money on it.
People can trade stocks poorly right and take losses of the market. There’s no fix-all in the stock market and not in the stock for this. Curvy resource this company. Certainly, but you look at how I'm investing in it when I'm doing pretty simple. Playbook looking from the outside looking in, it doesn’t seem like much is going on. Why?
Well, that segue is into the next question, what can go wrong? How will I know what is going wrong and what will you do? If it goes wrong, this is the reality. How are you going to make me money in this deal? And when I make it, it's great saying look after the downside on the outside, take care of itself, it's not always true, but in situations that positive convexity.
It is generally true or true more often because it was the situation with fat, tails skewed, positive, and bounded below at zero. Like junior miner returns are looking after the downside and letting the upside run. Capture the gains when it reaches some upside level thresholds.
Statistically speaking, that’s how you change the mass of your distribution of returns and improve your overall performance look after your downside? in your trading if you can take fewer smaller losses if you were losses that are smaller and let your winners run more in your positioning.
Who that's what you want to do. That's what we want to do in a gambling portfolio, like with stocks, but it's all that you want to do in a business management portfolio. Because I've already been running programs, and we like we've totaled our thumbs at Eastgate for quite a while, and we kind of got to a point whereas I mentioned before things went we got some, we did some work, and then we kind of hit a wall.
And we were like, well we don't know this project, and I paused and I said stop, and we didn't spend any more money on this project since then, and I don't believe that's material as we will go back. We can still do the work there that we plan to do.
We will do the first round of a work program at Rye Patch like the markets have not seen before. That's ongoing.
How are you going to make money on this deal? Buying it on an ongoing basis.
Please can I have “error-correcting code” in my business strategy? That's what we're trying to implement in terms of business management strategy -- error-correcting code. You look after the downside, and the upside takes care of itself. Let the upside run. That's what I'm doing right now with Carrington at work on that site.
I believe he's getting a bunch of work done, and then the way that I'm letting the upside run. So I'm not pestering him. Yes, this week is American Thanksgiving, but he has a reputation for working around the holidays a lot. So I'm not bothering him other than to say, “Keep going, please!”.
Thank you for your winners run and then the other thing I've done to trim my losers like I did when I stopped working Eastgate. Robert did the first few channels there, and then his LiDAR scanner broke. He told me that we have to replace the timbers at some portals? And we still don't know what the underground workings look like?
We were gonna bring up another crew to do channel samples. No, pause, stop too much. No. The other crew, who are they? Do they have insurance through, who are they? What Carrington does? We know he's legit. He's had this property since 1983, and it's been in one other public company.
Their first five year payments were approximately USD$420,000. That was public disclosed and they spent about $120K into their property option before they dropped it. It wasn't even a property option, it was just a lease. All we have is a lease, but no lease-to-own? We are renting the property to generate news flow in a stock-heavy deal.
Maybe we have a chance to raise money and spend it on exploration results and do innovative work that surprises the market. That's how I'm planning to make money. I've communicated this, but the playbook with the scanning work and modeling these old mines.
I've never seen a mine that Carrington knows as well as he does this one. We don't know how big it is yet. It could be smaller than I thought; it could be 10,000 tonnes total. I don't know how much high-grade was there. I don't know.
We have no results other than the one sample from 2011 from a private company that eventually went public. They had the mine, but didn't even work the mine. How many times have I seen this? Classic. Canadian company gets a project with an old mine in Nevada, then they do soil sampling and drill a blind target. And the best part with this company called Red Ore Gold is that they even took some samples at the old mine and got +4,000g/t Ag at surface. They never followed up on the ultra-high-grade silver at surface in an old mine dump? Wow! That’s a playbook, but it doesn’t sound like a good one.
The land package that Red Ore was larger than what Rye Patch is now. Today it’s just the 5 acres of patented claims. When I tell Canadian exploration geologists that I’m working on 5 acres they laugh!
The street has never seen this project before.
Mister market has never seen this project before, Mr. Market, please. Can I introduce you to the Rye Patch? Mine, five acres, patented claims the alpha patent, apex mining rights from the 1860s. How can that make money for someone?
If you don't understand how funding exploration work can generate news flow that's bullish for a stock, then go listen to some Rick rule interviews, right? To try to unpack some of the backgrounds, what we're talking about here because there's a rich discipline of gambling.
Scholarly work and theoretical investment science around junior mining investing just like there are around the practice of mineral expression by Sig Muessig.
Sig Muessig’s exploration cannons are great.
I was on a call with her geologist in Vancouver today, and I quoted Sig Muessig’s exploration cannon to him. I said, “go for the jugular in exploration.” Go for the jugular, go for the kill. He told me how they drilled in Yukon and started from the outside to work their way in. then the rig got pulled away, and they didn't drill their best targets. So first, I said, “Did you read that Sig Muessig? He says go for the jugular.” Start with your highest grade, richest thing first.
This was a story the geologist told me from 2017-2018 in the Yukon. Totally different from anything I'm talking about in Nevada. But the fact that I was quoting signing music, had a geologist is the difference between a geologist and me. I’m not trained as an engineer.
I'm not trained as a geologist. I've learned those things because I'm like, autodidactic or whatever. But, really?
I was trained as a mathematician and an economist.
When I talk about the history of the science of gambling as the basis for investment theory and like the modern financial CFA framework. The CFA is just applied mathematics. Right? And that's what I studied.
That whole skill set tool set statistical, simulation modeling returns distributions. Yes, that's how you make it. That's how you measure whether you're making money on deals or not. So, for example, one statistic you can calculate is the total accumulated returns of all the shareholders of Kermode.
How many of them are up on the deal 50/50? No. The number of people who are up on Kermode overall is probably a handful. Me, John Famy, Kilpis Jaervie are three people. I can count who is up on the stock because they were all in the one-cent financing for the first time they each bought the stock.
Some spend bought more at higher prices. Maybe he's offside. Now, I don't know. I bought more at higher prices. I am not offside. John Fahmy has not bought any more. Yet? John is a filing insider spend. Maybe he's sold. I don't know what his position is; he’s a private investor. I don't know, but he's up on the deal. He's posted publicly that Kermode is in his trading portfolio, quote, unquote. I don't know what that means. I guess it means he's a great seller. We need all the liquidity we can get on both sides of the market. I'd encourage him to put his stock up in the market now if he's interested in selling.
There are people out there who want to see the size on the offer.
To anyone who wants to buy, I’d say, “please post on the bid and show your size in the market. We want to see if you're there!” There may be times when I'm in the market, and I will post size pretty clearly. I don't know what the future holds. I'll trade my stock as necessary to make the deal the best it can be, right if there's some bullshit investor and we who wants to get crossed in from my position right now only have five percent company I'm not interested in selling any block.
But what's happening right now is nothing that the deals like what's happening when it looks like nothing is happening. So how would anybody make money? Buy a deal with me when I'm finding it on a debt basis. When do you make that money?
The answer is in the question. When do you make money? What are your goals when you're going to sell it? Are you talking about mark-to-market, or are you talking about closing your position? What do you want to compare yourself to? Look at all these shareholders and promote the median shareholder for Kermode? How much is the median shareholder in Kermode?
If you go with the numbers before I got involved, the average guy who owns stock and the average financing price for Kermode, it was about a $12 million dollar deficit since inception for 60-65 million shares, average, which is about 20 cents per share average financing price since inception.
Where are we? But the average person in Kermode is down. Huge. How could anybody think of buying shares in this company? Would it be a good idea based on the typical experience of people who bought it since it went public 30 years ago? This is the company one public, 30 years ago.
How can you look at a 30-year history and say this is an outstanding stock? So pick the answer to that is you have to be a contrarian. So if you're somebody who knows what a contrarian is and you can talk that Rick will talk, then that's what it is.
And how would you make money? How are you going to make me money on this deal? And when will I make it? That's the question for the CEO. The CEO can spend an hour talking about that like I just did? The right answer is more like stopping and looking at the guy, the shareholder in the eye, and being like, “I'm gonna make you money in this deal by working this deal with you.” Ideally, it's a relationship where the person buying the stock commits to the company and the management team. That’s what I do when I buy junior mining stocks. Maybe I am making a mistake with that, but I’ve been doing it for years. I do it because this is not a set-and-forget stock position.
This is not a set-and-forget stock position.
This is not a set-and-forget stock position. Making an “investment” in this stock is more about a relationship to the CEO? To embrace that and relate to the people buying the deal like that is really unusual, but it does exist in the junior mining business. I think I do not have that relationship with any of the shareholders of Kermode at this point. Then look at the marginal investors. Who is coming into this deal in the next year with me? People who have relationships with me that said, I all believe in barbell strategies.
A barbell strategy is useful in all kinds of settings. For one, it applies to social networks, deep relationships that I have with people, and it is a really small network. But, then, the other thing is complete strangers. Market connections, and friends of friends. Those are the barbell strategies of networking in this and financial markets. You want to do both those things, and the internet social media allows you to meet come street changers that are than ever, like, who can help who might end up listening to this recording.
The different electrical currents that fly out into the medium of our social media and try and connect with other people. Then the point is that the CEO, when they face the shareholder and say, how are you gonna make me money on this?
There's a relationship, and it's an individual relationship because the junior, my own business is small. It can be tough to accumulate a position in a stock like this in the market because it’s illiquid. You have to be in the financing, and to get the funding, you have to have a relationship with me. So if a shareholder asked me, “Peter, how will you make me money on this deal?” The answer is me looking like me meeting them, looking in the eye, and have some real talk. Like, “For you to make money on this deal, you need to keep a relationship with me. You need to keep in touch with me. You need to know what's going on. You need to know what you're doing in the investment business. And you need to teach me, and if you see me doing things that you want me to change and I can do better with your help if you can make my deal better, please.” Right?
And what if the person who asked me this was completely new to the junior mining business? Barbell strategy again.
It's a bespoke experience for the investor, the commentators online, and all the people who don't own shares but may have something to say. Or the ones who do own shares and have something to say -- there's a whole bunch of noise, and those noise traders matter because they're your liquidity, but how you're going to make money in this deal?
And when it's such a personalized question, this is fascinating.
And yet, Deanna Corona quote again all the happy families look to. Like in all the unhappy ones had their own stories. There is at the play again for us for junior. Mining stocks. All the happy junior mining stocks look the same. All the dogs look different.
How are you going to make any money on this deal? And when will I make it?
It's to answer that question. Requires a pretty detailed sense of who you're talking to as a shareholder, but to answer it simply doesn't.
The kind of flippant answer even to this question is, like how do you make money? How do I make you money on this deal? Well, I go and execute. That's not flippant. That's very serious. That’s what we're talking about. And then the question is, well, execute on, what did we have?
A plan. Was it a good plan? Did we have the capabilities to properly design it and plan it and execute it? And can we promote it? Can we get the results out to the market generate? The kind of interest that it deserves. That's all execution for me.
The shareholder executive packed for these junior mining companies is that they see the executive will execute. It's in the name. All aspects of the business right now, you look at Kermode you're like whoa, what? Snow good. Peter, like, what are you doing? And I'll say, look at the last three months versus the entire history, the company.
Look at the last three months for the previous three years and tell me. Is this better or worse? This is good enough. Am I leading the industry right now? No. Kermode is not a strong deal. We’re lucky there are no lawsuits, really. All these financial questions about former management, how isn't even a make money in a stock where the guys who took the company public, 30 years ago?
Left it in a very questionable state, there were 17 hundred dollars on the bank and the treasury listed and July 31st before the management change. So what? That's the company bank account.
I'm here November, and I'm not freaking out what night three months later and one of the things are. Okay, what are we doing? Well, it's not material, but we're looking at a project. So what’s that gonna go? I will see it's the playbook. It's our play, it's my playbook, it's in the US, it's Nevada.
Some old mine, it's high grade. There's a high-tech angle. It’s rolling. It comes with people, and I mentioned, it's high grade. What do you mean? That's happening. Now, why what? Well, it's been happening. It will continue to happen at some point. It will become material.
Maybe, maybe not. We don't have an option agreement with the exchange yet. Maybe in 2022, sometimes our vendor wants us to close in 2022 for his tax purposes. I'm not going to push it. I'm trusting that the terms are solid. Okay, cool. What are we doing? In the meantime, waiting, working on everything.
We always do. Who are you again right hostile takeover in junior mining in 2021? Who would do that? Why? How are you gonna make money on this exploration news flow?
What's that silver in Nevada? How can you afford that? So far, it's been me funding it on a debt basis.
We’re gonna do equity financing, though. If somebody buys into that, then that has a return profile. If they buy in the market, it's a different return profile because they can trade the stock right away. There are no warrants blah, blah, blah. How do you make money on this deal?
Depends on how you buy this deal, or do you go short if there's somebody who would like to go short on this deal. It's been 30 years. It’s kind of dead money. I've heard that if we roll it back, the short disappears, I think that's kind of an urban myth, and I don't believe it's true.
But I've heard people say that if a stock gets rolled back, then the short disappears. Vancouver has a pretty wild imagination. I've never read that in any of the rules or the policy. But then again, I'm not illegal. I'm not a plumbing expert on the Vancouver Financial Markets; I just seem, it's true, which is to say, how are you going to make money on this deal while you go short it and do a covered short.
Short, the stock. Now, again the warrants get the financing. That's dangerous. Is that a naked short? Is that legal? I don't know. I don't know what position rules exist for venture stocks like this. Mmm, if you tell me, right, that's not my area of expertise, but could somebody make money short in this stock?
Well, there's not enough bid to put size on to have a meeting full short. I don't think, and the risk of a squeeze is who wants? I don't know. It's not a squeeze, though, if you're covering it. It's funny. I quote Rudi from before because he dropped some bombs knowledge for me once on Twitter about shorts, and Dean Nawata was talking about shorts. They were saying, “Welcome the shorts into your deal.” Dean said the short is your only guaranteed buyer. Welcome. This hurts in your deal. They’re part of the market. Then the thing Rudi said was don't let them in your financing Rudi Fronk. On the Seabridge Twitter account, said shorts are great dean's.
Let them in their deal. We don't like being in the ETF because we get these shorts which are not much fun, but they're guaranteed buyers. We appreciate that, but don't let them in your financings because they get warrants if they come in your financing. If they get warrants, then they can sell you twice.
They can sell your stock position that they get the financing and the wars. That’s before they go synthetic against you or borrow against you. What, what are you talking about? How did that man? That's the junior mining business in New York City, isn't it? Yes. That's the New York Stock Exchange version of he's right.
You don't let me marry financing, and how often in Vancouver? People do. There’s a reputation for the Canadian. Junior mining business for having some predatory capital, the US, Europe. This money is out there. But I think it's a really under-disclosed aspect of the junior mining business.
That a lot of the people doing, the financing, are heavy short on the stock.
But do you win with? Does that cut? Does that mean you can't win? Maybe some people would say, yes, you can poison your well, you can blow your deal up. The wrong money and the wrong money attracts the wrong money. Bad money, pushes out, good money, right, says law or something.
In classical monetary theory, they talk about gold and silver versus debase paper. Fiat currency in the 1700s or something like that. Like, what is that? That applies and junior mining finance. Sure. Economics is a crazy toolkit used to analyze all these different things.
Again, it's your character when you're buying this deal and the other characters in the deal. For example, look at Kermode. Who will buy the next financing? Who did the last financing? I’m gonna need all the help we can get.
I’ve talked to old Kermode shareholders who told me to not roll the stock back. One told me, “get the price up so we can sell.” That’s a sad state of affairs.
How are you gonna make money in the Kermode deal? The answer is by a being contrary investor. You come in there with a long horizon, commitment to a plan to participate in a series of financing rounds, rather than looking for the first chance to hit the bid -- that’s contrarian relative to the current group of shareholders in Kermode.
Before I got involved, there were around 60 million shares and a $12 million total accumulated deficit. That means one way of calculating the average financing price over the deal’s lifetime is 20 cents per share, $12M divided by 60M shares. The average shareholder of the people I've talked to said they're sitting at around a 10 cent cost base.
Right now, the stock has a two-and-a-half-cent bid. At least one of these old shareholders has asked me to get the price up to 10 cents so they can sell.
I recently talked to one of these guys on my birthday, and I mentioned a classic Rick Rule line. I said, “Sir, you've lost the money already.” I said, “Do you read Rick Rule’s interviews? Do you study his perspective on markets? Do you know who these guys are and what they're talking about? On a mark-to-market basis, your cost is irrelevant other than calculating your tax implications. I’m not trying to be disrespectful, but this is some of the basics of investments. In terms of portfolio management, you've already made the loss. You just haven’t crystallized it. Are you gonna keep buying, or are you out?” Most of the old Kermode shareholders I have talked to said no. Maybe one person so far who will buy stock. Yikes! Sounds like we’re going to need some new shareholders.
Hey, look at that. So all the new shareholders are getting in ideally sub-five cents against historical cost, the base of 20 cents, all those 20 cent holders are looking to sell you come in cheaper than them, and you hold longer than them, play ball with this street, get a promotional push to chew through whatever paper is available in the short term and generate bullish news for and finance the company.
And have a success. That's, that's the long-term vision of where it goes. If you're a new buyer looking at this deal as a sophisticated financier, if you put yourself in Rick Rule’s shoes. These are his questions. What would he look at in this deal? I think he would pillage a deal like this. Typically, a deal like this wouldn't get him involved because he would really take too much of the deal.
I don't know if he gets involved in shell situations. Maybe he does? Obviously he does.
He certainly does get positioned early. But with the right people. You have to ask yourself if you're on the list. Most of us aren't. I may be on some lists, but I'm not on Rick Rule’s shortlist of “top 40 under 40”. Putting yourself in his shoes to look at Kermode is an academic exercise, maybe a little goofy or unrealistic, but that's the exercise program here. That's what I'm doing.
How do I make you money?
“How do you make me money on this deal, and when do I make it?” That's my favorite question. I remember first going to the Agora conference and meeting Rick in 2011 in Vancouver. It changed my life, for sure. I was 25 years old, and I knew about junior mining, but I didn’t know about this niche of rich American investors who speculated in Canadian exploration stocks. I was finishing a master’s in mathematical finance at UBC and it made a big impression on me. I got my PhD research topic by attending that conference, in fact.
I studied financial investment topics at the Ph.D. level on natural resources.
I got a federal scholarship for financial investment in farmland in Saskatchewan. Great experience 10 years ago. And that's been my life ever since. Wonderful to study and invest in this ultra-high-risk world. I would not have guessed that 10 years later, I’d be CEO after a hostile takeover. And looking at a project in Nevada like this.
And that's why I think there is a case to be made for and answering these questions. Of course, Rick would never let me talk this much. I’m giving the legendary Winston Lambert a run for his money on this recording just answering one question. Is it completely incoherent or just moderately maniacal? I hope the answer is that I’m completely on point because Rick's questions are so good that they deserve attention to detail. When you put his questions in context to all the work he's done broadcasting his investment acumen, there is so much valuable perspective. His interrogation of many people and his explanations of many ideas that are fundamentally important to humanity. Not to overstate it, but I believe morality and capitalism are at the heart of it all. Prudent investment is there as the source of our felicity. The ascent of humanity as the longest-running bull market in the history of the world? Yes, please! There is opportunity for growth when you do new things in old places. That's a page from the playbook.
And again, the devil's in the details, but things are underway. It's up to me to deliver and to execute on this vision that I have but how it fits in a broader plan. Yes, please.
And for everybody else who's not Rickroll, how do I make you money on this deal, and when do you make it again? It's very personal. If you're actually looking at this deal, please contact me to participate in the financings. Understand what you're doing. One of the ways that you make money in this deal is by investing your time and energy in the deal. A classic Rick Rule recommendation is that you must do a minimum of an hour a month on each stock you own. Oh, you own 50 stocks? Okay, you better get to work! Over ten hours a week? Where do you And that’s before you buy any new ones?
That's a recommendation that Rick Rule has for his clients. As far as I understand it, an hour a month of homework on each stock is the baseline requirement. If you can't complete that on an ongoing basis, then you're not allowed to own the stock. Imagine that.
For a quiet company like Kermode, how could you even do an hour of study a month? Is that a reasonable amount of time? If you look at our news flow and website, you might think it’s too much time for too little content. But if you only spend an hour a month, then you would not have even got through this entire recording in one month. This recording just passed the 90-minute mark! If you only gave it an hour a month, then you wouldn't have even gotten to this point of the call.
And this is just me answering one question from a list of eight. So you tell me how much work do we have to do. Seems to me you either do an infinite amount on an ongoing basis and commit to being an expert in the stock. Or do very little and just buy the store as a flyer.
If I spoke to Rick Rule, as a guy who formulated these questions, I would understand that he doesn't take flyers on people he doesn't know very often. Does he know me enough to give me a chance? Imagine if he finds this recording on the internet. It’s totally possible, but highly unlikely. And even if he did find these recordings, I doubt he'd be interested in listening to all this. Assuming he did, then what? You tell me!
I think this is what the future of business looks like. The time that we all have a conference is up in the air, but these digital conferences are the future. Does that effect why you even buy this deal? Presumably you buy it because you see me as a student of your work. Maybe you say, “This Peter Bell guy is unusual, right? he might be completely crazy, or he might have a chance to make some wins here.” Is Rick going to dip his toe into something small like this? I don't think that's his investment strategy. If he's gonna want to do more than dip his toe into Kermode, then he's gonna want to take a major position. Would the deal benefit from having him as an investor? There are a whole bunch of crappy deals that he wouldn't buy with my money. Those companies would sure take his money if they could, but I don’t think he wouldn't give it to them.
Is he gonna give money to this deal, Kermode? No, probably not.
Typically junior mine deals aren't bought. They're sold. This means that there you have to aggressively sell them rather than passively wait for people to come by them from you. My ability to reach Rick with a pitch that would make sense to him is probably near zero today. That doesn’t mean we can't get there in the future; something miraculous could happen. But typically a deal like this is not going to rank high on his list. He's not even gonna take the shell. He's not a garbage man.
Rick Rule would not make money on this deal because he likely wouldn't be involved in this deal at all.
There's no better way to explain that than to tell a brief little story about the former CEO, Don Moore. Apparently, one time Don said he was close to getting into a fight with Rick Rule at a conference about warrants. They were gonna come to blows over this. That’s wild because Rick was a boxer. I've sent some time around him, and he's a big guy. Don Moore is not, but he had some strong feelings about warrants! Don told me that he was in the room when Murray Pezzim invented warrants on Howe Street? I've never heard that story, but it’s a good one. It was before my time, but it’s relevant. I'm not here to say anything about what happened in the ‘80s. I'm looking at the 2030s and the 2040s and thinking, where are we in 20 years? I'm here in 2021 trying to use this Star Trek technology with the LiDAR scanner to map out these old mines in Nevada and do new things in old places. I can go after these stalled and orphaned projects with these high-class people and put it in a busted shell that nobody wants, then dilute it hard with good investors and roll it back? Get it down to a small share count and do financings up above a dollar?
A contract mining production scénario on patented claims in Nevada with toll milling? We’re looking at some potential exotic materials with these mines, too. They have high-grade silver, but there may be some other metals like antimony or barite that are worth talking about here too. I love these questions about testing different products and metallurgical circuits. What metals endowment are we looking at, and what kind of recovery are we looking at for them? To have a project that deserves this kind of investigation is inspiring for me. I’d love to go from the assay lab to bench-scale testing to trial mining and beyond. Have I ever done anything like this before? No. Am I working with people who have? Yes.
I've talked about our board of directors a bit, and I will mention John Fahmy too. He's one of the few guys that I know who are up on Kermode right now. I can count four people who all invested in the last financing who’ve all posted publicly about it. That's out of +200 shareholders. So Kermode has less than five people I can say who is in the money on the stock right now. Is that the definition of a contrarian play, everybody else in those deals offside? We're gonna come in and have a win on it. How many, how are you gonna make money on this deal? Got to be a contrarian. When are you going to make it?
How are you gonna make me money in this deal? How am I gonna make money on this deal, by being a contrarian, as an investor? How am I gonna make money in this deal as an investor? By being contrary.
How am I, as CEO, gonna make you as investor money? By the CEO being contrary and the investor being contrary.
Or you just or it's just the CEO pursuing a contrarian business strategy. The investor doesn't have to be contrary in necessarily if they're in the deal, then they’re already contrary. Rick might ask me, “Peter, how are you gonna make any money on this deal?” I'll say, “Rick, I'm gonna make you money on this deal by being a contrarian. I have a full set of contrarian playbooks that I'm bringing to bear on the situation for the deal. It started with a hostile takeover, and apparently, people don't do that often on Howe Street? Well, I did. I inherited a mess, and now I'm fixing it.” It's got contrarian written all over it. That's how I'm gonna make you money on this deal by being a contrarian executive.
When will you make me this money? The answer depends. If Rick was asking me the question, then I would have some idea of his investment timeline. He's not a five-cent flipper. He's looking for a series of investment rounds and a series of exits or liquidity events to get out.
I will make him money by being contrary. When will he make it?
If you think about his investment timeline as several rounds of investment, then he's buying the stock over several years and then having some liquidity events by either selling in the market or having a takeover that's asking a lot, but that's the business. If he's buying over three years, then hat's asking for a lot of commitment. The company has to be winning to deserve that repeated investment.
That's what he does, as I understand it. I assume Rick is buying over three years. He starts buying now and buys 10% of the company at a three million valuation for $0.3M three hundred grand. Then he buys 10% at a $20 million valuation for $2M two million bucks. At that point, he’s got 10% of the company for $2.3 million total. Then in year three, he puts another $2.7M for a total of maybe $5M over three years. He puts five million in the company and comes out with 10% of a hundred million dollar company. Right? A ten million dollar market position for a five million dollar cost base is a double over a four-year timeline. That's pretty good, but is it good enough for Rick? Probably not. And that would require the company to go to a hundred million dollar valuation with an assumed amount of dilution.
It's asking a lot. That's a very large amount of growth, but it's a long time. That’s one way.
Think about the Lassonde Curve and the hockey stick of exploration discovery. The market impact of an exploration discovery can be much quicker, measured in weeks or months. I want to position into a company for three years, say. Where are we four years from now?
I don't know what's more likely, Kermode goes to a hundred million valuation in four years or goes from a two million dollar valuation right now to ten million next year. Imagine the share price doubles and share count increases by 40% or something like that. And now the stock is fully valued at a five million market cap. Mister Market is soft out there.
The market price is out of our control. But perception of the company is somewhat under our control.
I make you money in stock by having some control over the perception of the company. Be unpredictable, as per Sun Tzu? Even having a reputation for being contrarian can affect how much you are able to control the perception of the company. Junior mining companies can shape the perception of the company in certain ways that are bullish or bearish. Being contrary doesn't guarantee success. If anything, you probably make it more difficult.
Being contrarian can make the wins bigger. And if you watch the downside then you can survive over time.
What kind of a win are we talking about? Exploration wins can be quick, but big discoveries are slow. They happen quickly, but they take a lot of work to fully realize. Drilling off a million ounces of gold takes how many months?
With the Kermode deal, how do we make money for Rick Rule on this?
One answer is to take a flyer then continue to invest in the deal and watch it grow into something that becomes part of his empire. That's the thing for Rick Rule. He’s not just thinking about financial performance, especially now that he's not running his fund anymore. Maybe I don't know what motivates him, but I think that his community is really important to him. He wants to invest in companies that exhibit at conferences and play ball with the street. He’s building a media company in his retirement now because he knows the street needs it. I think that is positive for the junior mining business. I think that having him as a public figure benefits us all.
I don't know how his personal investment styles differ. Now that he's retired from Sprott Global, but I have some idea how he would run positions when he worked as an institutional fund manager. That's the kind of a phased approach. I'm talking about and having the company's marketing is important in that world, being part of the conference circuit is an important spot.
Global wasn't really in the conference business, but they kind of were. But now, Rule Investment Media is part of investing in junior mining companies. Having them be part of your promotional media company is that part of how Rick makes money on the conference fees? The answer to that question is no, he's much more serious than that, but there's a part of that question.
That's really because he does want to see our marketing, and he wants to see us as part of his world.
Something about making money together. How will you make me money? And when we make it, there's something about doing it together. That's important to Rick. He wants to be part of it. If you are in the junior mining business, it's a really participatory thing. If you just came back and say, “oh, by the way, I found all this metal, and I made this discovery, I hadn't told you along the way.” Would he be happy? Yes, very happy. Metal is metal. Even if we didn't know about it when it was being discovered, we’d appreciated the metal inventory. That's not what works in public markets. Maybe he's doing that privately right now that he's retired.
Consider his universe. Think of how big his opportunity set is. He has a bunch of different ways to make money on a deal. How does he make money on deals?
It's not just about one news release. It’s about news flow and action. It's about action. Stock action, exploration action, and it's about community. It really is. Who else are charism and company? How are they treating the stock? How's the management treating the investors.
If you go with the contrarian answer then you can give an answer about “When will you make it?” It depends on what you're holding period is. If we have this idea of what Rick’s holding period would have been when he was institutional now that he’s retired; what's his holding period? That's a good question because it tells something about the high net worth profile.
What are the holding thresholds for their high net worth? One big question is whether they want to turn the portfolio. The stock has no liquidity. Do they want the stock that they get in the financing to be on the market? Yes. Do I want them to be in the market? Yes. Do I want them to be short stock? No. If they're short the stock, do I want them to be in the financings. No.
How does somebody who's buying this stock in the financing make money in it? Buy-and-keep-buying and watch the team execute. Kick us up a level. But that's not the question.
The question is, how are you going to make me money on this deal, and when will I make it? The CEO makes money on the deal by being contrarian in their strategy. They have to find a “blue ocean.” That's the strategy I'm choosing.
When will I make it? The goal is financing at progressively, higher prices and that is related to the rate of spending. We want the rate of spending to be as aggressive as possible while keeping the quality of the work as high as possible. We don't want to be wasting money and drilling holes to nowhere. We want to be doing high-impact spending as much as possible as quick as possible on as many fronts as possible, but that's constrained by our access to capital.
Depending on the size of the rounds, there's variability in how much work we can take on, how much work we can take on effects. What kind of news we can get. Where's the sweet spot. Where is our feasible set? Is it our best choice to be maxing out everything all the time?
No, No. When will you make money on this deal?
When you make money in this deal,
And to some degree. There's a contrarian aspect to this answer. Because it's not all at once. It's how do you make money on this deal? When will I make it? Slowly and then all it once. How's that?
How are you gonna make me money in this deal? Well, by being contrary CEO.
When will I make it? Slowly, then all at once.
I think that's a reach, but it's pretty funny. And if you can get there then if you say look there's a lot more to this question than me. See, I’ve got a two-hour recording of me talking about everything I think on this. Sorry to waste all your time, but it's such a brilliant question that I just had to take this time to address my thoughts and concerns, and activities for Kermode on this deal at length. Here it is. Thanks.
3 What can go wrong, how will I know what is going wrong and what will you do if it goes wrong? (10 Minutes)
To: Public
From: Peter Bell
Date: November 23rd, 2021
RE: Rick Rule 8 questions
Number three, what can go wrong? How will I know it's going wrong. What will you do if it goes wrong?
Short answer: everything can go wrong, you won't know, and we will throw up our hands and sell the company as a shell. That's a bad answer. That's a terrible answer to that question, but it's a page of the playbook. It's not a page in my playbook -- my playbook is filled with notes that have a lot more detailed in that, but it’s still something that could happen. I think I’ve invested in deals where something like that happened.
To make it specific, I'll describe what has gone wrong since I've taken control of the shell.
On the first day when we took over the company, we couldn’t lock the bank accounts promptly, and the old management team did banking transactions without asking permission or notifying the new team. The day after the AGM, they were in the bank account, adding and removing money without our permission. Why?
A big thing that can go wrong is financial impropriety. That happened on the first day that I was CEO. Thankfully, they end up putting $100,000 into the company, but the reality is that raises many questions. One of the big things that can go wrong is fraud. There are questions about what happened with the old team.
How will I know what is going wrong? What will you do if it goes wrong?
Some of the real material things like that don't get disclosed very well. There seems to be a culture of protecting insiders. I’ve been raising specific concerns about the Kermode financials with the auditors as we’ve now passed the fiscal year-end, and it seems like they're unaware of what I've seen since I took over. We just passed the three-month mark where I've been CEO, and if the auditors don’t know about these questionable transactions, what hope does a shareholder have that they will ever find out?
And what will you do if it goes wrong? The short answer is to fix it. The long answer ties into radical transparency again, which is this idea from Ray Dalio. It's relevant to the junior mining business because this is such a high-risk business where small details can be so important to success or failure. As part of my fiduciary duty, I believe it's fair to be radically transparent and let shareholders understand the business to high level of detail and see what's going on. I have to do that in the context of the stock exchange rules and funding capabilities. There are big constraints on everything. But when people reach out to me one-on-one and when I make public statements, I am radically transparent. We've seen that in some technical aspects of the exploration work so far with my news releases that have a lot of technical detail like maps, rock descriptions, field photos, and sampling methods. We're going to do more of that.
Then, you can also see the radical transparency in these recordings that I'm making. There are other communications that I've had with people where I have been radically transparent for the sake of the deal, and I will continue to be so.
What else can go wrong?
Another thing that went wrong is what I described in question two, where we started work at Eastgate: it became clear that our crew didn't know the property, they were having technical difficulties, and the market didn't really care about this property. Pretty quickly, we realized that this deal Eastgate could go wrong, and we bumped it down the priority list. What can go wrong is that Carrington’s LiDAR scanner can break -- yes, and that happened the first day out. Or our joint venture partner can stonewall us and not give us any exploration data, not provide us with drill collar locations, and not let us even see the core from the 2020 drilling -- yes, and that happened too. What else can go wrong? As I mentioned at the start, the former management can take money out after they've lost control of the company. That happened.
And even this stuff around Eastgate like within the rules, is it material that we were delayed for more work at Eastgate because the scanner broke? Is it material that we're working at Rye Patch on due diligence instead? Check the definition of materiality. I say no.
At some point are our work at Rye Patch will become material. And at some point, we'll go back to Eastgate and do more work. I'm not going to announce that we've canceled our work or delayed it because it's still in play. We have results pending from the metallic screen fire assays from Eastgate.
What can go wrong? The list goes on and on. These old mines in Nevada like Eastgate or Rye Patch can be dangerous. People can go in there and die, god forbid. That's inexcusable. We can't. We have to be very careful about that, and working with Carrington helps because he’s got so much experience.
There's also the financial risk of things that can go wrong. Running up bills that we don't have the money to pay is a big one. The old team did that. They have debts on the book from 10 years ago, which is kind of hard to believe. Those are described in the financial reports, but you couldn't tell that some of those debts are 10 years old just by reading the financials because they don’t really break them out at that level of detail. You could study the financials for many years to track it down and figure that out, but that’s a lot of work beyond most investors. The standard of disclosure on this stuff just isn't good enough, in my opinion, which is why we need radical transparency.
What can go wrong? How will I know it is going wrong? What will you do if it goes wrong? Everything can go wrong. Anything we're doing can go wrong. And how will you know -- this is where the communication aspect comes in. It's really important for shareholders who really want to know how the sauce is made to spend time on it. How long is this recording already? Seven minutes? The last one was two hours!
What will you do if it goes wrong? Again, not to be flippant, but the answer is to fix it. Specifically, we can explain what that means in any context, but the overarching theme is that we fix problems. We're in this solutions business. It's nothing but challenges and problems along the way. That's what we do; we fix problems. We find ways to engineer solutions and temporary fixes or long-term fixes to deal with the chaos in all aspects of our environment, whether it’s how the stock is trading or how the field program is going or dealing with the exchange.
If you look after your downside, then the upside takes care of itself. I think “Look after the downside” means don't get taken out. Don’t blow up your trading account. Don’t spend your entire company budget. Easier said than done, but that's what goes wrong.
Another thing that can go wrong is who we let into the financings. The classic Rudi Fronk line about, “Don't let the shorts in your financing.” that I mentioned in the other recording.
There are lots of things that can go wrong. Drill the wrong hole first and then lose your permits? All the way through your funding rounds, and who do you make promotional contracts? Who do you do exploration work with? Which projects do you work on? From top to bottom, front to back there everything can go wrong. It's hard to fix it once it's broken. Some stuff you can't ever take back. Good question, thank you, Rick.
4 What is the current liquidation value of your company versus the market capitalization? (1 minute)
To: Public
From: Peter Bell
Date: November 23rd, 2021
RE: Rick Rule 8 questions
Question number four, what is the current liquidation value of your company versus the market capitalization?
The current liquidation value is negative. If you were to wind down the company today, you would have more debts than cash. If you were to really pay all the debts at face value, look at over a quarter-million dollars past the cash on hand. I believe that’s outrageous. It's been that way since I took over, and it's got worse over time, as I’ve put some of my own debt into the company.
5 Who else will you tell this story to, how will you tell them, and when? (5 minutes)
To: Public
From: Peter Bell
Date: November 23rd, 2021
RE: Rick Rule 8 questions
I'll carry on with question five. Who else will you tell the story to, and how will you tell them?
Well, you tell the story to anyone who will listen. You tell them any way we can get in touch with them. And we'll tell them every day, all day every day.
The bigger question is, “Who are the evangelists for this deal?” One person can't represent an entire public company, but the cult of personality is very strong in the junior mining business. It is important to have somebody who is a defining personality or character of the deal. I talked about how the character of shareholders in a deal. And there's nothing more than the chief shareholder, as Rob McEwen calls it. Or maybe the CEO is the Chief Promoter? Whatever you call them, the CEO sets the tone. How I broadcast that to the world comes back to this idea of radical transparency.
The “how will we tell them” doesn’t just refer to which conferences we go to. It has to do with whether we tell the people we meet the truth or not. Do we tell people what’s really going on, or do we just tell them what we think they want to hear?
Will we go to fancy conferences? Yes, happy to. They can be very valuable, but they’re not a panacea. Will we send people to conferences on our behalf, or will it be me there every time? A team effort is required, but we don’t have the funding now to do much of that. We don't have cash at all right now. The new money that I’ve put into the company as debt is going into exploration, but the nature of the junior buying business is that the promotional aspect is essential.
The radical transparency idea means that we can embrace the internet more than most junior mining CEOs because I'm a digital native as a 35-year old. And I’ve been more active on the internet over the last five years than much of my competition for other new junior mining CEOs because I’m probably more of a nerd than others in my cohort who are trained as field geologists or investment bankers. I'm somewhat unique as an academic. I have lots of practice going between different communities that are highly technical and insular. There’s lots more to say about all that as it relates to my personal story of my life and career so far, but I will end it there for now.
6 Tell me about your management team and directors, especially their past success in mining and markets. (5 Minutes)
To: Public
From: Peter Bell
Date: November 23rd, 2021
RE: Rick Rule 8 questions
Tell me about your management team and directors, especially their past success in mining and markets?
I am CEO, my friend John Fahmy is our corporate secretary. We have an accountant as CFO. We have two independent directors, one of whom is trained as a lawyer and now works as a junior mining executive, and the other director is trained as a geologist.
As CEO, I have had no appreciable success in mining and markets in the past other than my small-scale promoter business in the junior mining space since 2016. I have some personal success and built some reputation with that, but does Mister Market care about that? Before this adventure in junior mining, I was an academic. I was into applied mathematics, and since 2007, I have done a bunch of small-scale research projects with businesses and universities. I really enjoyed the fundraising side of things, and there was not much competition for other graduate students hustling to get companies working with professors. I’ve been continuing my education with a diploma from UBC BRIMM Bradshaw Research Institute in Mining and Metallurgy where I was in the first cohort of graduates in 2021. Many other interesting parts of my story are relevant to my perspective as a junior mining executive, but no real material success in terms of Howe Street.
The corporate secretary John Fahmy has been my right-hand man for the last 18 months, where we've done a few deals in the Newfoundland land rush and done some other private business in Arizona and BC. He's had some success privately as an investor. He is still a student and still in university. He doesn't really have any material success either as an executive with public companies. He’s helped with fundraising for a few small companies and has learned some important lessons. He’s had some success managing his own portfolio, too.
Our CFO works for a couple other public companies, too. As I understand it, she does not bring a book of investors or promotional connections, but she is capable. She came to us through one of our independent directors, Peter Clausi. Peter was trained as a lawyer and is an executive now. He has been involved in two dozen hostile scenarios in the junior mining business. He’s providing some mentorship to me with this takeover of Kermode. He's had some successes, and I don't know the details of his career as well as I’d like. I can't describe his success offhand, but I believe there was a situation in Ontario where he was CEO of a public company that defined a million-ounce gold resource. I don't know the details of that story.
Francine Long is our other independent director. She's a geologist, and she's worked on a few projects that have some significance but doesn't have any major experience or prior success as an executive in the junior mining business. She's in the Timmins area involved in private prospecting.
All in all, this is a pretty bashful description of the crew. We could come up with a more generous description with more flowery language, but the reality is that none of us had a hundred million dollar exit. This may not look like an A-TEAM right now, but I do believe that everyone here could be part of a winning team. And I think they all can play a different, complementary role for Kermode. At this point, I don't think any of them are going to be buying shares in the next financing round with me, but they are hungry and smart.
One noteworthy aspect of this team is that we’re all pretty active online with junior mining promotions, so you can reach all these people publicly and start to talk to them directly yourself to learn more.
7 Who owns this company? How much did they, or will they, pay for it, and when can they sell it? (10 Minutes)
To: Public
From: Peter Bell
Date: November 23rd, 2021
RE: Rick Rule 8 questions
Moving on to question seven, who owns this company. How much did they or will they pay for it? When can they sell it?
I went through the numbers before on the average cost base before and described how there were around 65M shares issued for a total accumulated deficit of $12M before I got involved. Those numbers mean the average financing share price for Kermode is around $0.20 from all the historical financings. There are no warrants on the deal alive anymore, and most of the financings in the past didn’t include them because one of the founding directors, Don Moore, was strongly against warrants.
The new team has five million options at five cents. The other four million options haven’t been allocated yet. The stock is at two and a half-cent bid. The company last raised money under the old team in a weird deal that started in October 2020 and closed in April 2021. I bought five million shares at a penny in that financing in October, but they didn’t close the financing for six months because they were waiting for the exchange to approve a property deal? I’ve never seen anything like it.
It looks like a hundred thousand dollars in that last financing was check-swaps because the money came into the company bank account from a couple of places and went out immediately after around the April 2021 closing. Then there was about $125-150,000 that looks like real money investment, rather than cheque-swaps because it came into the bank account in October 2020 from several different places. The old team took that money out of the bank accounts and moved it into bank accounts for a private management company run by the CEO’s wife or the other public company they run, called Playfair Mining. I don’t understand all the details about these patterns of transactions. I have lots of questions and few answers.
A lot of the money that came into Kermode in October 2020 came from my associates and me. When I started to see the banking records, I was concerned about how much of the other money in the financing appeared to have been cheque-swaps. And it even looks like the former management team didn't pay for their stock until after the hostile takeover happened? Doing transactions in the Kermode bank accounts without my permission when I was CEO? I've submitted this stuff to the auditors to try to get a reality check on this because what I found so far raises many questions.
Peel back the layers in the onion, and you'll get even more questions. These questions are typically not available to shareholders to see in detail, but they're very important. It's part of the radical transparency thing for me to have some discussion publicly about these and topics. I want to tread carefully to show respect to the old management team, but I think my fiduciary responsibility is the single most important thing for me as CEO. I am working with the auditors to try and bring some reality checks because the company was run for 30 years by the same team. Bright light is the best antiseptic?
Here’s a question that I can’t answer: How many shares in the all-time history of the company were ever check-swapped? It may look like the all-time average financing price is twenty cents per share, but if 80% of that money was check-swaps, then what's the real number? I don't know. I don't know how to calculate that.
One thing I can calculate is how much exploration spending they did at different projects over time because that is detailed in the financial reports!
I can count $3M three million dollars in exploration spending that they did in Newfoundland at the Jackson’s Arm project circa 2007. Then maybe another million dollars elsewhere? Where exactly, I don’t know. I can't see any spending that they ever did in Nevada. If they had a $12M twelve million dollar accumulated deficit and I can only find $3M three million in spending from Newfoundland, then what does that mean? There may be another two million dollars spent on exploration elsewhere, but I don't even know where they would have spent two million bucks because they left unpaid bills in Manitoba when they did exploration there around 2011. There is still almost fifty grand in debt due to a lab and geological contractors in Manitoba from ten years ago, so I don't see them spending millions in Manitoba. That means I can only really find the three million they spent in Newfoundland.
If they only spent three million in exploration and have an accumulated deficit of twelve million, then where is the other nine million bucks? Was that all overhead costs for 30 years at $300,000 a year? Are we really talking about a thousand dollars a day for overhead to run a public company since 1993? That seems to me like a pretty generous number on an inflation-adjusted basis. So who paid for all that? Who paid for that nine million in overhead? Was that all funded by hard dollars, or was there some cheque swap in those shares?
I don't know what the real cost base is! I don't know how much of that money was going back out as related party transactions? I don't know.
Who owns this company? How much did they or will they pay for it? When can they sell it?
Who owns this company? I don't know. I've studied the NOBO list and the list of shareholders you get from an annual meeting with the vote, and I can tell you that a third of the shares are in street name. A third of the shareholders are in personal name and have a large position. And then a third of them are in personal name and have smaller positions, less than 1 million shares. We have distribution statistics. We have over 200 shareholders.
What's their average cost base? Is that 20 cents number based on the accumulated deficits and the number of shares? Or can we go through the prior financings one at a time to understand the details? The latest financing was this 25M shares at $0.01 in April 2021. Before that was a long period where the company didn’t do any equity financings -- they sold assets like Jackson’s Arm gold deposit in Newfoundland in 2018. There was financing in 2014 where they issued 530,800 shares at $0.05 per share for gross proceeds of $26,540 with no warrants. And in 2013, there was a private placement for 6,300,000 common shares at $0.05 for gross proceeds of $315,000.
In 2012, Kermode issued 3,700,000 shares as flow-through and 50,000 non-flow-through shares around ten cents a share for gross proceeds of $300,000. Then in 2008, it issued 2,000,000 shares at $0.10 per share for proceeds of $200,000. And in 2006 they did several rounds: Kermode issued 10,855,250 shares at $0.25 per share for proceeds of $2,713,813; issued 480,000 common shares at $0.25 per share for proceeds of $120,000; and issued 5,483,868 flow-through shares at $0.31 per share for proceeds of $1,699,999. The year 2006 was a big one for Kermode with the Jackson’s Arm project.
How much did they pay? Will they pay for it? When can they sell it? All that paper is free trading now. As I said before, about a third of the stock is in street names, and two-thirds are in people’s names who still have the share certificates. They still have those shares sitting in a safety deposit box somewhere. Half the stock of Kermode is sitting in safety deposit boxes? Only a third is in street name ready to trade? That’s a lot of stale paper. Is anybody watching that? What's the borrow on the stock if someone wanted to go short? Again, lots of questions and not a lot of answers.
8 How much money do you have, how much money do you need to succeed, and how are you going to get it? (10 Minutes)
To: Public
From: Peter Bell
Date: November 23rd, 2021
RE: Rick Rule 8 questions
Question eight, money? How much money do you have? How much money do you need to succeed? And how are you going to get it?
When I joined, I didn't know how much money was in the treasury at Kermode. I became the CEO on August 10th 2021 and I didn’t find out the bank balance for over a month. When I got the bank statements, I found out the old management had been in the company bank accounts the day after the hostile takeover. Of course they had! And they didn’t tell me about it? I’ve asked for more info since then and basically got nothing to understand why it looks like Playfair Mining took out $20,000 from the Kermode bank account on August 11th? I contacted BMO the bank to say, “Lock the accounts!” but they didn’t act fast enough to do that. What a terrible story!
Thankfully the old team added more money than they took out. They left less than $100,000 in the bank account. The last deposits were from bank accounts that hadn’t appeared in any transactions back through 2018 and they look like the personal accounts of the former Directors for the amounts they took in the financing. They closed a financing in April for $250,000 and then left $100,000 in August. Where did the $150,000 go? Well, they did $30,000 in exploration spending. What else?
The question of “Money?” for Kermode is wild. If past is prologue, then the future must look a lot different from the past to get a different result. The history of Kermode is that everyone who has financed the company appears to be under water. Can we change that?
Yes. I started to make payments using my own credit card before I even knew how much money was in the bank account. I made an initial ten grand in spending in August for things in America, like legal and claim fees. I paid for some of the BLM charges at Eastgate and I think that’s the first time Kermode has contributed to that project in years. I’m so bullish on that project that I funded a work program there on a debt basis. I started with a CAD$60,000 budget, which was approximately 15% of the total budget from Southern Empire’s 2020 drilling program. The numbers lined up well and we have one batch of sample assays published with a half-ounce gold number. Then I paused work at Eastgate in favour of Rye Patch and that’s ongoing.
How much do we need to succeed at Rye Patch? We’re already succeeding there with our exploration plans and deal term negotiations. I’ve funded that stuff privately to start. I'm in for CAD$85,000 debt into the company now.
I’m using company money for the first time tomorrow on Wednesday, November 24th.
We are making our first payment here from the company, and we're paying the auditors for last year's audit. That's our first payment that's about seven or eight grand. That's going out relative to a hundred thousand in the bank. That’s just the start of keeping the lights on.
How much money do you have? How much money do you need to succeed? To succeed…
The first thing that I've tasked myself with is getting us in compliance with the continued listing requirements from the exchange. Doing things like settling bills with our auditors. Paying last year's audit is necessary. We have to do that, and we're doing that. Paying it is the first step towards success, believe it or not. That's actually a really important event, in my opinion.
This company, in the past, has gone years without paying the auditor.
The auditors let them do it because these guys had multiple companies with their firm? They let them stretch it out, apparently. We're not going to be playing that. We're going to need to be more current with our cash spending on overhead. And I will aim for a higher spending rate on our exploration projects versus the old team, too.
This company has had an option on the Eastgate property since 2011, but I can't find a single exploration result ever published by the company until I published one in October. Hmm. What? That news cost less than ten grand, and I paid for it with debt. We got a half-ounce gold per tonne at the surface for less than 10 grand? And we have metallic screen fire assay results pending? Yes, please. Yes, please!
Tell me about Rye Patch again? Well, Rye Patch took precedence over Eastgate. We have announced that we have metallic screen fire assays pending, and that's it. We don't have any scanning work at Eastgate done yet. We will but accessing the underground workings is not the easiest thing to do.
After we get the results of that work, we will know more, and we'll be able to say what the recommended next round is and how much for money. We should race to do it. The answers, pretty simple. We will need to do more underground channel work and the geological mapping, and geophysics at the old mine. We have a five-acre plot of land. We have a really focused area of interest. Fine done. Simple, good house access.
Yes. What kind of mobilization timelines are we looking at? What type of scope of crews can we rally? How much does Carrington cost? What are our project holding costs? You add all these things up, and I see a pretty simple picture that we can do a lot for a little.
And we can do it pretty promptly. Carrington is a pro in Nevada and Nevada's tier one. It's expensive to be in a great place. But if you're obsessed with being great, then you're in the ballpark. If you're in the ballpark for hunting, for me, for 100 grand, putting debt into the company for 100 grand Canadian.
And when the ballpark, okay, that's debt. Now, what's the next? What's the equity round? Quarter million? Half a million? Is that how much money we need? Or how much we're just gonna raise. Just we have it. Well, how much are we gonna spend? Yes. More and more and more.
These projects will just keep spending money as we can raise it and as we can manage the budgets. How much money do you have? Yes, how much money do you need to succeed? This is where the definition of success comes in -- whose definition of success?
I'm after some pretty substantial success. And it's not just one thing that I'm after. My goal is an ongoing campaign of success. I want things to keep going.
How much money do you need to succeed? I'm already succeeding, right? If you understand my goal set of where this started as a hostile takeover and a turnaround situation to where it is now, then you see that we're already having success. It’s already moving to this next level, but we are far from a Rick Rule success. Does this look like a win to him if it runs to a $50 million valuation after he buys in at a sub ten million valuation? To get this to a $50 million valuation, you’d probably have to spend four million Canadian at least. Maybe 10? Maybe that's asking a lot. That would require high-impact exploration spending. That's just me grabbing numbers in the air -- I don't have any comps for that.
Could I spend five million Canadian dollars on this project? Yes, of course. We can spend more money on these projects whether they deserve it or not! The benefit of having only five acres is that it really focuses us on the old mine. When you have these old workings, you're at the face. What does that mean for contract mining and toll milling?
Five million at Rye Patch isn't five million at a project in Alaska. It’s five million at an old mine from the 1860s in Nevada on the patented ground.
Is the success we're looking for just to drill a hole with a hit from the surface? I don't know. That's not really on my list of priorities. How much would it cost to drill some holes at Rye Patch? We could get RC in there pretty simply and start poking a grid. I'd love to make a bunch of shallow, 10 metre holes from top to bottom, side to side across the whole mine claim. Vertical holes at two metre spacing? Or even just concentrate a bunch of angled holes pointed back around the known zones where you can drill outside the old mine where veins outcrop in the far side of the property? Done! It’s just road-building costs. But do we do the road-building first, or do we do the underground development first? Put the timber work in, reinforce the underground workings, get the underground drills in there -- do you do that before you drill from the surface?
What does the market appreciate more? What do your financiers want you to do? What do you as management want to do? What counts as success. Can you do both of them at once? What is success in this business? I want to do something meaningful here in my first time as a CEO for a public company. I want to bring a kind of portfolio strategy to the exploration business.
We want to have a variety of properties that we can do meaningful work on regularly at any one property. We want to have a variety of programs going on that different things can work, and we want them to be able to work independently or in concert.
Sometimes things can go in series but have things that are or sometimes that are in sequence, but if things are in sequence, we want to get a magnifier on them if they're in, right? Look for multipliers when you're trying to define success and look for spending budgets that are exothermic reactions.
Look for the one round of work that generates results quickly enough that it allows you to fund the next round of work immediately with high confidence. The smallest amount of money that has the biggest impact, the fastest.
In the most meaningful way. Okay. But specifically, how much money do you need to succeed? Again, I don't have a good answer for that. Not offhand. Ask Carrington about how much it costs to get underground drills in there. How much does it cost to build roads to get RC at the surface?
How much does it cost to do geophysics? How much does that cost? What do we do first? First things first, we do this underground LiDAR, which I’ve funded off debt, and do some selective channel samples, again funded off debt. Then you do more selective channel samples.
You probably do geochemistry first, then geophysics and then underground drilling and service drawing and then trial mining and talk trial mining with contract miners and toll milling? How much money does it cost to do all that? You can spend millions and millions on that you've probably spent 10 million dollars doing that.
If you spent 10 million dollars mining at Rye Patch Mine, then how much metal would you generate? I don't know. 20 million, 25 million dollars worth? Maybe more, maybe less. Is that success? That's a story.
Success for Kermode now is keeping the company listed, finding a crew safely, mobilizing on a program, and getting results out to the market. Success is in the inches -- the ground game. The big success is composed of a lot of little successes.
How much money do you need to succeed? As I say, we're doing this exothermic stuff from now. That’s setting the foundation. But what's the next program that we need to fund? Geochem sampling.
Can we beat the best old numbers?
There's a 4,000-gram silver number on this project. Let's get a 5,000 gram one.
How much does it cost to achieve that? 100 grand or USD$250,000? We would likely be able to accomplish that for less than two hundred and fifty grand and achieve it in a convincing way to the market. Not in a one-off way that Mister Market can disregard as “spurious” or a freak result. If we find the mine face and see this stuff with an average of 2,500 grams silver? And it spikes to 5,000 grams regularly? Imagine what the distribution of sample grade looks like from a mini-bulk sample of 500 kilograms?
Suppose we are prepping for a bulk sample. How much money do you need for that work? What about 10,000 tonnes? The underground mining was already done, so what are the costs? Maybe a hundred dollars a tonne. 10,000 tonnes. It's a million dollars.
Are we serious? You've got the underground workings from the 1860s. Can we use them today? You're potentially looking at a million dollars for a 10,000-tonne bulk sample. A million dollars for a trial mining scénario sounds like a pretty low number in the grand scheme of things. Contract mining and toll milling are some of my favourite things. That’s a reach goal at this point, but I think we can get there.
The basic program I did is like fifty grand US. Less than fifty grand for the LiDAR scanning and some initial geochemistry -- even after wasting time at Eastgate. I can come back with another fifty grand for even leaner and meaner spending. The best projects get better the more you work on them, and the more sampling you do in the old mine, the better 3d model becomes. So we refine it, add geophysics, geochemistry, and geological mapping all together in the 3d model to get as much data as we can. And then make the full data package in AutoCAD or Leapfrog with all these layers of data available for free to everyone publicly.
How much does all that cost? Less than a hundred grand USD$100,000? The geophysics may start to get more expensive, depending on which techniques we do. And we may find there’s a lot more geochem spending to be justified by initial results. But we can make a lot of progress in a really focused area at the old mine with geophysics from the surface and underground in the old workings.
I think you can get a first pass on some effective programs pretty simply. You can certainly get the assays done pretty simply. And the fieldwork for the geochemistry for the channel samples is less than fifty grand to start. Maybe some geophysics for the same price. Of course you can always spend more. I want to spend millions at Rye Patch. Even on five acres with “apex mining rights” you can have a significant metal endowment. Imagine doing magneto-telluric surveys here. With seismic imaging of the old mine and the vein structures that are still there? Then drill holes underground from old workings that you use to do down-hole geophysics, underground? Yes, please!
MMI at surface? Or “trial mining at surface”?
Come on, there's a whole bunch of different things you can do. Understand what makes sense and go forward. I want to see trial mining. I want to see toll milling. I want to see mine-ability. I want to see recovery-ability at scale. I want to see just a few drill holes. I want to see underground mine workings. I want to see if we can do a pit mine at surface here? We don't have a large surface area but we have apex mining rights. So what?
Can this old underground mine become a good new mine? That's the question. What is an underground development scénario look like here. That's where you start spending millions.
How do you define success? And how are you going to get it? That's the binding constraint at this point.
Our access to capital is the binding constraint for Kermode now. There's a “pecking order hypothesis” in corporate finance that ranks the different sources of capital for different circumstances. So far, the capital I've chosen to use is debt from myself, and that's because it's come with the least strings attached, and it was the easiest to close. As a new CEO dealing with the exchange is proving to be difficult. Actually getting the money into the company via debt was the best way to move it. Now without draining the treasury and putting us in a position where I had to pay for debt for the auditors because I'd rather pay for debt for exploration work than for auditors.
I used the company money for the auditors and spent my own money on the exploration work to get started. That's how I got us money to get started to date. Looking forward to where we are gonna get more? That’s a big question.
I'll tell you, my right-hand man John Fahmy has been scared about this question because we don't have a good answer.
We don't have a backstop financier. We don't have track records or networks that allow us to raise large amounts of money simply. We've got small retail networks, but the good news is we have a pretty small project. If we do small things at a high-quality project, then we can generate high-impact results quickly and pull ourselves up by our bootstraps with our small funding group. Even me -- I can fund a bunch of stuff from here on out to keep it moving, particularly on the exploration side. We have some money for corporate stuff to keep it going there and then really use my money to keep doing these exploration plays.
There's much more I'd like to do. But do one thing, do it well. Then do another. We're doing that on several levels. We're doing that project-wise and then within the project. We're doing that with the 3D modeling to start, then we'll do the geochem, and then we'll do more geochem. And then we'll do more geochem. Then we'll do geophysics. Drilling. And then we'll do trial mining. Underground drilling. Underground development. Each of those has variable budgets that can expand and contract. The amount of time we spend at each stage depends on how much access we have to capital and how good the results come back.
It's a big hustle to get ourselves known and get to do work that people take an interest in. Then to represent the work we do, set up ourselves, and tell our story publicly with big hustle. But that's the game, that's the junior my business. That's what you signed up for.
How are we going to get it up on the stock market? Sorry to be flippant about it, but we're gonna play ball with the street. We're going to do stuff with promoters. We're going to do things ourselves. We're gonna be contrarian, and we're going to be consensus. We're going to have many faces and be many different things to many different people, but the reality of what we do in the field and the board room is just black and white. We're going to focus on this new project in Nevada from a promotional perspective because it’s the best story we’ve got going now. And it's not even in the company yet! It's about what's forward. It's about growth, and I think that's important in junior mining. It's always about what's next, right?
What next?
How are we gonna raise money? We focus on what next. And we watch the downside to make sure we don't get taken out of the game. So we’re gonna focus on what's next and keep it moving. But, of course, a simple playbook is easier said than done. But I think it's a bullish time out there, and I think there's more money getting printed every day.
And I think there's an audience for the stories that we have.
Stories like I've been telling for the last couple of hours. And I think there's an audience for this Rye Patch story as well. If we can really get this one off the ground and show people what I think I see here.
I think I've got a good sense of deal flow, and I think this deal smells good. If I can help show other people what I see here and do it in a classy way, it will earn me some respect on their street. Then that's how we pyramid and raise more money at higher prices. That's the goal.
Where do we get it again? It's the barbell strategy I talked about in another recording of people. We know real deep relationships and then complete strangers. Flip-flop. Everything. We cover all aspects, up and down, as we can globally and locally -- we are open for business with public markets. That's the name of the game.
That's it! I'll wrap it up. Thanks, goodbye.
--
Throwback to my 2016 interview with Don Moore talking about Playfair Mining, which was also one of my first ever interviews. Small world!
https://ceo.ca/@Newton/4900-words-with-don-moore-ceo-of-playfair-mining-plyv
