The People, The Project and The Politics: Vizsla Resources Corp CEO Michael Konnert on the Copala-Panuco Silver Gold District Opportunity
There has been a fair bit of talk surrounding Vizsla Resources Corp since it announced its option of the Copala-Panuco silver gold mines in Sinaloa, Mexico, in September. There are several recent interviews and presentations available on YouTube, with much of the content coming out of the Metals Investors Forum in November.
Keen on learning more and having consumed all the media coverage available, I decided to reach out to the company with a few questions. What follows is the product of a discussion between Vizsla CEO Michael Konnert and I. The transcript of the audio recording was cleaned up for easy reading. TO LISTEN TO THE RECORDING (26:11 minute length) CLICK HERE.
Thanks for listening/reading everyone.
Vaughan: Mr. Konnert thank you for agreeing to speak with me today.
Mr.Konnert: Thank you very much for having me. Glad to be here.
Vaughan: You are the CEO and founder of Vizsla Resources Corp, which IPO’d in 2018 to go exploring for copper. In September you announced an option on the Panuco silver mines in Sinaloa, Mexico. The market has reacted quite favourably to the news moving the share price from .26c pre-option agreement to about .52c today as we speak. Congratulations on the initial market reaction.
Mr. Konnert: Thank you. We're very, very excited about how the story is being received and we think we have a lot left to demonstrate to investors here.
Vaughan: As retail investors, we often hear that people are key even more important than the projects being explored. You alluded to this in a recent interview, I believe it was “car ride confessions with a CEO” with Justin Hayek. I won't go into your team so much today but suffice it to say, it only takes a quick look on the Internet and at the board of directors and special advisors to see that your team has a long track record and strong expertise in capital markets, geology, mine engineering, etc. You’ve got all the bases covered by the looks of things, but you’re personally a young guy and relatively unknown to the retail market. Could you tell me a bit about yourself and the strengths that you bring to the table as CEO?
Mr. Konnert: I think being a young CEO, somebody that's passionate about the industry and passionate about building value, is an advantage. I'm happy to go to the people on my Board and advisory group, which is comprised of a great group of my mentors. I can ask questions and get great answers from them. Being a little bit more on the inexperience side, surrounding myself with people that have done it countless times before and have great reputations is key. being able to easily go and ask for advice from people that are very successful is a strength.
I have a lot of energy and big goals for what I'm doing here.
Vaughan: I think it speaks volumes that you managed to assemble the team that you have and that these guys buy into your vision and what you're trying to do here. How did you go about building your mentor network over the years to be able to get to a point where you can put together such a great team for a prospective project?
Mr. Konnert: I’ve made them all money at various times. It all started with working with Craig Perry. I think I talked about this in other interviews, but he saw something in me I suppose and backed me to start a cobalt business, as did a lot of the advisors and board I have surrounding me now. They were early seed shareholders in that company and were able to to make money so they saw that I have abilities and some talent for this.
When I asked them to join the board of Vizsla we didn't have a real project, we only had a vehicle that I was intent on building into a real company. I was able to sell them on this vision as well but it all came from creating value for them earlier on.
Vaughan: Making investors money never hurts in convincing them to back you again.
THE CAPITAL STRUCTURE
Vaughan: Now turning to the capital structure. Vizsla currently has 48 million basic shares outstanding and a fully diluted float of about 65.5 million shares, which includes the 10 million shares just issued on the closing of your recently closed brokered private placement. So this leaves about 5 million shares to be issued in the non-brokered private placement, and without warrants attached I might add, which kudos to you on that. That's not easy in this market.
So, on the closing of the financing there'll be about 70 million shares fully diluted, is that accurate?
Mr. Konnert: Yeah that's correct.
Vaughan: And of the 48 million shares that are currently outstanding how much is publicly available to trade for retail investors?
Mr. Konnert: We have about 10 million shares or so held by insiders and advisors. You just saw our chairman take another $200,000 worth of the placement. I took a small amount of the placement as well, about $15,000 and I bought another $5,000 in the market. We're continuing to buy more shares that we'll basically never be able to sell until we sell the company or go into production and receive dividends. We're happy to take a very long view on this and have a lot of our shares be held by insiders.
There's another 20 million shares that are under escrow, including the 10 million shares locked up in the recent financing, the 6 million shares from the vendor that are locked up for three years and there are other various stages of shares that are in escrow such as the seed stock.
Then another 8 million or so are held by our close friends, associates and supporters that are very long the stock and most likely won't be in the market. So it's a very tight float. I think that's about 10 million shares that are out there available to trade.
Vaughan: That is a very tight float actually.
As part of the fully diluted float there's also about 14 million warrants out with an exercise price of .25c, and 3.3 million options with an average weighted exercise price of .16. If fully exercised this would bring in about another $4 million. Have you been seeing any warrant holders exercising at this early stage?
Mr. Konnert: We have seen a few but a lot of those are just broker warrants. However a few people have decided to exercise some warrants and warrant holders are all people that were close to the company. I wouldn't mind seeing some of those warrants come in and give us some more ability to finance without a capital raise. The share price might need to be bit higher but that's fine.
THE PROPERTY/DRILL PROGRAM
Vaughan: You look to be in a good position to drill hard and fast with the financing you just closed ($4 million) and then another $2 million non-brokered tranche that should be closing shortly, for a total of $6 million in the bank.
You mentioned to Eric Coffin in a recent interview that you have budgeted more or less $5 million for the initial discovery drilling and the idea will be to start drilling at the Animas vein. Depending on exploration success, you'd keep the drills turning there and bring in another drill elsewhere. What are the terms of your exploration permits and are there any restrictions to ramping up the program if you are seeing success?
Mr. Konnert: Currently we're able to operate under the vendor’s permits that they have on the Animas vein so we don't actually have to get any particular permits there. If we were to step out into a new discovery elsewhere in the 15 by 8 district that we have, we may have to go get a permit depending on where that hole would be.
You know permitting is actually a relatively straightforward process in Mexico and our vice president of exploration,Charles Funk, has had years and years of experience with that in Mexico. We have established a team that is working very closely with the right authorities to ensure that we won't have any bottlenecks with permitting.
Vaughan: I’ll touch a little bit later on the jurisdiction and political climate there but I've been reading in the news that new permits for unexplored land aren't really being given out but those that currently are held are humming along as normal.
Mr. Konnert: It really depends on the area. But these are established concessions that existed for a very long time and that have been producing in most cases, so it's a true brownfield zone. It's not like we’re in the middle of a park where there's concerns about disrupting too much. Of course we're being very, very careful but it is an existing mining district and different than some other places in Mexico.
Vaughan: What are your working estimates regarding drill costs?
Mr. Konnert: It's our goal to keep it below $200 dollars a meter and I think that's quite achievable. Of course after we start drilling we'll be able to start reporting costs in real time but $200 per metre and under is the goal.
Vaughan: Are you hoping to start with a pretty big program and build as you go?
Mr. Konnert: I think to keep it in line with our projections, you'll see at least a 10,000 meter program of drilling here in the first year, but that could double. We're working on making these new discoveries underneath the old workings and finding new discoveries on the property as well, so we really are going to do what the drill results and ore dictates. We're quite flexible on how many meters will do and if we need to go and raise more money to finance that we’ll go to market.
Vaughan: In a recent Metal Investors Forum video posted on YouTube, you mentioned that you have about 35 kilometres of underground workings on the property and that some are in better condition than others. Exactly how much of the workings are usable?
Mr. Konnert: Well that's a good question. They're all workable in a sense, depending on if you wanted to go and install some safety mechanisms in there. I would say half of them are at a Canadian standard level, so very good condition.
It's a significant network and after talking to VP Exploration Charles Funk last week, the 35 kilometres estimate is probably a little bit on the lower side. During reconnaissance, mapping and sampling they've come across even more workings that weren't recorded in the past. It’s quite impressive.
Vaughan: Now, getting to the sticker price of the option: just shy of of $42 million at the end of the day, payable over a six year period. It’s a fairly expensive option price on first glance.
Mr. Konnert: Well it's only going to get paid if the potential here is for a true world class vein field. We have the scale, we have the grade, we just have to find out if there's enough metal to justify that back end purchase.
The total price isn't just the vein field either. It's also the agreements that come with that, it's the permits, it's the mill, it's the tailings, it's the now over 75km of total vein extent, it’s 35km plus of underground workings. The other interesting part is that there's infrastructure such as high tension power and a highway that run directly through the centre of the project.
This isn’t very common to see in exploration projects but this isn't really a common exploration project. It's essentially a two year option on buying a producing district and were we to have to rebuild all the existing infrastructure we'd be spending decades and probably a $100 million dollars to replicate what we have. So the price tag at first glance may seem like a lot, but it's really not a lot if you're talking about buying an entire silver vein field that's demonstrated high grade already.
Vaughan: The option price hasn’t seemed to spook the market either. Are there any inherited liabilities that would have immediate impact on Vizsla? Any environmental liabilities for example?
Mr. Konnert: We did pretty significant due diligence on the project. We took the year to get these agreements done and get the due diligence finished. There are no liabilities that we'd be inheriting. We also structured the deal so that when we see the mechanics of it all, it would limit any liabilities if they were to exist.
Vaughan: Turning to the jurisdiction for a second. You're in Sinaloa, Mexico, which is not known to be the safest of jurisdictions with lots of examples to point to throughout the years. Did you have any reservations about the jurisdiction?
Mr. Konnert: When you hear about Sinaloa - and Netflix isn't helping with these shows on the Sinaloa cartel and things like that - you have a certain reaction, but when you realize that the property is literally 45 minutes from the Mazatlan airport and near Mazatlan where there's hundreds of thousands of snowbirds from Canada and the U.S. go there every year to live, we're happy with the security situation there and I don't see any issues with it.
Of course, we did a security audit on the project. We looked into the history there and we were satisfied that this was in a tourist bubble, so we were satisfied with our security research. We haven't had any issues on the property and we know what we are doing everything we can to be the safest we can out there. Of course it's a high priority.
Vaughan: Have you hired private security of some type?
Mr. Konnert: We haven't hired personal security teams but if we ever did feel the need to, we certainly would do that.
It's not like we're in the back jungles of Mexico or in any area that has any type of illicit production or anything like that. It's really just a mining district that sees lots of tourist activity as well.
Vaughan: The ruling Mexican political party has been creating quite a bit of uncertainty since taking power in 2018 and even before. 2018 marked a 12 year low in mining investment in Mexico. The left of centre President Obrador, who started his political career focused on indigenous rights, has publicly stated his support for local miners, landowners and the environment.There has also been discussions around the raising of taxes on mining, exploration and concessions, and the new Napoleon Gomez Urrutia initiative announced at the end of October is proposing tighter regulation on subcontracting, which would raise costs for companies like your own.
How is your company positioned to deal with the changing political and regulatory landscape? Do you have any advisors on the ground in Mexico to help with this?
Mr. Konnert: Within our board we have access to very good advisors on this. Specifically through our Ausenco engineering connection, which Simon Cmrlec is the top executive of and he's on our board.
We also have a team of advisors in Mexico, yes. We've built this very good network of people that are helping us navigate any issues.
To speak to the subcontracting or outsourcing initiative: there are a lot of these initiatives are are essentially intended to go after corruption by companies. We operate ethically in the country and we're not the intended target for these outsourcing initiatives or subcontracting initiatives. It’s for companies that are skirting the law and that's not what we do there. We have excellent advisors throughout Mexico that ensure that we're doing things the correct way. Its very important to us and we'll remain dedicated to that.
Speaking to AMLO (the president of Mexico): a lot of politicians like to make big sweeping statements to gather momentum behind those statements, but it doesn't end up as severe as they say. Mining is such an important part of the economy of Mexico that I'd be very surprised if if the president would be able to really do a lot of damage to the industry. We're very comfortable with Mexico going forward and being in a existing mining district certainly makes us feel comfortable as well.
Vaughan: In October Argonaut Gold inform the market of an illegal blockade at its El Castillo mine that boiled down to contention over Ejido Agreements signed in 2012 and effective through to 2022.
Regarding your Ejido agreements, how long until they need to be renewed?
Mr. Konnert: The existing Ejido agreements which were agreed to between the Vendors and the local groups exceed the duration of the option. We are working with the Vendors, our advisors and Charles and his team in Mexico to build relationships with the local communities. We want to basically ensure that we're successful from the beginning.
Vaughan: With Argonaut Gold, the issue as I understand it was that the different landowners were receiving different treatment under the agreements and they weren't very happy about it. Some were being paid less than others. Are the terms of the agreements that you have standard for the area and are they substantially similar in terms?
Mr. Konnert: They are standard and they were done well. Of course as I mentioned we have our team working within these agreements already. It's a very large district so some of the land is off of any area that's been in production or exploited. Therefore the terms aren't exactly the same as the ones that are on the centre of the Animas vein.
Vaughan: Perfect. Well Mr. Konnert that answers all my questions for today. I want to thank you for taking the time to speak with me on a Sunday morning. I know we all have other things to do on the weekends.
Mr. Konnert: Well thank you and I’m glad to do it.