It is my pleasure to share a transcript of a recent conversation with Mr. Jonathan Fitzgerald, the Chairman of the Board of Directors for Anaconda Mining (TSX:ANX). The story behind Jonathan’s involvement in Anaconda is compelling, tracing through family offices who are bullish on gold mining in the Maritimes and a successful merger between two unassuming junior mining companies. Read on for all the details.

Mr. Fitzgerald is an investor and investment banker with 25+ years of experience in which he sourced and executed a wide variety of transactions across multiple industries and capital markets. Following his return to Toronto in 2012, Mr. Fitzgerald co-founded Stope Capital Advisors, Inc. ("SCA"). SCA engages in a variety of merchant banking transactions in the mining, energy and agriculture sectors. Mr. Fitzgerald is the Chairman of Anaconda Mining and was previously Chairman and CEO of Orex Exploration Inc.

Mr. Fitzgerald received a B.A. with Distinction from Bowdoin College, a MSc. (Econ) from The London School of Economics and an M.B.A. from the Wharton School, University of Pennsylvania. Mr. Fitzgerald is a Canadian and British citizen and lives in Toronto, Ontario and Ketchum, Idaho.

Find out more on the team at Anaconda Mining here.

Peter: Hello, Mr. Jonathan Fitzgerald.

Jonathan: Good afternoon.

Peter: How are you?

Jonathan: I’m very well, thanks. It's a pleasure to have an opportunity to talk with you, Peter. You already know some of the exciting things that are underway presently at Anaconda, yet there is always more to learn. Thank you for your time.

Peter: You’re welcome. I recall when I first saw your name in the news release issued jointly by Anaconda and Orex, Jonathan. I wasn't familiar with Orex at all but had been following Anaconda for a few months at that point. I was very intrigued. I am glad to finally be in touch with you here and now.

Jonathan: It's a pleasure, Peter. I appreciate your interest in Anaconda and the opportunity to share our story.

The acquisition of Orex Exploration by Anaconda Mining was a transformative event for both companies, though I consider the transaction to be more akin to a merger than a sale. Perhaps that’s just my own egotism since we sold our company….via an all-equity transaction.

We did an all-equity transaction because our shareholders wanted to participate in the investment upside of the pro forma business. Though Orex is no longer an independent operating business the former Orex shareholders remain very committed to the business, as evidenced by the transaction’s shareholder vote of more than 99% in support. That percentage, by the way, was only slightly higher than the Anaconda shareholders’ favorable vote.

We're excited by the opportunity to work with a very strong management and operations team at Anaconda and we intend this transaction to be one of several more to come. This transaction sets the corner-stone for a much better business as it combines complementary assets with strong management and exemplary corporate governance. This is a story that we'd like to see evolve substantially over time. We're looking at the next three to five years, not the next three to five quarters.

Much of the excitement is still to come. We have a lot of ambition for this business.

Peter: Wonderful. To hear you speak about the next five years makes me think of the last five years. I was completely blown away by Anaconda's story from 2011-2016. I first heard about Anaconda from Mr. Dustin Angelo, Anaconda’s CEO, in November 2016. The company had raised equity in July for the first time in five years. They issued flow-through shares through Red Cloud Klondike Strike and used it for exploration in Newfoundland. Just pedal to the metal.

Dustin mentioned mergers and acquisitions in that first interview, but I never would have expected this. From what I've learned about Goldboro, it just gets better and better.

If we go back to the beginning, why did Nova Scotia capture your interest?

Jonathan: In early 2014, a group of colleagues and I went through the arduous process of reviewing every gold project in North America with a global resource of 1 million ounces or less. We felt that smaller projects offered two advantages: a discounted valuation versus large projects and, of course, a lower purchase price.

The database included approximately 400 projects, though we quickly eliminated a number by employing a relatively simple screening mechanism. We wanted to avoid projects that had significant binary risks – risks that could imperil a project such as regulatory, environmental or social risk factors that could not be assessed with any reasonable predictability.

We avoided projects that had highly convoluted ownership profiles or NSRs greater than 3%. In simple terms, we didn’t want a scenario where one party had significant upside while we, as shareholders, bore dis-proportionate risk. We didn't like projects that were partially owned, vended in, or milestone-based. We wanted to be in control of our destiny.

Needless-to-say, the 400 potential projects were soon reduced to a much more manage-able number. We got down to 20 or 30 projects that were interesting and we started to examine those projects in great detail. We quickly recognized that there was a concentration of these projects in Nova Scotia.

We began with the immodest ambition of acquiring all of the Nova Scotia projects and implementing a spoke-and-wheel strategy wherein multiple projects would deliver ore to a central processing facility.

Peter: How did you go from this grand plan to a more modest investment in a single project?

Jonathan: The interesting thing about doing M&A in the junior mining sector is that you really need a meeting of the minds in order to be successful. You need two counter-parties who share a vision, ambition, and willingness to work together. This condition was elusive.

Too often you get one side with a reasonable sense of relative-value while the other possesses a fantastical sense of its own worth -- in the absence of a shared sense of relative-value it can be difficult, if not impossible, to bridge the gap and strike a viable deal. I believe that a successful transaction must offer an equitable outcome for both sides – even in a distressed sale.

As mentioned earlier, I started looking at the Nova Scotia mining environment in 2014. At that time, the region was orphaned in the capital markets, despite the presence of a number of projects with good grade and small but economically viable deposits. Around that time, we also saw the financial demise of Ressources Appalaches Inc., which owned and operated the Dufferin Mine, and that situation adversely affected the perception of Nova Scotia mining.

The Nova Scotia mining scene was waiting for someone to serve as a catalyst… and that catalyst was Atlantic Gold. In a short period of time, the Nova Scotia mining scene went from moribund to highly active. Resource Capital Group acquired Dufferin from its creditors and added the Tangier and Forest Hill mines. Osprey Gold acquired the Goldenville deposit and followed with the acquisition of Lower Seal Harbor, Gold Lake, Miller Lake and, most recently, the Caribou gold mine. NS Gold continues to own and support its Mooseland project, though it does not possess the acquisition ambitions of the others.

Atlantic Gold’s leadership came at a time when the junior resource sector was gaining some stability after many years of weak investor interest and poor liquidity. This brought renewed attention to Nova Scotia gold mining. With this attention came ambition, capital and competition to acquire assets.

I wish I had moved quicker and with greater ambition, but that sentiment comes with the knowledge of hindsight. Our analysis suggested that Goldboro had the best combination of grade, known resource and resource growth potential in the region.

While we were unable to execute a roll-up strategy we were able to invest in the best of the Nova Scotia gold assets. The other projects have many virtues but none had the potential of Goldboro in our opinion.

Peter: What was attractive about Goldboro?

Jonathan: Nova Scotia became our focus pretty early because we saw value. We saw the right environment for developing a project. We saw impressively good grades with decent volume and, most persuasively, we saw very opportunistic pricing. They were truly orphaned projects. Goldboro was owned by Orex, which was a Quebec-based business with a Quebec-based shareholding that had struggled for many years to advance the Goldboro project. This is not a criticism of the incumbent management but, rather, a consequence of a very unfavorable capital market environment.

It was a project that had resource, volume, and grade, but it did not have management or capital. It was very much an asset, not a business. It wasn’t operating. It wasn't exploring. It wasn't doing anything other than fighting for its survival. All that being said, we believed that, of all the properties in Nova Scotia, Goldboro had the best grade, the largest resource, and the cheapest price.

The Goldboro investment represented a tremendous opportunity and reflected a simple thesis: we believed that a project offers its best risk-reward profile when it is substantially developed, but not yet in production. As they say in telecom finance, last-mile money has the optimal risk-reward profile. We wanted to be the capital that would facilitate a project going from resource in the ground to operations and cash flow in the bank.

I partnered with a U.S. family office, Falcon Capital, that had a very sophisticated view of gold as an investment asset and was looking at numerous investment strategies to monetize that view. The pre-production profile that I described offered one technique to make a leveraged long-term investment in gold.

Falcon Capital made the investment in Orex in the fall of last year. It was relatively modest investment given Orex’s low market capitalization. The intention was to get in, kick the tires, and figure out what we can do with this valuable but unappreciated asset. The Orex leadership had worked very hard to keep the company alive for the prior 10 years, but really hadn't been able to accomplish much in an operating sense. We saw this jewel and wanted to find a way to shine it up and make it more valuable.

Peter: Thank you so much, Jonathan. What a fascinating story!

I recall watching Atlantic Gold present at the Sprott Natural Resource Symposium in Vancouver in 2014 and thinking “What is going on in Atlantic Canada?”

I believe you mentioned that you started looking around in late 2015. And then came 2016 with a bang! I recall the first quarter as being a pretty wild time. It is impressive that you were prepared to develop a thesis, undertake the fundamental work and execute a transaction in such a volatile environment. It is encouraging to hear you and Falcon Capital can buy so well!

Peter: I have not heard of Falcon Capital before. It's amazing what global-macro investors do. The idea generation and trade execution is so creative from what I've seen on Real Vision.

Jonathan: Falcon Capital came with a very different perspective than the traditional junior mining investor. Investment in the Canadian junior mining sector has been promoted with a long-standing and resonating investment thesis: "get in for a nickel and out for a quarter".

It's hard not to admire that investment philosophy because there are very few environments where an investor can make a 5X return on their money in a short period of time. However, the statistics don't lie and those outsized returns are rare. Everyone knows about the great victories – last year’s hero was Barkerville Gold – but they are rare and they develop their own folklore.

Junior mining is a strange world, but it was good to come into it with Falcon Capital as an investment partner. They had a strong opinion about gold, a view about the global economy, and why it would be prudent to invest in a pre-production junior mining situation. It was definitely a pleasure to work with an investment partner who had a sophisticated macro view and can look to the long haul, not just getting from a nickel to a quarter or a quarter to a dollar. We are really looking at a five-year horizon and saying, “Let's build a business.”

Peter: And capital will travel. Nova Scotia is an area that is now open for business. What triggered this resurgence of interest in eastern Maritime mining?

Jonathan: Peter, capital is very efficient. Capital is not sentimental. Capital is coming into this market now because good quality operators have decided to focus on this region.

The more interesting question is: why is high-quality human capital coming back to the Maritimes to build mines? Because they realized that these assets were cheap, they were orphaned relative to other projects of higher profile, and the share structures of many of these little companies were highly fractured and easy to control.

High quality developers and operators have stepped back into the entire eastern Maritime region, including both Nova Scotia and Newfoundland.

Capital didn't come because it was pro-Maritime. Capital came because there's an opportunity to create good businesses.

Peter: That's right, Jonathan. Over my life, there's always been a lot of migration from the Maritimes to the Prairies -- Newfoundland to Alberta. I've always thought that would unwind and hoped it would benefit the Maritimes as a generation of experienced industrial professionals come back to the east coast and contribute to business there

My impression from talking to the Anaconda guys is that the mine contractors that they have working at Point Rousse are very high quality. They have been well-trained and educated at Memorial University and other eastern schools. Anaconda is not having trouble finding quality people to execute their business plan.

Jonathan: Peter, implicit in your comment is the very reason that I worked so hard with Dustin Angelo and his colleagues at Anaconda Mining to make this deal happen.

We were a great asset with a good board but no real management team nor business plan in action. They were an excellent operating and management team with a vertically integrated business. They have demonstrated a capacity to be effective small project miners, but they didn't have sufficient resource. They didn't have enough resource to sustain them for a mine life that would attract investors.

In a sense, they were the opposite of what we were. It was very obvious to me that marriage of the two could unleash tremendous value. The water access at both projects was particularly important as it could solve the logistical challenges of having a mine site and mill quite far apart. When Anaconda built their deep-water port, we noticed. The Goldboro deposits are only two kilometers from deep-water access, so the idea of barging ore economically started to come into the mix.

That is when we started to see how some sophisticated, out-of-the-box thinking could create significant synergies and value.

Anaconda has a great team. We have a team of dedicated Newfoundlanders who love to live here and are dedicated to the company and this project. They’re very committed. By the way, Peter, they aren't contractors -- they’re employees. And I would like to see them become shareholders as well.

We plan to continue to process ore from Pine Cove for the next couple years. Then, we expect to introduce this new ore from Goldboro into the mill. We expect the grades will be at least 2-3X higher than what we are realizing now.

It is an example of where one and one makes more than two. Whether it's three, five, or 10 -- time will tell. It's going to prove to be a lot more than two, in my opinion.

Peter: Thank you, Jonathan. Amazing to hear that Orex was an asset without a complete management team, while Anaconda was kind of the opposite. Normally, when I think of a shell in the junior mining world, it has some people but not much in terms of assets.

How did this merger come about?

Jonathan: This deal was the product of fortunate circumstances and some foresight.

When Falcon Capital made their investment, they stipulated that we would have the right to appoint a Board member, in addition to the immediate appointment of Bob Schaefer as Chairman of the Board. Bob was President of PDAC at the time. At the next annual shareholders meeting, I was also appointed to the Board.

When I joined the Board of Directors for Orex, the Board asked me to replace Bob as Chairman, so he could attend to personal matters, and to become CEO. Obviously, I accepted both. It was December 16th, 2016.

In accepting those responsibilities, I said to my colleagues on the Board, “Recognize that I am a career corporate finance deal guy. I barely know the difference between a diamond drill and a dental drill, but we will do a strategic transaction. A deal to be done here and we’re going to do it.” The Board was immediately and unanimously supportive.

Very shortly thereafter we appointed a Special Committee of the Board and began exploring a number of potential scenarios, and the one that had its own natural momentum was the deal we did with Anaconda.

We did our due diligence, as they did on us. The Special Committee visited Newfoundland and was uniformly impressed with the quality of people and operation at Point Rousse. It wasn't the grade in the ground, it was the flowchart of the processing facility and the people that persuaded us that this was the right deal for Orex. It cemented my view that they were the right partners to build the business we intend to build.

Peter: Did the transaction between Orex and Anaconda happen quickly?

Jonathan: Yes, it was done reasonably quickly. As I described earlier, I was familiar with most of the companies and projects in the Maritimes. There was nothing mystical about it. I knew who they were. I knew what they did. It was a question of introducing ourselves and opening a dialogue with them.

They were the ones that really recognized the opportunity that barging could bring to the situation. They saw value, we saw value, and we were both committed to the process of doing a deal. The challenge became one of price?

I was very clear from the start that there were certain metrics that I was unprepared to violate. They also had a strong view of their own value. Both of us ultimately decided to not haggle at the margin, but to establish a reasonable, logical relative-valuation and bring these two businesses together. Our exchange ratio was 0.85 and that resulting in the former Orex shareholders owning about 45% of the pro forma business. To me, that was utterly fair.

I could have argued for a few more percentage points for Orex shareholders and they might have argued for a few more percentage points for Anaconda shareholders, but we didn’t. In the long run, it was immaterial and neither sided wanted the pricing to be the impediment to getting a deal done. The value that could accrue here was far too great to not allow this deal to happen.

Peter: What a win, Jonathan.

I remember pouring over the details of the transaction soon after it was announced. I actually wrote a trio of articles on different aspects of the deal. I came away very pleased with the deal as an Anaconda shareholder.

Jonathan: I can tell you, as an Orex shareholder, I was also very pleased with the deal. Both shareholder groups gave exceptionally high approval for the deal. In round numbers, we were over 99% approval. My recollection is that Anaconda's shareholders were over 96% approval. That's pretty extraordinary.

It was clear that both parts were valuable, but the two businesses together were even more valuable. I was very happy with the outcome and relieved that my counterparts at Anaconda had a very logical, progressive, get-it-done mentality when it came to deal-making. They were very practical and there were only a few hiccups, which were all well-managed.

To go back to your original question, Peter -- yes, the deal was done quickly and it was done effectively. I would also say that my lawyers did a fantastic job. We were thin in terms of management capacity at Orex but we got it done. My CFO, Jacques Levesque, my inside counsel, Julie Godard, and the good people we retained at Fasken Martineau were fantastic. As deals go, it was not without its challenges but all those challenges were met and dealt with in a very pragmatic way.

Peter: And it's great to have Falcon Capital in the background, too. At this point of the market cycle, wherever we are, it's interesting to see a win-win combination of juniors. I haven't seen a lot of similar transactions lately.

I also liked how this was an all-share deal. It fits with Anaconda's legacy of not issuing a lot of equity as they survived 2011-2016. They actually excelled during that time period from an operational perspective.

However, the all-share deal has brought Anaconda's share count to almost 400 million. A rollback was approved with the Orex acquisition, but hasn't been undertaken yet.

The next 3-5 years have a lot of potential for you. What do you see coming towards us?

Jonathan: What a question, Peter. My view should be entirely evident, but it's not the public market's view. Anaconda’s per share valuation has dipped a few cents in the several months since the transaction was completed. I am disappointed but not despondent.

The baffling and frustrating thing about being a junior resource company is the technical performance of a stock can be totally disconnected from the fundamental performance of the business, as you mentioned with Anaconda over the 2011-2016 period.

Here we are making all these excellent strides forward in building a business that will be a platform for growth for many years to come and the stock market is ambivalent. We are going to have to work very hard to raise the profile of our securities. We're going to have to continue to tell the market what we're going to do, tell the market when we've done it, and then tell it again! We will continue to build momentum behind our story and we hope that will translate into market valuation

On the one hand, I'm very happy to just continue to get on with what we do. On the other hand, we need our stock to perform if we're going to continue to make strategic investments and grow this business organically and through acquisition.

Great things are happening on the fundamental side and now we have to help the market understand it and get behind us, so that we have the currency to do what we need to do.

You mentioned the rollback, Peter. I can tell you that it is immensely frustrating to do merger deals when your share price is trading for pennies. Even a $10,000 open-market trade can shift your market cap by 10-15%. That makes it all the more difficult to line up a deal.

I understand why certain groups of investors resist a rollback, but I think the virtues of the rollback will ultimately outweigh the concerns. We intend to do a share consolidation at some point. It will not be today or tomorrow. We will do it in the context of something that is strategically important.

We've got a lot of work to do both on the operating side and in the capital markets. It's frustrating to not have enough investors understand the good things that are going on, but we intend to build a favorable profile based on execution and transparency, not just promotion. We will get the story out there.

Peter: Well, it continues to be a tough time for some in the junior mining space. I'm headed off to the Sprott Symposium next week, so I can check the pulse of things. It may take a while for things to come back. The issuers will be back quickly enough, but I wonder about the audience.

Jonathan: It is an interesting thought, Peter. As I said, much of a stock's performance is unrelated to the fundamental performance of the operations. This is especially true for junior mining companies. We've seen many examples where a name-brand investor can impact a stock much more than the fundamental attributes of the business.

There are only a handful of these name-brand investors so when they put money into a particular company, the stock can start to run right away -- "If Mr. X is behind it, then it must be good." That's just the world we live in.

Stock performance is highly technical and with 380 million shares outstanding, we are vulnerable to some negative effects in the market and we have to correct that.

Peter: My sense is that Anaconda’s stock is quite illiquid. Is there a way that the company can improve its trading profile?

Jonathan: I am not interested in market management. It’s not within my skill-set and I am not charming enough for baseless promotion. I will let our fundamental story evolve and when the time is right I will sing our virtues from the rooftops.

Over the 5 years since I came back to Toronto and started to re-focus on the mining sector, my friends have heard me say, "Short any mining stock that's run by an ex-investment banker because mining is never as easy as bankers think it is."

Yet, here I am – an investment banker and Chairman of Anaconda! Fortunately, my fellow Board members and executive team are deeply knowledgeable and experienced. Dustin has done a great job and I believe our operations team will prove themselves in time to be the best narrow vein small mine operators in Canada.

We will make money where others can’t. I am 100% confident in that. If it takes five years for the world to understand that, then so be it. Of course, I want my stock to appreciate every day, but it is more important that our team focuses on building an exceptional business than worrying about the daily vicissitudes of the secondary markets.

Peter: And the significance of that prize is very great, Jonathan. Anaconda is already one of the most award-winning teams that I've ever encountered. I would not put it past you guys to find something else out there that fits in very well into the existing framework.

Jonathan: M&A is puzzle-making. You have to find the piece that works with the pieces you already have. We are constantly reviewing and assessing opportunities. These aren’t always engaged dialogues, but sometimes they are. We are open to any intelligent conversation that will help us advance our business and reward our shareholders.

At present, we are very focused on advancing Goldboro, advancing Argyle, and continuing to run our processing facility efficiently. If we can do that, then we've got something very worthwhile.

Peter: Well, thank you very much for the intelligent conversation here today, Jonathan.

Jonathan: It’s been a pleasure and a privilege, Peter. Thank you very much for the conversation. I look forward to the next one.

Please note that I was not compensated to prepare this material. This interview was recorded on July 20, 2017. The transcript was reviewed by the company.