It is my pleasure to share a transcript of a recent interview with Mr. Robert Dufour, CFO of Anaconda Mining (TSXV:ANX). This was my first interview with Rob and was recorded on September 1, 2017. You can find a recording that I released with him on September 14th at the following link:
Peter Bell: Great to have you hear, Robert. You are the CFO of Anaconda Mining. You joined in the second quarter, right?
Robert Dufour: Yes, it was back in March-April 2017 when I agreed to come on board.
Robert Dufour: Since then, the Orex transaction has closed and I believe that will be transformational for the company -- both companies, really. That acquisition was announced in on a Friday morning just when I had started discussing the potential to come on board with Anaconda. That really interested me.
They have great production experience going back at Pine Cove, but it becomes something different when you bring in the Goldboro property. I think it is a very compelling story and I am very happy to be on board. As you said, Kevin, the stock price may not be reflecting the value that we see here. That’s OK and it’s our job to run the business and continue to tell the story to the markets.
Peter Bell: For the record, a low stock price can be a good thing. Economics 101 – lower price, higher demand. Prices can change quickly and a low price today can just stimulate more aggressive buying when things get going. It’s low because people have been selling and sometimes the sellers just kind of go away for a while. If you have a real business, then you have the staying power to exploit the opportunity. Anaconda’s ahead on both those counts.
I want to talk with you about the accounting for Anaconda, Robert – hopefully in great detail at some point. For now, it occurs to me that the accounting may get a lot more interesting when Goldboro goes into production. The whole business gets a lot more interesting! We’re not there yet, but we are waiting for some public reports on the economics of different approaches to Goldboro. There are some interesting decisions to be made.
Robert Dufour: Yes, certainly. There are a lot of different moving parts with project of Goldboro's size and complexity, but it's all very positive. These are exciting challenges.
Pine Cove has been operating for 10 years and you have great infrastructure there. That includes both physical infrastructure, in terms of a mill that works very well, and the human capital as well. You can never underestimate how important it is to have good people who understand and have the experience of building and operating a mine. If you can take that and leverage it into a project like Goldboro, then you’ve got a great opportunity.
As you say, there are a lot of different scenarios to explore with the approach to Goldboro, and the infrastructure and the people really open a up tremendous amount of opportunity that we get to explore.
Peter Bell: To even have multiple positive scenarios is such a strong position. A lot of projects seem to have one pathway to success, if even one. But Anaconda is a going concern. It is a viable business that generates free cash that it reinvests into itself. It has grown well during unfavourable market conditions over years. They are a tough group. Ambitious, too. To be in production at this point in time as a junior mining company is exceptional.
When I first met Anaconda, they had a $10-15 million market cap at the time. 210 million shares outstanding, trading $0.05-0.06. It was producing 15,000 ounces of gold annually then. Now, the numbers with Goldboro are much different. Dustin said approximately 3-5 years of mine life in our first interview, but I think you have 20+ here now. I have no real basis for those numbers, but I will mention it as a topic for conversation in the future. Hopefully we can get into the sensitivities of your reserves to spot gold price, too, when it’s the right time.
I wonder how close you, as the financial officer, work with the operational team in planning out some of those scenarios?
Robert Dufour: As a smaller company, we're a small team of mining professionals and we all collaborate as all options are interrelated across our skill areas.
Certain options may require more capital upfront. Other options may require less capital. What is our ability to finance certain scenarios? There's a lot of different pieces that move. Granted, some of those are looking out into the future but it’s important to be thinking about those things now.
In the past, I’ve worked in CFO roles with smaller junior mining companies and been involved in operations. I really enjoy that aspect of the business and that is one reason Anaconda was so unique. As you mentioned, they have production of approximately 16,000 ounces per annum. That may not be a large profile relatively speaking and some people may not get excited about that, but it is important. Those ounces are profitable – they provide cash flow to help advance a project like Goldboro.
We're working towards a PEA at Goldboro which will be released before the end of the year. Some of the options for production are coming together in that document, which includes many types of analysis like geological, engineering, and financial. It gives me confidence to approach that exercise with the strong, experienced team at Anaconda. I’m privileged to be a part of it and I think it will be very rewarding for shareholders as we go forward.
Peter Bell: And some I think have been early to be Anaconda's story. I've gone back and seen a bit of, kind of, interview, promotional stuff that Dustin's done over the last few years, and it's, I think it's great to see the consistency in this story. And there's a lot of this story that doesn't really appear maybe at first glance. You really have to dig in and ask about, why did you guys get that award back earlier this year? What was that about? Now who is this person? It's just, and again, very different from a lot of the juniors that are dominated by like a single personality, or it's ...
Robert Dufour: That's a very interesting point, and I very much agree with that. At Anaconda it’s a team effort among people with very different and, critically, complementary skill sets and mining experiences, which will be key to unlock value as we move forward. You need all those pieces to the puzzle. You need your strong geological team that can optimize the resource. You need the mine engineers to safely and efficiently recover as much of the resource as possible. And we need the finance team to make sure that we're doing so in an economic way and generating shareholder value. And of course, we need to work with the capital markets to ensure they know the story and see the value opportunity for shareholders. We're all working together, I think there's a great story here.
Peter Bell: This, this question about the financial markets, so interesting. I, one of the things that really, really impressed me initially about the company was that they hadn't done a lot of equity financing from 2011 to 2016. Again, when I first found them, they hadn't done any, other than some flows-through in summer 2016 with Red Cloud Klondike Strike. So, you wonder why the share price was trading at a nickel at that time. It's like, well, it seems kind of obvious, sorry. And a terrible bear market and no, apparently no relationship with the street, within the company. And appearances can be deceiving. I'm sure there are deep relationships there with the street.
The one thing that Dustin pointed out to in our first interview was family offices. And that they had had most success and traction amongst the family office world, kind of in the U.S. and globally, I would hope. And I've made the point, I think in other interviews, but I don't know if it's ever come out. It's a thing from Real Vision I've heard that a lot of the hedge funds 10 years ago, 15 years ago, were really different than they are now because of their investor base. And so there was much more family office participation in that space 10, 20 years ago than there is now. Much more institutional investment, big, big money coming in. And I've heard it said that that change in the investor base has changed what hedge funds get in terms of guidance from their investors, and also what they get in terms of leeway to take risk. And it just changed the space completely. And the statistic is that the average returns on the funds in the space has gown down significantly, right, as there has been that change.
So I don't hear a lot about family offices in the world of juniors, but I think I should hear more about it, and that's been a theme that I've always been really impressed about for you guys, because they, even if it's just bridge lending, right? Like they may not have the amount of capital necessary to get you into that next level of production with whatever. If you're looking at 100 million CapEx for something, that may be a little bit beyond family offices in some cases, but smaller amounts to get closer to that, totally possible. And you guys aren't even looking at those large amounts anyways, right? So, I haven't heard too much about financings with them recently. I noticed that some warrants expired, I think, at the end of July there from somebody who was named in the news release the year before when they were investing in the company. They weren't over 10%, but they were named in the news release for some reason. I don't rec-, I don't know exactly why that is. Do you, any background comes to mind with all that? It's a bit before your time.
Robert Dufour: The flow through financing was the first financing the Company had done in five, six years. And that's where the unique combination of being a junior mining and exploration company with a production base allows you that ability to go out and develop your infrastructure and your resources without necessarily having to go to the market all the time, which of course seems to always happen at a low gold price. There will be a point where more significant capital will be required, and we are engaging with family offices, and other institutions we're working with, and we're starting to kind of lay that framework to get interest in the stock, but also looking ahead to see where our funding needs might land. When that time comes, where we need that substantial amount of capital, I think there will be good confidence in the story that we'll be able to do so in a creative manner.
Peter Bell: Well, and a confidence built on really operational success, right? It's one thing to be going into production. It's another thing to have been in production.
Robert Dufour: Absolutely. With any development project, you have execution risk which can be priced in the stock quite heavily depending on the company, and I think that's one thing we can demonstrate is, we're not building a new operation for a the first time. It's new in a sense it's different ore body, but the idea of building a mine operation ... The team we have has done that, has done that quite successfully as demonstrated by Point Rousse right now, which continues to generate cash at, let's be honest, quite challenging grades. But the team has been very resourceful and has been able to really make that work.
Peter Bell: It's, it's exceptional.
Robert Dufour: Again, being profitable despite being at lower grades gives us the ability to progress certain key initiatives, whereas companies without production would have to keep going back to the market. So, going back to Goldboro, as we've said, we want to publish a PEA before year-end, so we can discuss the economics of the project. And we have the internal funding to be able to bring that to fruition.
Peter Bell: Oh, yeah, that's an interesting point. Very important. These reports can take a lot of time and money to complete. Particularly when you start getting into re-drilling or re-interpreting some kind of a geological deposit. Even just the new Goldboro Project -- it could take a lot more time and cost to prepare the necessary reports there. Most juniors have to fund that through equity financing, but that's just another thing that you'll be able to fund internally.
Robert Dufour: like I said, the important documents get out there so we can really start talking about growth strategies. We've been talking about the concepts to date very much in our corporate presentations, but there's always the question is, can that really work? And the PEA will give us the opportunity to demonstrate that. It is preliminary, but it does lay out the framework with some pretty good parameters around it as to this is how it can economically work. We are also laying the groundwork for future advanced studies to which will support our move towards production.
Peter Bell: That's awesome.
Kevin Dougan: Can I ask a question? Can I ask a question of Robert?
Robert Dufour: Yes.
Kevin Dougan: When you're planning on doing the PEAs, is there going to be any drilling before the EPAs so that maybe you could expand the resource, and a second question is, what is the grade now that they are using the PEA right now?
Robert Dufour: We did have some drilling that we released earlier this quarter. Now that wasn't statistically exploration drilling per se, it was metallurgical drilling where we were able to piggy-back off the drill core. We came up with great results, including the highest-grade intercept that Goldboro has ever recorded to date. We are very keen to do some step-out drilling, and are working internally on a small drill plan to step-out from the existing resource and test the down-dip extent of the ore body.
Goldboro is an exciting exploration opportunity, and far from what would be consider green field – it is already a 850,000-ounce high-grade ore body, and when you look at the geology, and I'm certainly not pretending to be a geologist, but when you look at the cross sections and the geology, the ore body is open in just about every direction, and particularly when you look deeper. I say ‘deeper’, but it's a relative term because we're only down about 350 meters in the existing resource. That's not deep by any stretch of the imagination for these types of ore bodies.
Testing that down-dip potential with an albeit small drill program is pretty exciting. And it goes back to that point of funding it, which we have from our operations. It would be great to be able to demonstrate this upside to the market, and hopefully be able to expand our know resource in the future which would only demonstrate further upside to the PEA we are looking to publish.
I'll deal with the second part of your question. I'm sorry, I don't know if I missed it.
Kevin Dougan: No, that's fine. Thank you.
Robert Dufour: Okay.
Kevin Dougan: One other, or another question we have is kind of going in a different direction is, speaking to analysts and newsletter writers, almost to a man every single one of them says there needs to be a roll-back. The first thing they look is at the share price and they go, "Oh my gosh this is way too high." What are your feelings on that, and why don't people understand that when you do a roll-back, you have the exact same of money ,the day you do it and the day after you do it unless there's a change in share price? Why are so many people afraid of a roll-back, when it's so needed to get analysts' approval?
Robert Dufour: Yes, the consolidation discussion is an interesting one. You have some that don't want to touch it. There's some that love the idea. Of course, and you made the point, fundamentally it should really make no difference. As part of the Orex transaction special meeting, we also received approval for a 4 for 1 share consolidation. So, it is certainly something that we will look to do, and ideally at a time where there is a catalyst for the stock, such as another transaction, to help tighten up the share structure. To consolidate for the sake of it, probably would not be the best outcome, but as we start kind of looking future opportunities, we will look consider the optimal time to tighten up our share structure.
Kevin Dougan When you go out and see analysts and people on the street, it Pretty much has to be over a dollar to get anyone's attention, correct?
Robert Dufour: You know, there's lots of different views on that, as to where you need to be from a pure share price perspective. It can be difficult to get coverage and interest from the bigger houses at lower prices. The dollar level seems to have a little bit of psychological impact, but having said that though, we're not going to limit ourselves on that perception to going out and seeking coverage. There's lots of great stories out there of mining companies will relatively lower share prices, but they are getting very good traction in the market and a lot of different analysts.
So, step one is to get out there and tell the story. And that's one thing I know Dustin's been doing a very good job on, starting particularly with the Orex transaction which of course is the catalyst and has really taken us to a lot of different venues, this being one here right now, and we have the conference season coming up where we will definitely be out telling the story. So there's a lot of different moving parts, and at some point the share consolidation I think will help. But fundamentally, we have a good story, and we just need to get out there and tell it.
Kevin Dougan: When you say telling the story, earlier in the week I believe we tried to hook up for an interview with you but you were actually doing on a site visit, and I think you were entertaining some analysts. Is there anything you could reveal about that?
Robert Dufour: That's one aspect of marketing where we are focused on as well. The analyst coverage universe may be evolving bit but there's still strong value to presenting potential analysts to our operations and really explaining to the upside, which will hopefully lead to independent coverage. So, it's another piece to the puzzle. We will be targeting further institutions where I think Anaconda will be a compelling story.
And look, we're realistic about it. There's some of the larger banks on the street that are just not going to have a strong level of interest for now. But I remember back to when I was with Crocodile Gold, we had the same issue. Really couldn't get any traction, but we kept at it, growing our business and telling the story, laying the groundwork, so that as we execute those people will start to come into the story. At Crocodile Gold we merged into Newmarket Gold, and we went from no analysts to over 10 very quickly. Now that’s not a direct analogy to Anaconda, but I do certainly think there are parallels.
So we had a good tour with an analyst earlier this week, and he was very impressed with what he saw, and I think he is going to be following up and hopefully we'll get some, some more active writing on the story.
Peter Bell: Well, and it's in your bio, too, Robert, that Newmarket producing over 220,000 ounces gold annually, right? So very successful transition for Crocodile to be acquired by Newmarket there, and then you were the CFO of Newmarket as well.
Peter Bell: What an amazing story. We should talk about that at length! To point out the numbers again -- 250,000 ounces annual gold production.
Robert Dufour: When I was considering joining Anaconda, I had an opportunity to go out and visit the site and meet the people. The impact was immediate once I met these people. It's a young workforce, yet with great continuity. There are key people who have been there from the very beginning. So you have retained knowledge, and a very motivated workforce who want to see this through, both professionally and personally perspective.
And, cutting any romanticism out of it, just look at the actual results. You have, again, relatively lower grades coming through and they are running a profitable operation. The other part is that with youth comes resourcefulness. The out of the box thinking of ways to make things work and continuously improve. There's a big focus in our company on innovation, research, and development, and for a small company, you might not expect to see that. But it's very much embedded in the culture of Anaconda. As I said, just look at the results.
And that’s important going forward when you look at a property like Goldboro. Nova Scotia is an established gold camp, it has had a historical gold rush, relatively, and past production. And arguably, the results were not always exactly as favorable as people were hoping. So, the question often comes up, what are we going to do different? And I think that's an important question. I think to be able to do things differently as well you have to have the people who can kind of think out of the box, and think resourcefully, and really have different looks at how, how we can attack this project.
Kevin Dougan: The question is, for you to move over from, from Newmarket over to a company like Anaconda is, I don't want to say a step down, just a big challenge, but what was the one thing that really cemented it for you to that, hey I really want do this, and this is the right decision for my family?
Robert Dufour: Newmarket was acquired by Kirkland Lake Gold, who has had tremendous success since then, and I stayed on consulting for transitional matters. When the Anaconda opportunity was presented to me, I never saw it as ‘a step down’, rather it was a tremendous opportunity. I enjoy the junior end of the mining space and have been successful doing so; remember Crocodile Gold at one point had a market value of just $35 million despite producing 200,000 ounces. I like the challenge of working with a smaller company with good assets and good people, and working our way up in market value.
But there's lots of junior companies out there, so how do you identify which one you want to join? And I think there's really the two aspects that stood out to me, one, the Goldboro resource is exciting, there is excellent upside there. And then the people, which is an intangible that is hard to replicate. In my view in junior mining you are always in the trenches, that's just the nature of it. So, the question is who do you want to be in the trenches with? If you have a good group of people, you can do great things and have some fun along the way.
Peter Bell: Ever since I first met the Anaconda team, I got this sense that they weren't your typical junior, I kinda had the feel of more of a senior, established company. Almost some of the thoughts and ideas of a major producer or what a major should be doing! I got that impression from Dustin from day one. I never really understood why. I couldn't put my finger on it until I talked to Allan Cramm. He helped me see the legacy of mining at Baie Verte and how I think that influences Point Rousse and everything. Any comment on that in particular?
Robert Dufour: That's an interesting way to put it, and I won't completely disagree with that. I mentioned we are a younger group earlier, from an age perspective, but we also have the maturity as a Company to have vision and really explore different ways to create value. And Alan is a great example of a team member who can really look at things in different ways and try and find those value-creating opportunities, that perhaps other companies maybe focused on its one asset, maybe doesn't have the ability to do. Being an operating producer with cash flow, we have the ability to explore some of these opportunities. And a great example of that is the Aggregates Venture that we have in place, where we're selling waste rock that otherwise has no value. We're selling that on to a project on the eastern seaboard of the United States as aggregate, which will generate anywhere from 1.5 to 1.8 million dollars. These dollars then enable more investment back into the business on other potential value-creating opportunities.
Kevin Dougan: . Speaking of potential opportunities, like you said ,what about the narrow-vein mining project and the grant from the University? What are your views and takes on that about how that could possibly affect the company and actually affect the mining of all the maritime provinces?
Robert Dufour: That's a very interesting project. And it really, there's another example of where, if you sit back and look at how can we do this better, you can really come up with some interesting opportunities. It’s still very early stage, but fundamentally, and the idea is to unlock value from smaller but high-grade narrow-vein resources that are not economic using traditional mechanized mining methods. But we are trying to adapt some existing technology to extract those resources, which potentially open up a significant amount of value in a lot of these deep deposits, which are not uncommon to Newfoundland.
And also, depending on the results of the research and development, you may be able to adapt some of those methods to a project like Goldboro, which has veins that at times be high-grade and relatively narrow. Tthere is a different mining method that will help you recover as much as possible of that ore body while minimizing dilution. It’s an interesting partnership that we've entered into with both the federal government and the provincial government to explore that idea, which may have industry-wide application.
Peter Bell: I had a question myself here about the budget that you give to Alan. It's interesting enough to have a, that you even have someone with the title, VP Innovation and Development, and I just wonder, what kind of budget he's given for some of these things. We saw the funding with the research project, the $2 million from the government. I think you guys were putting in a million as well. There's some terms in that that may require you to pay some of that 2 million back if the tech proves to be commercial. But just broadly speaking, any sense of the budget that Alan gets to work with?
Robert Dufour: Allan oversees R&D but is also involved in a lot of different areas, he's also very active on the Goldboro project as well, helping the technical team and helping as part of the PEA. For R&D as a company, we assess projects as a group, we're always very cognizant to calibrate our programs around our cash flow and what we're capable of progressing. It is interesting to be a smaller company and have some of that capability internally.
But we are also ensuring that it's sustainable, and that we're focused on creating value. We have lots of different projects, and we assess all those together and consider what's going to create value in the near-term and the short-term, and longer-term. There is not necessarily a fixed dollar value. The narrow-vein mining project is certainly the biggest, where we have committed a million dollars over three years, with contributions from both the federal and provincial government, which will enable a very comprehensive R and D program.
And there are other smaller programs that we're working on as well with local universities, local colleges, some focused on research and development and others on employee and skill set development.
Peter Bell: Well, and the word development, it has this connotation, research development now, maybe you're trying ... People may think that he's working on developing some ideas that may some day have some impact, but for you to point out it's not just research and development, it's development of the project pipeline as well. That's such a critical distinction, and given his history as general manager, first employee. He's been at that, for Anaconda, Point Rousse, and all the operational experience he has. The question of budget, it really opens up there because if you're gonna talk about, well, what's your development budget for Goldboro?
Robert Dufour: Absolutely.
Peter Bell: It's, it's probably a fairly significant number.
Robert Dufour: Yup.
Peter Bell: And to put him right in the midst of all that, is he gonna find whatever creative solutions may be available? Second-hand equipment, for example. The company has a history of that.
Robert Dufour: Absolutely. It's an important distinction. This is not a department that we’ve created in its own world where, with its own budget. It's across the business. Certainly narrow-vein mining has a longer-term window, but Allan is very involved on the site. We're looking at things around tailings facilities, we're looking around potentially, from our tailings can we re-grind some of the old stuff and put it through the mill? Possibly. We're doing some lab-scale testing on that. Looking at, we use some of our waste rock for aggregates. Well what about some of our, our tailings may have chemical properties that may be appealing to certain fertilizer production. It's all very interesting, and these are, some of these are fairly small programs, but they can have very interesting impacts on the business and the infrastructure that we have.
And certainly Goldboro, there's lots of different ways to look at that and Allan's experience across Atlantic Canadian mine operations will be beneficial in creating value. He's very aware of a lot of these stories around, whether be Newfoundland and Nova Scotia, and brings that perspective to maybe how an approach from a decade, or 20, 30 years ago may not have worked, but maybe just because it wasn't focused on the right aspects. Allan is just one of those individuals in Anaconda who can bring that perspective to the table.
Peter Bell: And the company benefits from being so small because his efforts for one, they're appreciated and encouraged because the company's still small and hungry enough to do that. And the other thing is that it has an impact that, at a overall level because you got, you're not looking at several projects going on around the world. People talk about the benefits of diversification, but there's also significant benefits to concentration when you're doing really risky, speculative stuff, like trying to build out a gold-mining company.
Robert Dufour: Absolutely. Well, I think focus is one of the aspects that I see clearly. There is a focus on what we want to do and how we want to accomplish it. Like you said, we're not all over the world. We're not looking all over the place. We understand what we can create value in our backyard. There's just tremendous opportunity there and we're very focused on that.
Peter Bell: Thank you, Robert. I really appreciate your time.
Robert Dufour: You're welcome, Peter. Thanks for the great discussion.
Please note that I have not been compensated by the company to prepare and disseminate this material.
This document contains statements that are forward looking statements and are subject to various risks and uncertainties concerning the specific factors disclosed under the heading “Risk Factors” and elsewhere in the Company’s periodic filings with Canadian securities regulators. Such information contained herein represents management’s best judgment as of the date hereof based on information currently available. The Company does not assume the obligation to update any forward-looking statement.