Tom: Ladies and gents, welcome to JuniorInsider.com. After many requests by viewers, I'm pleased to say that today, I'm joined by Michael Williams, President, CEO, and director of Vendetta Mining Corp. Michael's previous success includes his role as the founder of Underworld Resources which was acquired by Kinross Gold in 2010 for $140 million. Today, he's going to talk to us about Vendetta and their Pegmont lead zinc deposit near Mount Isa in Australia, so let's get into it. Michael, thanks for joining me.
Michael W.: Thanks, Tom. Thanks for having me.
Tom: Can you give me the history of Vendetta Mining? How did the company come about?
Michael W.: Well, what happened was I sold my previous company. I was a co-founder of a company called Underworld Resources and at Underworld, we were focusing on gold and in the Yukon region in Canada and fortuitously, we made sort of one of those once-in-a-lifetime discoveries that turned into a major land rush and the end result was we sold the company 36 months after inception for $139 million to Kinross Gold. What I particularly liked is we'd spent 28 million in the ground so, it’s certainly a good return for investors.
The challenge is, as it always is, after you've done something like that, well, what are you going to do next? I thought, okay, we could go after other gold projects and I'm agnostic when it comes to the metal. I would put a talc deposit into production if it was economic over a non-economic precious metal system. We certainly looked at some gold opportunities. We looked at some copper but we're kind of intrigued on the lead zinc space. What we saw and was an opportunity for exit strategies or to be able to finance a company predicated on what we anticipated to be an upcoming pinch in the zinc concentrate market and it was basically supply driven. There were three big operations coming off stream, Brunswick in Canada. We had Lachine in Ireland and then, we had Century in Australia.
The problem was in the zinc space, we've been talking about those for five years, so the market hadn't really reacted but that was a good opportunity to pick up a project. The next challenge we had is with the lead zinc space and base metal space, you want a project with infrastructure and I hearken back to that gold discovery we talked about, I talked about, where it was like catching lightning in a bottle. That's not easy to do a discovery from green fields or basically from your early stage exploration, drilling it, discovering it and having it taken over. That's tough to demonstrate value for shareholders if, unless you do make a large discovery like we did.
Usually, those come across once in a career, so I wanted to add something with either tonnes around. Lead zinc seem like a good strategy moving forward with those closures coming online and then, we went and found a project in in Australia because the capital costs associated with the Pegmont project in Mount Isa, it was a mature mining district, was certainly a lot lower than a lot of projects that we looked at.
I did estimate of how many projects on the lead zinc space. We looked at in North America and some places in South America. It was getting close to 70 projects and what hamstrung a lot of them, they get to a point, usually it was around a pre-feasibility level or maybe even a PEA, when you have to look at your capital cost, we’re trying to make these projects economic and that was even using an aggressive, what I considered at the time an aggressive zinc price of $1.10 and we just couldn't see how to make those projects work. Now, our criteria was we wanted something that would work at 90 cents zinc and 95 cent lead. I have some tonnes in the ground and have some geological upside and we thought that was a sweet spot.
My business partner on this is a gentleman by the name of Peter Voulgaris. Peter worked with Robert Friedland for seven years in Mongolia as Technical Services Manager on the giant Oyu Tolgoi copper gold project which has gone into production with Rio. Peter did all the underground development there prior to the mine coming on stream but prior to that, he'd worked in Australia. Peter knew the area well. He's an Australian. He actually started his career 25 kilometres from this particular ore body and it was considered to be a single-lens zinc dominant, pardon me, lead dominant system.
The market really or the local people, local people being the Australians, hadn't paid much attention to it for 20 years. A local event, a local Australian had taken it over in the ‘90s, spent some time focusing on most of the ore close to surface and the oxides but we felt that there was a real opportunity here to do systematic drilling. We had a different model than previously thought of that they were exploring for. We thought it was a Broken Hill style and so we thought it was a good bet.
Now, in 2014, we secured the asset. We have since drilled roughly 30,500 metres and we've increased the resource from the initial five million tonnes at 8% lead zinc to that where we are now at 11.8 million tonnes. That came out in a resource several months ago. That includes both inferred and indicated. Then, we also have open pit shells totalling eight million tonnes within that 11.8. Roughly 75% of the ore body is in the open pit shells, if you will. That's kind of the history behind it. We think we're in a good spot given … Sorry, given the infrastructure which should make everything work.
Tom: Yep. How far then does the ore start it and it's going to be open pit obviously?
Michael W.: Yeah. It looks like the … but the goal is you would always like your first … Right now, this looks like it would optimise, I'm going to say, around a million tonnes per annum. We, right now, got an eight-year mine life open pit, let's say but I'm putting economic parameters on when we're coming up to doing a PEA. I would suggest you're looking at about 20 metres, you would be starting an open pit and then you would go down to about 150 metres. That would be reasonable, reasonable assumption.
Tom: Yep. Can you talk about the three different oxidation states and why the resource is separated into those three categories?
Michael W.: Right. You're referring to the oxide zone transition and then the sulphide zone?
Tom: Yeah. Yeah.
Michael W.: One of the things that is a key for base metal and zinc in particular, when we talk about oxide, the people that follow the gold companies like … Oxide is good. It's a way of processing the ore, usually a lot more economically than mechanical methods. You tend to focus on your oxide zone. On the lead zinc side, oxides are problematic to process. They can also have some environmental issues. We have chosen, and I think it's prudent, to only focus on the transitional ore and then the sulphide ore which where the majority is. The transitional ore looks like, according to our preliminary work, it has a good chance of being able to be mined at reasonable grades. Then, you immediately go into your sulphides which is the focus. When I said we have 11.8 million tonnes inferred and indicated, I'm referring to transitional and sulphides.
Tom: Who would you consider your closest competitors and how does Pegmont compare with what they've got?
Michael W.: Competitors in the sense of other juniors are just people in the area that have similar … or lead zinc deposits.
Tom: Let's go with other juniors.
Michael W.: Well, there's some smaller Australian deposits close by, sort of in, well, close by and in the Queensland region, three to four million tonnes. I think, I don't want to blow our own horn but Pegmont is probably, certainly in Queensland, the best undeveloped lead zinc asset out there. If you look at the North American comps, I think we're more than holding our own. We've sort of come off the middle quartile and we're certainly in the upper quartile as far as the junior companies go. Where a lot of guys run into some problems is they tend to get marooned when you start looking at their capital costs, so they will generally need zinc prices to be $1.10 to $1.20 sustainable and they're certainly currently above that.
I think when zinc pulls back, which inevitably will, it'll have a lot higher sustainable price than it has historically. As an industry, I don't think we've been rerated. We're still being valued as if zinc was 85 cents and now it's cresting $1.40 per pound so I think it's a good space to be as far. As other companies in the region, we have Cannington close by. It’s 25 kilometres. They have a mill in one direction, and a private company called Chinova 25 kilometres equidistance in the other direction.
One could make an argument that they both might have a need for a Pegmont feed at some point. Cannington’s looking to expanding their operation. They’re going from tentatively a three million per tonne annum mill to four million. They could open pit their own ore body. Maybe the Pegmont ore could be done at a more economic level and just direct ship to them. Chinova is running out of ore. As of February, they've got to make a decision on to keep their mill going if they want to do another operation but that's another opportunity that I'm sure they'll look at.
Tom: What does the drill programme look like for the rest of 2017?
Michael W.: We're about halfway through. We were targeting approximately 10,000 metres. I think we're 5,500 metres right now. We've changed gears a little bit. Last year prior to the resource coming out, we were focusing a lot on the down dip or what we call zone five. Right now, the way it's looking, that would be the underground component of the operation. Then, you've got your open pit which is … hopefully, right now, it's eight million tonnes. We think it has room to expand but the goal would be to come up with 10 million tonnes open pit but even if it's eight, I think these zinc prices certainly … the economics look robust.
We're focusing on tightening up the drill spacings in the open pit component which will help us where we're drilling in some gaps. We’ll add some tonnes that way but we’ll also increase the grade from the 8% hopefully up to 9% while at the same time, reduce the strip ratio which we're currently thinking's around 10 to one life of the open pit, bring it down to about eight to one. On the near surface ore, that starts at about 25 metres. It's probably the … I'm guessing but it can be around a five to one ratio.
Tom: What metallurgical testing have you done and what were the results of that?
Michael W.: We did our metallurgy … our first pass metallurgical testing Q1 of this year, came out in March. We can produce, looks like, a commercial lead and a commercial zinc concentrates and we don't have any deleterious elements that would cause us to pay any penalties depending where we went but I think we're under the threshold for just about every smelter, so good results. We try to marry them to how Cannington, our closest neighbour. We received some help from their metallurgist, so ostensibly, we've got a commercial concentrate that could run in a mill like Cannington.
Tom: Can you tell us a little bit about the zinc market and what Vendetta needs to get done to capitalise on this zinc cycle?
Michael W.: That's a good question. I guess it depends how long you think this zinc cycle is going to be here for. This is the third zinc cycle in my career. It's a little bit like holding a burning match though in my opinion. It burns very brightly. There's a lot of attention on it but it will have an inevitable pull back. Last time it pulled back in the mid-thousands, it went from $2 down to less than $1 almost in a matter of weeks. Now, I'm not saying that's going to happen this time. I think there's two phases to it. There's the phase we're currently in and make no mistake about it, we're in a zinc bull market.
The inventories are … continue to drop. They're almost getting to a point that it's going to cause a real pinch. It already is at the smelter level. The treatment charges, refining cost of the smelter level are coming off historic lows. In the case of some of the Chinese smelter, they're at historic lows. They just can't get good concentrates, so that's always good for companies like ours and the producers. What we are trying to do is we've got our foot down on the gas a little bit. We're trying to get as much of the open pit engineering work done as we can. We're trying to drill as much as we can up there to demonstrate both to the bankers and other companies, “Hey, this this open pit component is going to be economic and we're going to do it in a metal price that's certainly a lot lower than the current prices.”
To answer your question, I see a further run-up here. I think it's got some room to go. There’ll be a little bit of a frenzy like there always is this. There's several big zinc mines coming on stream in the next 12 to 18 months through Gold River by MMG to the north of us. Gamsberg is coming in South Africa. I think you'll see some further concentrates come on stream, will relieve some of the squeeze at that level and zinc will drift back a little bit. The Chinese are already selling their smaller producers. They're not selling as much as they historically have but some of those cons are coming into the market.
I think you'll see it systematically pull back but I think the key is going to be, with the zinc market, the end result is … and this is kind of what we're banking on, you're going to see a higher sustainable zinc price. Moving forward where we've always looked at 85, 90 cent zinc, I think you'll be looking at $1.10, $1.20 to see if these operations will make it. At $1.10, $1.20, even some of the high cap cost guys might be able to go into production at that level. We want to be one of the few companies though, as this run-up continues, that, A, we'll have all our ducks in a row either to finance it through to production, or if along the way, another company makes a realistic offer, that's obviously something we'd also have to consider. Given the fact that it looks like the majority of it’s open-pittable, fairly straight ahead infrastructure, that's something that we're contemplating doing ourselves.
Tom: Can you go over the infrastructure that surrounds Pegmont?
Michael W.: Yeah, absolutely. It's got all the key tenants. We're about a million dollars from hooking up to haul roads which is key. We can bring liquefied natural gas which is in the region on site. If the ore body is large enough, you can even extend a leg of a natural gas pipeline over. It might make more sense though just to truck it over and do that. We've got access to rail through two operations that both go to the coast. Rail heads are within 70 kilometres and then from there, we’d go to Townsville and at Townsville, you've got the smelter, Sun Metals which is owned by Korea Zinc, a big zinc operation there or you could put it on Tidewater there. There's deep-sea loading facilities that could go to several other smelters to the south of us in Australia or they could go to Asia if need be.
My sense is they’ll probably remain in Australia and more than likely remain in Queensland. We also have a lead smelter at Mount Isa which is three-quarter way by truck, so there's further infrastructure. The roads are good. The dirt roads could handle concentrate trucks fairly readily so I think it's got everything it needs. We got two mills in the region that may be a deal could be struck somehow with either of those guys both within 25 kilometres.
Tom: Yeah. How’s all that surrounding infrastructure going to impact on any capex expenditures?
Michael W.: Well, if we … Certainly, that's been Pegmont’s competitive advantage, if you will. If this deposit were, say, in the Canadian North, you might need to firm up 20 million tonnes, this grade, open-pittable to be economic given that you would be a three to 500 million capex. This one, if we could use some of the local infrastructure now to those to groups that are close by, I think it becomes an earth-moving … You would be looking at 50, 60 million would be my guess. If it's … you're using, going to one of the local mills, local concentrators, a standalone, an operation like this, maybe 120 million plus another 20 million for sustaining capital, so both doable. Difference in your IRR is significant but I think this is going to be a robust project irrespective if we bring our own mill on or we use one of the local ones.
Tom: Yeah. Shifting gears now, you've had a hit with some copper. Can you tell us about that?
Michael W.: Yeah. To the south of us on our southern lease, we were required to spend some money as part of the agreement with the vendor. We were doing basically a small drill programme. We looked at one of the anomalies to the south, kind of felt it might have been, had basically the same geometry as Pegmont. There was a little bit of historic work done on it. We put a drill down looking for lead zinc and we hit copper gold in a different host rock, so it's totally separate than Pegmont and a different system. I earlier talked about Osborne and owned by Chinova. It looks like their system which is sort of a more of a copper gold system. We hit three metres of roughly 3% copper and a half a gramme of gold hosted within 10 metres of alteration.
That's not insignificant. We're going to follow it up. We’ll be drilling it in about a month. It could be just one hole, just one of those fluke things, put a drill hole in, went right down the centre of it and it doesn't materialise to be anything or it could be part of a bigger system. I'll have an answer for you in about, I don't know, 45 to 60 days after we assay it but if it is part of a bigger system, certainly will impact the valuation associated with Vendetta, ostensibly, two different ore bodies, two different commodities. Fingers crossed.
Tom: Where are you at with permitting and what's the permitting process like in Queensland? Is it fairly painless or …
Michael W.: I always say it's never painless for any mining company anywhere in the world. The question begs is that, is it manageable? Now, fortuitously for us, a lot of the open pit is on grandfathered mining leases so that the permitting process there is … I don't want to say benign but very straight ahead. I would think if you green lighted that particular part of the project, you could be … and you were using one of the local mills, you could be mining and anywhere from seven to 12 months. Dugald River to the north of us and Dugald’s a large deposit … To give you an idea, I think their capex was, I think it’s 1.5 billion on it. They took 18 months, 18 to 24 months to totally permit that project including tailings, roads, that type of thing. Queensland, by anyone's standards, is considered pro mining. Mount Isa, they're looking for feet to keep that smelter going. The government's aggressively looking for sources. Given that, yes, it's straight ahead.
Tom: Are there any land rights or community issues in the area that might not have been resolved or are things on fairly good terms?
Michael W.: No, they're good terms. As I mentioned, our mining leases, they almost … Well, they do. They predate pastoral rights and Aboriginal rights on those leases. As we go into the underground portion, we would need to get those type of licences. We kind of joke, Captain Cook must have staked this ground because that's, even by Australian standards rare to have those. You still need to do things properly obviously. What we're doing this year though, we're doing our flora and fauna testing which is part of our environmental impact study. We're doing our pit wall planning. We're doing further metallurgy, the things that we need to demonstrate that we could put this into production fairly rapidly and, to hearken back to your previous question on zinc markets, take advantage of this run-up we're currently seeing in zinc and lead just to some degree. They tend to move in tandem.
Tom: Yep. What are the catalysts that investors can look forward to in the next 12 months?
Michael W.: You can look for a further resource calculation where it will take the 10,000 metres that we do this year. We’ll include it into a new update. That might be ready Q4, if not, Q1 of next year, further metallurgy. Look what's going to happen on the copper project. That's going to be drilled in the next 30 days and then, we're doing some exploration style drilling on the Pegmont itself but we hope to find a new zone if we're successful on that so … and significant drill results coming out on our open pit shell zones and some on our underground zone five. There'll be a constant stream of data results.
Tom: I've got a couple of questions from members at ceo.ca. First one, how confident are you that you'll hit 15 million tonnes?
Michael W.: Fairly. I think the question begs is that to get to 15 million tonnes in 2017, is it three million I need to spend in the ground or is it five million? We’re just getting a grip on the geometry in zone five which is the underground zone and that's open. There could be significant more ore there. Our open pit, I think, is also open to expansion. Look, we’ll hit 15 million tonnes. It's just a case of how quickly we do it.
Tom: Next question, has there been any interest by larger neighbours considering the likelihood of a takeout as an in-play?
Michael W.: You know what, we've maintained really good relationship with both the Cannington people. As I mentioned before, they were very helpful on the metallurgical side and we've met with the guys at Chinova. I think those become commercial decisions for those two groups. We've received some interest from some larger companies in the region and we've received some interest from some North American based groups. There's just not a lot of really good advanced lead zinc stories out there, in my opinion.
Tom: Let's move on to the share structure in financials now. What's the current share structure of the company?
Michael W.: 105 million issued in outstanding, 150 million fully diluted basis. If you include our warrants where we have about two million in the treasury currently and about a further three million in warrants that are in the money.
Tom: What's the inside and institutional ownership and who are the institutions or groups?
Michael W.: RCF is our largest shareholder at 19%. They were our original investor in the company. They had the same views on the lead zinc market that we possessed and Solitario has 9.9%. I have several Toronto-based institutions that hold approximately 5%. Management has 8%. There's a European institutional investor that's up to about 9%. I think our overall institutional ownership’s probably around 40 to 50%, I’m assuming. We trade, on average, 200,000 shares a day. Actually, a little bit more than that. For the last year, about 250,000 shares, so market cap of roughly 34 million.
Tom: All right. When do you think you'll need to finance again?
Michael W.: Well, it depends. I think we sort of finished this year's programme off, kind of see where we sit, do our resource update and at that point, I think we're heading towards a preliminary economic assessment. We've been offered monies in the last 60, 90 days. I think it would behove us not to wait though until all the results are out this year. We can kind of demonstrate to the market that the right … I think we demonstrated that the project's robust and open but just with the size potential is, that was always the knock at a Pegmont when it was five million tonnes, it won't grow much further. Well, we've demonstrated that it has and it will and there's further room to grow the ore body.
Tom: Is there anything else you'd like to let investors know about Vendetta before we close>
Michael W.: No, other than to say, look, there's going to be lots of news stemming from the company. I believe the last resource update was significant. I don't think the markets fully valued it yet. Having the majority of your ore body in an open pit shell certainly is a key advantage for us and our shareholders. Given the amount of time we would need potentially to advance a project like this towards production, we can capitalise on this zinc market. We're still open and we keep … If you look at our last couple news releases, we continue to hit. Things have gone well geologically. From an engineering point of view, we’ll answer a lot of those questions this fall when our pit wall planning, those type of things, are put out.
Our metallurgy is good. We can produce commercial concentrates on both lead and zinc so I think we've got the wind in our sails and we're certainly in the, right now, in the right commodity anyway. As zinc’s heading in the right direction, a lot of people are looking for good zinc assets and I think the producers will as well. Knock on wood, things are heading in the right direction.
Tom: Where can investors find out more about Vendetta, your website and your ticker symbol?
Michael W.: VTT on the TSX Venture and vendettaminingcorp.com is our web address. We'll be updating the website within the next week with, I believe, some new cross-sections maps, that type of thing and there will be a news release shortly and then, they expect several in September as well.
Tom: Michael, thanks for taking the time today.
Michael W.: Tom, thanks for having me on.
Tom: Ladies and gents, I hope you all enjoyed the interview. All the links from today's show will be in the description box below. Make sure you hit subscribe so you don't miss any of my further releases and head over to juniorinsider.com and sign up to become an insider. I'll speak to you all shortly.