Chesapeake Gold (CKG) - New Technology Gives New Hope

Chesapeake Gold (CKG) - New Technology Gives New Hope

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Alan, how are you doing, sir? I'm good, how are you, Matthew? Not too bad. Where in the world are you? I'm in not so sunny Vancouver, but  at least it's not raining today. Very good. Have you been stuck there a while or  have you been down at camp? How's it working? No, you're not traveling much at the moment and  Canada keeps tightening up the restrictions and   tightening up how you can return, and now they've  made it almost impossible to travel. I haven't   been able to travel. I made 1 trip in October when  I was still on the board at TMAC. Prior to that,  

I almost got stuck in Guyana right when it all  started, when I was with the Guyana Goldfields.   But apart from that, no travel. No travel. Look, I’m excited. This is a  new story. It's a very, well-established,   long story but in a way, there's a new component  to it, which is why I want to speak to you today.   Let's get into that in a minute. Can you  kick off, give us that 1-minute overview   of the business for people who perhaps haven't  heard it, and then I'll get stuck in after that? Sure. There are probably 3 things about it that  are different. Firstly, the underlying asset at  

the taps is mass. It's over 18Moz of Gold  and 500Moz of Silver in Mexico, in Durango,   which is a good place to be. We're well  funded. We've got over $35M in the bank   and with the deal that was done with Alderley  Gold, we bring in new technology and a new team   that can solve the well-known metallurgical  problem that this project has had forever.   It's not really a met problem. It's more  of a total capital cost overhang problem.  

The Pre-Feasibility Study that was done  in 2016 had a price tag of about $3.5Bn.   The process we're bringing in really  brings an order of magnitude difference   to both capital costs and operating costs, and  that then obviously helps margins significantly. You say it's not a met problem. The market thinks  it is. I think the company has suffered from that  

label for a long time now, and we're going to  hear why perhaps you've solved that problem.   Do you mind if I bring it back a bit? It's the  first time we've spoken, the first time we've   met, and the first time I've heard this story  from a board member. Let's bring it back a bit   and see what you've walked into if you don't  mind. Why don't we start by understanding who   you are? What's your track record? What  have you done? Where have you come from? Sure. Alan Pangbourne, I'm a  metallurgist by profession.   I've been in the mining industry my entire career.  I've had many different hats and many different   seats. I've lived in 7 different countries, worked  in probably double that. I worked in South America  

for over 22-years. I ran an engineering company  initially, building lump-sum turnkey projects   for the Gold business specifically,  in Chile, Peru, and elsewhere.   Then I went to the other extreme and joined  the largest mining company on the planet, BHP,   and did the first Pre-Feasibility Study for Agua  Rica, which still hasn't been built and that was   one of the reasons we probably dropped it  at BHP built the Oxide Project up in Peru   and then built probably the largest single-build  Sulphide heap leach oxidation recovering Copper   at Spence, which is just outside of Columbia and  Chile, that was $1Bn back when you could still   buy something for $1Bn. It was a massive project.  It was 250,000t a day mine, 200,000t of Copper.   Just huge. So I've built stuff.  Most recently, I was the COO at SRR  

for 5-years. I came in just after they'd started  up Piriquitas in Argentina. It wasn't doing what   it was supposed to do and I came in to help the  new CEO at the time. We fixed that, and then as   anybody who's followed the SSR story, we took  that company from a single struggling asset   all the way up to 3 assets across 3 different  countries, improved all 3 of them, and turned   it from 100,000 equivalent Gold production to over  400,000, and the market cap went from 500 to 2Bn.   More importantly from my point of view, we changed  the culture inside the company to be a production   company where you get rewarded for delivering. At  the end of the day, my role as COO was to deliver   production costs consistently, quarter over  quarter, year after year. We changed the  

culture in SSR and we did that. In fact, we did  it the entire 5-years I was there and they've   continued to do it for the last 3-years since  I left. Change the culture; change the company.   I've done all that before. Now, with  Chesapeake and Metates, it's, do it again.

Yes. You sound like you're a problem solver.  That's what comes across when I've read about   you and watched interviews, and listening to you  now. You seem like you like solving problems,   which is great because it seems you've  got an almighty one here. Did you know   what you were walking into or was it  serendipity that you came together? We were looking for it. We were looking for  this type of project because the technology we   bring will change the way people  look at refractory Gold deposits.

Let's clear that up for people.  You're talking about the Alderley   oxidation technology that you own, right? We don't own it. We've licensed it. Got it. I've been watching the technology for quite a long  time and I approached them about 2.5-years ago,   got a licence, and then put it  into Alderley, which was our   private company. We've been looking at  assets for the last 2.5-years, trying to find   the one that works for everybody. When you  do these deals, you have to have 3 things.  

Technically, it has to work. Financially, for both  parties, it has to work. And socially, it has to   work, that they're going to allow you to come in  and take over their company and do what you need   to do to make it all come together. Chesapeake was  the one that we found that ticked all the boxes.   We looked at many. Others ticked 2 out  of 3, or 1 out of 3, or 0 out of 3,   but Chesapeake ticked all 3 boxes. Most of the  previous team is still there and I’m working   with them and we'll work out how we're going  to put all this together as we move forward.  

I've only been in the seat for 3-weeks and  you're the first major interview I've done. Thank you very much. Let's  talk about the technology.   We'll come back to the marriage as it were,  but let's talk about the technology. You   licensed this out and decided to work  with this technology, how long ago? I've been watching it for a  long time, probably 7-years+,   and then 2.5-years ago I put together a company,  brought the license into it. With that license,   I get access to all of that R&D that was done over  the last 7 or so years, and also, more importantly   than the patent pending and what works, I actually  get to see all of the other things that they tried   that didn't work. That's really important.  People often miss that piece. You've got a recipe  

but that doesn't make you a chef. It's all those  things that don't work or don't make it come out   quite right. That gives you the operating window  that you've got to operate in. And why. The   important thing as well with these things is why.  Why does it work? Not just, it does. You've got to  

understand the fundamental physics and chemistry  behind it. Once you do that, you go, aha, got it. Explain what you've got a license  for. You've got a license to use   this technology and adapt it any way you see  fit, or are they in charge? Who's in charge   when you're applying it to something  like Chesapeake? Who makes the decisions? We do. The only tie back to the license  is a 1% Royalty Stream on production using   their technology. If for argument's sake,  I came across another asset where there's a   different way to do it, and as you said I  enjoy solving problems, we can go after that   as Chesapeake and do what we want with it. If  we want to use the license and that technology,  

we owe the owner a 1% Royalty Stream once we're in  production. Any improvements are mutually shared.   That's the only thing. There are no limits  on where we can use it. It's unrestricted.   As long as we comply with the terms,  it's uncancellable. Off we go. Brilliant. You've got someone who owns this  oxidation technology. They've licensed it   to you, and to how many other people?  Where is it being used successfully? The technology is being developed by the licensor  at one of his sites at the moment. They're in  

front of us. They are way further down the track.  They've already done all the test work; they've   already done the variability columns on their ore  body. They're built pilot plant pads, small ones,   and then larger ones, and they're ramping up now.  They're in front of us. We're a fast follower,   not the bleeding edge. That's 1 advantage  that it has, being in the situation we are  

in. That's the only other place it's being  used at the moment, where it was developed.   As far as we know, there are no others out  there. They're not restricted on what they can do   with the license, just the same as I'm not  restricted on where I can go and use it.

What is the license? Are we talking about a   flow sheet? Are we talking about  chemicals? What exactly have you- All of that. Right. Break it down. Tell me what it involves. It's a process chemistry set  that's applicable to heap leaching.  

It's a bit akin to the Copper business.  The Copper business has been oxidising   secondary Copper Sulphide for 3-decades. I  saw the very first one, just out of Santiago,   and I built one of the largest ones. I've been  around the whole concept that you can oxidise   Sulphides and get good recoveries out of half-inch  crushed material in a heap leach for a long time.  

When I saw this technology on the Gold space, I  recognised it and I went, 'Aha, Gold refractories,   billion-dollar autoclaves.' This doesn't require  billions of dollars to build a heap leach.   You can build heap leaches for 1/10 of the price   that you build an autoclave plant for. If  you look at the presentation, there are some   benchmarks in there that compare autoclave  plants, that are known, against heap leach   plants that are known, both capital and  operating costs. The delta is phenomenal.

Let's park that for now. I do want to come back  to it but I want people to actually understand   what it's being applied to. You mentioned some  pretty big numbers in there. We're talking mostly   about Metases in Mexico. There's an outlier  project in Nevada too, Talapoosa, but I think   if you don't mind for today, we'll just park  that up. The key for you is being able to unlock   Metases because these are huge numbers. When I  was reading this, I was trying to work out if  

this was one of the world's worst business plans  because it just kept getting bigger and bigger and   bigger as opposed to trying to unlock the value by  actually starting to mine. Was that the problem?   The people who were running it couldn't work out  how to unlock it, technically, metallurgically? They worked out how to unlock it. An autoclave  solves the problem. It does work. The problem is   the capital cost and therefore the economics.  If you're prepared to give me $3.5Bn,   I'll go build an autoclave plant. I won't because  I think that's a stupid thing to do in this  

particular case. The economics don't work. It's  an economic issue, not a technical issue, once   you find another way to crack the nut. You don't  need a sledgehammer, which is what an autoclave   or a roaster is. You need to tickle it, not bash  it. The heap leach approach allows you to do that   in a way more economic position. Way less energy,  way less capital, it's almost nirvana if you can  

do it this way. We believe we can. We believe  we've got the chemistry set that will do it. Let's come back to the chemistry set. I like that:  tickle it, don't bash it. I wanted to understand   what attempts the previous management team  has made. There's a 2016 PFS. It's had a   couple of PFS's along the way. The numbers are  vast in terms of the capex and the opex etc.   You'd need Gold to be at quite an interesting  price to actually make money. I get the  

economics. You're coming along saying, 'Hey, I  can probably knock 90% of the cost off of this and   unlock the potential here.' What have you done  to be able to prove that to the previous board   who you have- are they still there, or have  you completely replaced them with your team? Yes, 4 of us are new on the board, 3 new board  members, and myself, and I think 2 dropped off.   We gained a couple. It hasn't been a complete  RTO. It's an agreed transition from old to new. You've had to say, 'We've got a solution here,'  and they go, 'Sure you have, they all say that.'  

'No, let me show you,' and you've  stepped in to say you've done   what? Lab conditions? Pilot? How has it worked? We did 2 things before we did this deal. 1 was  that we obviously got some samples from Metases,   ran them through the lab, and made sure that  at least the chemistry works. If the Sulphides   won't oxidise, it all becomes irrelevant  because you haven’t cracked the first step.   We check that A, Metases' Sulphides will oxidise,  and B, after they've oxidised, I can still get   the Gold and Silver with Cyanide. It ticked  those boxes. It worked chemically, technically.  

The original board got some independent people in  to review the test work, review the results. We   also took 2 of the board members at different  times to the site where it's being developed.   It's really impactful when you can stand somebody  in front of a pile of grey rock and then walk them   around the corner and go, 'Look, see, now brown  rock. Kick it. Just kick the surface and see how   deep and how brown it is. We didn't go  and paint it.' When you stand geologists   and other technical people in front of something  at scale where it's started grey, it's now brown,   and Gold and Silver is coming out the other end,  those 2 things together got them over the line. Brilliant. Talk to me about the volume.  The lab is 1 thing. You've taken them to  

a site where you're also implementing  the technology, at what kind of scale? They're done test heaps up to  50,000t and they've done 3 of those.   They're working on scaling it up beyond that. What are the problems as you get bigger? Operator control in the window is 1 issue that  comes up. Again, it's a bit of changing mentality.   You’re actually trying to control a heap  leach, not just throw it and forget it,   and it’ll be right, if we don't get it today,  we'll get it tomorrow, if we don't get it in the   primary heap leach, we'll get it in the residual  when the next lip comes over. You hear that  

mentality a lot around heap leaches. One of the  nice things when you start with a new project   that doesn't have anybody you can mould them  to fit at the beginning, as you're selecting   the people that, hey this is new, this is  different, it has to be run a certain way.   You can't bring all your baggage with you. It's  like any process; if you've never seen it before,   there's a way you've got to do it. As I said  earlier, part of the information you've got is,  

we know what not to do, not only what to do. We  understand why, as you widen out that operating   window or try and mix things, it doesn't work, and  why it doesn't work, and how to stay away from it. You've got to go through a process now of testing  this at scale to prove to yourselves, to prove to   the market, that it works. You are getting the  recoveries that you think you can get. It does   cost what you think it's going to cost. How long  are you allowing for that process, first of all? Initially, you're bang on. The first thing  we've got to do is large diameter core drilling.   Get some 3.5" rock. Get it up to a lab here  in Vancouver and do all the typical test work  

you'd expect to see. Crushed size; oxidation  times; reagent strengths and consumptions;   Cyanide leach times; ore variability; ore type  testing; all of that work needs to be done.   That's going to take 18-months to 2-years. I've  been around this long enough. Heap leach test  

work is not a 1-month job. CIP might be, but  with heap leach, you've got to give it time.   Even a conventional heap leach  takes 90-days per column. You're talking about doing a PFS   next year. How are you going to produce  a PFS before your met work is complete? The met work by mid-2022 will be sufficient  to support the PFS we're going to update.

Right, it gives you a certain degree of confidence  because you will continue to do that work. We will continue to do more test work. We won't  have completed all of the variability across   all of the ore types but our focus initially  is on about 205Mt at about 1g/t Gold equivalent   that is all contained in the intrusive. It's a  slightly higher grade than the rest so it gives   you a nice starter project to work on. We'll  have the majority of the test work for that   done when we do the Pre-Feasibility Study update.  Then we'll we're continuing to do particularly ore  

variability test work. There are 2 camps out  there. Do I build a massive pilot plant or do   I do lots of variability? I tend to sit in the  variability camp just because variability will   surprise you. The 1 thing I will guarantee you is  the pilot plant sample will not resemble the ore   body, except exactly where you took it. It's too  much risky. You're better off spending your money  

drilling way more 3.5" holes and getting more  variability samples from around the ore body,   and understanding that variability, than a single  point that you decide on. That is very dangerous. I'm glad you said that. Therefore, when  you're doing the new Pre-Feasibility Study,   you're going to have to give ranges  in terms of the economics, aren't you? Yes. But you think by the time you do a Feasibility, which you're telling us is 2023, you should  have a little more certainty because of your   variability testing, and you've got more data  points to feed it. That's what you're saying? Exactly.

Good. Totally understood. You raised  some money in August. $20M. Well,   the previous management team presumably raised  the money. How much have you got left today? We've got $35M in the bank today, and we believe  that's enough to actually get us to the end of the   Feasibility Study. The reason for that is, with  such a large deposit that's already been drilled  

out, I don't have to do a large infill drilling  program until you get to the point where you say,   'Right, we're going to build this thing, do  the infill drilling for grade control, and   all the normal things you do before you start up  a project.' $35M should get us to the end of 2023. Fantastic. You are suggesting the capex  should come down dramatically. This doesn’t   need a major or large mid-tier to step in and  get involved. Is that what you're mooting? That's correct. If it all works out as  we believe it will, and we've obviously   done some calculations before we even did  the deal on what we thought this could be,   you end up with a project that is financeable by a  company the size of Chesapeake, it's buildable and   deliverable and operable for a company this  size, and then it's scalable. Because we're  

starting just on that 205Mt, we're thinking about  starting in the 15,000t - 20,000t a day range.   Why that range? In my experience, it's actually a  nice size. Nice is a horrible adjective, but it's   a project that a small, competent management team  can keep their arms around and actually deliver it   on time, on budget, safely and it will work. The  4 things you have to always do. It's financeable   by a company the size of Chesapeake. You're not  looking at going out and raising $1Bn in equity.   How do you do that? You can't. You don't  need one of the big boys to come in and say,  

'We'll help you, trust me.' We can do t  ourselves. it then forms the cornerstone   of a company. There's 1 slide in the deck, even  when I put it together, I looked at it and went,   'This can't be right.' We checked the  numbers and checked the numbers. It's   the one that compares the 2P reserve to the 2P  reserves of the likes of Kinross, Kirkland Lake,   Agnico Eagle, the 3 big ones next to it. There is  more 2P reserve in Metases than there is in those   other 3 companies as a whole. That's the end goal.  That's not going to happen tomorrow or in 3-years,  

but that's the end goal. Metases is a cornerstone  asset to build a real mining company on.   That's what we want to do. Build it small to start  with, capital that we can finance, a project we   can manage, and then scale. Scaling up is always  easier and cheaper than building the first one.   It's all about risk mitigation as well. It's  lump-sized pieces that we can take, and we can   digest, of what is an elephant. We know where  the elephant is. We know what the grade of the  

elephant is. It's now just, how do I break it up  into pieces and then build a company around that. There's no doubt that it's always been a big  project. It's always been about how much metal   can be recovered. That's what people have been  addressing, or need to see addressed. When do   you think people should start listening to your  story again because you haven't proved anything   yet? You've still got some proof points to hit.  Why should the market pay attention to you now?

It depends on the type of investor that they are.   Uncle Eric will tell you all the time, 'Take the  Metases resource and reserve, give me $1oz for   the Silver and I'll give you the Gold for free,  and we're still undervalued by a factor of 2.   He said that in his podcast around other assets as  well. It's one of the mantras he uses. We all know   Eric is looking for large Silver plugs and that's  fine. If you're that sort of investor, you should   probably already been in it because Silver's  already gone up. You might have even missed the  

boat a little bit but Metases has been quiet for a  long time. We're significantly undervalued on that   metric. As soon as the market understands that  we're not going to try and build a $3.5Bn project,   the overhang that that has on the market  should prick up the interest of the investors   because at a 90% reduction on the capital, you can  do the numbers yourself and you suddenly look at   it and go, 'Even at 75% recoveries, which is what  you'd typically see in an oxide heap leach, at the   size we're looking at, we're undervalued compared  to our peers.' Big time. A factor of 6, I think;   one of the slideshows. It really depends on what  type of investor you are and when you want to come   into the story. There are multiple entry points.  As we produce the results from the test work,   even today if it's an option play  on the metal price, take your pick.

Tell me this. You talk about different types of  investors but what type of CEO are you? Are you   tempted to leverage this frothy Silver market at  the moment and change this to a Silver Lead Story? No. Fast money moves around and it's called fast  money for a reason. You saw it with the Reddit   thing that was just ludicrous. We're going to  build this thing. We're going to build a company.   It's the same as I did when I worked with  SSR. We took a struggling company with a  

single asset and built a bigger, better, reliable,  predictable company out of it that makes money.   Then you can value me as a company, the  same as you value Kinross, Kirkland Lake,   Agnico Eagle, B2, whoever. That takes time  but I'm here for the long run. One of the   things that a lot of people don't realise,  the deal we did with Chesapeake was all paper   and it's locked up in Escrow for up to  7-years and it's based on milestones.   I've got skin in the game. I'm here for the 7-year  ride to get this thing built, running, and beyond. What do you mean, up to 7-years? When can  people start dumping this into the market? It's all in the public market now but I think  there's a 5% per annum for the first 4-years,   and then there are 3 milestones:  Feasibility Study, construction decision,   commercial production, on Metases or any  other large asset that's not Talapoosa.

That's interesting. There's no  big overhang waiting to happen? No. There isn't a big bang when all of a sudden  there are 10M shares suddenly coming out,   unless we're already producing. They all come  out by the time we're in commercial production. Again, just to get a sense of where your head's  at, this project has always needed high precious   metal prices. What's your view of the market  going forward in terms of where we're at? You  

said that ridiculousness with Reddit and so forth,  I guess you're talking about the Silver squeeze. And others. Where do you think this thing settles down? What  sort of pricing do you need or expect to see? We still need to do the study work to actually  understand what the margins end up looking like.  

It's going to be a very healthy project, certainly  at these prices. Way back down 1,500 or below,   I wouldn’t be surprised if it's  under 1,000 cash cost, easily.   We've got to do the work first. Where's the  Gold price going to settle? I don't know.   The 1 thing I do know, whatever  I tell you I'll be wrong. Probably. We all will be. Definitely.

Great run through. I was really keen to speak  to you guys because at first look at this,   and when we looked at it last year, it just seemed  problematic. Let's use the word problematic.   You've come in, made an agreement, your feet  are just under the table, and you’ve got a   bunch of stuff you've got to now deliver into  the market. We can expect to see, what? What  

regular communication can we expect to see from  you with regards to the tests and res results? There are a couple of things. We're working on  getting the permit, mobilising a contractor to   drill the holes. We've already started doing that  and we have to get that on the ground by the end   of the month. Once we do, we're letting the world  know, we're drilling the holes guys. Then we'll   get the samples up to Vancouver. We've already  talked to a lab; we're sorting out quotes on  

what the work's going to cost. I need to pull the  budget together for how much money we're going to   burn this year, go back to the board and go, 'Here  you go, this is what we're going to spend it one   and these are the different things within that.'  One of the things we want to do, which is probably   a little unusual, is to take the existing PFS and  get it back and update it, where in section 24,   25, you can add other significant information  under the 43-101 guidelines, where we put the   Scoping Study of what this looks like, with  Metases. We'll do some engineering around layouts,   earthworks, construction costs in Mexico, what  does it cost to get reagents down to Mexico,   all of those things say we've got a handle on at a  Scoping Level. Scopings +/-30+. Then investors can  

compare and see if they believe, if the met tests  are positive, this is what it could look like   and compare that to the autoclave,  which we don't think is the way to go. You stole my question. I can't believe  it. You stole my Scoping question. Look,   I like the story you've laid out. The proof is  in the pudding so let's see what comes out of the   next few weeks and months. Best of luck with the  new venture, I hope it goes well. Stay in touch. Thanks a lot. Have a good day.

2021-02-20 21:04

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