Generation Mining Limited (9GN.F) Earnings Call Transcript & Summary

Hello, everyone, and welcome to Generation Mining's Live Summit today hosted by 6ix. Today, I'm joined by Jamie Levy, President and CEO; Kerry Knoll, the Executive Chairman; Drew Anwyll, COO; and Brian Jennings, the CFO. The team is going to go into details about Generation Mining's most recent news. And after, we'll be accepting some questions. [Operator Instructions] As always, this summit is being recorded and will be available to watch afterwards on 6ix.com. Without further ado, I'm going to hand things over to Kerry to kick things off.

Thank you, and thanks, everyone, for coming out today. And this is a big day for us. As you can see, our shares have traded record volume today. And obviously, the news was greeted with -- very positively. I'm just going to go over the announcement itself and then we're going to turn it over to questions. It's not going to be a long presentation today. So Generation Mining is pleased to announce that it has agreed to enter into a definitive Precious Metal Purchase Agreement, which we call a PMPA with Wheaton Precious Metals Corp. in respect to the Marathon Palladium Copper project in Northwestern Ontario. The Marathon PMPA becoming effective is subject to the closing of Generation Mining's acquisition of a 16.5% interest in the Marathon project from Sibanye Stillwater, which we previously announced in early December. Pursuant to the PMPA, Wheaton will pay Generation Mining total upfront cash consideration of CAD 240 million. CAD 40 million of that will be paid on an early deposit basis prior to construction with the remainder payable in 4 stage payments during construction, subject to customary -- various customary conditions being satisfied. Jamie Levy, President and CEO, said that entering into this agreement with the world's largest precious metal streaming company validates the potential economics of the Marathon project and is a significant milestone for the company and our shareholders. This stream represents a key cornerstone financing commitment for the ultimate project financing package. Working closely with financial advisers Endeavour Financial, we will now focus on sourcing the remaining financial components of the project financing, including project offtake, debt and equipment financing. So some of the details are under the Marathon PMPA, Wheaton River will purchase 100% of the payable gold production until 150,000 ounces have been delivered thereby dropping to 67% of the payable gold for the rest of the life of the mine. And also 22% of the payable platinum until 120,000 ounces of platinum have been delivered. And at that point, it drops to 15% for the remaining life of the mine. Wheaton will pay Generation Mining total upfront cash of CAD 240 million, as I mentioned earlier, and CAD 40 million of that will be paid on an early deposit basis. Wheaton will make ongoing payments for the gold and silver -- or sorry, for the gold and platinum ounces delivered equal to 18% of the spot prices until the value of gold and platinum delivered have -- is equal to the upfront consideration of CAD 240 million. And at that point, the production payment will increase to 22% of the spot prices. Generation Mining and its subsidiary, Generation PGM, which is the owner of the project, will provide Wheaton with corporate guarantees and other security over the assets. The first advance of the early deposit under the Marathon PMPA is expected to occur in early 2022 subject to the closing of Generation Mining's acquisition of the remaining 16.5% interest in the project. As detailed in the Marathon feasibility study released on March 4, 2021, over a 13-year mine life, this project is estimated to produce 1,905,000 ounces of palladium, 467 million pounds of copper, 537 million pounds of platinum, 151,000 ounces of gold and 2,823,000 ounces of silver. So as you can see, this stream only covers 2 of those metals and only a small portion of 1 of those 2. So it covers all of the gold and about -- a percentage of the platinum. So it's leaving us with the palladium and the copper, which are the 2 key elements that we'll be producing. Endeavour Financial is acting as a financial adviser on this transaction and Cassels Brock is acting as legal adviser for us. So we're now going to turn the floor over to any questions they have, and those can be directed to any one of us. Financial questions would be to Brian, technical questions to Drew and any strategy questions can be directed at Jamie or myself. So I'm going to turn that over to you.

Great. Thanks, Kerry. [Operator Instructions] But to get started, we've got some questions come in, in advance. Gentlemen, how are you going to finance the rest of the project now?

I can take that one, guys. I mean this is -- we've always broken this up into really 2 phases of a financing. When we engaged Endeavor, #1 was to put in place a stream, which we've done. And Phase 2 is to go to market and put in place the debt component, the equipment financing component and then the equity component. The key for us, obviously, through Phase 2 of this financing is to minimize the amount of equity that we need to raise, therefore, just focusing right now on starting to talk to lenders to see how we can maximize the debt capacity of Phase 2.

Great. Thank you for that. [ Adam ] in the audience wants to know what are the milestones that you have to pass to receive the future payments beyond the first CAD 40 million? And what do you expect the timing of these payments to be?

I can also take that one. So on closing, which we expect will be sometime in January, we'll receive the first CAD 20 million. Five months from that date, we will be eligible to receive the second CAD 20 million. And then upon commencement of construction is when the 4 tranches of the remaining CAD 200 million construction component will come in. And those come in essentially over a 4-phase period from commencement of construction to the end of construction.

Great. [ Adam ] has a follow-up question. How will you manage the security for the debt given the security that WPM has required?

So [ Ray ], initially, the security provided to Wheaton Precious Metals is 100% of the security initially. And over time, that goes pro rata with other lenders and then ultimately, on construction, the mechanics of that are confidential, but Wheaton and prospective lenders will share in the security going forward through the final construction and operation phase.

Great. Thank you, Brian. How does this stream change the valuation of the project?

Jamie, you want to grab that one?

Sure. Some high-level numbers that we were running through our financial adviser, our internal rate of return move from 30% from the feasibility study upwards of 38%. Our economics or net present value was pretty much the same as it was in the feasibility study. So it's a big win for the project and for our shareholders. And the reason why is because the cost of capital for Wheaton was pretty much similar to what our discount rate is. So that's why the net present value remains unchanged.

Okay. Great. Another question. When are you going to start construction?

Drew?

Drew?

I can tackle that one. So the time frame we have is the first thing we have to get through is the environmental assessment. So we've got our joint review panel hearings that have been scheduled for February 15 and anticipate those taking about 30 days. Then the timing beyond that is -- allows for the panels to write their report, which is 90 days and then 120 days for the federal and provincial ministers of the environment to review that and give the final blessing. So our anticipation is earliest is probably September, October before we get the necessary permits and a little more conservatively of [ working ] towards November, December time next year before we start the initial construction.

Okay. Great. And we could go around the room, what about the news are you most excited or interested in from each of you? Maybe, Brian, we can start with you?

Sure. I can go first on that. I think for me, the most important thing here is financing this project. And what this really does is gives us a key cornerstone investor to take this through to the next Phase II, which I spoke about earlier. So it really kind of opens up the gamut here. We've got all kinds of interest and opportunities, and this will really allow us to pull together a great financing package to get this thing built into production.

Absolutely. Thank you. Kerry, what about you?

Well, I mean, I think that when you look at our company and our market capitalization and the fact that we can do a stream for less than 5% of the metal that is double our market cap is a pretty impressive statistic. The other one is that we've probably only got about CAD 25 million invested in this project. And the fact that we're able to get a stream where we're getting CAD 40 million upfront and another CAD 200 million during construction, we have really leveraged that small amount of money that we've invested in this project to bring in a lot of financing for this mine. You don't see that very often in our business where a company can spend that little money and raise that much money going forward to build a mine.

All right. Thank you for that. Drew, what about you?

What's most exciting for me is getting money in the bank. This is a great project, and this is a project that needs to get built. We're -- ESG is one of the cornerstones of our corporate ethos. So we're working well with the partners we have up North. So I'm really proud of that. That's one of the requirements that Wheaton has. All through this process, they're a good partner. This is a good project and good projects collect good people. So really, with this money in the bank, it allows us to get started on the project and start delivering the critical minerals that we plan to produce. So it's really -- it's been a hard road to get here, but all being told, the real hard work starts in front of us, and it's good to have partners like Wheaton and the communities up north.

Absolutely. And Jamie, what are your thoughts?

A couple of points. The first one would be the 4 of us here, Kerry and myself have been out there telling people that we're going to do a stream where we're going to look at a royalty, we're going to do something non-dilutive. And then we actually came through with it. So I think there's a lot of people that were second guessing this project's ability or our management team's ability to raise the money. And so this kind of validates that, hey, listen, we did a very large package, I think, bigger than anybody anticipated, bigger than anybody ever talked about. So that checks the box here that we have the money. And I think dealing with Wheaton Precious Metals over the past couple of months, there are some other people that we're talking to as well, but the professionalism, the friendship of Wheaton Precious, the relationships we've had, they've been an amazing partner and we're going to continue that relationship with Wheaton Precious, and we're very excited to have them along. I know we lost Sibanye a couple of months ago and I know a few of our shareholders were upset. Now Wheaton comes in and validates that this project is of merit and its time has come to be built, and they're going to be our partner through development, through construction and through our production. So it's great to have the largest streaming company, I don't know what their market cap is, $20 billion, $30 billion as a partner going ahead. So very excited. And the team, again, at Wheaton Precious is extremely knowledgeable and professional, and we had a great time working with them through this process.

Great. Thank you for that.

I'd just like to add one thing here, and I'd just like to acknowledge our own people. The team of people we put together on the environmental side, on the financial side, on the technical and engineering side, on the money raising side, we had our first meeting with Wheaton Precious more than 2 years ago, about a month after we acquired this project. And we've been talking to them ever since and obviously, more -- in much more detail in the last few months. But it was the team of people that we put together that managed to deliver this project. It doesn't just happen. They don't just look at our feasibility study and write us a check. We had site visits. We had ESG discussions and meetings, exploration discussions and meetings, the whole gamut and this went on -- this has been going on in intensity for the last 4 months. So I just want to acknowledge the people on our team that pulled this thing off.

Thank you for that, Kerry. [ Pete ] in the audience has a question. Look, I think it boils down to essentially that this is a district scale project, and it's going to continue in growth and value. And that in his opinion, the stock at this price is cheap. He was wondering if you could comment on this.

On -- I guess, I could comment on the share price. I agree with -- I forgot his name, but yes, we are undervalued. We are underpriced. This is, I guess, a couple of days before Christmas, lots of people have taken some time off. We're going to keep marketing this. As we mentioned before, we don't need to raise equity today. We don't need to raise equity tomorrow. So we got the cash to take us through for a fairly long time right now. So we're just going to go with their market and hopefully, there'll be some people coming back to their offices in January. And they're going to take note and say, hey, why is this company only trading at this valuation? And hopefully, some analysts on this call or other analysts will listen to this later on, and will be providing some buy recommendations for the company. So I think we all agree that this is a very undervalued stock.

Great. Thank you for that, Jamie. [ Adam ] has another question. What are the remaining permitting items before construction can commence?

Yes. Good question, Adam. So I should have clarified in my previous question -- in the previous question. So the EA is really the conceptual approval of the project. Subsequent to the approval of the EA, then we get all our permits that are needed for construction and operation. So where we are right now, the key next step is we're doing a lot of the permitting awareness for lack of a better word, at the same time because we're dealing with the same folks, both on the province and the federal agencies that will be approving our permits. So we have the opportunity to socialize, normalize and answer the questions right up till that point. So we do anticipate that we should promptly get the permits after the EA is approved. And the key permits are associated with the closure plan. The permits to take water, sewage treatment, some of these -- the secular permits. So this really is offset. So it's a whole gamut of permits that we need to progress. So -- and we've got those well in hand. Jeremy Dart and our environment team have a full registry of what we have to do, and we're progressing on that plan.

Wonderful. Thank you. Gentlemen, that's all the questions we have for today. So I'd like to thank everyone, first and foremost, who did ask questions as well as all the speakers here today, Jamie, Kerry, Drew and Brian, thank you for coming on today. If you didn't get a chance to get your question asked or if you think of one after the summit, I'm sure that you can find more information and contact information, especially at genmining.com. And with that, I'd like to hand things back to Jamie or Kerry or anyone on the team for some closing remarks.

I guess I'll start. Thank you all for listening, and I just want to wish everybody a healthy and happy new year. Stay safe out there and stay tuned for 2022. Hopefully, there'll be lots more news for our shareholders. 2021 was, what I believe, a very good year for our shareholders, maybe not so much on the share performance, but I think it was a great finish to the year, and we're going to continue through 2022.

Wonderful. Well, with that, we'll be ramping things up today. I hope you all have a good rest of your day, and have a happy New Year.

Bye, everybody.

Cheers.

Thanks, everyone.

Merry Christmas.