Kodiak Copper Corp. (KDK) Earnings Call Transcript & Summary

Hello. My name is Claudia Tornquist. I'm the President and CEO of Kodiak Copper. We are a copper exploration company focused on the MPD copper-gold porphyry project in Southern British Columbia. I am joined today by Kodiak's Founder and Chairman, Chris Taylor, to talk about our latest exploration results from our 2024 exploration program.

Well, hello, and welcome. Good to see you again, Claudia. I think we saw you Beaver Creek-ish, must have been back in September. Right. A lot going on in the copper world, a lot going on about politics, lots going critical minerals less, all good for copper, for sure. I just want to quick catch up with you. Obviously, saw the press release and maybe we should talk about the Adit zone first. And so what do we need to know from the latest drilling?

Well, we had some more results from Adit and Adit is a high-grade zone in the southern part of our property, which we drilled for the first time this year. It had some historic near-surface drilling and was thought of as a small high-grade near-surface zone. And we have, this year, expanded this high-grade mineralization quite significantly. And today, had some more results. Actually, the last results from this zone of this year's program, which also extended the zone. They were from a 200-meter step out. And we ended a little bit on a cliff hanger because the most interesting hole, we lost, unfortunately, because of ground condition just as we entered a high-grade zone and the rocks were looking better and better. And then, yes, the drilling gods were against us, we couldn't push the hole any further. So a very interesting cliff hanger, and we'll certainly go back to that one next year.

Right. Again, when you say high-grade zone, what are we talking about? Because the average was 0.45% copper equivalent that you talk about the headline. So what could you be looking at?

But typically, when I say high grade, I'm thinking twice or more the grade of what's mined in the area. And if you look at the mines around us, we are in an established mining region, the mine just to the south of us, that's Copper Mountain and their reserve grade is 0.25% copper. So when we hit anything 0.45%, that is what we call high grade. And the hole that we came out today with the results, the last box of core, we had 0.73% copper equivalent over the last 4 meters of the hole before we lost it. So very interesting sniff of high-grade mineralization.

Right. Okay. And I guess, the big question I won't answer it really is, it kind of feels like we've been talking about the same thing for a while now, right? We made discovery way back when, was it a couple of years, 3 years ago now. And you're working -- you're doing the drilling, but I'm not quite sure what you're working towards. What is it that you guys see? And what is it that you guys are working towards in terms of being able to deliver?

Well, there's a good slide up on the screen in front of us right now. And I guess, the simple way to describe the MPD project is what we have is a cluster of porphyries that are about 200 million years old, so the same age as all the other copper mines in the area. And if you look at that image, you could see all those yellow dots and the red dots, those are areas where we have confirmed porphyry discoveries at this point in time. So you could see we're up to over 10 different areas where we've hit copper mineralization with the drilling. So what we're doing right now is figuring out how much of the mineralization is present in the near surface for potentially future mining purposes and really, what the grade distribution is here. So as Claudia mentioned, one of the main messages you have to get across when you talk about BC copper, and I worked at 2 BC copper mines. One of them was the Mount Polley project and one of them was Red Chris. And these are not the highest grade porphyries in the world. But because of the location and the fact that they're close to infrastructure, you're not looking at having to put in big desalination plants for billions of dollars like you do in South America, a lot of these places. So these deposits, they tend to be attractive to people when they're in the sort of the 0.2% to 0.3% copper range, that's when they're viable. So what we're looking for here is to define as much higher grade mineralization in the near surface as possible because in the future, when the company moves to resource publication and analysis, you're going to be looking at building out a schedule where that shallow high-grade mineralization is very useful for future development of the property. So what we've been doing in the last few years is we found that big Gate Zone a few years ago, and then we started drilling around it. And we thought, well, Gate could be a very good anchor for high-grade mineralization because it probably has an average grade. Claudia, what would you say would be a fair estimate for the average grade on the Gate Zone? It's 0.3%, 0.4% copper, something in that range. So I'll just answer for you. And then we're looking at all this other stuff around it to figure out what has good grade in the near surface and what could work synergistically together in the future. So something like the Adit zone, very exciting to us because the grades in the shallow, near surface are very good.

Right. But if I look at -- okay. So that sort of starts to talk about the areas that you've got available to you. You've chosen to go in on the Adit zone now. So you're talking about what Claudia has said, look, there's a high-grade intersection compared to some of our neighbors. But in terms of that depth and continuity, the last whole kind of, well, problems occurred there. But what are you trying to do in terms of demonstrating the depth and continuity? And what does that do in terms of the total overall package?

Well, the previous news release that we had about 3 weeks ago now talked about some of these intercepts. And it was like -- I think we had -- when we're actually in the Adit zone, if I'm just trying to pull up the numbers here in front of me, I think we had about 0.3% copper over 300 meters right from surface, and that's what you want to see. If you're looking at putting together a volume of mineralized material, you want to see that consistent mineralization and you want to see good grades in the near surface. So that's really been the focus of work. And that's why Adit zone is interesting. Like if you look under the ground at the area where we've got these holes that fan out as they go into the ground. And if you look from one side to the other, it's getting close to 500 meters long, which is a very significant size. And then the hole that we put in today steps off to the north and it tags more of that mineralization, again, a couple of hundred meters further to the north. And if you think about a big porphyry system for this area, you're going to be looking at something that's 500, 700 meters in strike length. And it looks like Adit is now beginning to show that it has that potential for size as well as grade.

Right. Obviously, demonstrating size is important. The contained metal is really, really important. But let's talk about something specifically you just mentioned in terms of the near surface component here. Mineralization starting close to surface. That's important for you, why? And is this why you've chosen to do the drilling here? Because at some point down the line, you're going to need a starter pit. At some point down the line, you're going to need a high-grade starter pit potentially, right? So is all that in the background of your thinking?

Absolutely. Like when I was working at Mount Polley, we had several pits going on the project at the same time. Some of them are quite low grade and some of them are quite high grade. And it was very useful. In 2005, we got the mine going again by making a shallow near surface high-grade discovery, the Northeast zone there, and that was the material that started going through the mill first because that pays back the development costs on the project right away. So very important for companies like ours with these new discoveries on hand to find where there could be material that might make it into a starter pit in an economic scenario. And that's really been the focus of some of the recent drilling and especially the 2024 drilling that we've been doing.

Right. And again, just -- because I think the allocation of capital is really, really important. And I'm starting to build a picture from what you're saying is you kind of got the ability to maybe demonstrate a sort of large copper gold system here and Gate and West can be part of that. But again, if you're banging in holes, which then put out kind of low grade or suboptimal grades to the market at this stage that you're going to get penalized for that. So how do you get after the high-grade stuff and then kind of work towards joining this up as a kind of a larger mining operation?

Yes, absolutely. If we were drilling a program that we just wanted to generate market buzz, we would be targeting like infill drilling in areas like the middle of the Gate Zone where we'd be doing repeated holes into something like the middle of the added zone. And that would generate just consistently high-grade results, and that would be more of a promotional exercise. But what we're seeing with the drilling that we've done now at Kodiak is there's a very large mineralized volume of rock on the property. And it's more important for us now to see what the distribution of the grade and that mineralization is in the near surface. So we've done really deep holes in the past where we've shown that these porphyry systems go down like over a kilometer, some of the deepest drilling that we've done. But in the recent drilling, it's all about showing what the distribution of grade is in the near surface because if you think about it from that perspective of out of the total mineralized envelope, if your porphyry system, if the ground is the top of my head, right, and you look at the total mineralized system being like my head, we really need to know what's in this near part with my head and floorhead, and we've been popping holes into that this year. Whereas, say, like 2023, 2022, we did long drill holes that would have gone down the total vertical length of my head. Very odd analogy, but I think it's a great way to visualize what we've been doing. And that strategy is really about that near surface shallower drill holes and it's showing us the technical information that we need. So less promotional, but actually, it's a sign that we think that we're looking at a very good amount of mineralization in the ground, and we're more interested right now in showing how much of it there is in the near surface and what the grade distribution of that could be.

It's interesting. Because I think what we're seeing out there in the market is that companies that can demonstrate a kind of route to production or are in production are getting rewarded disproportionately to explorers and a lot of explorers getting cash stranded, quite frankly. You're down in the ExploreCo zone here, but you're going to have to kind of show a path to understanding the potential economics around this deposit as usual, feasibility studies, et cetera. But that's a ways down the line. So can you sort of lay out your thinking as to how you get from where you are today to a point where you maybe start being able to generate some kind of economic potential for the project for NPD?

Our drilling this year and in past years is really about generating critical mass. We have made the original Gate Zone discovery and have then drilled multiple other zones of mineralization and importantly, now has 3 high-grade zones that appear quite substantial. So it's really about building critical mass and demonstrating the size potential. And if you look where we are now with multiple mineralized zones over a large area, the logical next step for the project will be then to do a resource at some point and then move into PEA work. And that really will give then investors and the market also something tangible to really size up what MPD is about. Because I think at this point, it's difficult for the market to really understand what we have. We have lots of drill results, but what does it all mean when you put it together? That's very hard to see. And as and when we have resource that will become much clearer. And we've always said we would drill first and come up with the resource once we are confident that it is sizable. That's been our strategy from the start rather than different strategy that some companies go drill a little bit, come up with a little starter resource and then continue drilling. So that wasn't the route we went. We drilled. We now have 10 mineralized zones, 3 high-grade zones. And in the not-too-distant future, you wouldn't be wrong to expect to hear from us with respect to resource work, et cetera.

Right. Okay. So multiple zones, which you need to demonstrate how they hang together. I get it, and that works towards economics. But from where you are now, you want to get back and do some drilling next season. What type of drilling? What are you after? Why are you doing that? Why is that money going specifically there? And I wouldn't mind your thoughts also on the kind of coming back to the strategy of Canadian companies seem to have like changed strategies and say they're going to show we can get and start with smaller projects, starting smaller projects is okay again, it seems. So are you happy to stick with your strategy? So first of all, Claudia, just on the drilling, the type of drilling, et cetera, and then maybe just in terms of why you're sticking with the strategy?

I think going forward, the type of drilling we will be doing will be quite similar to what we did this year, i.e., focus on near surface, focus on high grade. We have a number of historically drilled zones. For example, the one we just recently added to our mineralized inventory, the Ketchan zone in the claims -- former Aspen Grove claims that we acquired a couple of months ago. Those are -- have historic drilling. And with a couple of drill holes of our own, we can probably prove up quite a lot of mineralization there and add to the mineralized inventory and into what will eventually become a resource. So yes, I would say more near surface and more targeted towards high grade to eventually flow into a resource.

Right. Okay. And -- okay. But what does that do for you? Why is that the right thing to do? So it's the same question, but just asking it in a different way. But I'm trying to get to the point where you go, look, this is still a relevant copper story. This has the potential to deliver scale quite quickly. There's a step change moment coming. And I want to be [ this ]. But why this specific drilling? Chris, I don't know if you want to take them on a technical side.

I'm happy to say, like we have quite a bit of historical work on this project, and I will always misquote the number of holes, but it's hundreds of historical drill holes at this point. We've been steadily adding to the property footprint because we keep picking up ground that has mineralization that's near where we think the center of mass of this future potential operation would be. So stuff like this Ketchan zone that we added on, it has quite a bit of drilling in it, but nothing that we've done so far. So I think to answer your question there, Matthew, what we're going to have to do is get all the results from this year's drilling, and then we're going to have to start building our geological models internally. That will tell us how many more drill holes we actually need in order to be able to get resources together on the project. So that's the kind of thing. Over the course of the winter, there's a few months here where we won't be drilling. That's the kind of stuff that we're going to be looking at because that will give us an idea, do we need 5 more holes, 10 more holes, 15 more holes? I couldn't tell you what that is right now. I would imagine some of the zones that we've drilled are probably close as they currently sit to being able to do resource calculations on them. Others are going to take a bit more drilling. And that's part of the process that I've gone through on every advanced stage project that I've worked on. And especially in cases like this, effectively, what looks like it's going to be multiple deposits, certainly multiple mineralized zones. Each one of these gets modeled separately. And then you put the geological constraints, all the alteration, build these mineralized volumes and then you can figure out how many more holes you need in order to do the drilling. And in some of them, I bet you it's almost there right now. In others, it would take probably another summer drill campaign. But more information about that after we get everything back from this year, and we see how -- what the pointy-headed guys tell us in terms of the meters of drilling.

Okay. This modeling is really important because not only does it inform the targeting, but it also informs the time frame and the cost as well. So I think that's what people are trying to get a sense of. So when you say some things are closer than others, i.e., you've got most of the data, but you just need to fire up on that one in the sort of down period as it were, the desktop period. Do you think we're another year away from a resource as a result in terms of being able to put some -- compile data together to do that?

That's an interesting question. I would say if we had one deposit, one zone that was going to become one deposit, that would be -- maybe it would already be there. But some of these things, we just acquired them like Ketchan. And it could be important because it's higher grade and it's right close to like the Gate Zone, and there might be some real future operational synergies if it gets to that point, right? So some of them are going to be a few drill holes away from being resource compliant and some of them may be there already. And some of them may need a summer campaign. So if it was one deposit, one zone, it'd be a lot simpler to be able to give you a straight answer. Right now, I would say, in my mind, looking at the data, as I currently understand it, you might be a year away on the stuff that we haven't worked on yet. Other things like the Gate Zone that we drilled off ourselves, that's good quality data. That's good quality drill spacing. There's probably not too much more to do. So it would be a smaller amount of drilling. But when you start drilling off resources and you start thinking about pits and you start thinking about all that stuff, sometimes you're just drilling like really short holes in the near surface that are going to add volume to what would be inside of a pit envelope. And that's why you really can't cut corners with that work. But there will be information, like Kodiak is going to provide that information to the market in the relatively near term. I could say very near term, but let's see what the results come back for the rest of the drill season from 2024 first.

Right. And I use this phrase, you made a discovery a while back, and we haven't really been able to talk about discoveries a lot with you. That depends on the -- I guess, the -- how you -- what your costs, you say discovery, right? So how do you feel about these zones that you've got in hand and the amount you're making? At what point do you declare a discovery? I've known people declare it after one hole. I mean, very impressive. But they do it. They need to. You don't so much. But what constitutes success for you?

We are in the fortunate situation in that we have a lot of historic drilling. and almost 500 holes, 66,000 meters of historic drilling. So before we even started doing any work, we already had several mineralized zones that we knew about. So all of those, we can't claim as our own discovery because other people did the work for us. But like the Adit zone or the West zone, we have extended those significantly. The Gate Zone was a different animal. Nobody had drilled in that particular zone before. So that was really a bona fide discovery that we made. So really, our success is a mix of our own discovery success and then extending and expanding historically drilled zones significantly.

Right. Okay. And Claudia, excuse me, I'm going to ask Chris this question because you brought the topic up, and I've kind of run with it. And I just want to just check on the kind of the psychology, right? So Chris, unconventional thinking, I think that's what you're known for. Is this a more conventional play in the sense of how this project moves through the phases? And also, ask you the same question I asked Claudia which is, with regards to the kind of psychology between starting small and versus having to demonstrate a massive scale out of the gate. How are you reading the landscape out there? And what do you think the market needs to hear and what are they going to hear from you?

I think, Matthew, generally, with copper projects, they develop in a more conventional sense. There are exceptions to this, like if we look at the [ Filo ] story or some of these other ones in the last couple of years. But most copper stories and the ones that I've worked at that are copper mines, they develop like very systematically over time. So when we're looking at -- to answer your initial question about what constitutes the discovery on this project, yes, if nobody has put a drill hole into a zone before and you have a big hit in there and then you have consistently a follow-up and you manage to build volume and size, that is a bona fide new discovery. I would also call things like the drilling that we've done at the Adit zone. All the historical interpretations thought it was small. They thought it was cut off by faults. We just drilled across those and lo and behold, there was a lot more zone and a lot more mineralization. And then we did the step out recently, and we found more of it. And in an area nobody had ever drilled before. I would characterize that as, again, a bona fide new discovery. So it's a combination of work here of testing these sort of conceptual targets, just following that very systematic approach to porphyry exploration. You go from the exterior green rocks that have less copper to the higher temperature pink rocks that have more copper. We've been doing that again and again, and it's generally been successful on this project. So I think what we're going to look at is more of a conventional pathway, how the value unfolds here. And I think we're looking at a total amount of mineralization, which is significant. So now we need to define what again is in the near surface and what would fit into a mining kind of context. And that's really the next step for the company is really to do that work.

Okay. And Claudia, one for you. Copper has been slightly erratic this year. We've seen $5 earlier in the year, $4.50 a few weeks ago, but it seems to be -- seems to settle back down at this $4 mark. Gold has been on a tear, silver has been on a tear and everything has sort of come off in the last couple of weeks. Is there interest in copper stories in the market? Are you getting a positive reception? And will the money be there when you need it?

Look, copper are typically big projects, very long lives, decades of mine life. And the companies who are interested in copper projects and are building copper mines, which are all the big copper companies, they have very long time horizons. They look 20 years out, 50 years out. And so the short-term ups and downs of the copper price is arguably not really very important in their interest. They're really looking at the fundamentals of a project, whether it has the size potential, the grade potential they are looking for and the long-term supply and demand picture for copper and that still very much is intact because in the last 10 years, in particular, there weren't any large new copper discoveries. So the pipeline of projects, future mines, is at an all-time low. And new discoveries are urgently needed. So I certainly, from firsthand experience and dealing with those major companies, I can say that there's a lot of interest and not only the copper companies, but also gold companies more and more the Newmont or Barrick or big gold companies of this world are looking for good copper project.

Right. They have a long-term horizon on projects like this, but CEOs of junior companies have got to keep the boat afloat. So that means either timing the market or sustaining interest in the market to be able to access the capital when they need it to do the things they need to do to grow that story, to move that story along. Do you see the need for either industry or offtakers or alternative financing coming on to kind of support some of the companies out there who may well have great assets, who may well have a great team, but just time in the market at a point where retail has, I guess, deserted us. So how do you survive? How do you stay at the table to play the game?

Well, we've been very successful in the last couple of years, and we're able to raise the funds that we needed without incurring too much dilution for our shareholders. We have still only 75 million shares outstanding. So I'm confident that we'll be able to continue to do so and fund the work. We have a very strong shareholder register and very supportive long-term shareholders, and that has enabled us and will enable us going forward to raise the funds we need to bring this project to fruition.

And Chris, what about you? You're a gold guy, but how are you reading the copper market?

Long term, copper fundamentals are really strong. The geopolitics, unfortunately, like as you know, we were chatting a little bit about it before the camera went live. It's the same conversation I have again and again. I've been looking at projects in all kinds of jurisdictions all over the world in the last couple of years. And that situation, I don't think is going to get any more stable or beneficial for project generation or that long stream -- or that long-term project pipeline like Claudia was talking about. So ultimately, jurisdictions like Canada are a premier destination for some of these larger companies to look at because the political stability is better. And that's one of the factors that this company and this project has in its favor.

Well, look, great to hear from both of you and get an update from you. Exciting times for you guys. I'm looking forward to this modeling coming out and maybe you can lay out for us in technicolor what that's going to look like for next year. I appreciate the time today, guys. Stay in touch. Let's know how you get on, okay?

Thanks, Matt.