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

Good morning, everyone. My name is Nancy Curry. I'm VP, Corporate Development for Kodiak Copper. I want to thank you for joining us today on this webinar discussing the results of our initial mineral resource on MPD. Before we get started, I have a couple of housekeeping items to go over. First, this will be recorded so we can have a replay for later. Second, we will be making forward-looking statements, so I advise you to go to our website for relevant guidance. And finally, importantly at the bottom of your screen is the Q&A button. We will have Q&A at the end of the presentation. Please ensure you use that button and not the chat as I won't see the chat. So that cleans up the housekeeping. Let me introduce the panelists today. Very excited. We have Claudia Tornquist, our CEO. Good Morning, Claudia.

Hello. Good morning, everybody.

And from France, we have Chris Taylor, who has been fighting a cold. So it's evening time there. Thank you very much, Chris. How are you?

I'm great. Thanks to Ricola cough drops.

So without further ado, I'm going to hand it over to Chris and Claudia to talk about these exciting times for Kodiak. Take it away.

Thank you, Nancy. Good morning or good afternoon everybody depending on your time zone. Thank you for joining. It's an exciting day today for Kodiak. We achieved an important milestone after 6 years of district consolidation and exploration, we put numbers around what we have and release a main resource for our MPD project. It's always been our vision that MPD has the potential to become a major mine in the future. And we're very pleased with this initial resource, and it really shows that potential and is a big step towards derisking the project and bringing its potential to fruition. Let me share my screen and dive right into it. Where we are located, you can see here on the map, Southern British Columbia. And I've mentioned that many times, what a big advantage it is our location. We are in an existing mining district with everything you need to explore and also build and run a mine right at our fingertips. It's a real value multiplier the location. And you see on this slide, the mines in the area. We have New Afton and Highland Valley Teck's big copper mine to the north of us and to our south, just about 20 kilometers, Copper Mountain, [ based ] copper mine, which is very similar in terms of geology, just down the same trend. And you see here also the reserves of that mine, obviously, not directly comparable to our resource and the tonnages and grades, but it gives some good context on what is mined in the area and what's economic in the area. Copper Mountain's proven and probable reserves are 346 million tonnes at 0.25% copper and 0.12 grams per tonne gold, just as context. As I mentioned, we've been consolidating the district, and that has been a very important part on how we created value. You can see in this map the various pieces of land that we put together. Many of them had historic exploration, good results, but nobody ever had the critical mass to really bring the project to fruition. And that's what we achieved with our consolidation. And over those years, we've also explored and in total, drilled 85,000 meters. So a number of big drill programs. And where do we get to? We now have -- that's the yellow dots here on this map, 7 substantial zones of mineralization. Some of them kilometer scale, Ketchan, Dillard, Gate, south. All of those are zones that are a kilometer or more and big. And those 7 zones, they will be part of our maiden resource estimate. What's also important to keep in mind, you can see lots of orange and red dots on this map as well. I would just like to highlight quickly that over and above those mineralized zones that will now form our main resource, there are many other targets on the property. We've identified currently around 20. Some of those targets are already drilled by historic operators. We know already there is copper gold mineralization and so there's lots of exploration upside and potential and a very good chance that there will be more mineralized zones found in the future and -- yes, lots of room to grow from our main resource. But for now, let's focus on our 7 mineralized zones and our resource announcement. So today, we -- or yesterday, actually, we released the first part of the resource, which is for the 4 northern zones, Gate, Ketchan, Dillard and Man. The obvious questions you probably ask yourself is why in 2 parts a resource. And the reason for that is simply the project and its characteristics. Those 4 zones, we have all the drilling, all the information we need for a resource estimate. That's why we're coming out with it now. The 3 other zones in the South, we need a little bit more drilling, and we are, in fact, drilling them as we speak. That's the West, Adit and South zone. Those results will flow into the resource estimate for the southern zones, and that will be ready in the autumn. So by year-end, we will have the full initial resource estimate for the MPD project. So keep in mind, what you're looking at today is only Part 1. There's more to come later this year. And then obviously, over and above that, more to come in the future as well. Now let's look at what we have in the maiden resource. Here are the 4 pits. The entire resource is all open pit. Part of it is already at the indicated level. We're very pleased to achieve that. That's particularly -- that is at the Gate Zone, where we have an indicated resource of -- you can see that in the bottom line of the table here, an indicated resource of 56 million tonnes at a grade of 0.42% copper equivalent. And then the remaining zones and also part of the gate resource are at the inferred level, where we have an additional 240 million tonnes at a grade of 0.33% copper equivalent. This image shows the resource pits and the grades. We have chosen for this resource a cutoff grade of 0.2, which means that what you see here, the mineralization that everything above 0.2 which is, I would say, a fairly conservative cutoff grade. Our choice was -- our considerations were whether to choose a lower cutoff grade and come up with a large resource with a lower grade or for a higher cutoff and the resulting resource being smaller but with a higher grade. That's the route we chose for our main resource simply to be conservative. We now have a resource where we are very confident that it's a great basis to take it forward, and we will be able to move and advance it towards a successful PEA. What you very often see in projects as they transition to development. And I actually just looked at Copper Mountain's route there. When they -- originally, when the mine was restarted, released the first resource, it had a cutoff grade of 0.25%. And then now they mine at 0.1%. So over the course of development, the cutoff grade dropped. And so yes, our starting point is our initial resource as we have it here, with a 0.2% cutoff. We also looked at different scenarios. And you can see what some of these scenarios or one of the scenario looks like in the pits. We looked at different cutoff grades. We looked at cutoff grades, sensitivity scenarios between 0.12% copper equivalent, which is towards the area what the mines in the area have at their cutoff grades and then up to 0.22. This image shows the mineralization that the 0.12% cutoff scenario. So a lot more mineralization in the pit shell if you add the lower grades to it. So that just shows the upside that is there as we move this forward. And I'll hand over to Chris, who can speak to this in more detail of where we see the potential to take this resource in the future.

Thanks, Claudia. Thanks for the introduction. It was interesting looking at that last slide, and I know we don't typically make those statements. But when you look at the lower cutoffs, getting closer to where you're sitting with Copper Mountain, I think you're at about 600 million pounds of inferred indicated and another 2.4 billion pounds of inferred. So collectively, that's over 3 billion pounds of copper equivalent, which is quite a good start considering that there is quite a bit more resource to come later in the year. But I can talk to this, and it's quite interesting. And I guess you have to put the exploration hat back on for a little bit. And it's interesting to look at the potential pit outlines that we've got here in the initial resource. And there are certain areas. When you look at, for instance, Gate Zone, you can see there's a big area just to the left of the current area of drilling. And there's a gap there, which largely exists simply because of lack of drill holes. And when we look at the zones that are sitting around in front of us here, it's quite obvious that if we were to take the drill rig and we're beginning to drill more extensively around these targets, that there's a good possibility that more material could be brought in. So it's a very low-hanging fruit approach to being able to additionally increase the resources that are sitting here now, and that's something that could be focused on over time. But it is very nice at this point after 5 years of exploration on the project to show sort of a line in the sand and build a foundation to build all that additional value off of. And so when you're looking at the image in front of you here, you can see that really on the left side of the gate zone, a lot of that gap in mineralization is simply like a lack of drilling. Whereas the one on the east side, there is a fault that cuts across a portion of the deposit, and that fault is actually a stop on mineralization. But you can see that just with this and additional drilling, there is potential to add quite a bit of additional volume. If you go to the next slide, Claudia. And this is quite interesting. This is Ketchan, which we added to the property package last year. And Claudia, I'm going to put you on the spot right now, just be prepared to answer. But if you look at this, there are 66 million tonnes of about 0.24% copper. And in copper equivalent terms, there's nearly 0.5 billion pounds of copper equivalent in this deposit. And what did we pay roughly for the claims that we brought them in over here, Claudia, if you remember?

We've paid round -- in shares and just over $0.5 million worth of Kodiak shares.

So that's a very high return on investment in terms of contained pounds of copper equivalent in the ground. And I think people wondered at the time why we were adding all this additional land. Well, the reason was we were aware of this deposit, and that was something we thought because of its proximity to the Gate Zone and the other northern MPD deposits that it was something that could be operationally synergistic. It's also an example when you look at it now of all the different areas this could rapidly expand because this is all historical drill data that was completed by our predecessor in about 2015. And you can see there's a lot of artificial boundaries on these mineralized blocks. So it's pretty obvious taking to us anyway, taking a drill rig and going in here and expanding along strike and laterally, we should be able to add mineralization to these blocks like quite easily. So it's already a very good start. I think it adds a lot of value to the project as a whole because it's decent grade and it's right at surface, but it's nowhere near cutoff. This is an example, again, of low-hanging fruit in areas that we can add additional resources to the project very quickly. And we're looking at Man here. Man, as a geologist, this Man target is quite interesting because it's a little bit of a cylindrical or pipe like geometry. And it's something that we knew was present, and we knew that it was a gold-rich target. And when we first did some work on the project here, it had the highest gold numbers that expressed right to surface. So it's valuable material from our point of view. And we did do some drilling that went down about a kilometer vertically from the middle of this mineralization down to depth. And you could see that there's a lot more of this material that keeps going down to depth. Some really nice looking branches that we saw when we did this initial drilling. But again, another example, you can see gaps towards the top of this zone where there's just a lack of drill information. And again, it's not a factor of having no material potentially mineralized there. It's just a factor that there isn't drilling done. So it's located close to the Gate Zone. It could be a nice little place to start some of the mining operations in the future. I'm just speculating, of course, before we do any of that planning work. But in this case, it's another example of -- it's not very large at the moment, but it could be important going forward. And Dillard, this is a Dillard target that we're looking at. And this was one of the zones that was known about when we did the initial acquisition deal on MPD. It's -- MPD's name means Man, Prime and Dillard. Those were 3 zones that were known when we got the property. And this one is quite interesting because it's -- if you look here, it's yielding about -- almost 52 million tonnes of material, and it's just about 300 million pounds of copper equivalent but this is a much bigger target. And there just hasn't been very much drilling that's been done by Kodiak. Obviously, once we found the Gate Zone and we realized that this project actually had high-grade copper mineralization, that and other targets like it were things that we focused the drill rig on. But Dillard has the potential to add a lot of volume to the system. So I would say that this is nowhere near the end volume potential of Dillard. And even with the relatively limited amount of drilling that's going on right now, we already see that we have mineralization that's laterally constrained, for instance, if you look here and you look to the side of where it's drilled before, that's an artificial stop. So what we should do with Dillard is take a drill rig and begin just expanding out and adding volume to this target because when I've talked to companies and other geologists that have looked at this project before, everybody had the same comment is that Dillard definitely had the potential for significant volume. And we don't see that yet in the current data because it just hasn't been drilled enough. So very low-hanging fruit for adding more mineralized blocks to our resources going forward. And of course, this -- we go back here, it's a little bit of a transition slide, but I actually don't mind talking to it a little bit. And Claudia mentioned before, we have additionally like 20 more targets on this project. But as the company that's doing the exploration, eventually, you want to be able to show your investors, your shareholders that, yes, we actually have a significant project in our hands here. And so the time came to start revealing these resources. But I was in a meeting quite recently, and it was with somebody -- it's a company that's helping us do this visualization. And one of the geologists commented when he -- we were discussing about the intention to disclose resource, a level of frustration that we weren't just drilling more of these wonderful verified targets because when you look at the number of targets around the project that are actually very attractive for exploration, like raw discovery potential, they and we have a very positive idea that there could be a lot more to add to the system. For instance, over on the Aspen Grove previously, the Northwest portion of the project, there's some really interesting high-grade IOCG type targets that have never really been drilled. There's other targets all around the project that need to be drilled. But again, we need to draw a line in the sand. And the next low-hanging fruit other than drilling around the zones that we put out the resources on today is the south part of the project. And these are nice zones. There's very good -- the West zone, for instance, if Claudia makes the slide transition, has some very nice gold values together with the copper, for instance. But I think you can see intuitively, if we show where the drill holes are directed currently, it doesn't even take a geologist to say this. You can tell looking at the South zone, for instance, that there just isn't enough drilling right there now to be able to generate a resource. And we didn't do as much of that drilling ourselves. So what we need to do is we're drilling it right now. And by the time we get to the end of this summer's program, we should have enough drilling done on these targets, the West zone, the Adit zone and the South zone to be able to also include these in our mineral resource inventory. Claudia, I guess with that, maybe I'll pass it back over to you.

That sounds good. Thank you, Chris, for the more technical insights. Just some brief comments from my end before we dive into the M&A. These are our milestones and catalysts. You can see in the top part of the graphic. It's been a busy year for Kodiak. We had exploration results. We had a metallurgy program. We had a financing. And of course, we had our main resource announcement and the work leading up to it. What's coming in the second half of the year, you can expect from us within 45 days, the technical report about this resource estimate with some more details. You can also expect from us exploration results. We are drilling as we speak, and the results will be coming in from later in the summer onwards. Those results from the 3 southern zones will also flow into the resource estimates for those zones. So in the fourth quarter, expect the full resource estimate for all our 7 zones. We'll add the 3 to the 4 we have already. We expect them to make a substantial and important contribution. So looking forward to that, of course, that's a very important milestone. And then also in the fourth quarter, we will announce our further plans. There will be more drilling. There will be more network. There will be, at some point, economic evaluations coming. We're all working through that now and we'll announce more details later in the year. Last but not least, why is this resource announcement such an important milestone for Kodiak and catalysts. This slide sums it up very well. It shows our current market cap of $57 million compared to the valuations of some of our peer companies that Faraday Copper, they have a copper prolific project in Arizona, Northisle, another prolific explorer in British Columbia, Copper Fox and GT Gold. All of those companies are peers that are more advanced than we are that already passed the resource stage. And if you look at their market valuations or in GT Gold, they were -- GT Gold's case, they were taken over by Newmont. Their valuations are significantly higher than Kodiak. And our resource estimate is an important step for us to close that valuation gap. It will give the market -- tell the market what we have, which was very intransparent until now. Many of our shareholders always said to me, we don't really know what you have. You had so many exploration results, but what does it all add up to? So the mineral resource estimate now really makes that transparent. It shows the potential for [indiscernible] to be a future mine in the -- a major mine in the future, really derisks the project and is a big step towards closing this valuation gap to our more advanced peers and delivering that value to our shareholders. So very excited about this milestone, excited about what's yet to come later in the year with Part 2. And that brings me to the end. And I can see in the Q&A that we have already questions. So back to you, Nancy, for the Q&A. Thank you.

Awesome. Thank you so much. We do have quite a few questions here. A lot of them are quite similar. So I'm going to try and put them together. One of them, is the PEA the next logical step or drilling for discoveries? Where do you think for our investors, they'll get the better bang for their dollar?

Well let me take that. For us, at this stage, the resource is the main focus for this year. And we -- our drilling is focused on the 3 southern zones that will flow into the resource. We have many other targets to make the existing zones bigger and obviously, also targets for further discoveries. And I would say that targets or the drilling to expand the resource will certainly be the larger part of our efforts going forward. But there's a lot of excitement in testing new targets and making new discoveries. And so with some of our drilling, we'll hopefully be able to also test some of the new targets. But as I said, the main focus is really resource expansion of resource and focus on what we have and how to make that bigger.

Excellent. I have one here, which we tend to get a lot of grade. They're talking about 1% plus grade to help CapEx early cash back, which areas you might focus on? Can we talk about grade?

Well, I can take that one. What I would say is important for any project to move forward is to have some zones that have high grades that underwrite initial economics of a future PEA. And that's why we were focused in the last couple of years on identifying areas and zones, drilling zones that have high-grade mineralization near surface. And some of our existing zones clearly display that already. And what is also important to keep in mind are the results from the southern zones where we had particularly at West and added in our drilling some really nice grades near surface. And that's why we expect those zones also to be an important part of the full main resource as and when we add them in the autumn.

Excellent. Thank you. I will -- someone has pointed something out. You had mentioned that we would transition to M&A and you meant Q&A. So it was a slip of a tongue -- so keep pointing that out.

Yes. I apologies.

The next question, comparable companies that you've shown how much more of an advantage is Kodiak's location over their locations?

That's a great point. I mean it's an infrastructure-rich environment. It really is. And I used to work at Red Chris, which is further north in B.C., similar band of rocks. And then at Mount Polley, which is still further north, but a lot further south than Red Chris, and that's really the same belt of rocks. And it was the infrastructure advantage. I remember early days of Red Chris, there was no power transmission line into the area, and that was a big expensive piece. Fortunately, the government put a lot of money into getting it up most of the way but it's really those infrastructure advantages that make deposits in these areas so much more advantageous. And in the case of the MPD project, it's literally bracketed. If you looked at the map, it's literally bracketed by major copper mining operations. So that makes it a lot more familiar to all the local people, including our indigenous neighbors. And these are groups that are familiar with all these mining processes. So it's a better place to make a discovery than a remote environment on the top of a mountain. In our case here, I can take -- I can get in my car in Vancouver, and I can be standing at the drill rig in about 3.5 hours, driving a normal vehicle. And that just shows you like the cost to basically develop something in this region will be a lot lower than it is in some of those remote locations.

Great. Thanks, Chris. I got an interesting question here. Looking at the sensitivity tables, you say that you have 1.3 million ounces of gold. That seems very valuable. Can you expand on the gold?

I mean I could -- and it depends on your cutoff grades as well. And I think we looked at a lot of gold projects over the years. And I think that even if you stripped out the copper here and looked at the cumulative value of gold. Now as a gold only, it'd be a pretty low-grade gold deposit, although gold does carry a lot of deposits these days at these kind of prices. But yes, it's another way to think about the project, drop the cutoff grade to something like our neighboring levels and you're dealing with over 1.5 million ounces of gold. And it puts the project in a different light when you think what is that worth when it's near surface mineralization that's open pitable at low cost. That's kind of an interesting way to look at the project.

Excellent. I'm getting quite a few questions on next steps, infill drilling, resource expansion, budgets, et cetera. I know you've spoken to it, but maybe just -- maybe expand on that. They keep coming in.

Yes. Well, first things first. Really, the next big milestone is the resource estimate for the 3 Southern zones that we are drilling at the moment. So that's what keeps us busy this year. And we are, of course, also looking into the next steps. What is sure is that there will be more drilling, there will be more metallurgy. There will be economic evaluation at some stage. Bear with us, we'll announce more and give you more details later in this year. We need to first establish what our resource is and then we take it to the next step.

It would have been nice to have the entire thing out at once. But as you could see on that slide where we showed the drill density at those southern targets, it's just not there yet. But at the same time, it's already pretty big. So when we increase the size substantially, I think that will give people a very different way of looking at the project as well.

I have someone with a calculator here who's done an in situ metal with a huge number that I think I'll just leave. What do you think about the in situ values?

If you take a calculator, you can certainly come up with some very big numbers in the billions for in situ value. I don't think I can quote any of them because my QP would just knock me over the head if I could. But yes, if you look at the metal endowment in the resource, there are some big numbers, and they certainly contrast very sharply with the value that the market currently attributes to Kodiak. And that's part of the reason why I said this resource is a very important step in closing the valuation gap to our more advanced peers because it really puts a baseline in on how to value our companies and from where we will grow.

I'm really [indiscernible]...

Copper hit over $5 again today, you made a quick comment, Chris, about gold, but we seem to be in a metals market. Do you have any overview or comments about the overall copper market, Claudia?

Well, copper has been very buoyant over -- well, most of this year. And as that it's over $5 it's a positive market and the long-term picture in my mind hasn't changed with any -- in any way. We do have a supply deficit coming. There have not been any big discoveries in 10 years. There are no big mines in development. And there's lots of copper demand on the horizon, whether it's from AI, whether it's from electrification. And that's, I think, a very stark supply-demand picture and new discoveries and new projects are urgently needed. And I can certainly tell that firsthand from my discussions with bigger companies, whether it's copper gold companies -- copper companies, gold companies, they are all looking for the next good project.

And I have to interject again, and sorry to cut you off, Nancy. But when we put Mount Polley back into production in 2005 when I was with Imperial Metals, copper prices were $0.50 or $0.60, right? Now it's 10x higher. I mean it's staggering. But the world is not going to go back to a low copper price scenario anytime soon. I gave an interview today to a newspaper, and I was talking about some of the macroeconomics on copper and just like mineral control. And it's my view that minerals now, like metals and minerals, it's a bit like the new oil, right? So oil is still oil, but the new oil in terms of strategic importance and economic importance for countries is going to rapidly start shifting towards these metals because these are what's going to drive economic growth and drive all the future technology like Claudia was just alluding to. So we're very well positioned to have a deposit like this, which is sitting in a safe Canadian jurisdiction. These are going to be the kind of things that are very high priority for many of our Western nations to focus on going forward.

Excellent. Thanks, Chris. A question here about marketing, which I'll answer. Yes, we will increase marketing. We have some numbers to go out and super excited to talk about. So we will increase our marketing. Teck Resources, are they -- do they have a continued interest? Can you speak to Teck at all?

Well, Teck has been a very supportive shareholder ever since they originally invested when we made our first discovery at the Gate Zone. And they have invested in total $11 million over time and have been a very supportive shareholder. They invested because they like what they see in the project and thought that MPD holds the potential to become a project that's of interest for a major multinational like Teck in the future. And so they've been watching how we've moved this project forward. And yes, I would say with this initial resource, we have now certainly shown that this is already in the ballpark of major mines and with lots more to come. So it's certainly a good place to be and lots more to come for MPD and Kodiak.

Excellent. I think that's about it. If you have a question, please pop it in the Q&A box. Otherwise, I think we will wrap up this webinar. I'll just give it a minute. No. Chris, Claudia, thank you so much for that overview. Exciting times for the company. Any investor, if you have any questions, please feel free to reach out to us. We'll put up the contact information on the replay. I thank you all very much for your time and stated. And stay tuned. Take care. Bye-bye.