KORE Mining Ltd. (KORE) Earnings Call Transcript & Summary

Good afternoon. This is Campbell Mccrary, Vice President of Capital Markets here at Amvest Capital in New York. Welcome to the Amvest Capital Inc. Live Webinar with KORE Mining, Inc. KORE trades on the TSX Venture as KORE and KOREF on the OTCQX. Hope you'll enjoy today's program. It will also be available in replay mode. You feel free to chat in your questions in the question pane on the GoToWebinar, Control Panel or simply e-mail them in. We'll try and ask the questions in real time. Amvest Capital is a New York-based specialist investment management and corporate finance firm focused solely on the natural resources sector. They're all important disclaimer. We have them to this call among all other things written here is for informational purposes only. We have with us today, Scott Trebilcock, the President and CEO of KORE. Scott has over 25 years of experience in process engineer, management consultants and mining executive. Most recently, he was the CDO of Nevsun Resources, responsible for strategy, corporate development, investor relations and exploration. Nevsun was sold to Zijin Metals -- Zijin Mining for $1.9 billion. And after a year-long contested defense process led by Scott himself. You also drove the M&A at Nevsun, including the 2016 acquisition of Reservoir Minerals. Following the formal presentations, members of Amvest Capital ask questions with management. And again, we really encourage you to send in your questions, and we'll ask them straight away. And lots of news flow. So hopefully, there'll be lots of questions. Hi, Scott.

How are you doing, Campbell?

Doing all right. What's going on in KORE?

Lots, as usual, it's been a great 2020. I think thank you very much for having us again. We've been very busy working our portfolio for the benefit of shareholders aggressively in 2020. And we're getting more and more excited about delivering the same value creation in 2021. So let's talk largely about that. I'm going to go through obviously, through the basics of the company, go through a step through each of the 3 main assets of the company. I think that's a key takeaway here for those that are new to the story. KORE has a unique position of working a portfolio of gold projects. We internally allocate capital equally to all 3 of those projects. We've been successful in adding both growth and real value to each one of those projects in the course of 2020. And I think that set us up for some great success in 2021. We've made some key strategic decisions as well. So let's walk through some of that and try and -- I'll try and transmit some of my excitement to you through the course of this presentation. I will be making forward-looking statements. I encourage all current and potential investors to thoroughly review the materials on our website, our filings on SEDAR, the regulatory filer in Canada, and to make sure they thoroughly understand the risks associated with investing in a company like KORE Mining. All right. So let's get into it a little bit here. KORE, the basics of KORE, as I said, are we are a portfolio company. We've got 3 main assets: 1 -- 2 in California, 1 in British Columbia at varying stages of development. In the past year, we've delivered 2 preliminary economic assessments that gives KORE a development pipeline of almost 250,000 ounces of gold per year, with a combined total NPV at $1,600 gold around CAD 1 billion. And to put that in context, KORE is still today, despite a good 2020, only about CAD 150 million Canadian market cap company. We also have an aggressive exploration orientation inside the company. And we've set up in 2020, some great exploration opportunities across that portfolio. So I'll talk about some of what we did in 2020, but will focus also a lot on looking forward into 2021. We have a variety of near-term catalysts. We still have a drill turning as we speak at our project in BC, and we'll look through the other catalysts we have coming in the company. The share structure of the company is very tight. We'll look at that. And we still believe the company trades at a good valuation point compared to peers. So I think there's a lot of value creation potential going forward. Starting on the cap structure. So the company is owned 38% by management. I take -- I am a major shareholder, the Executive Chairman is the largest shareholder outside of Eric Sprott at 25%. And we are very much aligned with you, the shareholder, that it is all about creating per share value by working this portfolio. We have raised finance 3x from Eric Sprott in late 2019 through to the middle of this year. That puts him at 26% of the current shares outstanding. The rest of the public float is about 38 million shares. We've got some reasonable liquidity on the listing in the U.S. and in Canada. We've got a growing set of analysts supporting the stock. They're currently -- all those with published reports are -- have buy recommendations. So we're seeing the company mature as the market cap increases. However, the big opportunity for the company in 2021 is to tap the institutional investor market. We've never been big enough or liquid enough to go into that market for issuing shares. So that's a source of capital in the company for 2021. From a valuation perspective, the company looks cheap compared to our U.S. development peers. Two of our projects are advanced gold development projects in the Southwest deserts of the U.S. And here's a rough comparison to some of those other companies. KORE still looks cheap on a price-to-NAV basis based on our 2 PEAs. We also have a total of about 4.9 million ounces of gold in the ground, about 1 million ounces up in BC with the rest down in the 2 projects in California. And if you look at the company on a price to ounces in the ground, we're trading about CAD 30 an ounce. You compare that to the peer group we track internally, they're trading at about CAD 90 an ounce. So like any way you look at it, there's lots of reasons why KORE is at a good valuation point for a new investor. However, we are working the portfolio. Let me walk through these 3 assets. And then we'll loop back a bit to what the strategy in 2021 is going to be. Looking first at Imperial Gold. This is a project in the far, far, far Southeast corner of Imperial County, California, a great project, low CapEx, high IRR, a good amount of production, almost 150,000 ounces. This is a project that very much should be a mine. The project also has the benefit of a lot of historic work done by Glamis in the 1990s, who previously did a feasibility study and took the project into the permitting process during the 1990. We had the benefit of all that work, and it's given the board the technical confidence to push the project immediately into the permitting process. So we are currently working with the Bureau of Land Management, the federal agency that is our regulator on this project. To start the EIS, the environmental impact, baseline work that will move us into and through the EIS process through a plan of operations and ultimately, hopefully, through a permitting of the project. Now our strategy to ensure we get through that process is, as you must at all mining projects anywhere in the world, build a social license to operate. We've been on the ground now for almost 12 months in Imperial County. We've built up a local team of great professionals that are working hard every day to engage with politicians, agencies in the local county to get support for another mine in the county. But I think that's an important fact. Imperial County, California already has a large heap leach gold mine, which is a good -- has a good reputation in the community, and we're building on that reputation as we propose another mining operation. That operation, which is called Mesquite also has a short mine life. So when we talk to local politicians, there is a concern, number one, about the current high unemployment rate, but the adding fuel to that fire with the closure of Mesquite in the years to come. I think we've got a great case why if we're responsible, and we meet all the very high environmental standards, including backfilling the open pit, which takes away long-term views scape issues. I think we've got a great case for permitting this project to the Bureau of Land management and with the local community in Imperial County. So in 2020, KORE has done an incredible job on the ground in this project. Congratulations to the team. We've also created some great growth potential. So in and around the project that the claims that host the project, which you can see the little red dots in the middle of the map, the Imperial project. We've got this 28 kilometers of exploration claims, which are in the crosshatching. These claims are wide open for exploration and basically capture an entire gold trend inside KORE. Just this morning, we put out a news release announcing that we had discovered some anomalous gold in some of the desert washes. Those are the dry sort of river gullies that run through the property and it's typical in this part of the desert to identify arroyo or a desert wash. And that shows that there's a potential gold source somewhere in between Imperial and Mesquite. That matches well with geophysics we did earlier in the year, which defined a cult structure going from Mesquite through all the way to Imperial. We think we've got a really good chance of making multiple new discoveries and creating a lot of excitement about KORE and adding a lot of value to this project. Second project in the company is called Long Valley again, it's a very simple heap leach gold project. We did a PEA in the middle of this year. Again, it shows very similar high-quality numbers around the project. A little smaller production at about 100,000 ounces, but again, great economics. This project, however, the next step is to go. And as you would typically do for a project with a preliminary economic assessment, we're going to go drill upside potential. We believe we've got some really good oxide gold targets. And just last week, we announced that we had increased the claim size by 750% around the project capturing a lot of upside potential and, in fact, almost the entire floor of this volcanic caldera, which is driving the mineralization and the fluid flows, creating the gold at the Long Valley gold deposit. So at that project, we're currently permitting a drill program. We're expecting to be drilling in half 1 of next year to drill out upside oxide targets as well as to drill under the current 1.7 million ounces looking for higher grade sulfides, again, to add value to the PEA and show there's upside of the project, some great low-risk exploration on store at Long Valley. Then the final asset in the company, we've been working hard at is something that at the beginning of the year, I would have described as sort of the lower quality -- lower interest, lower priority, third project in the company from an external perspective, but internally, we're always very excited about the prospects. This project, we now call the South Cariboo Gold District has grown to be 1,000 kilometer land position. We did that by both acquiring and staking ground through the course of 2020. And we've got 2 anchor projects on that claim block, the FG Gold project and the Gold Creek project. We've been drilling at FG for the bulk of the summer and in the early spring of this year, and we've recently been drilling at Gold Creek to add value to those projects. And I'll show you a bit about what some of those projects are. But if you look at where this project is, it captures almost the entire southern part of what's called the Cariboo Gold District. This is a prolific 120 years of gold mining mining district in Southern British Columbia. Right next to it, there's a large porphyry copper district where you see the Mount Polley mine. Just to the east, there's the Gibraltar Mine owned by Taseko company. This is a very experienced mining jurisdiction in BC. We've got a huge claim block and most recently, Osisko Gold Development has been formed out of a Osisko Gold Royalties with almost an $800 million valuation, $200 million in liquidity. And they're going to be drilling and promoting aggressively the north part of the Cariboo. And we're going to take advantage of that and develop our part of the south. And I think can create a lot of value to shareholders. Starting on the southern part of that district. We've got a deposit called the FG Gold deposit. It had been heavily drilled in the '80s, '90s and 2000s, defining a very shallow, open pitable type gold deposit. Our thesis was that the rock group that hosted that mineralization extended significantly at depth and it never been drilled. So we went out this year and drilled some step out down dip and discovered 330 meters almost 3x the depth of the known mineralization when we took over the project, some great gold intercepts that one you can see on the map here in the whole 377 was 6.4 grams over 14 meters. That is the type of hit that could carry underground type mining in the future. We're a long way from proving that, but we've got a great exploration opportunity. The beauty of this project, it also has a huge amount of strike. We currently have over 3.6 kilometers of known mineralized rock group to explore both at surface and at depth. And on the project, we've got 20 kilometers of that rock group, we believe we can chase its surface. And we've got a huge multiyear opportunity to build another great gold project in the Cariboo region. So sort of stepping back a bit KORE as 3, what we believe are great assets in a single company and as such, the Board has announced 3 weeks ago that it has authorized management to consider a transaction to spin-out the Canadian gold exploration assets to our shareholders. That is to give our shareholders better exposure to exploration value. KORE will continue on with the 2 great assets in California, Imperial and Long Valley. That would give KORE a pipeline to 250,000 ounces of gold production, 2 great district scale exploration projects and great leverage to the gold price as we go into what we believe will be a multiyear strong gold cycle. The spin-out will go forward with exploration in British Columbia, the South part of the Cariboo Gold District, advancing and drilling into Gold Creek, FG and making new gold discoveries. And that company, we expect will benefit, as you would expect from putting out drill holes and the great torque you can get in a share price from exploration news in a smaller cap company. We believe this will be the best way to maximize value to KORE shareholders and the Board and management are currently contemplating that transaction. That kind of sums up what we've been up to, which as I started, is a lot. We had a very busy 2020. In KORE, we are going to be delivering the Spinco if the Board chooses to go ahead in the early part of the year, follow that by drilling across the portfolio in those 2 separate companies and can create a lot of value for shareholders in 2021 as we did in 2020. So I will stop there and turn it back over to Amvest to grill me with some great questions.

Sure. Are there going to be any modifications in the current ongoing sampling program at Imperial after the recent positive sampling results? When are you going to finalize this round of surface exploration?

Yes, great question. So the results we put out today are actually still ongoing. That team is still in the field as we speak. They've worked their way all the way past Imperial and now working their way out on our land package toward Picacho. So we'll see how those results go. We'll probably have some other news on that in Q1 about what the anomalies might look like out towards the east part of that district. We'll be following that up with a more tightly, more systematic soil sampling program around these anomalies. You'd usually do a grid our team because they had such a huge area was just going on and walking desert washes trying to find out crop and other signs, positive prospecting signs. And I think we were successful in finding more outcrop than we thought, and some of these anomalies are just great signs. We're also permitting a large drill program currently with the Bureau of Land Management. All of this work will lead to targeting the highest priority drilling in the middle of 2021. So quick answer, another round of soils and geophysics, probably in late Q1 or early Q2 to hone our targets and then drilling starting on the back of a permit in the middle of 2021.

How far is your closest surface sample from the current final pit limit of Mesquite mine?

About 4.5 kilometers. So it's not like a step out. This is a -- you'd be expecting to find an entire new deposit that is outside of the current planned mine area of Imperial.

Okay. Related to the additional latest claims staking at the Long Valley project, what prospective findings attracted you there?

Yes, good question. So while -- we have a prospecting team in the field there in November, December and January. Of this past year, we also did several lines of IP geophysics. I mean at that point, we were rebuilding the historic database on the project, relogging KORE field prospecting. And our team found what's called alteration. So that's where hydrothermal fluids have changed the type of the rock. You could see it right at surface off our property. We also saw the geophysics were pointing to the fault that controls the Long Valley mineralization going off property. There's actually a [indiscernible] mine, which is the ultimate form of alteration just up to the Northeast. And we were able to go out and stake all of that ground because there is surficial evidence that the same fault structures and mineralizing forces that formed Long Valley continue on a good part of that new clean block.

Can you discuss water availability at Imperial?

Yes, this picture, you're actually looking in the background of the Q&A session slide here is what it looks like. This is right about, I think, where the heap leach pad is designed to be, and it is dry open northern Sonoran Desert. So water, obviously, is a very important question. However, we have the benefit in this case of having an existing production water well that was put in, in the 1990s by Glamis and a series of piezometer. Those are monitoring wells for the groundwater around the project. We have not yet pump tested that well, but we've opened it and sampled it. The water level is the same as it was in the '90s. So that's very good. That means the water level is not going down in this aquifer is not being overused. It's the same aquifer the Mesquite has drawn its production water from for 25 years. There are no competing agricultural uses in this aquifer. Agriculture in Imperial County is largely from surface irrigation through canals from the Colorado River. So we've been talking already to the water board, and we do not believe water will be a problem for the Imperial project.

Okay. Stuart? Your audio got cut out, Stuart, you're muted.

Scott, so the drilling you've been doing at the FG deposit? Like, when could we expect -- like, when you're hoping to have a resource upgrade out? Would these -- any...

Yes. So the drilling we're doing right now will not generate a resource. And I do not expect we would do that in 2021 either. And the reason is because I'd ask to set back and asked the question, what would we do the resource on? We've stepped -- we've got a 100-meter deep deposit where we've stepped down 320 meters and found good grade gold vein mineralization. We've stepped out for 1.8 kilometers of strike with only about 4 fences and found gold veining, and we're waiting for those results. So it's more important that we define the ultimate scale of this project to then define where we're going to drill out resource as opposed to moving right into defining a new resource. So short stories, I don't expect you'd see any resource in this still 2022. This is all about building scale. Can we define a multimillion ounce underground in a multimillion ounce open pit type project here.

Yes. Fair enough. Yes. And then the decision for the spin-out was that feedback from some of your biggest shareholders or something you guys have been thinking about for a while?

It is something we've been thinking about for a while. I mean, when KORE was $40 million, $20 million market cap, and we had 3 assets. You really had -- and markets weren't very good. You had to really just talk about Imperial. You had an advanced project that had very obvious valuation metrics. As markets heated up, and investors were willing to move into more risk, we started working the exploration in earlier state part of the portfolio. And I think we did a great job at setting up a great exploration project that will just not be efficiently valued in a company that's pursuing a development project like at Imperial. So it is more about efficiency evaluation. Like if you look at peer companies, like, large DC landholders like Talisker or Westhaven, other -- or other companies exploring the golden triangle like Tudor in these guys with $400 million valuations and pit resource. You can see the kind of value creation from a good exploration story. So that's the kind of value we're trying to create with the Spinco for our shareholders.

Yes. It's fair enough. And you mentioned that FG going to define multimillion open pit and underground deposits. What's -- how base the deposit to the north that Osisko has? Is that...

Off the top of my head, they are about 5 million to 6 million ounces of 4 grams per tonne. Now that's scattered in several deposits. It's the old Barkerville project. But they've got 10 rigs on that thing and they're going to be able to drill out a lot more gold mineralization. They've got an idle mill at the QR deposit, which is on their block just north of our Gold Creek project. And then Gold Creek is actually adjacent to Spanish Mountain, which has, I think, 4 million ounces of low-grade mineralization. So there's multiple types of mineralization in the belt and lots of plaster gold mining still in the Cariboo. So there's lots of sources of gold. I think it's about putting together a project like we think we can at FG.

Got you. And is that -- I know I can pit the transitions in -- the good transition in underground as well. Like have you defined?

Yes. That's -- I mean that's how I see it going because it is a continuous plunging sedimentary rock in it. So it's a wide thick unit that's plunging into the elves only ever drilled on a soil anomaly at the surface before. We have, for the first time, drilled down into the rock unit with these big step-outs and made a discovery. So I think it's unclear how far, like it theoretically could go down hundreds and hundreds of more meters creating up a very large underground opportunity that perhaps outsizes the need for a starter open pit, but you could easily open pit the top part and then transition underground, yes.

Yes, fair enough. [ Artie ]?

In 2021, in which project you are -- you think you are going to spend the most money?

So if we go ahead with the Spinco, the companies will be separate inside of KORE, for sure, that will be Imperial. We are funding a team and an office about going through an EIS process, funding community engagement and programs in the Imperial project while executing on a drill program. And then the second asset of that company will be Long Valley where you would be doing a straight up exploration drill program that could be anything up to maybe about 10,000 meters. And it will really depend on KORE's share price and how much capital we want to raise, about how much work we could do. We could spend probably as much as we could raise. But we're obviously, to date, have been very tight with the share structure, and we are only going to raise capital at fair prices to our current shareholders. The Spinco will spend money across the district, they'll probably spend -- it could do with what we're permitting up to maybe 30,000 meters at FG, 10,000 at Gold Creek, and a lot of exploration work on that huge land package. But again, it's going to be subject to access to capital and the valuation point that, that company goes public with.

And what do you think about how long this spin-off process it will take potentially?

Yes. Caveating it potentially because we actually have a Board meeting the end of this week to present the structures back to the Board, we'd like to get it done in January.

And like what is the biggest reason for you to tell when you compare with the peers group? Do you think you are undervalued?

So internally because we are a portfolio, we tracked 2 peer groups. We would track exploration peer groups, particularly those in British Columbia and those with some Eric Sprott investment in those with a portfolio. And then we have a second peer group we track, which is just the straight up U.S. gold developers, which would be Integra, Corvus, Gold Standard, West Vault, Revival, all the guys in Nevada. And when you look across the Board at those valuations, KORE is the -- on the -- for sure, on the cheap side, if not the cheapest of that peer group. So I think on a P/NAV basis, the company looks like it's a good valuation point. And on the exploration side, we've got ounces in the ground. It also looks like a good valuation. So I think by working the portfolio in 2020 in one company, it's been very successful. And I think if we go ahead with splitting up the companies, I think both companies have great chances for success and KORE shareholders are going to get 2 for 1 by owning KORE shares.

And for the permit -- drilling permit of the FG gold project, how many meters you are going to like apply for?

In the permitting, yes. So the current permitting strategy is we are looking to permit what's called an area permit. In British Columbia, you can pick what they call a polygon. You pick a shape, you do an environmental assessment, and then that enables you to drill anywhere you want within that polygon. So that gives you the flexibility to drill really as much as you can muster resources for, staff and core cutting and rigs and all that type of thing. So I think in our own planning, we could drill anything up to 40,000 meters at FG.

And for the Imperial project, while you guys are working for the production permit, what can we expect other than that to gain more value?