Pat Donnelly | After Our Recent Share Price Pullback, I Wanted To Sell My House To Buy More Stock

Pat Donnelly provides an update on Trilogy Metals’ progress and upcoming catalysts.  Pat also shares his analysis of the copper markets and commentary on Trilogy Metals’ recent share price pullback.  This interview was recorded onsite at the 2019 Sprott Natural Resource Symposium.

Pat Donnelly is Vice President, Corporate Communications & Development for Trilogy Metals and has a broad range of experience in mineral exploration, capital markets, corporate development and investor relations. He began his career as a project geologist 25 years ago exploring for precious and base metals and diamonds in western and northern Canada. Subsequently, Pat worked for a Canadian securities firm as a base metals mining analyst. Between 2012 and 2014 Mr. Donnelly was the Vice-President of Corporate Communications for Trilogy Metals. Most recently he was the President of First Mining Gold Corp. where he played a key role. Pat holds a B.Sc. in Geology (Honors) from the University of British Columbia and has an MBA from the University of Toronto.

TRANSCRIPT:

Bill: You are listening to Mining Stock Education. I’m Bill Powers reporting from the beautiful city of Vancouver. I’m here at the Sprott Natural Resource Symposium and I had the opportunity to catch up with one of the key managers of one of our sponsors, Trilogy Metals. It’s a excellent polymetallic developer in Alaska, the Ambler Mining District there in Alaska. I’m sitting down with Pat Donnelly. He’s the Vice-President of Corporate Communications and Development. Pat, thanks for joining me.

Pat: Thanks a lot Bill.

Bill: Let’s share with listeners a little bit about your background. Not only are companies interesting, but it’s also interesting, especially for me as I get to interview a lot of people, learning about the individuals and why they chose this career path. How did you become this position with trilogy?

Pat: It started a long time ago. My father who was an immigrant to Canada from Ireland, worked as a miner. He worked … he was a heavy duty mechanic and also used to operate those really large shovels you see in open pit mining operations. So I come from a mining family and when I was … And I’ve always enjoyed the outdoors, always enjoyed mining and ended up doing an undergrad degree in mineral exploration at the University of British Columbia.

After that I spent about 10 years as a field geologist looking for gold, lead, zinc, nickel, diamonds throughout most of northern Canada, northern Ontario, the Timmins area, Yukon and British Columbia. So I did that for about 10 years and I was always fascinated by the industry. It’s a really exciting business, a lot of characters, but it’s just a fascinating business. And then after a little over 10 years, I went back to school, I did an MBA at University of Toronto and I went into picking stocks.

I was a mining analyst for I think five or six years. I did that. And that was really fascinating because you get to go around the world, look at some really interesting projects. So everything I learned in Canada and then my finance background allowed me to go around the world and look at really interesting projects, which I really enjoy doing and putting valuations on them and picking stocks is really, really fun.

I came back into the industry in 2010. I worked for a copper developer in Botswana. They got acquired by a group called Cooper Canyon Capital. They’re now developing the project as we speak. And then in 2012 I ran into Rick Van Nieuwenhuyse and at the time he’d just spun out Nova Copper, which is now Trilogy and they needed someone to help them on the IR Front. So I was originally with Trilogy/Nova Copper from 2012 to 2014

Bill: So this is your second go-round?

Pat: This is my second go around. It’s like the Roseanne show, right? You bring it back. It was kind of … So I worked there and then things slowed down considerably in 2014 and the company decided to put things on ice for a little bit because of the market. So I left, worked on a couple of other ventures and then just over a year ago, Rick was looking for someone to help him out again, things were really moving hard for Trilogy and Rick and I are close friends. We have a good relationship and I have the utmost respect and confidence for Rick. I mean I think he’s one of the best people in the business. He’s been doing this for 40 years now.

Bill: He’s the president and CEO.

Pat: He’s President, CEO, founder. He founded NOVAGOLD.

Bill: 40 million ounce deposit in Alaska.

Pat: Yeah at Donlin, Rick knows what he’s doing. He’s Mr. Alaska and so again, so for me it checks off a number of boxes. One the leadership. Two, I really like Alaska a lot. It’s a good place to work. Government’s very, very supportive. Local peoples are very, very supportive and then the quality is absolutely fantastic. It’s one of the highest grade copper projects in the world. I’m very bullish on copper. I think copper fundamentals are outstanding.

Bill: Share your outlook please on copper.

Pat: Yeah, I mean there’s a number of ways to look at it. We’re going to see a significant supply deficit the next couple of years, and we’re just not producing enough of it. I don’t think people realize that we use copper in everything. We couldn’t have a modern society without copper.

So the average house is 200 pounds of copper, average automobiles is 50 pounds of copper. Cell phones, hairdryers washing machines, infrastructure. Everything we use requires copper, there’s no substitutes. And the average copper mine now costs billions of dollars develop. We’re seeing grades go down significantly and supply is coming down. And right now the world produces about 25 million tons per year.

And so we’re just not producing enough. There’s not many mines coming online. Most of the major mining companies are just trying to maintain production levels. And that’s amid declining grades. So for example, Codelco, which is the largest mining company in the world, their own buddies did this, government of Chile, they produce about 10% of the global supply. They’re having to put in three to 4 billion dollars a year in sustaining capital just to maintain the current throughput production rates.

Short term, we’re dealing with … China’s 50% of copper demand. So the trade war with the U.S. has dampened prices. So that’s been a bit of an overhang. But going forward, I think fundamentals are outstanding. If you include, we talk about electric vehicles and movement towards a carbon free economy, we’re gonna need a lot more copper. We’re gonna need, like I said, a global demand, global demand and supplier evenly matched about 25 million tons per year. That’s going to go up to 30, 40 million tons the next 10 years or so. Average electric vehicle has 200 pounds of copper. So when we go to a carbon free future, we’re gonna need a lot more copper.

Bill: And these copper miners know that they need these development projects, thus South 32 and your partnership, they’ve already put in tens of millions of dollars. You’ve got 36 million in the bank.

Pat: Yes.

Bill: What’s the financial future and step forward for the company?

Pat: Well, I think in the next two big steps right now for the company is … The reason the Adler Mining district, which we own, the upper co-communal projects has not been developed. It’s not because it’s not economic. It’s because it needs the infrastructure, it has no infrastructure whatsoever. And the government of Alaska, the Bureau of Land Management, the federal government are working closely together with the Alaska Industrial Development Expert Authority to permit and build a road to our project. And we fully expect that the permits for this road will be completed by the end of this year. That’s a big catalyst.

The other big catalyst for the company is right now we have an option, the former joint venture with Cell 32. It’s a very large Australian mining company. It’s got a 13 billion dollar market capitalization. They like cooper, they have no producing copper assets, they like copper a lot.

And so the option agreement is they put in 10 million dollars a year for three years to keep the option open. They’ve done that, they put in 30 million dollars. Now they have until the end of January of 2020 to exercise the options. If they do that, they have to put about 150 million dollars into the joint venture and they receive a 50% interest in our projects. And we’re fairly confident that they will do that. A great company to work for. They like Alaska, they like copper and they like the direction that this company’s going.

Bill: Are there any other catalysts that investors should know about for the company upcoming?

Pat: Well, we’re right now in the middle of a 18.2 million dollar exploration program, so that includes 9.2 million worth of drilling at Bornite, which is our second project. We’re drilling around 10000 meters, so hopefully in the fall we’ll have some results for that. The Arctic project, our flagship project, we’re moving that into feasibility now and permitting.

So we expect the feasibility study to come out next year. Probably the first quarter next year, we’ll have the feasibility study done in Arctic, and then we’ll start to permit on Arctic next year as well. So yeah, there’s a lot.

And then the other thing is, we have 70 miles of a contiguous mineralization along the Ambler Mining District. We’ve never touched it before. We think there’s potential for one or two more Arctics. There’s plenty of historical resources in the area averaging 3% copper equivalent. So we’re going to drill some of those other historical areas and show the market that we own a district, not just a mine. And so yeah, we’ll have a lot of news going forward this fall.

Bill: Considering we’re here at the Sprott Conference, share with listeners a little bit about Trilogy’s relationship with the Sprott group.

Pat: Well, it’s interesting, we both have known Rick rule for quite a while and we approached … When I came back to Trilogy last year, I said to Rick Van Nieuwenhuyse, “We’re going to go down to Sprott.” This is a story that he had loved and their clients had loved. So because we’re domiciled … We’re a U.S. company, we’re listed on New York Stock Exchange, we have plenty of cash, and Alaska’s just a great, great place to visit.

So Rick has a relationship with Andrew, with one of their main … Andrew Jackson, who’s one of Rick’s chief technical people. And Andrew Jackson worked at Placer Dome with Rick Van Nieuwenhuyse years ago. And we brought Andrew up to site and he was very, very impressed with what he saw. So this is … I know Sprott’s into precious metals, but copper fundamentals are outstanding and it’s something that Sprott recognizes, and recognizes that their clients should be involved in.

Bill: Yes. And your deposit or the Arctic deposit does have some precious metals. It’s polymetallic, it’s copper dominant, but it also has zinc, lead and cobalt. How did the price of these commodities affect your share price?

Pat: Oh, absolutely. 60% of our revenues will be copper. About 30, 40% will zinc. So there’s a big zinc component too, and zinc fundamentals are very strong as well. The last five years we’ve seen two of the three largest zinc mines in the world shutdown. And zinc, you need zinc for everything. Zinc is a galvanizer, so you use it for automobiles. It’s a rust inhibitor and you use it on bridges, you use it on highways, you use it on automobiles.

And we’re just not seeing enough zinc. And then obviously about 12% of our revenues are precious metals, so specifically gold and silver. We’re going to produce … Just the Arctic alone will produce 30000 ounces of gold per year and over 3 million ounces of silver per year. So it’s nice that we have these metals that almost hedge each other in a sense. So being polymetallic helps us a lot. Like I said, 60% copper revenues, but not as good byproduct credits from these other metals.

Bill: Your share price has been one of the best performing juniors this year, but in the last month, the share price has been hit a little off about 30% or so. I don’t have the chart in front of me, but what’s your analysis of that? What’s going on here?

Pat: We’ve been on a spectacular run now since the beginning of the year and I think it just got ahead of itself and it was just simply someone shorted it and they picked the summer to do it when things are quiet and we had some warrants that were being exercised by three shareholders, they haven’t sold a share. And I think they use that as a smokescreen. So I don’t get too worried about that.

The fundamental value is much, much higher than where it’s at right now. And when you go on a big tear for six to eight months, you’re liable to have a correction. And someone took advantage of that. So I don’t worry. I’ve been doing this … I’ve been working in the capital markets for over 10 years now. I’ve been in the mining industry now for, I don’t know, for over 25 years. I’ve seen it all. And fundamentally the company’s very, very strong. We have lots of cash.

I fully expect the road to be permitted. I fully expect that South32 will exercise the joint venture. So I think it’s a great opportunity to buy. Matter of fact, when we had the big pullback, I bought some more shares. I bought about 6,000 shares. I wish I could buy … I wanted to sell my house to buy more. So for me, when I saw the pullback, first thing I did was I bought some more and I’m prepared to buy more if the opportunity presents itself.

Bill: For those that aren’t as familiar with Trilogy, go back and listen to my interview with Rick Van Nieuwenhuyse, the President, CEO and founder of Trilogy that was published, I would say about two months ago. Pat, you’re a busy man. There’s people all around us. You’ve got other interviews to do, but I appreciate you stopping by the booth and coming on Mining Stock Education today.

Pat: Thanks so much, Bill.