Trilogy Metals is Cashed Up ($90M) and Facing Upcoming Catalysts with CFO Elaine Sanders
At the Vancouver Resource Investment Conference, Bill Powers interviewed Elaine Sanders of Trilogy Metals to get an update on the company’s progress and upcoming catalysts. Trilogy’s joint-venture partner South32 just exercised an option to obtain 50% ownership of Trilogy’s Upper Kobuk Mineral Projects Area in Alaska. With the exercise of the option, Trilogy is receiving an influx of cash and is now fully funded through any construction decisions. Trilogy Metals is a copper-dominant, poly-metallic developer of world-class projects in Alaska’s Ambler mining district.
Elaine Sanders is Chief Financial Officer and Corporate Secretary of Trilogy Metals and has more than 20 years of experience in audit, finance, and accounting with public and private companies. She has been involved with numerous financings and acquisitions, and has listed companies on both the TSX and AMEX. Elaine is responsible for all aspects of financial services, financial reporting, and corporate governance. She holds a Bachelor of Commerce degree from the University of Alberta and is a Chartered Accountant.
0:15 Introduction
1:08 Trilogy’s CFO Elaine Sanders’ background
2:14 New interim CEO Jim Gowans’ expertise
3:44 Partnership with South32 and influx of cash
7:14 Road approval status
8:03 Management is vested in Trilogy’s success
9:37 Upcoming catalysts
10:40 Thoughts on copper price
11:34 Potential challenges
Ticker: TMQ www.TrilogyMetals.com
TRANSCRIPT:
Bill: I am at the Vancouver Resource Investment Conference and am getting an update from Trilogy Metals from Elaine Sanders. She is the CFO and corporate secretary of the company. Elaine, could you give us a little background on yourself? How did you begin to get into the mining industry and find yourself as the CFO of Trilogy?
Elaine: I’ve been with this group for quite a few years. I actually started back at NOVAGOLD with Rick when we were still in exploration, and so we’ve been working together for, it must be close to 15 years, so quite excited to see all the work we’ve done over the past decade and a half. We spun out Trilogy Metals from NOVAGOLD about seven and a half years ago, really because the assets we had built at NOVAGOLD were going into development stage and to larger partnerships, and so what we did, we split the exploration team, spun it out to Trilogy Metals, and started over again, and in the last seven years we’ve built ourselves quite an impressive resource base, impressive partnerships that we can go into not only locally but with the state of Alaska and financially.
Bill: And so you have a new interim CEO. I interviewed Rick Van Nieuwenhuyse previously. Rick stepped down. I believe he’s still helping with the company, but Jim Gowans is now your new CEO. Can you give us a little background on Jim and what he brings to the company?
Elaine: Well, Jim is great. Jim Gowans joined the board of Trilogy in May of 2019 so he’s a recent addition. But Jim actually was a part of the commissioning team at the Red Dog mine in Alaska, so he’s got extensive experience with NANA Regional Corporation Inc., a Regional Alaska Native Corporation, and with AIDEA (Alaska Industrial Development and Export Authority) in Alaska, which are two big partnerships that we have. Jim also recently was CEO of Arizona Mining. There’s a mine in Tucson called Hermosa that partnered up with South32 and in the middle of 2018, South32 bought Arizona Mining at quite a significant premium. So Jim technically is retired, but he sits on multiple boards and because of his experience in Alaska and his extensive background in mining, we brought him on the board of Trilogy, so he has a generously stepped in as interim CEO for Trilogy while we search for a permanent CEO. Jim brings a tremendous amount of experience to the table, especially with our relationships with South32, with NANA, and with the state of Alaska.
Bill: He’s an expert at bringing remote projects into production, isn’t he?
Elaine: He is, and he’s done this before. He’s obviously very familiar and he’s an expert in putting together these relationships and making sure that the mines get put into construction and production.
Bill: Your project has excellent economics. We know that there’s copper there, although it’s a polymetallic deposit and district. Can you talk about this partnership with South32 in a day when many mining companies, junior miners that is, have a hard time raising money? You are now receiving an influx of cash. Tell us more about this partnership.
Elaine: Well, it’s a really interesting partnership. We started talking to South32 back in 2016. They spun out of BHP Billiton in 2015 and they have no operations in North America. In fact, they’re mostly in the southern hemisphere. They don’t have a copper asset on the spin, so they were looking for good copper assets. They came to see us, actually at Roundup back in those years and really was interested in and loved the Bornite asset and the Arctic asset, two high quality deposits and just outstanding when you look at the gamut of asset opportunities out there. These two standout.
At the time the company’s market cap was hovering around $50 million. It was a tough time for junior mining companies. Copper prices under $2 and very difficult to raise money. The agreement we struck with them that we penned officially in April of 2017 was that we had spent about $100 million US on the projects to date, and that we would be willing to partner with them on a 50/50 joint venture level, at the project level, for a premium to what we spend, so they’re going to be putting in just under $150 million. It’s 150% premium to what we had spent to date, and that gets us to the 50/50.
The joint venture election was announced on December 19th of 2019 and we’re right now in the middle of getting all our ducks in order to form that JV. Legally, the company needs to be formed and put together. We’re targeting early February for completion and at that time we’ll be contributing all of our assets into the JV in exchange for 50% membership interest. South32 will be putting in approximately US $145 million into the JV for their 50% interest, so that gives Trilogy shareholders access to just under $75 million for advancing its projects going forward.
We will not need cash for a very long time. We have just under $20 million cash at head office, so we’re going to have access to close to $90 million to move forward with, which is quite astonishing in this marketplace in this environment for junior mining companies. For Trilogy shareholders, that means we don’t have to dilute for years to come. We won’t look for any new money until we need to make a construction decision. That’s enough money to take these projects all the way to that point in time, so quite an excellent position to be in.
Bill: And this is a JV on the project level. They didn’t buy half of the company, right?
Elaine: That’s correct. They are a shareholder, funny enough, at the public company level. They own just under 12% of the public company’s float. They actually purchased those shares from another shareholder, so obviously they not only like the assets, but they obviously liked the company. Not to say that they’re going to be buying the rest of the company, but it’s quite interesting when you read about, well, why would they all of a sudden become shareholders? So really interesting dynamic, but yes, you’re correct. They are just under a 12% shareholder at the public company level, and then they’ll own 50% at the asset level.
Bill: So a key thing we need for this project is to get there, and there’s access via road. How is that road approval coming along?
Elaine: That’s a great question. The state of Alaska through AIDEA is permitting a road that will access. It will basically connect the Ambler mining district to the rest of Alaska’s infrastructure. That road is now in EIS (Environmental Impact Statement). The permits for the final EIS is expected to come out at the end of the first quarter of 2020 so that’s imminently around the corner here, any day in the next two months. We believe it will be towards the end of March, and then the AIDEA is saying next month after that so hopefully April we will see a record of a decision on the road, so exciting times for the company.
Bill: I’ve interviewed a lot of people on this show and I’ve interviewed people that study insider trading, and one of the things in an interview on insider trading that I did is my guest said, “Don’t listen to the CEO to see if they’re bullish on the project. If you really want to know if the company has something going, talk to the CFO, because they’re the most realistic person in the company.” So are you bullish on the prospects of Trilogy?
Elaine: Yeah, absolutely. I’m a very personally a large shareholder at Trilogy. I’ve been personally invested in this project for many, many years. We really believed when we put this project together that this was going to be a district exploration play that we were looking at mining for generations to come in the communities. We weren’t planning on just being there for a short period of time and then leaving. What we really wanted to do was build longterm relationships, mining for generations in this area, and to have a long lasting effect for the people that lived up there.
And so I’m all in. I know Rick is a very large shareholder. He’s all in, and we have large institutional shareholders that have been there with us since we were at the NOVAGOLD days. That’s Electrum out of New York, Paulson and Company out of New York, the Baupost Group out of Boston. Those three large shareholders have been with us since the spin-out from NOVAGOLD and they have always been longterm fans of this district, so they haven’t sold a single share and have accumulated over the years. So very supportive shareholders as well, so very exciting times. A very exciting company to be working at right now.
Bill: In addition to the road, what would be some upcoming catalysts? You have the treasury that’s full. How are you going to use that cash to create more value?
Elaine: Well, lots of stuff happening. Of course imminently we should have the announcement of the JV formation, the $145 million into the JV. At the end of February, we’re going to be announcing the 2020 programs and budgets, which will get approved through the joint venture board in March. We’ll be looking at of course the final EIS on the road announcement there, and then of course the record of a decision a month later. Sometime in the spring, we’re looking at the first half of this year where our guidance says H1 of 2020 our feasibility study results are coming out at Arctic. The pre-feasibility was very robust, so we’re expecting some really interesting numbers coming through on the feasibility, and then heading hopefully into permitting sometime as the JV’s formed and decisions will be made to do that. Then we’ll kick off the field season. It’ll be summer, and then field season drill results will come out in the fall, and then we start over again. So I think this year is packed full of news and lots of activity.
Bill: So you have a lot of catalysts internal to the company. External, something you can’t control is the copper price. Any thoughts on the copper price?
Elaine: Well, it’s interesting. We were at VRIC years ago, and you know, stock price was very low at the time. Copper was sub $2. Outlook was always for demand and supply gaps in late 2019 or early 2020, and here we are in early 2020 and we’re seeing gaps in demand and supply. As you know, copper is one of those supply and demand metals. It is fundamental. There’s no emotional basis to it. And I think personally, if we weren’t in the middle of trade wars, we probably would have seen a higher copper price by now, so I think the outlook for copper is positive and we’re seeing again, lowering grades in current production and not very many mines coming online, so I think everything is pointing in a positive direction for Arctic to be a mine.
Bill: Mining is a difficult business. Advancing projects is difficult. So as you look at the prospects of what this year has, what would be some things that could go wrong and is there anything you can do to address it?
Elaine: Well, you never know what’s going to happen out there. You know, the beauty of having such high grade in a project like Arctic is that you can withstand the pitfalls, so you can withstand lower copper prices, you can withstand higher capital costs, you can withstand higher operating costs. You can only plan for the best you can plan for, but if things go sideways on you, having a robust, high grade project allows you to weather those storms and it also allows you, once you’re in production, to weather the cycles of copper. So having that type of project really does shelter you from those ups and downs, which is fantastic. You’ve got more upside and you’re kind of protected on the downside.
Other things that can happen is, who knows what’s going to happen with the world and economies. Uncertainty is definitely there. That only bodes well overall for metals in general. Usually, you start at the precious metals side and then it always filters down eventually to base metals, so I think there’s definitely an interest in expansion into the metal space. We’ve seen a lot of generalist investors show a renewed interest in the resource sector and existing investors who used to be very typical resource based investors are all sitting there on the sidelines with lots of money in their pockets waiting for opportunities, and I think this is the year that they’re going to start getting in. So I think there’s lots of opportunities out there.
