Trilogy Metals New CEO Tony Giardini: “I’m Very Excited about Taking over the Helm”
Tony Giardini will be assuming the roles of president and CEO of Trilogy Metals effective June 1st, 2020. He has served on Trilogy’s board since 2012 and knows the company and its projects very well. In this interview, Tony shares what excites him about this new role with Trilogy. He also discusses key challenges and how Trilogy plans to tackle them. Furthermore, Tony address several investor questions about Trilogy and explains the share price upside that Trilogy’s investment value proposition offers investors.
Tony Giardini has extensive experience as an executive officer and key leadership team member with his previous roles as President of Ivanhoe Mines Ltd. (“Ivanhoe Mines”), a base metals development and exploration company, and as Chief Financial Officer at Kinross Gold Corporation (“Kinross Gold”), a senior gold producer. Both companies operated assets and complex international projects at various stages of development. Tony has extensive experience with joint ventures and large capital projects, including Ivanhoe’s three large development assets, Platreef, Kipushi and Kamoa-Kakula.
0:54 Introducing Trilogy’s new president and CEO Tony Giardini
2:41 Tony’s background and what excites him about this new role
5:05 What key challenges does Trilogy face over the next years?
7:03 How COVID-19 is affecting Trilogy and plans to move forward
8:34 Commentary on copper market
10:49 Arctic project has copper cash costs of only $0.15/lb.
12:30 Comparing Trilogy’s assets to Ivanhoe’s assets
15:05 What upside does Trilogy still have after performing so well in recent years?
17:27 Institutions own 77% of Trilogy’s shares
19:07 Does Trilogy have share price upside in the near-term?
20:55 Final Thoughts
Ticker: TMQ in Toronto and New York https://trilogymetals.com/
Pat Donnelly (VP Corp Communications) recent presentation
3D Animation Video of Trilogy’s Arctic Deposit
TRANSCRIPT:
Bill Powers: Welcome back to Mining Stock Education, I am your host Bill Powers. Thank you for tuning in. Well, in today’s show, I get the opportunity to introduce to you the new president and CEO of Trilogy Metals, Mr. Tony Giardini. He will be assuming the role of president and CEO of Trilogy Metals come June 1st. If you’re not familiar with the company, you can learn more at Trilogymetals.com the ticker symbol in New York and Toronto is TMQ. I asked Pat Donnelly, a previous guest of this show who is the Vice President of Corporate Communication and Development with Trilogy, to come on and provide a brief introduction of Tony. So Pat, welcome to the program and please take it away.
Pat Donnelly: Thanks Bill. It’s good to talk to you again. And we are very, very pleased that Tony is coming aboard to lead the company. And what I’m really happy about, we have someone who knows the story very, very well, and Tony’s background is just impeccable, working with Ivanhoe in Africa and in Mongolia. So he knows copper very well. He was with Kinross, which owns the Fort Knox mine in Alaska,. And I think Tony is the perfect guy at the right time for this company, which is transitioning now that we have the joint venture agreement behind us with South32 and moving forward soon with the permitting of the Arctic project. So I’m very pleased to have Tony aboard, and I’ll hand it over to you, Tony and Bill obviously to talk a bit more about Trilogy.
Bill: And Tony, please share a little bit about your background and what excites you most about this new role with Trilogy Metals.
Tony Giardini: Sure. Bill, thank you very much and thanks for having us on the show. Firstly, my background is, I’ve been in the mining space for about 25 years. I’m a finance background by training, and I started in the gold space with Placer Dome. As Pat said, I spent six years with the original Ivanhoe, which is now Turquoise Hill, but we were building, Oyu Tolgoi. So I’m very familiar with large copper projects and working with joint venture partners. From there, I spent just over seven years with Kinross in Toronto, and also at Kinross we had a large development asset in Mauritania and I was quite involved in terms of the technical side and the project development considerations. And then in my most recent role, I was the president of Ivanhoe Mines, with three large development assets. The primary one being Kamoa-Kakula, which is a joint venture with the Chinese company Zijin and the DRC government.
So what excites me about the opportunity here at Trilogy is that firstly, as Pat said, I’ve been on the board and involved with the company since it was spun out of NovaGold in 2011, so I’ve known these assets for a long time, and I think we’ve got a small but very skilled management team to move the projects forward. The fact that we were able to get such a large partner in South32 to come in and invest at the asset level is very promising. So we’ve got a lot of cash, and we’re in the process of really moving the project forward from a permitting perspective and looking at how we can further find more resources in the Ambler district.
So it’s really about the fact that we have a strong partner that we’re working with, that we’re financially very secure, that we’re in a very secure jurisdiction that is very pro mining. And I look at all of those aspects, and we’ll talk a little bit about copper later and give you a bit more color on just the nature of the deposits up there and the other considerations. But as an introduction, that’s my background and my interest in Trilogy.
Bill: Thank you. And as the new captain at the helm of the ship, what key challenges do you see over the next couple of years for Trilogy and how do you plan on tackling them?
Tony: I think for me and for the company initially, it’s really going to be about the relationship with South32 and solidifying that relationship. South32’s made a significant investment in different JV, and what we want to do is work hand in glove with them to move a project forward on an agreed-upon basis. So the first focus that we’re going to have is, really on filling out the management team at the joint venture level, and making sure that we’ve got the right people in place to do that.
The second challenge that I see is, on building strong relationships with the native corporations in Alaska and with the Alaskan government, because we’ll need the support of both of those entities to move our projects forward. And then the third aspect is, how do we maximize value for our shareholders and our stakeholders? And we’re going to talk a little bit about the shareholder base later, but we’re very fortunate we have a strong shareholder base. But I also feel that when we look at the share price and we look at the value of the underlying assets in the portfolio, the share price doesn’t reflect what we have. We’ve got at the joint venture level about $145 million in cash, and at the corporate level, somewhere in the neighborhood of $20 million in cash. And we’re getting very minimal value for the actual resources in the ground relative to our market capstone.
The three focuses that I see are going to be about the relationship with South32 as a partner and how we advance projects, building strong ties to the government and the native corporations, and then lastly, really generating interest in the story and making people realize the undervalued nature of what we have in the portfolio. So I feel very excited about the role and taking on the challenge.
Bill: When I last had Pat on the show, Pat said that perhaps the summer exploration program could be pushed back a little due to this virus and the crisis, worldwide crisis, that we’re facing. Can you share a little bit more about how the COVID-19 crisis is affecting Trilogy and how do you plan to move forward considering the changed landscape of things around the world?
Tony: Yeah, we’re very fortunate in that we were able to get this JV constituted earlier this year and the focus is now on staffing that out. And while we do have a summer drill program planned and we’re going to be pushing that back a bit just because of what’s happened with COVID-19, at this point that’s not critical path in terms of where we’re going. So we’re hopeful that even if we have to delay the exploration program marginally, it shouldn’t have an adverse impact on our overall plans in terms of moving the project forward.
What we want to ensure, of course, is that our employees are safe and the communities in which we operate aren’t impacted by us bringing in any cases of COVID-19, so those are the considerations that we have. And the native corporation that we deal with, NANA, had not had any cases in their communities and we want to be very careful about how we move forward in terms of our exploration program. So while there could be some minor impact on getting the exploration program started, at this point, we don’t feel it would really materially change our plans going forward, at this point.
Bill: I’d like to get your thoughts on the copper market, Tony. I’ve seen we could lose up to 20% of 2020 annual production, much of that coming out of Peru, based on articles that I’ve read. Copper is up about 19% from its mid-March sell-off bottom. What is your copper outlook for the rest of this year and 2021?
Tony: Well, I mean, in our case we’re not going to be producing for a number of years and it’s really about how we get this asset into development. But the positive thing about the copper story is, when you start to look at the global growth and let’s hope that once the coronavirus situation starts to hopefully improve later this year and we get some of the growth that everyone’s expecting, 2021 we start to receive to see a return to a more normal market. But there’s already been fairly significant deficits anticipated with respect to the copper market. And one of the challenges that we’ve seen in the space for a long time has been really an under investment of capital in terms of bringing new projects online, and a number of those projects have also come with hefty capital costs increases. So we don’t see that changing anytime soon.
And we see the demand profile for copper continuing to be very strong, whether it’s on the back of the electrification of the grid and more copper development in developing countries, or whether it’s on the electric car story, or whether it’s with respect to just global growth in general. And the other consideration, I think we’ll see more alternative uses coming out for copper as a result of everything that’s happening now with the coronavirus in terms of antibacterial usage. And we’re already starting to see some interest in how copper could be mobilized in terms of hospitals and public operations like airports, et cetera.
So I think there’s a very positive story on the copper side in terms of price point. We’re really not so focused on the near-term, but I think when you look at consensus numbers, certainly people are focused at $3/lb. And above, and I think there’s lots of room for copper to move, particularly given the supply-demand fundamentals longer term.
Bill: I will point out that even with where copper is today, your cash costs for one of your projects, the Arctic project, is only 15 cents per pound. And I don’t know, is there a copper project that has lower cash costs than that?
Tony: No, I think we’re very fortunate in that, given the nature of the deposit, a number of other metals including some gold content and the gold having run up, it certainly helps offset on a cost basis what the cost per pound of copper is. So we’re very fortunate in that aspect. And I think the other tie-in there is that it gives us flexibility as we look at the financing options associated with how we move this project forward, in that we’ll have other metals in the mix.
And having just come from Ivanhoe where when we look at the primary copper asset that Ivanhoe has, which is absolutely world-class with the copper grades in excess of 5% and just a spectacular deposit. But the one thing I would point out with respect to that deposit is that there is no copper credits associated with that in terms of other metals. Whereas we’re very fortunate that we have a number of other metals that will help offset the production costs of the copper and really bring our costs in and, as you say, put us in a position where we’ll be on the low end of a curve in terms of first quartile cost structure. Which is very positive and it gives us a lot of upside in terms of looking for additional deposits in the area that we can also put through to the mill once we’re up and running. So it’s a very good news story.
Bill: Because you were the past president and recent president of Ivanhoe, when I’ve done some Trilogy interviews in the past on this show, one of the feedbacks that I’ve gotten from my listeners is, “Bill, Trilogy looks good, but Ivanhoe has a better asset.” I’ve always pointed out the jurisdictional risk, Alaska versus Ivanhoe’s assets. What would you like to say? Because you’re kind of in a unique position in which you know both very well. What would be your response if you were answering this inquiry?
Tony: Yeah, I think the way you’ve addressed it is absolutely true. I mean, one of the things that we always talked about at Ivanhoe is how you perceive risk. And more often than not, we looked at the asset quality of what some of the companies had out there, and the fact that people were building very low grade, or bringing very low grade deposits into production and they had huge capital risks. And the beauty of the Kamoa-Kakula deposit is that it’s such high grade and there’s such upside associated with the expiration potential there. That’s a spectacularly good a deposit.
Now it is in a more challenging jurisdiction in terms of the DRC, and there is a direct government ownership of 20% there, right now. And so that’s a consideration. When I look at the Trilogy assets, I think we’re in a position where we’ve got the benefit of being in a very pro mining jurisdiction, similar to the DRC being a pro mining jurisdiction, but having the support of government, having the support of the local communities. And as I said before, having a high grade deposit on the copper side, but also having those credits from those other metals that will help offset. And I think those are very important considerations for us in terms of being able to move the project forward.
And the last thing that I would point out is, when I look at the cumulative capital to bring the Trilogy deposit in, it’s very manageable for a company like Trilogy working with South32, and in the case of Kamoa-Kakula, spectacular asset, it’s going to be built in phases. So the first phase is $1.3 billion of capital, and then there’d be incremental capital going forward. So I think there’s a lot of parallels. I think I can tell you I own both and I’m very happy owning both, and I’m looking forward to getting a fair valuation for what we have at Trilogy. And I think we’re going to be successful in doing that, especially as people start to realize that we keep knocking off all of the things that we need to get done to move the project forward.
Bill: Tony, another feedback or objection that I’ve received about Trilogy is, “Bill, look at the share chart, it’s already run up over tenfold from its lows in late 2015, early 2016.” I pointed out that, “Yeah, but you can buy it at a 50% discount to its highs that you’ve already seen.” If you were talking to this person, how would you respond?
Tony: I think the first thing that people have to appreciate is that what we have is a partner now in South32 is someone who has done extensive amounts of due diligence to take a portion of the asset, and they recognize that there’s a lot of potential upside with respect to the district and other opportunities in that district from an exploration perspective. They’ve had the benefit of doing their on-site due diligence in terms of looking at all of the considerations and in terms of benchmarking our project against other projects. And they’re prepared to put $145 million into the project on the basis of all of that due diligence that we’ve done.
I’d also point out, if you look at when the original Trilogy was spun out, it was spun out roughly at around a $4.50, I’m talking Canadian dollars because I always look at it from a Canadian dollar perspective, but roughly around $4.50 Canadian. Which by the way at the time, would have been similar to $4.50 US. And all we’ve done since then is actually de-risk the Arctic and Bornite deposits and move these things forward from a permitting road perspective and those considerations.
And we’ve raised money in the company without creating a whole lot of dilution. So I think we’re very comfortable in terms of where things are at, and there’s a lot of cash on the balance sheet. I think there’s a number of items coming forward, whether it’s a record of decision with respect to the road and the permitting process that we’ll be going through, or a feasibility study that’s going to be coming out shortly, which will provide additional impetus in terms of moving things forward.
And then I think it comes back to what we talked about with respect to copper market, which is really a lack of quality projects out there. And I can tell you that this is a quality project like Kamoa-Kakula’s a quality project. This is a quality project in a very safe jurisdiction. So I think there’s a lot of factors to consider in terms of where the valuation is, and we’re certainly looking at it from a perspective that this company is grossly undervalued at its current share price.
Bill: You have a strong partner in South32 as you lifted up. You also have strong institutional backing, 77% of the company is owned by institutions, but if there’s a retail investor listening to us and they might not like such a high percentage ownership by institutions, what would you share with them?
Tony: Well, I think if you look at the quality of the institutions that we have on our share register, I think it’s very positive. What it says to me is that we have institutions that have done a tremendous amount of due diligence on the story and the asset and where we’re going, and they continue to exhibit a lot of confidence in the story and where we’re going. So I think the fact that we’re very fortunate to have that strong institutional support is key, and while I appreciate it from a retail perspective, it’s sometimes difficult to acquire reasonable blocks because of the illiquid nature of your stock from time to time.
The stock does trade, and there is volume available, whether it’s in the States or in Canada. So I think it’s a stock where the fact that we’re lucky enough to have a strong institutional support like we do at Trilogy speaks volumes to the fact that those shareholders really support what we’re trying to do at the company. And I think it augurs well for our future in terms of being able to move things forward. And having been in a number of companies that don’t have that strong shareholder base like Trilogy, I can tell you that people would kill for the type of shareholders that we have on the register, that have been very patient and very long-term focused, and I think we’re going to benefit from continuing to have those shareholders with us.
Bill: Tony, if you could bear with one more concern, and this one is in essence regarding where Trilogy is primarily on the Lassonde curve, lifecycle of a mining share, where you’re in that “boring” stage of the life of the mine cycle. If an investor is saying, “I might not see enough upside in the near term,” what would be your appeal to this type of investor?
Tony: We are in a period of time where it is very much about how we start to move things forward. I think some of the points that I highlighted earlier in terms of the record of decision on the road, the permitting process that we’ll be going through, we’re going to continue to spend money on exploration, and we’ve got an exploration program planned for this year and certainly for next. And we believe that there continues to be very positive targets in the Ambler district. So we’re excited about those initiatives that move us forward.
As I said earlier, I think while we continue to believe that there’s not a reasonable valuation for the assets within the portfolio. And if you look at the fact how the share price changed or moved after South32 made the commitment, it wasn’t a significant change in terms of valuation. So we think that there’s a lot of positive momentum tied to the story. We think there’s a dearth of these very good copper assets out there. And while we haven’t seen the same consolidation happening in terms of the copper space, it’s largely because there aren’t a lot of great copper assets out there and we have one of them.
So I think that’s always a consideration as well, in terms of people looking at our asset and looking at the quality of what we have. And I think those are some of the themes that I would put forward with respect to being in that boring development stage of where we’re at. I think we have a lot of positive considerations going for us.
Bill: And as we conclude our conversation here, Tony, any final thoughts you’d like to share with the investors that are listening to us?
Tony: What I want to share is that I’m very excited about taking over the helm. Jim Gowans was the interim presidency, prior to Jim, lucky to have Rick Van Nieuwenhuyse in the role, and I’m really going to takeover the reins from those two individuals and really they focus on the points that I made earlier with the benefit of a strong management team and a strong board and very supportive shareholders. I think we’ve got not just a great asset, but a great series of assets in our portfolio. We’re very excited about being in Alaska and working with the native corporations and with the different levels of government to advance these projects. We’re very excited about the quality of those projects, and I would encourage your listeners to have a look at the Trilogy website and just think a little bit about some of the things that we’ve talked about today in terms of the copper space, quality of the assets within the portfolio, and how we’re moving this forward to the next stage.
