My Previous Company Rose 18-fold in 14 months after 2008 Crash with Ivan Bebek of Auryn Resources

Ivan Bebek knows how to create shareholder value amidst a market crash.  During the 2008 market crash, Ivan Bebek’s previous company Keegan Resources’ share price went from $5.75 down to $.49 amidst their 5M oz gold discovery. At the time Keegan had $8 million in the bank.  A handful of shareholders panicked and sold while new opportunistic investors bought Keegan at a severe discount.  Fourteen months later Keegan’s share price was $9 and those savvy investors that bought after the sell-off booked an amazing 18-fold gain.

Ivan is seeing a similar setup for Auryn right now as Auryn’s shares have been on sale due to the market crash.  Like Keegan, Auryn is cashed-up having just raised $15M and is in the midst of creating value through discovery, especially as the Sombrero project is on the verge of being drilled.  In this interview, Ivan shares how Auryn will proceed through this crisis and continue to build shareholder value.

Auryn Resources is a technically-driven, well-financed junior exploration company focused on finding and advancing globally significant precious and base metal deposits. Auryn’s technical and management teams have an impressive track record of successfully monetizing assets for all stakeholders and local communities in which it operates. Auryn conducts itself to the highest standards of corporate governance and sustainability.

0:15 Introduction

1:25 How Auryn is proceeding through this crisis

8:42 Peruvian gov’t mandated quarantine impact

10:36 Investors today can buy AUG shares for less than Ivan’s avg cost basis

14:53 China is recovering from coronavirus

17:45 Is Sombrero’s timeline pushed back now?

21:20 Committee Bay update

25:59 Would three AUG spinco’s increase G&A?

31:22 Final thoughts

Ticker: AUG  www.AurynResources.com

Sign up for Auryn’s email list: https://aurynresources.com/subscribe/

TRANSCRIPT:

Bill Powers: This is Mining Stock Education and I am your host, Bill Powers, thank you for tuning in. While in these times of dramatic volatility, international pandemic with gold stocks crashing, even though the gold price is relatively strong, I’ve brought you several perspectives over the last couple of days that of a gold stock fund manager and an Austrian economist, as well as a private investor and newsletter writer, and on today’s show you’re going to hear a perspective on current events and the junior gold sector from that of an executive, someone I look up to and respect, Ivan Bebek, the Executive Chairman of Auryn Resources. Company’s website is aurynresources.com. The ticker symbol in Toronto and New York is AUG.

So, Ivan, welcome back to the show and as I’ve observed what different pre-revenue, that being explorers or developers in our sector have been doing, some of their financings, they’ve had to close off without closing the final traunch, others have had to pushback financings because their share price now is too low. I saw an explorer that delayed their drill program. With everything that’s going on right now, what can you share with the market regarding your perspective and, specifically, how it affects Auryn Resources?

Ivan Bebek: Sure, Bill, thanks so much for having me in this very volatile time. I think you’ve hit the nail on the head of one of the most powerful assets any company can have is a good treasury. And as you are aware, on February 27th, literally days before this massive correction and pandemic got its legs we got to a point where we completed a $15 million raise, a second traunch of our funding. A lot of those investors or all of them are people whom I respect and it includes my family and some of our largest supporters and most certainly you don’t feel good for them in the short-term for the price. I like to finance and trade above that price. However, I think the position it put the company in is one that we’ll be able to recover with a pretty steep V recovery once the market starts to settle down and things start to go in the right direction for us.

When you see events like this happen, and I’m talking about two things here. One is the pandemic that we’re all facing, and the other one is the ending of the longest bull-market in history and the Dow. You have to look at these and reflect on experience and the last major financial crisis we had was 2008. And the best thing you can do if you’re not needing liquidity is to not look at your stock screen, is to turn your computer off for two weeks and you’ll probably save half your position in terms of what you might lose if you went in capital preservation mode.

And what I mean by that is we are not drilling, we’re not doing any high cost items, but we’re very fortunate that we have some pretty significant catalysts in particular, we’ve done a PEA, which is a scoping study on the value of Homestake Ridge and this is something we’ve worked on for the past few months. It’s something you can work on from the desktop because it’s something that you’re crunching numbers and you’re trying to figure out and build a mining scenario on an asset and give the audience a perception of value of what it could be. We should have this released within the next week to 10 days, possibly on the early side of that. And on the following that we talked a lot about our targeting breakthrough last year at Committee Bay. Committee Bay is a bull-market gold project.

As I talked to you today, gold’s up $35 we’re at $1544 gold. I think gold will go into the very right direction. I’m looking forward to seeing how many big targets we have up there for one time when the gold starts to perform and come back. Now what’s more important though is everyone’s health and safety. We took measures last week. Basically as soon as governments were taking measures or even before that locally, we gave our employees the option to work from home and be with their families both in Canada and in Peru. It does change things on a physical basis. But thanks to this wonderful thing called technology and the internet, we can all work remotely and be equally effective. I support that with our culture. That’s developed quite well.

There’s a lot of trust and there’s still a lot of efficiency that goes on when we’re not all in the same room. In Peru, you’ve seen some major lockdowns by the government. They’ve closed all borders. You’re not allowed to travel amongst Peru. I’ve seen the photos of bare streets there and this is how they are getting ahead of the virus. They’ve had very few cases, but they don’t want it to become a major problem in country. So they’ve locked the country down before it’s a problem, which is, I think that’s a incredibly smart move, very preemptive on their part. Deal with the virus before it’s a problem, not once your cases starts spreading and having piles of cases. The good news is that two week lockdown should end towards the end of this month, early April and it will put us back to work sometime in April, should all things resume back to normal life, and we think they will. I personally plan to go and be in Peru the day after they unlock borders and go to both our projects.

No, it’s been a whirlwind and I think if you have the courage to take advantage of the downside that’s taken place, you will make a substantial amount of money in this market. Provided that you have comfort with your own personal safety and health there and one point of reference of where I’m speaking from is our company called Keegan Resources was at $5.75 for three months prior to the 2008 correction, which was a financial collapse, not a virus. Understood those are two entirely things that have triggered it, but the outcome was very similar and the share price went to $0.49 from $5.75 we were in the middle of finding a 5 million ounce gold mine. So there was value behind the company, much like there is with Auryn and Homestake Ridge’s advanced asset that you’ll see shortly, as well as the ounces at Committee Bay that we have.

But what happened proceeding the actual drop to $0.49, I feel really bad for a handful of shareholders that panicked and lost their shares, because the company went over $9 per share in 14 months. You dream about those returns as an investor, but if you had bought it at $2 or $3 right before that correction happened and you panicked out at 50, $0.60, that’s why I said earlier you don’t want to watch the screen in these downturns. I mean your biggest defense, and this is for Auryn and a few other companies out there, is your treasury. We just closed $15 million a few weeks ago, not even a month ago from as I sit here today. At the time Keegan went down to $0.49, it had $8 million and we shut all drilling operations down at the time. So the experience we have as a management group going through financial crisis is one that we can be very fiscally responsible, as far as opportunities and catalysts to keep people interested, regardless whether there was this pandemic virus or a correction on the Dow, the PA on Homestake is something I’ve been really looking forward to for some time now. So I think it’s going to give us a lot of on the value proposition side of the company.

Bill: Regarding the Peruvian governments, national emergency which they declared, I noticed this morning that Freeport-McMoRan is putting their big mine Cerro Verde on a temporary 15 day care and maintenance. Does that have any impact on what you’re doing in Peru right now?

Ivan: I’m glad you brought that up. I see that Yanacocha, which is Newmont’s, has also going the same direction and they don’t really have a choice. The government’s calling out the rules and they’re protecting people. Exploration is much more like a light switch, you can turn it on and off. Especially the way at the stage we’re at. We had a crew of geologists at Curibaya, and they were taking samples and we pulled them all in as soon as this virus had to outbreak and it was by rule and law Peru to do that, but we were doing it anyway. I think with Freeport and Newmont and several other mines in Peru, there’s going to be a lot of this care and maintenance that will go on. This will probably impact a shortage in commodity production. That’s the silver lining on it.

At the same time, it’s a lot easier, as I said, to turn on and off an exploration project than it is to turn on and off online. So that being said, I think the impact is positive on the commodity sense. Socially, I think that it’s, we’re all dealing with the same social worries, whether it’s in Peru, Canada, or the US we all want to be responsible during this virus. And I think in remote locations where mines occur, if there’s any kind of outbreak there of symptoms, there’s a lot more risk. But I’m quite sure Freeport, Newmont, and some of the other major minors in Peru are taking all the right measures. And if they don’t have production for some time, I think, or if it reduces, you’ll see an improvement in the copper price, which would be something we’d welcome. And I think at the same time that once things settled down, they’ll probably resume back to work pretty quick. But not as quick as we will.

Bill: Ivan, you run Auryn Resources as an investor, not just as an executive because you’re highly invested and I believe at this share price, in Canadian terms where the share price is a little over a dollar, isn’t that even less than your average cost basis for the shares that you bought?

Ivan: Yeah, good point. I own about 5 million shares. I think I’m 30,000 or 40,000 shares short. My average cost on the entire position, including my seed shares factored in is around $1.25 Canadian per share.

So it’s about a $7 million investment for myself personally, of which I bought about half of that in the open market at a lot higher prices. And so I take the longterm view and I look at the opportunities in front of us and this is a very important statement, whether it’s a pandemic, or a financial crisis, or the share price gets cut in half or down 80%, the rocks don’t change. The opportunities at Sombrero don’t change, or Curibaya, or in our Canadian projects, you know that they just have to wait a bit longer and waiting is time and money. And so on that basis, because we are really well situated financially with this recent $15 million financing, I think it’s a highly enviable position for the industry to be in. Because not only do we have the quality of the exploration assets that can drive tremendous value once the market settles down, but it could also gives us the staying power.

If we really had to lock things down, we could probably last three years plus on this treasury. We could stretch it and shut things, mothball things. I, I hope we don’t go there. I do care a lot about the share price on a daily basis. I think that’s quite obvious to our audience and I’ll say thank you to the patient shareholders, thank you to the ambitious ones who have been buying out there and for anybody that’s worried and thinking about panicking or selling or feels that uncomfortableness that it could go down a lot further, anything’s possible. But my advice to you is, as I said earlier, just be patient and let things settle down before you make a decision. The reason why I would ask for your patience is because the company’s funded and if you’re thinking of adding more shares at this lower price than your average cost, I mean we’re going to give you a lot of reasons in the coming weeks and months to do that.

I think the flip side of worrying about what just happened or is happening is to think more positively about what might happen next. And if history has any way of repeating itself, and I have to emphasize this on the ’08 financial crisis, we’re coming out of the 10 year bull-market. We’re in a financial crisis, whether there’s a virus hit or not, this was due to happen. Everyone knew that globally, the leverage into the economies was quite substantial. I think what we’re looking forward to is with all this QE and all of the rate cuts that are happening, we’re going to look forward to a lot of money being printed, we’re going to look forward to an inflationary environment, and we’re going to look forward to a massive move in the gold price.

And if you listen to Goldman Sachs, Morgan Stanley, and Citibank, they’ve all put out 1,800, $2,000 gold targets. I think those guys are usually more conservative and they’re usually later not leaders. I think Canadian wise we’ve always led that. But you have to listen, when those guys are calling for that market, these are smart, smart guys that do get it right, usually on the gold space when they call it. I think we’re in good shape. We’re definitely seeing the fundamentals to support that. On the copper side, this is an interesting proposition. If copper stays below 250 for a period of three weeks or more, I understand that some of the major mining companies will have to shut down some of their copper mines. It’s just protocol. And so if that were to happen and we were to put a considerable supply crunch on copper as we’re doing all these financial stimulus packages into the economy, which will likely be put towards infrastructure on major new airports and other things to stimulate growth and whatnot, you’re going to see a pretty, pretty perfect storm for the copper market.

And this would be all leading into the two year cliff that we’re headed towards in the copper production. So I want to go from worrying about the day to day market to thinking a bit bigger picture. And this is the enlightening part of what we’re going to talk about next is have you been paying attention to what’s happening in China since the Corona virus hit them?

Bill: Yeah. The economy’s down, what was it, 6% I believe the latest numbers.

Ivan: They’re down 6% but all the Apple stores are open. Starbucks is open. They have actually resuming sporting events. The recovery in China is substantial from where it was 30 to 60 days ago. It’s back to business, and they got a really good handle on it. They did a great job to quarantine pretty fast, but they’ve opened all the Apple stores, all the Starbucks are open, and they’re resuming sporting events.

Life has gone back to normal, to some extent. They’re being very cautious with people coming from Europe or countries that have issue and they do take your temperature quite often going forward to make sure if you seem like you could be infected, they don’t want to have a repeat event. I think we’re going to see a really speedy recovery, once we get through peak exposure. And the US is actually taking some really good measures as of lately. I believe they locked down San Francisco and New York, scale back and it will have recessionary impact for sure. And I think this is why you saw gold in the first part of a short recession, you see liquidity as a challenge and we saw it from margin calls and fear. And as opposed to buying gold, people went to go and cover their margins and sell it.

Looking back at a chart from what happened in 2008, when that financial crisis hit, gold was on an uptrend until that happened. And then it hit the downtrend and went down a few hundred dollars or $100 plus just like it did here. But it didn’t sell off as hard as the Dow. And then it went on its most incredible run it ever had in history to basically $1,900 gold after that. And so I think what we have to look at is we’ve got to get back to work. We’ve got to get past the virus. That’s probably within 30 to 60 days when that starts to happen. I think the next market, the next bull-market we’re all going to see is going to be a bull-market in commodities. I think the stimulus packages are going to be incredibly good for copper and base metals.

And I think as far as inflationary measures that will happen from the QE and whatnot, will be largely felt in the gold price. So, my advice to everyone right now is including myself, is just be calm, be patient, and don’t act irrational, don’t do knee-jerk responses. If you can stomach 30 to 60 days of waiting for this to pass over then grade. Now there is a flip side to optimism. We would have to, to have some realism in our lives, you’d have to consider it. What if this virus gets worse? What if the world gets into a bigger tailspin? I think our problems are much bigger than worrying about your stock portfolio.

Bill: Specifically regarding Sombrero, is the timeline pushed back and what percentage of catalysts at that project that you were expecting to accomplish will you still be able to accomplish this year?

Ivan: So in terms of timeline, because Peru closed for two weeks, it’s no question, it’s pushed back at least two weeks. I will say that there’s likely a positive outcome from that, and that would be that the impact economically of shutting down Peru for two weeks is probably going to be pretty substantial. Much like it will be around the world with how things have shut down. And I think that we might be in a better position to push for easier permitting advancements. I think people socially will look for jobs and work to resume. So there might be some positive outcomes that although we lost two weeks, we get a better timeline towards completing our final permit that we’re working on for Sombrero. As far what’s happening in the background for us, we’ve been talking to neighboring communities that we’ve been waiting for two plus years to get access to and they’ve been, that’s been progressing extremely well.

So what we’re hoping to achieve from a permitting perspective is access to more communities post this locked down in Peru, and potentially and very hypothetically or potentially speculatively, we’re looking for potentially improve permitting laws, and rules, and timelines in Peru. This could work as is a very helpful thing for companies like ours that are at the tail end of the permitting process. Will we complete our catalysts for this year, drilling Sombrero and possibly getting a permit to drill Curibaya? I think those two things are highly plausible. I wouldn’t make the commitment to drilling Sombrero if I don’t know what the markets are. I mean if we’re in yesterday’s market or last week’s market, it would be crazy to spend your treasury drilling because you wouldn’t be paid for it. I think the way we’re going to behave this year is fiscally responsible is what I want people to think about in terms of the large expenditures.

We’re going to monitor it on a close by basis. Right now we have a few months to get through permitting, so it’s going to give us time before any big costs get incurred with us. And then I think on the backside of that, we can evaluate where we’re at once we have the drill permits in hand. And I’m going to be an optimist as I always am. And I think that in 30 to 90 days, we’re looking at a pretty good recovery in the commodity side of the market. And I think getting more capital, or making the decision to go drilling middle of the year going into the second half of the year. I think it’s a very good possibility that we’re going to go that way. The only caveat I’ll put is if it’s not good out there, we’re going to be patient and protect our dilution and maintain our shareholder base until that time presents itself.

As an investor I want to see those drills turn. I’ve waited four and a half years, like most other investors here to see a rewarding outcome from this company that’s not a double or triple, but something substantial like 10 or 20 times the current share price, huge check mark on getting those assets that could deliver that. But the same time, the timing of drilling that is this either going to be spectacular and it’s going to be soon and the recovery of these commodity markets, or we’re going to have to wait a bit longer for that to happen. As long as that’s the kind of opportunity at the end of the drill bit, I don’t mind waiting.

Bill: You’ve talked about Committee Bay, your project in Northern Canada and you’ve revised your targeting, but I’ve also heard you talk about the project as its trying to find a needle in a haystack. What’s the plan with that project and would you consider even divesting that at the current time?

Ivan: Committee Bay is one of my favorite swings for major high grade gold deposits on the planet and it’s placed 300 kilometers long with high grade gold everywhere. It’s the needle in the haystack, it’s risk versus reward. If you can find the needle, you’re going to make a fortune. And if you can’t find the needle, it’s going to be expensive and tough and you might lose, I mean more of a fortune. We’ve already spent a lot of money there to get here. I’d say that I think that modest exploration programs, $5 million budgets in smaller drill programs is something that’s very palatable to go there three or four more times to see if you can find the needle. Our technical team has been exhausted with it in a good way. And also it’s been really tough on them personally and emotion to keep going up there and not hitting the home run but getting closer each time. They said to me, “Look, as long as we have a new idea to try up there and we’re not repeating the same thing, we will go.”

And that is important. I mean, we have an incredibly new breakthrough and is this the solution to get to those needles and can we find more than one needles in that haystack? So again, I love the project. Would I sell, would we sell the project? I mean for the right price, everything’s for sale. Would we merge it with another asset? Possibly. There’s a lot to decide there. I think in our minds, we’ve talked recently about splitting the company into two or three entities, Canada and then two Peruvian entities. That’s something that makes sense based on the demographic or the geographic location of where these projects are, as well as the commodities that they represent. But Committee Bay is something that I would personally take swings on for a few more years to come. I think it’s worth it.

I think there’s a lot of value to come out of there. As we’re seeing gold improve now, recently up to 1700 but today on its way back to that direction, I’m considering a $2,000 plus gold market. What’s a five to 10 million ounce, six, seven grand gold deposit, at Committee Bay worth? A lot of people rebuttal would be, well look what happened to TMAC and others up there, Melodyne there’s been some issues. But I think that for the most part it’s a lot of people have learned a lot of hard mistakes of mining in the Arctic ahead of us. And I think finding the metal and by the time it would get to a production state, there’s probably going to be somebody like Agnico Eagle that has a really good handle on how to do this and an efficient profitable manner.

It’s not easy to find big gold deposits anymore. It isn’t. Markets aside, we’ve looked hard, we’ve looked hard for several years here and it’s to find a Sombrero is once in a lifetime. Curibaya is spectacular. It’s early, we don’t have enough conviction for the market yet to see it, and we’re just speculating, but these aren’t easy to find those kinds of grades at Curibaya, the kind of volume of metal and and grades that might occur at Sombrero. Having the other half of this major copper belt, these things are really hard to find and they’re going to get harder to find as we go back towards this commodity market. The world needs to spend billions more on exploration or else the world’s going to run out of metal. You look at the planet itself, we all want a green planet.

Well if any of you are thinking green planet, you got to think copper because that’s the major commodity you need for anything electrical that’s going to occur and going forward. And we strongly believe in electrification of the planet in the future to run cleaner energy. Outside of that, the world is quite dated. There are a lot of dated infrastructures. I travel quite a bit and I see cranes everywhere I go. The world will be refurbished or renovated per se to keep it real simple. And I think that whole process there is one that people have to look at and say, “Well where are they going to get all the metal for that?” The world has issues with food supply. It has issues with climate change, but it’s running out of metal. And when I say metal, I’m saying high quality mines that can supply a lot of metal to accommodate the demand of 7,500,000,000 people growing on the planet.

Bill: Ivan, in our last interview we talked about how you and your team have been excellent at maximizing wealth creation through discovery. So dividing up Auryn with your many projects into three different companies in order to maximize the valuation of each of them in terms of market cap and potential buy-out price, that completely makes sense to me. But a potential investor objection you could get would be, “Well what about your G&A costs? Because then you significantly increased your GNA.” What would be your response here?

Ivan: In terms of should we go that road and market conditions would obviously be a factor and in making that decision. G&A actually gets better per entity because right now, if you look at it as three companies in one, you have the burn rate of three companies in one. And if you split it into three, you’re going to have your independent burn rate per entity. So that would change a lot. As far as the extra costs, well whether it’s our technical team, myself, other members of management, we’re not going to take three salaries. We’re going to take one salary, maybe it’s bumped up a modest amount to manage all three, and we’re going to try to spread ourselves out across all three so each company can pay a fraction of one salary versus paying three independent salaries.

So this is where it works tremendously in our favor. And I think, what we’re trying to design as a group in this market and the markets to come, is how can we improve our ratio considerably of money into the ground. $100 million we raised, now it’s 115, but 100 million we’ve raised and spent, 80% of that money went into the ground and to these projects and acquisitions and 20% was for G&A and marketing. And we’ve had a reasonably or extremely well performing share price in terms of liquidity and some good price movements through that. And it’s given us the ability to raise a lot of capital at very good prices from the marketing side, but the number of 80% we think we can improve on that. And without taking complete salary cuts to zero across the entire team, I mean people work, they need to get paid something, there’s this other ways to do it. When you get onto an exploration project and you get a discovery, I mean finding the discovery is a two part process.

The first part of the process is in dealing with exploration when you go out there to go and explore things, it’s not a 12 month of the year round the clock job for these geologists. It usually takes about two to three months to get something target and drill ready and permit ready, and then you get a bit of a lag time through permits and wait to go drilling. For us to be able to split our technical team across multiple entities and be adequately managed, that’s something that would be a very obvious way to spread efficiency. We looked at a bit of the math and we looked at our current burn rate. Our burn rate is roughly about five to five and a half million, quite a bit less with current market conditions. But if you split our company into three, under the math we’ve been looking at, you’d look at about a $2,500,000,000 burn rate for Sombrero entity, about a $2,000,000 burn rate for the Curibaya entity, and Canada would be $1,000,000 or less, it’d be quite substantially lower.

I think, again, however, we can get more money into the ground because that’s how we’re going to pay shareholders, whatever we can do, whatever measures we can take, and if we can create more opportunities to win for shareholders, then one out of a company with multiple great assets. I think that would be a substantial achievement for us, for our shareholders. That’s what we’re going to work towards doing.

Bill: And Ivan, in a recent interview with Rick Rule that I had, he said he’ll tolerate up to 25% of an explorer or developer’s budget going into G&A if they’re of course quality. So even if you’re only at 20% right now, and I know some of your critics talk about the marketing dollars you spend in order to make more people aware of the opportunity, but you’re well within even what he considers reasonable.

Ivan: Yeah. When we did the big year at Committee Bay, we raised and spent $40,000,000 in one year and 90% was our ratio into the ground into the projects, 10% with G&A and marketing. What we’re looking at here in terms of the marketing and G&A budget is do we have something to say? Absolutely. We have a ton to say. So it’s worth doing. As far as the actual outcome of marketing dollars, again, our report card of doing financings at incredibly less dilutive prices, but more importantly, getting some of the best natural resource investors in the world. I think that’s something we all have to be really, really, really proud of. I think Rick’s got a good point, we buy our stock as insiders for the most part, whereas a lot of other people use marketing dollars to sell their stock. And I think that’s where he was also coming from in other interviews I’ve heard. If you look at all of our financings, insiders have participated in all of them. I’ve been a large open market buyer in the past, can only go so far because they don’t sell stock. I think as far as we go, we’re really proud of how we’ve managed ourselves financially marketing perspective. And we have a lot to say.

Bill: Well, as we conclude, Ivan, any final thoughts?

Ivan: I think as we were doing this interview, gold is up $20, it was going up through the whole interview. And I think it’s nice to see that the commodity market can react the way it should once the panic kind of subsides and look forward to a massive recovery, not just in the commodity markets but in our share price. I think we’re going to have the main drivers to do that. And I think, if you are nervous about it, turn the screen off until things calm down. And if you’re brave enough and you like to take advantage of irrational sell offs that are extreme, then this is your chance. Just remember that there was about $15 million was done at $1.60 Canadian was financed there less than a month ago, and so you’re getting a really good discount to where that money was purchased.

Bill: The website is AurynResources.com, I am a shareholder and the company’s ticker is AUG in Toronto or New York. As always, Ivan, I appreciate your insights. Thanks for coming on the show today.

Ivan: Thank you so much, Bill. Pleasure to be here.