A USD$250M market cap - it is not insignificant,
right? You have USD$40M cash in the bank.
It is great. But at what point does this inflection
point kick in? What are investors looking
for going forward?
Maybe I haven't mentioned it, but it is pretty
well-known that Cordero is one of the largest
Silver projects in the world. It is actually
the 4th largest in the world by just Silver
alone.
But it needs to be the largest economic Silver
project in the world.
Correct.
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We spoke earlier today to Taj Singh. He is
the CEO of Discovery Metals. They are part
of the Oxygen Group. We like all things about
the Oxygen Group. And this one is no different.
Their market cap is about USD$250M. Share
price as high as it has ever been. They are
after Silver in Mexico. We talked to Taj about
his business model, how they've had to change
and adapt things to focus on a high-grade
core to allow them to kind of advance things.
They've got a lot of money in the bank - about
USD$40M. They have just taken some money from
Eric Sprott, who is one of the largest shareholders
at over at 24% now. So lots of quite interesting
topics discussed with Taj. Like I say, fascinating
company, fascinating group. Take a look in
the description below at some of the things
we discuss, anything that interests you in
particular, click on the number beside that
topic, that is a timestamp and that will jump
you to that part of the video. Otherwise enjoy
everything that Taj has to say.
Taj, how are you doing, sir?
Pretty good. Thanks for having us.
No, that's good. We like the Oxygen Group
so we like getting their companies on air.
We have had Darren Labrenz from Pure Gold
on recently. Great story, going gangbusters
Liberty, doing quite well. And apparently
you are not doing too bad either.
We are doing okay, picking up some steam.
Yes.
Good. Why don't we kick off with the 1-minute
overview of the story, and then we can pick
it up from there.
We are Discovery Metals, focused on Silver,
focused in Mexico. Our flagship project is
the Cordero project, which is located in Chihuahua
State. It is currently at the drill/resource/PEA
stage. We are very well-funded with over USD$40M
in the bank. And our goal is pretty simple:
it is to drill and drill and drill and show
a project that was once considered a very
big, bulk tonnage, lower-grade project. We
want to show it as a project that works at
current Silver price, but has huge leverage
as Silver really, if and when Silver starts
moving. And that's the focus - our flagship
project.
We're part of the Oxygen Group along with,
as you said, Liberty and Pure Gold and Sun
Metals. Our focus is on data. Our focus is,
from a lot of wins in the auction company
over the years, has been taking an asset that
previous operators had. And sometimes it is
the second or third or fourth operator that
really gets the asset. And we have just had
a lot of data. We think it is a world-class
asset at Cordero, and a pretty clean, simple
story. A deliverable resource and a PEA that
shows a very strong project at current Silver
prices.
Thanks Taj. Let's talk about that - you like
data, and I like that you like data, but your
statement that it sometimes takes the 3rd
or 4th owner to make it work, it doesn't necessarily
hold up. What data did you have originally?
What did you set out to do? I always start
off with companies that I've not spoken to
before trying to understand the mentality
of the management team, what it is that they're
capable of doing, you know, what the business
plan is, if in fact, sometimes even if there
is a business plan, because most people kind
of just set out to drill some stuff and hopefully
the commodity prices will take care of them.
You inherited a project which people didn't
like, by the sounds of it. What did you see
in it?
Well, actually at one point in the early discovery
days of Cordero it was considered kind of
a really new, brand new find. At one point,
the company, we acquired a USD$400M market
gap that Silver started really moving as it
had the discovery, but over the years Silver
price dropped and their vision for the project,
the previous operators was, this is a big
tonnage, Peñasquito style. They were going
for tonnage. We acquired this last summer,
summer of 2019, when we did our due diligence
leading up to this, we liked that they had
lots of data, almost USD$300 were already
done. +130,000m of drilling had been done,
but we looked at it in a different way. And
that is: we weren't going to wait for Silver
to go to $20, $23. We wanted a project that
worked at $17 or $18. So, was there a high-grade
core that would work at current Silver prices?
And the answer to that, and then we're hopefully
going to continue to keep proving it, is yes.
There is a project there with significantly
higher grade than that big bulk tonnage that
everyone else, the big bulk tonnage project
that everyone else saw. And that's what we're
trying to show. We're trying to bring the
thesis to life.
Let me see if I understand that because you
know, you didn't necessarily know if you could
find that high-grade core and be able to start
off on that. What did you do? Did you allocate
a certain budget, say like, we'll spend this
amount if we can, it works? If it doesn’t,
we'll pack it in. I mean, what was the thinking
at board level?
We had done sort of several months of due
diligence on the project, and just to give
you some round numbers, it was about 1Bn tons
at a 15g/t Silver equivalent cut off, you
know, quite a bit lower cut off. You had over
1Bn tons, and you had about 1.5Bn Silver equivalent
ounces in all categories. And we had the data,
so we worked on it and we looked for that
core, as I was telling you about.
Now, the thing about the project is that it
was such a big project, had such a big footprint,
that there were areas in the resource that
needed to be filled in, that needed more drilling.
And our hypothesis was: as you drill it, the
grade is going to start coming. The project's
going to get tighter, higher grade. Also,
additionally, the resource model they used
was a grade model. We are going to use geological
constraints, structural constraints, you know,
a lot more kind of a robust model. And that's
the kind of scope we want to apply to it.
Again, they wanted a big bulk tonnage grade
model work, but we were really looking for
a project that we could hang our hat on, you
know, at $17, $18 Silver.
You are currently at PEA stage. So how quickly,
you talked about, right, we're going to find
this high-grade core, that kind of gets us
to the point where we can economically mine
quickly - phase 1. And then I guess there'll
be a phase 2, which, once money is flowing
you can start processing the lower-grade stuff.
I assume that's the model that you're going
with, is that right?
Well, basically. Yes, sort of. And I'll just
add a little colour to that: within that 1Bn
tons that I talked about, 1.5Bn Silver equivalent
ounces at the 15g/t cut off, we looked at
50g/t. At a 50g/t cut off you have close to
about 200Mt in both categories. Your grade
goes from being about 40g/t, 50g/t Silver
equivalent to 110g/t, 115g/t Silver equivalent.
Good strip ratio; again, drilling will continue
to hopefully bring that to light and a lot
more clarity on that, but that's the project
we're focusing on. Silver equivalent, kind
of cut off period of 50g/t, and some kind
of subset of that 200Mt. And that project
that we want to bring to life, as I say, can
be a project on its own. It doesn't need the
bigger project to stand on its own. Now, if
Silver takes a run, you've got a lot more,
you can bring in the lower margin ounces,
you're still going to make money, but that
project that we're trying to show, does it
need a higher Silver price? We want it to
work at this price and it can stand alone
on its own. It could be a starter to a huge,
huge, huge project if you will, but we want
it to also be able to be a project on its
own.
What I'm trying to get is a sense of the timing
that you're aiming for. Because if I look
at some models that peer companies employ,
like Great Bear - it is just drilling, drilling,
drilling. Building out resource, hitting high
grade after high-grade. And the question being
asked, when are you ever going to produce
a Resource? When are you actually going to
start planning to get this stuff out of the
ground? And at the moment that model is working
for them. And then the converse of that, you
have someone like Rox Gold. And I know we
are talking about Gold here, but the model
is still applicable. In Africa, where they
had a very small Resource, and they thought,
well, we'll get into production real early,
get some cash flowing and that will finance
the development of other assets, which we
have got and maybe help us with some M&A's.
And, that’s a polar opposite business plan
– they both seem good, because they have
both worked. And there are lots of models
where people are sat somewhere in the middle,
haven’t gone anywhere. So, what I'm trying
to say, again, what is your sense of how you
go about monetising this work in this sense?
You have a USD$250M market cap - it is not
insignificant, right? You have USD$40M cash
in the bank. It is great. But at what point
does this inflection point kind of kick-in?
What are investors looking for going forward?
Well, basically you talked about the two kind
of models, and Great Bear is basically a brand-new
discovery and they haven't put out a resource.
People already kind of know what to expect
with ours, but we want to basically show a
new quarter. We're not just taking in and
filling up some holes and optimising the mining
and the engineering. We are going to do all
of that, but it is a new project. It is going
to see way more drilling than was done before.
And that's all going to put the story together.
But basically, our timeline for putting things
together as a Resource is by about this time
next year, maybe earlier, and then a PEA subsequent
to that. And in between that probably every
month, like we have been doing since we took
this project over; every month, putting our
drill results out, continue to show that we're
executing on our plan to show that there is
a high-grade core there. And we have been
able to successfully do that since we have
acquired the project and we hope we can continue
to do that. So, catalysts coming up for the
next month: drill results, drill results,
drill results. Some more colour on metallurgy
as we progress. And then the ultimate goal
is, as I said, our resource and PEA about
this time next year.
And you think in terms of marching up that
development curve, that's going to be enough
for you, for you to get the market excited?
Yes. I mean, listen, everyone always says
that they are undervalued, but we really truly
believe as this project comes to light, you
know, even despite us having a USD$250M market
cap, that's a fraction of, you know, in terms
of P NAV, we are still significantly undervalued,
we believe. And I think the market is realising
that. The interesting thing about us is not
only do you have the value of the DCF of the
plan that we're going to put forward; this
higher-grade scenario, but then also there
is a bunch of in situ ounces, what value do
they get? Things like that, It becomes interesting
because it is very sizable, as I said, maybe
I haven't mentioned it, but a pretty well-known
Cordero is one of the largest Silver projects
in the world. It's actually 4th largest in
the world by just Silver alone.
But it needs to be the largest economic Silver
project in the world, right?
Correct.
Little things. What are you doing on that
in terms of understanding the economics? Because
I noticed in the presentation, you reduced
the…the cut off has changed, right? You
consciously said, ‘hey, we can do better
than this’.
Yes. And again, at this time when Levon discovered
it, that was a… Penasquito had just sold
for a significant premium prior to that. And
that was a stellar project they were looking
for. For us, we looked at this and said, we
need a project that works now. And then, like
I said, economics are first and foremost for
us. NPV to CAPEX ratio is important. IRR is
important. Payback is important. All those
things come ahead, cash management, how are
you going to pay for CAPEX? Is it a staged
CAPEX? Yes. How are we going to go about showing
that? So, we think there is going to be huge
changes in the resource model for the better
especially in terms of grade. We think that
strip, we're going to be able to improve with
this drilling we're doing. And then we also
believe that there are significant improvements
that can be made to the engineering of it.
For example, you know, in their flow sheet
there is an ore sorting step that you can
add. Ore sorting will drop your material by
35%, 40% of your waste, keeping most, essentially
all of your metal, and the whole back end
of your flow sheet is a lot tighter, a lot
smaller. The recoveries could potentially
come up because you have higher end grades.
There are these things like that - mine planning
needs to be worked on. So, this really isn't
just tightening up the project that people
are seeing. It is going to be a completely
new project.
Well, it is interesting; what you hope to
do and how the market perceives it are two
different things. So, positioning it as a
new project is usually quite hard, but you've
got the Oxygen Group behind you, a track record
behind you, and you have got this guy called
Eric Sprott who has just come in behind you.
These are all quite helpful things to try
and change people's perceptions significantly.
So, can you just tell me a little bit about
the team? We know Gernot Wober; he is quite
a classy geologist, but can you talk about
him and some of the other team and who you've
worked with before and you know, delivered
value before?
Yes. So, my quick brief bio on me is, I've
been CEO of Discovery since its inception
in late 2017. Before that I was a VP of a
corporate development, VP of engineering at
Timmins Gold, which then became Alio, and
now it has been acquired by Argonaut Gold.
And we are operating about a 100,000oz, 125,000oz
pa Gold heap bleach project in southern Mexico.
I have over about a decade of experience just
specifically working in Mexico on the ground.
Then before that I was at Macquarie as an
analyst covering the junior Gold, junior Silvers.
And prior to that, about 10-years at Inco/
Vale, as an engineer, working up the ranks.
You met Wilbur, you know him very well. He
came to us from a Cisco Mining. He was their
VPExp. He was very, very instrumental in the
early days of Windfall, and putting that together
and doing the amalgamation that you now know
is Cisco Mining, you know, more than 35-years’
experience all over the world. He is fantastic.
He is leading the efforts on the ground. And
then we have got our CFO Andreas L’Abbé
who comes to us from Tahoe. Previous to that
he was also working with me at Timmins. He
is fluent in Spanish. He worked in Peru, worked
with Goldcorp as well. So significant experience
there. And then we have also added just recently
as VP Corporate Development, Forbes Gemmell
who was previously 5 to 6-years at Goldfields
in the same role. And previous to that, he
was running an exploration company in Brazil
that was sold to an Aussie company. And then
prior to that, analyst at Radius.
It is a very good kind of spectrum, a broad
kind of a spectrum of scale is the management
team that we have. And then the board, you
know, the founder of Oxygen and also of Discovery
is Mark O’Dea. He has been instrumental
of being on the board as well as Murray John,
he is a very well-known portfolio manager,
but also a mining engineer, he's on the board.
We also have Jeff Parr, who is chairman of
Kirkland Lake Gold. So, we have got a very
strong board. Moira Smith who was a VPExp
at Liberty Gold. And she has got to be one
of the smartest geologists in the world. It
has been amazing to have her on too. So, it
is a fantastic team around us and lots of
Mexico experience, lots of Mexico experience.
How is your GNA? There are a lot of people
there. How do they get remunerated?
Actually, the last ones I mentioned to you
were board. The actual management team is
pretty much composed of 4 people: myself,
Gernot, Forbes, and our CFO, Andreas L’Abbé.
We also have our country managers based in
Mexico. So, we actually keep it very, we try
to keep it very lean.
Even though you've got so much money in the
bank, you're saving it for drilling, are you?
It is always put in the ground, always put
in the ground. Yes. And people look at that.
Investors are smart. You have got to keep
that G&A in check.
Well, let's talk about that. Let's talk about
the type of drilling. Okay. Because are you
going to be doing any more exploration, or
are you talking about infill and trying to
just hone in on this high-grade zone? I mean,
how are you spending that USD$40M? How does
that break down?
Yes, that's a good question. So, the phase
1 program was initially analysis, 35,000m.
We have since, just recently after this financing,
upped it to 55,000m. We're about 18,000m of
the way in. A majority of that will be in
around the old Lavon resource area. But there
is also an allotment for new discoveries in
the property. And that's something I haven't
mentioned yet, but it is a big question you
have, so I can talk about it. The actual Resource
area, even of the big project I'm talking
about, it takes up less than 1000ha. We have
got 35,000 hectares contiguous and around
us. And it is a very prospective land package,
several sniffs of, hopefully, new discoveries,
but the previous operators really were focused
on the resource area. Like I said, so that
the regional to the main resource here you
see has seen very limited work right around
the pit area. There are also quite a few veins
that we have already found. And these veins
are a new part of this story, which could
be exciting. It is early days. But these are
where artisanals used to mine. And they were
mining 1kg, 2kg Silver with some Zinc, Lead,
Gold, and direct shipping it to a town nearby
called Parral which is a mining town. And
those have never been worked on as veins.
They were kind of, the previous operator said,
whatever fits in the pit is fine, but these
are now just looking like they go outside
of the pit area and they keep going. And we
have already traced about 5km of strike length
that all have to be tested. But that could
really add a new component to this story;
you have got the bulk tonnage project that
works again it is at current Silver prices,
but now within the system, this breccia hosted
disseminated mineralisation, there are these
high grade veins ripping through it on the
fringes of it. That can add a completely new
component to the story, right. And bringing
up mill feed, and you don't need many of those
tons – 4Mt or 5Mt of that, with those kinds
of grades, you can add a lot of ounces really
quickly,
But can you do that without getting distracted
to the main cause? What you told me earlier
is, ylet's get a Resource out and let's tell
people what we have got and how we're going
to do it.
Yes, no, completely. Listen, the main focus
is working on the resource, and that PEA,
getting that out. But these are close to the
mine, near the mine. They may extend beyond
it, the veins, and we will have an allotment
to test them. And if they work – great.
They will probably be included in the resource
and PEA, if things work out well. If they
need more work, we can work on them later
after we put out the study. And same with
the regional targets, those are very early
days. That's just going to take time and it
is going to take a properly constituted program
of mapping, sampling, reconnaissance. You
spend your drill money properly.
So this is not going to become a geology-fest,
where you're getting excited every day with
what you're finding?
No. The Cordero main area is our base value.
That's what we have to hang our hat on. The
rest of this stuff, if we get it and it is
upside it is upside, but we want to be able
to hang our hat on some real value.
How much damage has COVID done to your operations
in terms of getting things done, getting data
moving forward?
Well, in our Toronto office all of us have
been working from home, but I would say we're
probably, you probably hear it from a lot
of companies - it has been seamless. We have
been interacting by video, phone, every day
in touch with Mexico. But in Mexico we were
actually one of the 1st companies that actually
decided, let's stop the drills. We stopped
about 3 or 4-days before they made it mandatory
to stop. That stopped April 1st, March 31st,
April 1st, it was a government decree. And
we took a lot of time to reinterpret the data,
run some internal mine plans, figure out where
the next drills need to be. It was really
well-spent time. And now June 1st, they opened
up Mexico. They declared exploration and mining
an essential activity, and we have gotten
cracking again. We're going to go slow. We
were at four drills before they stopped. We
are starting with one, we'll add a second,
very shortly here. And we'll slowly ramp up
back to four and maybe even more as the year
progresses.
And this guy, Eric Sprott, and we keep hearing
about, he splashes his money around, because
he has got a lot of it. But invariably, when
he's like sticking $1M here, $2M here, we're
not particularly paying too much attention
to that, because that's a bet for him. But
he has got a lot of money in your business.
He is a big shareholder now. Does he have
a big say in your business?
Eric has been an amazing shareholder since
he came in last summer. He owns about 24%
now of the company. But honestly, he has been
very hands off. He knows us from other stories,
other stories, previous businesses, he trusts
us and likes us, and he's been very hands-off.
He likes what we're doing. We are very open,
generally, at outlining our plans, and we
have been hitting, hitting and hitting and
we just want to execute.
Mark O’Dea, I missed him last week actually,
when I was talking with Darren, he had something
far more important to do, so I missed him
then, but we will speak to them again shortly.
Oxygen Group, as part of this process. I just
want to see how all of these moving parts
fit together. Oxygen Group – Mark O’Dea
and the rest of the team have got mines into
production. They seem to find financing quite
easy and they seem to have a good relationship
with Eric Sprott. He seems to be across most
of their projects at the moment. What's their
involvement in your day to day? Are you just
sitting in there as part of the portfolio
or are they active? How do they add value?
Yes, so Oxygen is the founding shareholder.
The founder and cornerstone shareholder of
Discovery. Again, one of 4 active companies,
as I mentioned. And Mark is the principal
at Oxygen; very involved at the board level,
very involved. But the unique thing about
Oxygen, as opposed to these other groups you've
seen, or someone's a VP here, and then a VP
with another company, is that each company
has their own management team. Each company
has their own board. When we are doing due
diligence or thinking about strategy, a lot
of ideas are shared that have worked for other
companies. Also, from marketing, that helps
a lot. A lot of times we market together.
We find that a really useful thing as well.
But you know, each company operates on its
own.
Talk to me about the Gold-Silver ratio - page
3 of your presentation - you are saying Silver
is a laggard with torque. You try to link
it to Gold. Can you just explain to me, because
I'm not a big Silver guy, I started to be,
but I'm not a big Silver guy. And I see that
ratio conversation come up, but given that
Silver is such a, it is a by-product a lot
of the times as well: in Lead, Gold, Copper,
Zinc, so lots of different drivers there.
So how do you value Silver, given that you
said you are trying to produce a project which
doesn't worry too much about Silver taking
its time in terms of appreciation? It was
at USD$17 today, right. So you're not that
worried about it, are you?
You know, some people would say that CEOs
shouldn't speculate on commodity prices or
run their business based on those prices.
I actually believe that. We have to make a
project that works now. And I don't want to
have 6 slides in my deck about, ‘oh, Silver
is going to go to USD$30’. I don't care.
I'm making it work now. But typically, we
have started to do a little bit of work on,
on knowing Silver, and it is very volatile.
You could probably argue that over the long,
long-term that Gold is a better hedge, but
in times like these where there is money and
credit flooding Gold and Silver, Silver is
money, you know? It has industrial use too,
but in times like this, if you time it right,
Silver will outperform Gold substantially.
And it has done that in almost every precious
metal cycle, by huge margins. Same on the
way down; it gets hit pretty hard too. But
it is interesting to see that behaviour and
listen, we might be at the right time here
to capitalise on it.
A lot of people think Silver is going to go
to USD$25, $30, $40, you know, I've heard
crazy things. But we want to make a project
again, work for now. And we do have that leverage,
right. And that's a big reason why Eric loves
Silver, and there is not really anyone who
has got the leverage when you go from USD$18
to $22 and then from $22 to $30, because not
only did you make more margin grams, your
resource gets way bigger; double, triple,
as you know. And either as Silver goes up
or as you start production, capital is paid
off now the resource gets bigger. And one
thing I didn't mention much is that the geometry
of the deposit is extremely favourable for
a staged approach so you're not sterilising
anything by doing this hybrid core. It is
what you would have done naturally. And then
as CAPEX is paid off, you can make it larger
and larger and larger. So yes, we're actually
very, very fortunate that way. It is a big
thing for us. A big item for us to tick the
box and say, yes, you can really apply a staged
approach to this.
Yes, that's what I was asking at the beginning.
I just wondered how you plan to tackle this.
I think there is nothing wrong with that plan
at all. I'm just intrigued about how you were
planning to do it.
So, thanks for giving us that update. With
regards to where you and your investors make
money, where are you taking this thing through
to? Are you going to be producing Silver?
When do you exit? You tell me.
We are at the early stages of this journey.
We're funded, basically I could say we're
effectively funded to construction. We have
got the cash to do it now. But we have built
mines before; all of us within the group,
we have got resource development, kind of
production background, building background.
You know, we're not there yet, but if we have
to, not have to, but if we get to that stage
and we want to put this into production, we
can do it. But listen, a lot of investors
–
Do you want to?
[pause]
No. Okay. Because you have sold quite a few.
You've sold quite a few and, you know, you've
made a lot of people a lot of money, and I'm
just trying to work out, as a new investor
coming in, what am I buying into here? So,
am I in for a long journey with you, or have
you got a got a shorter-term view, or a view
to quicker monetisation?
There are a few key catalysts. There are a
few key the classic value curve, and the value
gets added a lot on the resource in PEA; that's
when you really get some very good value.
And then it stabilises as you know, and during
construction moves a little sideways and then
it shoots back up as you get near construction.
One could argue that probably the best, most
effective way and time to sell it is resource/PEA.
But where's your head at? Clearly, I don't
think, I don't believe for one second that
that's where you would cash out. What are
you good at? What are you known for in terms
of where you guys make money?
I think that exactly the stage we're at right
now. Honestly, looking at the project again,
that has lots of data. That's already had
lots of money spent on it. Spending a bit
more and showing, look at this - this is a
real-world class project. And to be honest,
the staged approach I talked to you about,
we're talking something like 10,000t per day,
maybe staging up to 20,000t per day. Very
digestible CAPEX. Even at the 10,000t per
day starter pit, this would be probably a
top 5, top 10 mine in the world in terms of
Silver ounces produced, Silver equivalent
ounces produced. I strongly believe that that
this would definitely be something a mid-tier
or major would be very interested in as we
start showing it for what it really is worth.
Let's leave it there. Taj, that's brilliant.
A nice first introduction. I'm excited. I
have not heard the story before. We have talked
about it with some of the other guys in the
Oxygen Group. And obviously you've done a
great job so far. It would be interesting
to see what the next few months looks like,
and hopefully, your normal service resumes
back down in Mexico soon and you can move
things along at the pace that I know that
you want to. I appreciate your time today.
Thank you.
Thank you very much. Just to leave your listeners
with a kind of last message, Discovery is
a very simple story. We have to execute, and
we have been executing. Everything we have
said has been successful and we hope to continue
to do that.
Thanks, Taj.
