Transcript: Capitan Mining (CAPT) - High-Grade Silver & Gold with Big Backer

Morgan Leighton
June 10, 2021

Interview with Alberto Orozco, CEO of Capitan Mining Inc. Capitan Mining Inc. is a Canadian gold-silver mining exploration company engaged in exploring the Peñoles project in Durango Mexico.

Capitan is composed of a group of highly experienced professionals with a proven track record on exploration, development and operation of similar mining assets in Mexico. Capitan will work on expanding the mineralization at the Peñoles project.

We Discuss:

  • 1:51 - Company Overview
  • 2:58 - The History: Team's Track Record & Experience
  • 6:38 - The Peñoles Project: Plan, Potential, & Confidence in Asset
  • 11:23 - Drill Results: Reality VS Expectations
  • 13:45 - Approach to Growth: Raise & Allocation of $3.2M
  • 16:18 - Relationship with Michael Gentile: Views Value Creation
  • 18:07 - The Vision for Capitan Mining: Short & Long-Term Goals
  • 23:05 - Running a Business in Mexico: What Helps Relations?
  • 24:19 - Ending Comments: Expectations for Capitan Mining

Matthew Gordon: Alberto, how are you, sir?

Alberto Orozco: Great, Matt. How are you? 

Matthew Gordon: Fantastic. We bumped into each other at a Mexican mining conference and panel about doing business in Mexico about 2-months ago.  

Alberto Orozco: That's correct. You moderated the Mexican jurisdiction panel.

Matthew Gordon: That was fun. There were some good people there. Thanks for joining us today. Where are you today? 

Alberto Orozco: I’m in Hermosillo, Mexico. It will be a nice 40 degrees soon here. 

Matthew Gordon: Oh, really? What time is it?

Alberto Orozco: It's only 9 o'clock, but it will be 40 degrees in 15 minutes or so.

 Matthew Gordon: Wow, that's brutal. I'm looking forward to learning about Capitan Mining today. The story is new to me. Apart from the conference we've not spoken before, so I'm looking forward to this. I'm going to start by asking for that 1-minute overview of your business and I'll pick it up from there with some questions. 

Alberto Orozco: Capitan is a new company focused on Gold and Silver exploration in Mexico. We currently have the Peñoles project in the state of Durango, which is a great jurisdiction in which Mexico to be exploring. It's a project where the Peñoles company was born. That is where the original mines for the Peñoles company were located. It has an initial resource of about 500,000oz Gold equivalent, with a Gold and a Silver component to that. It is open in every direction. Still early in the discovery process and the resource-building process, with a number of other really high-quality targets in the property and a great team that has done this in the past a number of times. 

Matthew Gordon: I appreciate that. You’re in Mexico with Gold and Silver. It's early days. You've also recently raised some money so you are fully funded for what you want to do, certainly for the next phase of what you want to do. I want to take it back a bit, which I always do with new stories. I’m just trying to understand the business plan. What did you set out to do? It's always quite good to start with your track record. Who are you? What have you done? And tell me a little bit about the team, then we'll get on to the project. 

Alberto Orozco: Absolutely. A big part of the Capitan story is our track record and the team. We have been able to put together a team that has been working together for 3 companies prior to Capitan, so, over the last 16-years, we've been putting this group together. We started back with Linear Gold 16-years ago, then onto Pediment Gold, then on to Argonaut where we worked 8-9-years together working on very similar projects, developing these projects, sometimes at an early stage, recognizing the value early on, and then taking them all the way into construction and production. We work with operating projects as well. 

Matthew Gordon: What did you do there? What are the similarities in terms of the stage of the project but also in terms of the value that you went on to create?

Alberto Orozco: This project is like many that we had, both in Pediment and Argonaut at the time. It has an initial resource, in this case an inferred resource. That was the case for a number of projects we had back then as well, but we saw the value beyond that resource that was stated. We knew that there was additional ground to explore. It was clear that the geology was solid and there was still more to discover and that resource could be grown into something more meaningful. Also, those were all projects with a strong chance of becoming a mine; projects that are real, not just projects that have some random or geological potential. We like projects that are real, that not only have that potential to grow resources, but also are in a good jurisdiction with good potential for community relations, a good history with the community and we see all of that in the Peñoles project.

Matthew Gordon: Tell me a little more about who does what in the team. I recognize a couple of names: John-Mark, obviously, from Riverside, but who does what? What are you bringing to the table? 

Alberto Orozco: Let me briefly mention our board, Arturo Bonillas is a very well-known mine operator in Mexico. He brings that expertise and the ability to say, yes, I believe in this becoming a mine. It's really good to have Arturo's experience on our board. John-Mark is an explorer and has been in Mexico since the 80s. He knows pretty much the entire country and he knows potential in a project when he sees it. Myself, I have been involved in all stages from early discovery, development, construction and the operations. I've even been involved in the corporate affairs, the external affairs and government relations. That's something which is very important that distinguishes Capitan from other companies, that we have not only the technical capability, but we also have a strong network within the country. That is key to advancing projects.

Matthew Gordon: I know this from the conference as well, we talked about the ability to do business in Mexico, you have a long history for sure. Which state are you in?

Alberto Orozco: I live in Sonora State. Our project is located in Durango State, both are on my top list of jurisdictions in Mexico.

Matthew Gordon: For sure. Let's get back to the project proper because I want to understand what it is that you’re setting out to do. I guess you're going to try and replicate some of the success that you've seen in-country before. What is the business plan?

Alberto Orozco: When we started looking at the Peñoles project early on, we recognized this potential we're just talking about. We wanted to apply that same recipe, that same work program that we have done with other projects and try to expand this first of all. We believe that the First Resource estimate done by previous operators was very premature and so we first want to get this as an expanded inferred resource, particularly in the Gold zone. We have a Gold and a Silver zone to the resource. We see the potential to grow that Gold zone very quickly, very effectively. That's our main focus currently: to expand that near-surface Gold, open pitable potential resource in that area. Before we move later on into a PEA for the project. 

Matthew Gordon: Why do you say it was premature? Was it just as it's got a small number on it or because they didn't actually work out the extent of the ore body? Why do you use that phrasing? 

Alberto Orozco: It's basically what you just mentioned; we saw that there was very good continuity to the geology here and the drilling was just not enough. There was very little drilling, only 10,000m in the resource. That's really very little. We've seen projects with 100,000m that have 1Moz-2Moz resources. Here we have 10,000m and 500,000g Gold equivalent inferred resource. That's a very good success rate. 

Looking at the continuity of the geology in all its dimensions on strike down, depth, through its width, we just knew that the potential for finding more was very good and we wanted to do that again. We did that in the past with a number of projects as well that we worked on. With our current real program, we've been delivering on that thesis. We've been confirming that there is indeed more continuity to this mineralized body at the Capitan Zone and it continues to be open.

Matthew Gordon: Let’s go back to the drilling in a second, I’m more interested in the decision-making. Given that you looked at a variety of different options out there, some with much larger resources available to them. You picked this one, with 10,000m drilling, but what else? Because that must give you a low level of confidence with not a lot of data, more data is better surely?

Alberto Orozco: More data is better. But when you have this level of success with that little drilling, that's really good. You can have 10,000m of drilling and have 1-2 hits. In this case, all of those drill holes hit on mineralization, we're able to give you a very good sized resource, and we just saw the potential to continue expanding. 

Matthew Gordon: Apart from the drilling , there must have been other data available to you?

Alberto Orozco: Absolutely. We saw that this was a historical mining site, this is where the Peñoles company was born. There was extensive mapping and sampling that had been done on the project before. We haven't been talking about our other targets yet, only about the resource area, but we saw that as well there was trenching and underground sampling mapping so we knew that it was not only what those drill holes had identified, it was the entire package of information that we evaluated.

Matthew Gordon: This is the case of: let's pick up a nice cheap asset and see what we can do. The data leads you to believe, because you're hitting on mineralization on the holes that you're looking at. You're comfortable with that. What does this remind you of?

Alberto Orozco: This was actually really reminiscent of our neighbouring projects to the South: El Castillo and Saint Augustine, where our team worked for a number of years. From the first time that we started evaluating the data, it was very reminiscent of that in the style of mineralization, the geology, that was also part of what got us excited about this project because we had seen 2 other projects very close by, only an hour and a half drive away that had been successes for another company; generating cash and becoming operating mines today. We saw all those elements in the Peñoles project as well.

Matthew Gordon: Let me just ask you about drilling: we've seen some press releases come out. Talk to me about the results that you got versus what you were expecting to see. I say this in the context of, you've got data, you want to prove out a bigger resource clearly, but you've got to go at it a certain way, you're not looking for headlines. You're trying to do the right way it seems to me, so what should we be looking at with those drill results? 

Alberto Orozco: You're exactly right. We're really exploring and reporting as we go. What we have been seeing with our results is 1, consistency with the geology, the model that had been laid out before, that continuity. We've continued to extend that original zone, but we've also identified a very meaningful zone that we call the hanging wall zone. That's an addition that has been growing significantly in the project. It was there before but we've identified it as more important and larger than previously expected. We're also seeing some other targeting ideas now, coming from higher Silver, sometimes within the Gold Zone and sometimes even higher-grades as well. As we've been developing this, yes, we've been expanding the model that we started out with but we're also recognizing there are other geological features here that will add meaningfully to a new resource estimate. 

Matthew Gordon: How do you go about doing that? Because we talked recently in the market about companies doing step-out programs. Some people don't step out too far because they don't want a nasty little headline, or results. So, how do you go about planning that in the context of truly trying to understand contained metal in the ground versus what the market wants to hear?

Alberto Orozco: We are not doing a very long step outs because we see that potential to grow with what we have immediately, but we do see some very large gaps in what was drilled before we drill some of those, we've been drilling on strike extensions sometimes going out of 50m or a 100m step outs at a time, as well as down-dip, and we've been hitting on every hole, which is very exciting as well.  

Matthew Gordon: I'm intrigued because you've raised about USD$3.2M; you must have walked into that with an idea of what you wanted to do with that, in terms of confirming what it is that you thought you had. So, what's the plan?  

Alberto Orozco: Absolutely. With our first round of drilling we were able to add another 6,000m to the project. You have to keep in mind there's 10,000m in total but 7,000m of those are in the Capitan area. So we nearly doubled the amount of drilling at the Capitan Gold zone. With the capital we raised, that puts about USD$M in cash in the treasury. That can take us a long way. We can potentially double the amount of drilling that we've done already in the first phase and continue expanding the mineralization at Capitan and start to test as well out other targets, not only within the resource, but in the other targets that we have within the project.

Matthew Gordon: I don’t know what part of the USD$4M you're going to spend on expanding the Capitan, well, the data that you've got at Capitan, and then you got a little bit of playing around the edges here. What will the market be thinking at the point when you can present whatever you present to the market? 

Alberto Orozco: Most of that goes into Capitan, and we're currently working on our guidance. We are finalizing our evaluation of the first 6,000m of drilling that we did and putting that into models. We’re finalizing our second-phase exploration program for the area. Probably, most of that new budget is going to go into the Capitan area where we continue to see the potential for growth. It continues to be open after this initial stage with mineralization. Most of that budget will go there, but we also want to start testing the higher-grade Silver zone in Jesus Maria, which is just immediately adjacent to the north. We will probably also want to test the San Rafael area with some drilling. San Rafael is an area to the Northeast, also with a historical mine, 5 historical drill holes. It’s not part of the resource, but all hit mineralisation. So that's another area where we think there's good potential for adding ounces. Also, we may be drill testing some of our targets to the South as well. 

Matthew Gordon: We interviewed a guy called Mike Gentilly last week. Do you know him?

Alberto Orozco: I know him. 

Matthew Gordon: He’s a big shareholder, even before you come to the market, you're going to have to impress that guy. We were quite impressed with him actually. He doesn't make these sorts of investments lightly, and he's very aggressive and confident about what he wants and what he wants to deliver with them. What was he saying to you? What were you saying to him in terms of the way you go about creating value in this scenario?

Alberto Orozco: First of all, we're very excited to have Michael as a strategic investor in the company. I think that's a testament to the high-quality project and team that we have. He tends to focus on things that have a real chance of becoming something; that's been part of the conversation. He believes in the team, in the track record that the team has, in us being able to recognize a good project. Also, as we mentioned at the beginning, with not a whole lot of drilling the previous operators were able to put together this resource with that great continuity that we were observing that potential. I think all those elements come together. In the end, I think Capitan is a story about a real asset. We’re not talking about fantasy here. We see something that has a real chance of becoming an operating mine in the future and I think that's what Michael sees as well.

Matthew Gordon: I think so. We did talk about it briefly, which is why we're talking now. I liked his fundamentalist approach to investing. He's not investing in promotional ideas, he’s investing in a company which has got legs. Which is why I’m pushing you on the numbers side of things and how you move from what you've got now, to the next stage. You've got a team who have worked in Mexico, you've done it before 3 times? 

Alberto Orozco: 3 companies, and in all 3 companies we've generated a plus 1Moz resource.

Matthew Gordon: Is that the game plan here? To get to 1Moz and check out, or is there more to it? 

Alberto Orozco: That's definitely our goal in the short term. Obviously, we can't guarantee or mention that we will, but that's definitely our goal. I'll let you do your own numbers but we're starting at a 500,000 Gold equivalent resource, how we've been expanding the mineralization at the Capitan Zone. We have not yet tested the Silver. I think a 1Moz inferred resource is a reasonable goal. We have done it in other projects, but the project has potential for more. I think it definitely has potential to grow larger than that, that'll be later on in the development of the project, but that's definitely our short-term goal. 

Matthew Gordon: When you get to 1Moz, what next? Do you do a study? A PEA potentially?

Alberto Orozco: The first task is to expand the inferred resource, that's our first goal. We believe there's a higher bang for the buck with our drilling and then we'll continue to refine that resource and obviously do some more work around that in the area to get that to a PEA and show what the true value of the Peñoles Project is. 

Matthew Gordon: So that's what this team does and that's what Mike Gentilly is happy with: get this to a PEA and then see who wants it?

Alberto Orozco: Exactly that. We have done that a number of times with a team: expand resources then move to PEA. We have been fortunate as well to work in development and be around the construction and operations of the projects. If that's the route we have to go down at some point, we have the ability and the network to do it, but let's say our most immediate goal is to expand this resource then to show a positive PEA out of it.

Matthew Gordon: As of today you own 100% of that asset. There are no other payments due on that? 

Alberto Orozco: We own 100% of the asset.

Matthew Gordon: Fantastic. In terms of moving things forward with outstanding permits, as we talked about at the conference, you've got to get your paperwork right. You've got to do things properly. What are the long poles in the tent? What are the things that could hold you back?

Alberto Orozco: Right now we are fully permitted for our exploration moving forward for the next year or so. It could even extend beyond that. Once you start looking into putting things into production, then you go into a different permitting process. Now, we're not leaving that for later. We're starting early, we’re getting the right consultants, setting the right foundations so that we can build that very systematically moving forward. We want to be very strategic about how we move this project forward. We want to start from the very beginning thinking about how we're going to get this permitted in the end for a mine. 

Matthew Gordon: I want to be clear on the exit. I want to know what I'm walking into here. You guys take it to a PEA and you look for a buyer - would that be an asset sale or the company? What's the opportunity for you guys to go and find the next asset or the next couple of assets and do the same thing?

Alberto Orozco: There are a number of opportunities in Mexico and in other jurisdictions. I wouldn't say they're all gone. There are certainly a number of them still around. We are looking for some of them. If the right one comes along and it's the right fit for Capitan, then we might do something, but there are other opportunities around. We necessarily want to stay a single-asset company, there are other assets that are high quality, and if it's the right opportunity for Capitan, we might move forward on some of those.

Matthew Gordon: I’m just trying to understand whether Capitan is around for the long term or we are just sitting on this until the PEA, then we have to find the next company or not?

Alberto Orozco: No. We have a long term vision and I think our investors do too. Michael Gentilly certainly has long-term vision with the companies he invests in. We are not here for the short run, we're here to transform this into a reality and to develop it as much as we can moving forward to its full potential. 

Matthew Gordon: Do take this the right way: is it easier for a completely 100% Mexican management team and a 50% Mexican board to do business in Mexico than it would be for a Canadian team?

Alberto Orozco: Yes, absolutely. And in-country too because I live here as well. Being here with our team, 100% Mexican, it really makes you advance things faster. We don't have to jump any cultural hurdles, sometimes communication can be very key. In the past I saw a lot of companies getting into confusing times or trouble because of those communication gaps. We don't have that, we have a team that's 100% in-country. Our board is more than 50% Mexican. We have only 3 directors, 2 of us are Mexican and in Mexico and John-Mark is 50% Mexican as well, so it is 75% Mexican. 

Matthew Gordon: I'm excited about the team's relevant experience in-country, doing exactly the same thing. That's what I think is exciting. The asset, you're going to have to prove up and move along the curve. So again, I look forward to staying in touch and seeing how you get on with that. Pick up the phone and let us know if there's anything interesting happening. I’d be delighted to take that phone call. 

Alberto Orozco: Thank you, Matt. The last thing I’d like to leave you with for Capitan, moving forward we will continue to work on the project. We believe that the target for 1Moz inferred resource Gold equivalent is very real. We will continue to work on that, particularly focusing on the Capitan zone of the project. But one thing we haven't talked about is the Jesus Maria Silver zone that is immediately adjacent to the Capitan zone, here, the former operators intersected 7.15m of 988g/t Silver and 1.24g/t Gold. Those are some spectacular grades that you would see in other companies like Silvercrest, in their news releases. We have that in the Peñoles project as well. It's something that we will drill in the near future. We're just focusing more on the Capitan near-surface potential.

We also have other targets within the property that we want to drill. We're excited about those. We are generating some targeting and surface work to do that more effectively, but we will be touching on those probably later on this year as well. And we will keep our eyes open. We're very actively looking for other opportunities, particularly within Mexico, that might fit the Capitan strategy.

To find out more, go to the Capitan Mining Website