Transcript: Deep-South Resources (DSM) - Licence Renewal Issue. Now What?
Deep-South Resources is a mineral exploration and development company actively involved in the acquisition, exploration and development of major mineral properties in Africa. Deep-South owns 100% of the Haib copper project in south Namibia. The license for this project has not been renewed and Deep-South is currently in dispute with the government but the company is confident that the license will be renewed soon.
Deep-South received a notice in June 2021 from the Minister of Mines confirming that the company's application for the renewal of the licence had been refused. The reasons given were due to the company’s inability to advance to Pre-Feasibility and complete the proposed drilling programme as planned. Deep-South maintains that the Ministry was kept updated, with no objection on their part, of a proposed change from the Pre-Feasibility Study to upgraded Preliminary Economic Assessment (PEA) and commencement of a full feasibility study. The Ministry issued all permits required for the drilling programme and were aware that Deep-South has completed the drilling programme.
Deep-South intends to contest this decision by all means necessary and maintains that it clearly demonstrated having met all criteria under the Minerals Act to justify the renewal of its licence. The company has appealed this decision and the High Court has instructed the Ministry of Mines to deliver the documents by 10th October. The appeal process should take 6-9 months and so Deep-South hopes to have the license back for the Haib copper project by early 2022 as ordered by the High Court.
Deep-South is also busy looking at other copper projects in good jurisdictions and hopes that by the end of the year the company will have another asset. The company has CAD$2-2.5M so can afford to get involved in a new asset alongside continuing current work at the Haib asset.
0:00 – Company Overview
01:16 – Mining History, Current Needs, & Stockholders
07:17 –Cash Restraining Orders, Written Communication, & High Court Rulings
19:20 – Current Assets, Economic Components, & Issues
26:15 – Problems, Solutions & Cash Burn
31:56 – Outro
Pierre Léveillé: I'm Pierre Léveillé from Deep South Resources. I'm the President and CEO. Deep South is listed on the TSX Venture in Canada under the symbol DSM. It's also listed in Frankfurt and on the OTCQB under DSM-TF.
The company owns 100% of a high-Copper project in the south of Namibia, which is in dispute with the government, actually, at the moment. The license has been pulled by the Minister of Mines, but we've taken quite a lot of steps to get these rights back and we're pretty confident we can do it.
Matthew Gordon: Page 7 of your PowerPoint says: Namibia: low risk and mining friendly. Do you still feel the same way?
Pierre Léveillé: Yes. I was a little hesitant because when you live a situation like this, it's quite tricky. But yes, I've been doing business in Namibia since 1996. I've lived in the country. I still have a very strong network there, and I see a lot of prominent people in Namibia who are very annoyed by the situation at the moment. They don't like it because it's not good for the image of the country. Because of that, I still feel it's good place to be.
Matthew Gordon: That doesn't take away from the fact that your share price, which had a bit of momentum behind it, has just being thrown off the edge of a cliff because the license renewal is not forthcoming. Can you give us the backstory in terms of the process involved before it was not renewed
Pierre Léveillé: The way the Mining Act works is that you have to renew an exploration license every 2-years, and you have to file the application 90 days prior to the expiry of the license, which in our case was April 2021.
Matthew Gordon: Did you do that? Were you on time?
Pierre Léveillé: Yes. We filed the application in January, more than 90 days prior to expiry. In that you explain what you will do in the next 2-years: budget, and so forth, and after we filed that we applied for a drilling permit in February, which was granted immediately and we started drilling in March. At the end of March we applied for a sample exportation permit to ship the cores out of the country for the assaying. That was going well. It was approved. In May, that permit expired so we reapplied for a renewal of the export permit, which was again granted on the 3rd of June 2021, it was good up to November. Those permits were approved and granted by the Mining Commissioner's office, which is the same office that will review and prepare the file for renewal of the exploration licence, and 6-days after we received the last renewal of the export sample permit we received a letter from the Minister saying they were not intending to renew the license. He said it was because we had failed to complete drilling and a PFS as we had proposed.
Matthew Gordon: Did you fail? I can't find anything in writing that stipulates what the requirements were for you under the previous license. What were you obliged to do? How much were you obliged to spend? How many metres were to be drilled? What reporting should have been done? Where does it say that?
Pierre Léveillé: It's in the Mining Act and it's in the license. The license comes with the application when they have approved the proposal you made, in our case we proposed to do 4,000m of drilling.
Matthew Gordon: Did you do that?
Pierre Léveillé: Yes. Furthermore, we had proposed to do some metallurgical test work. We did 1t of test work with MinTech in South Africa, and we have proposed to do a PFS.
Matthew Gordon: Where's the PFS, was it done?
Pierre Léveillé: During the tenure, every 3-months you need to file a quarterly report to state where you stand, how much money you have spent. By the way, the budget was NAD$30M, that was proposed. And during the tenure, there was a period where we received these metallurgical test from MinTech and we said: they are very good, so we don't see any reason to do a PFS. We would prefer to include them in our existing PEA, do an upgraded PEA and start a Feasibility Study immediately, because we know that we will go with bio leaching only. With a PFS, you should compare different technologies and different methods of extraction, and we didn’t need to do this as in the past there was already a Feasibility Study on the project and other Scoping Studies, thus, a lot of test work had been done and was in the database.
Matthew Gordon: Technically, you did not do a PFS. You said, we're going to take that data. We're going to skip the PFS, which gives us permission not to do it - in your mind - and we go straight to a Feasibility Study. Did you communicate that skipping of a process to the Ministry at any point?
Pierre Léveillé: Yes. The Mining Act states that you have to inform them in a specific letter to the mining commissioner, and if they are not happy with it they are obliged to do 2 things: meet you to have a discussion around it or send you a letter stating that they give you a certain period of time to remedy the situation. They have done neither. And for the 3 quarters in a row after that, in our quarterly reports we talked specifically about that upgraded PEA that was coming and the Feasibility Study which had started. Effectively before the expiry of the license, we started doing some work related to that Feasibility Study: Scoping Studies on water usage, power solutions, environment. We had also begun some specific metallurgical tests with Mets in Australia, specifically for that Feasibility Study. So in fact, what we had proposed to them was to go a step ahead of doing a PFS, so it's a bit tricky to say that we have failed to do a PFS when we had proposed to do better and they had never objected to that.
Matthew Gordon: You told him what you were doing. You didn't get a response. In your mind you’re saying: this is better than a PFS because we're going to the next stage. However, money's a bit tight for you guys and you’re probably not doing as much drilling as you wanted to do. The markets were not being particularly kind to small companies so you were not getting much attention. Did they feel that you were cash constrained and that's why you made the decision to skip the PFS and go onto a Feasibility Study, so you could save money at the time?
Pierre Léveillé: We didn't skip the PFS because we were cash constrained, and I can tell you because I know them well, they don't even check your balance sheet, they don't have a clue what you're doing with your financial statements. It's not a real issue there. The reason why we could skip a PFS is because of the amount of work that had been done in the past by other companies like Tech, Rio Tinto, Falconbridge, Great Fitzroy: Feasibility Study, PFS, a number of Scoping Studies were done so what we're doing now is simply upgrading an existing Feasibility Study, and that's part of the 43-101 code. You can do that as long as you have the right data.
Matthew Gordon: What do you do now? You don't get into an argument, you certainly don't want to make this emotional; you want to make it cold and hard. We've applied, you've refused. Please tell us why. Have they told you why?
Pierre Léveillé: That's the first thing they said by letter.
Matthew Gordon: Just be clear about exactly what they said you have not done.
Pierre Léveillé: The 4,000m of drilling and the Pre-Feasibility Study.
Matthew Gordon: You just told me that you have done that. Why would they say that you haven't?
Pierre Léveillé: I don't have a clue! Look how ridiculous it is. There were 3 drills on site and they were fully aware of that because they gave us the permit to do that. They also gave us permits to export samples. So it's not clear to me.
Matthew Gordon: The logical step was to say: we have not done these 3 things. I'm showing you that we have. What was their response to that?
Pierre Léveillé: We had a meeting with the Minister to try to show what we had done and we have never been able to present our case. We have never been able to explain what we were doing. He was asking questions very quickly and the questions were probably organised in advance. They asked us what we had done in the last 10-years and stuff like that, which is irrelevant because in the last 10-years, firstly, we were not in control of the license. We were a minority shareholder up to 2017, so the last 4-years are fine, but before that we were not controlling anything. Secondly, they have renewed the license every 2 years so he cannot come back afterwards saying they were not satisfied. They have to stick on the last 2 years: were you satisfied or not?
We have proposed a budget of NAD$30M. We have spent NAD$28.5M, so we're very near that budget-level, and we have done everything that we had proposed to do. The only thing we have modified is the PFS story and they were informed of that and they have never objected. That's the way the law works; they don't need to send us a letter to say we agree to that. They need to send us a letter if they disagree to it. That’s the Mining Act.
Matthew Gordon: You've assumed, because your interpretation of the law is that silence is complicity, as in their silence says we agree to this. That's how you are reading it?
Pierre Léveillé: It's not how we read it, it's the Mining Act. That's the way it is written in the Act. If they're not satisfied, the must inform us. If they don’t inform us it's because they're satisfied.
Matthew Gordon: They're asking you about what you have-done the last 10 years, and doesn't matter whether you've been there or the company in its current form has been there, they perceive you as having been there for 10+ years and you haven't done anything: you haven't got this into production or created jobs, tax revenues, all the other things that they were hoping would happen when that company first came along. Is that what you're being cobbled together with, that history?
Pierre Léveillé: Not in their written communication. The only time they mentioned this was at the meeting with the Minister. And even then it was important to mention that during these 10-years we have still done quite a lot of drilling with Tech and drilling with us after. They were fully aware of that. They have to understand that it's a project that has serious challenges because it's at 0.31% Copper primary sulphide, it's not economic for a traditional way of extracting the metal; grinding, leach, flotation; it costs too much. The operational costs are too wide. You would need a price of Copper of USD$4.50/lb for a sustainable period to take a decision to construct a mine here, if you go down that classical route of extracting the metal. The operational costs are too high and demanding, hence why we’re looking at other technologies. That's the reason why we’re going with that Feasibility, specifically on the bio-leaching, because the other extraction technologies were shown to not be economic at this level.
Matthew Gordon: Let's talk about where you take it from here. You've had one conversation with the Minister for Mines, have communications now stopped?
Pierre Léveillé: Yes. The day after he sent us a letter saying that he wouldn't change his decision, that's it. No communication with them after that.
Matthew Gordon: That door is now shut. How many advocates have you got in-country? Who are you using to try to get through to the Ministry?
Pierre Léveillé: Before I give you the names of these people, the way the Mining Act works is that when an official of the Ministry makes a decision, you can appeal it, apart from the Minister because there's no one above him. The appeal then goes to court. It's an administrative court case where you ask for a review of the decision of the Minister. We filed an application to review the decision of the Minister. At the same time we requested the court to interdict the Ministry to issue the license to anyone else.
Our lawyers are Andrew Corbett, he is very high-level, experienced lawyer in Namibia. Andrew Corbett has worked on many files like this, with or against the ministry so he knows quite a lot about this type of situation. We have filed this application in court. We have filed an affidavit of 35 pages showing all the problems we see and there's a lot of background case that I've added as precedent. The supporting documentation runs to 1,500 pages, including all the technical reports that we have filed, quarterly reports, etc, and all communications. It is date-stamped showing that it was received by the ministry on such a date.
The court recently issued a decision to interdict the Ministry to issue the license to anyone else. The Ministry was supposed to provide the court with the background documentation that was served to the Minister to take that decision and it has still not been filed, so, last week, the High Court ordered the Ministry to deliver these documents before 10th of October. You can see that the Ministry side is not dealing with the court’s directions as quickly as we are. Now, why is it like this? I will not speculate on that.
Matthew Gordon: In a big way, it really doesn't matter. They'll either get there or they won’t. At some point, what will the High Court do? They interdicted the Ministry from granting a license elsewhere – great - but it's just parked up. How long can it be parked up for? What power does the High Court have over the Ministry?
Pierre Léveillé: The High Court has the power to tell the Minister to reverse this decision and give us the license back. That's what we're looking for. We were told at the start of this procedure that because it's not like a claim for damages, etc, it's more of an administrative case so it should take 6-9 months. We started the process in July so it should be by the end of the year or early next year. Covid has potentially slowed that down because from time to time Namibia had to go in lockdown, as did everywhere. So we don't have a clue exactly when it will be over.
Matthew Gordon: The High Court has the power to ask the Ministry of Mines to reverse the decision. What you've now got is a Ministry of Mines filled with individuals who are going to be a little bit emotional here because they’ve just lost a case. You've made the High Court change their decision. They've lost face. You're not going to get much co-operation from these guys going forward, are you?
Pierre Léveillé: That’s the situation that we have to take care of and that's very important, that's probably the most important issue in all of this. We need to be prepared to ensure that they will be happy when we close this. In our case, our ego is not attached to that. The only thing we want is to get our rights back or to be compensated correctly period. That's it; no ego, no emotion. However, we also know on the other side that that could be the case. It's political on their side, it's not the same on our side. We are prepared to discuss with them and make sure we accommodate the situation correctly to ensure that everybody will be happy when we go out of that situation.
Keep in mind that 15%-20% of our shares are held by Namibians. 2 prominent people on our board of directors and our chairman are Namibian. 2 thirds of our operation is fully Namibian, so we already adhere to more than what they would be happy to see. We are more a Namibian company than anything else so it's important that we clear the air and make sure everybody is happy.
Matthew Gordon: I guess we’ll have to sit back and wait and see what happens over the next few months. Right now, you've got 1 asset that's tied up in court, therefore you've got no asset. What do you do about it? What are you going to do for your shareholders to change that situation?
Pierre Léveillé: 2 things: firstly, there's the court case, but as we are, as I said, mostly Namibian we have been using our network to lobby the Minister, the Prime Minister and the President. We are working with institutions like the Chamber Of Mines, The Namibia Investment Promotion Board, whose mandate is to promote foreign investment in Namibia, hence these institutions are not very happy with the situation. They want to see a result. We do quite a lot of lobbying and we have a good feeling that, at the end of the day, it's the way to go and make sure that we have a chance to settle that situation outside of the court case, the court will continue.
The third thing we're looking at is our international law options. We aren’t going go too fast on that side. We have had discussions with high-level lawyers specialized in international arbitration for treaties between different countries. There are options there and there could be solutions. But if you go that route, it's preferable that at the moment we let the court and the lobbying in Namibia advance so that hopefully the situation will be resolved within Namibia, we don't have to go on the international side, because if we start going on that side, it's going to put more - how can I say that? We want to ensure that we keep everybody happy and if we do that, then people won't be happy. It's like a Namibian going outside to fight against a Namibia; it doesn't make sense. But we are prepared to do that. We have the right people around us to do it, but we will delay that until we're sure there's no other route, and it can take months before getting there.
Matthew Gordon: You're lobbying some important people: the Prime Minister, the Chamber of Commerce, etc. This will be so low on their list of things to do because there's no economic component to yet. It's all about what the future could hold. The Minister of Mines does report to the President, so that is his chain of command. When you say you’re feeling confident, the only person that I think is going to make any difference is the Prime minister saying, what's this about? You've called this wrong. Change your mind. The rest are just nice to have soiree evenings, aren’t they? What gives you that confidence?
Pierre Léveillé: Yes, you're right. There is not a lot of economic return at the moment on a project like this. It's still exploration and development. But the situation is this: we are a foreign company. We are listed in Canada and in the US. We issue press releases all over the world and we make a lot of noise about what has happened here so it's not very good for the image of Namibia. The President of Namibia recently in an interview mentioned that he was unhappy with some people that were in the media that were creating problems for the image of the country because they desperately need foreign investment. That's the reason why the Chamber of Mines, why the Namibia Investment and Promotion Board are very uncomfortable with that situation because they know it is a problem for foreign investment.
The Chamber Of Mines represents exploration companies as well, and they are starting to see that some exploration companies are being questioned by their shareholders and investors, saying that if it has happened to Deep South, what can you tell me that guaranteed it will not happen to you? That's not good for the industry or for foreign investment. It’s not because Deep South is a big company. It's just because it's listed and it makes noise around the world. That's why I have some confidence about resolving this situation.
Matthew Gordon: We have Namibian companies that come on here regularly, typically Uranium companies, and they seem to have good relationships. They've been able mine, they are producers, developers and explorers and it seems they are able to do business in Namibia. That gets people thinking: is this a foreign investment discussion, is this something that you've done, or your relationship on the ground locally? Who are your people on the ground locally who should be managing these relationships? Clearly, it doesn't look like they’ve been able to resolve or prevent this problem. Therefore, is it a company issue or do you think it’s a Ministry issue?
Pierre Léveillé: That's a good question. I'm still confident that our people on the ground have done the job correctly to report back directly to the Ministry and the authorities in Namibia. I think they were maintaining good relations. It's difficult to say, I gave you an example at the start: we applied for a license renewal in January. After they kept granting us the permits to continue to develop the project. So, my question to them was, if you were not intending to renew the license, why did you grant us all these drilling and export sample permits, let us spend millions of dollars on the project and then you pulled the plug -why have you done that? The answer from the Mining Commissioner was that they weren't in their full right to do that because they want to have as much data as possible from us after leaving there. That was a shocking answer and it's not looking good on the Ministry side. So, yes, if we go back and look at it correctly we will have to improve our relation with the Ministry. Certainly it seems that because of that answer there's a hiccup somewhere. But that answer came only in June.
Matthew Gordon: Let's park up Namibia for now because another options is to look elsewhere for alternative assets. A couple of companies we've spoken to this year are in a similar position for whatever reason: their license has been either revoked or not granted. They're stuck. It's going to take a long time before that gets resolved. In a very meaningful way they are beating their head against the wall by getting lawyers to look at it. Getting lawyers to spend time and your money looking at it isn't always the best solution. Finding another asset somewhere else could be the solution. What are you doing about that? Is that an option?
Pierre Léveillé: It’s certainly an option because we were already looking for projects before that situation happened. We were looking at ways to develop the project and the company. We were arriving at a point where the high-Copper project was starting to see some momentum so that we can develop it properly, then it would be the right time to start looking at a minimum of 1 other asset. Now that situation has happened we are just moving faster, looking at very good projects in good jurisdictions. We hope that by the end of the year or even before, we will have at least another asset. That's very important because we're there to develop the company. We cannot just sit back and think we will get the project back again and we will make a killing, it's not necessarily the way it will happen. We can dream of a lot of things. We're very confident we will get the project back, but we cannot guarantee it and we don't know when. There's no schedule for that. In the meantime, we need to make sure that we still have some cash. We don't have a problem on that side. Let's manage the cash correctly, be tight on it and find another nice project.
We prefer Copper because that's where we specialise, so if we can get another Copper project, that's perfect. We looked at some stuff that is pretty interesting. We think that we're onto something now. That's the option number 1 and that's what we're doing.
Matthew Gordon: To be fair to you, it’s important to state that we've made an investment in Africa in a similar situation, and through no fault of the company the license was not reissued. I understand your position. It was very frustrating for me as an investor at the time, so I understand your position. We have seen a few companies this year alone that have gone through a similar process. I get it. I appreciate you being honest today, or at least as transparent as you can be for a public company as to what's going on. The most important of which is, you don't know when this gets resolved, so you've got to get on and do Plan B, which is go find another asset. You are looking at stuff, you think you may be able to get something over the line this year. Probably Copper, but it may not be. You've got to keep your options open. That’s the message I'm hearing.
Pierre Léveillé: Yes. All the options are open for us now and we want to continue to develop the company. We have a good team, we can do it. Of course, we like Copper because we all know that Copper has a bright future so that's our focus at the moment.
Matthew Gordon: Talk to me about cash. How much cash have you got today?
Pierre Léveillé: I haven't checked the balance sheet for a little while, but between CAD$2M-$2.5M.
Matthew Gordon: In terms of GNA and running around looking at other assets, you've got that covered, right?
Pierre Léveillé: Yes, and we're pretty lucky on that side because if we had to raise money in that situation, it would be feasible but challenging. We don't need to raise money for a while.
Matthew Gordon: Due to the High Court case and the fact that this has been interdicted, there's no obligation on your part to be spending money in Namibia right now until you get a resolution as to what the decision is going to be. Thus, there's no cash burn except for a staff in-country presumably. Will you be letting staff go?
Pierre Léveillé: We have reduced that to a minimum. The first thing we did was to cut many contracts and consultants. We stopped everything we were doing to cut the expenses to the bare bones minimum in Namibia. Also at the board level we have cut quite a lot of things.
Matthew Gordon: The board has taken a pay cut?
Pierre Léveillé: Yes.
Matthew Gordon: I appreciate you coming on today. Thank you very much. Come straight back on when you've got something, ideally a target or acquisition that you can get over the line because that's the only way this gets resolved for your shareholders anytime soon.
Pierre Léveillé: It’s our goal. And yes, I will come back on. I'm very happy to do that. It's a good opportunity to get a little bit more information to our shareholders in a clearer way than just a blunt press release. Thanks for that.