Transcript: Deep-South Resources (DSM) - Targeting Large Copper Resource by Q4/21
Interview with Pierre Léveillé, President & CEO of Deep-South Resources. Deep-South Resources is a mineral exploration and development company. Deep-South is actively involved in the acquisition, exploration and development of major mineral properties in Africa.
Deep-South is a TSX-V listed company and owns 100% of the Haib Copper deposit in the south of Namibia. Haib is the oldest porphyry deposit in the world and one of the largest in Africa. Deep-South recently disclosed a PEA over the deposit and at a price of copper of $3.00 / lb, it generates an after-tax NPV of $950 million and an after-tax IRR of 30%.
- 2:25 - Company Overview
- 3:53 - Share Price Going Up, Copper Price Helping Out
- 5:18 - Any COVID-19 Restrictions in Namibia?
- 6:15 - Recent Raises: How Much, For What Reason, & Who Participated?
- 9:09 - Relationship with Teck Resources: Potential Overhang?
- 12:13 - Importance of Bio Leaching: Process, Benefits, & Future Outlook
- 21:21 - Drill Program & Results: How Much More Drilling Needed for the PFS?
- 23:28 - Growing the Next New Copper Project: Plans & Financing Them
- 26:50 - Money Allocation, New Appointments, & Expectations for 2021
Matthew Gordon: Pierre, how are you, sir?
Pierre Léveillé: Very good, Matt. I'm pleased to be with you again.
Matthew Gordon: It's been a long time, it's been about 9 months. I hope you're pleased.
Pierre Léveillé: Yes, I'm very pleased.
Matthew Gordon: Okay, how are you? Are you at home?
Pierre Léveillé: Yeah, I'm still in Quebec in Canada, not travelling. So we will probably resume travelling sometime by September I suppose.
Matthew Gordon: Because you want to get back in country, don't you? You want to go and actually look at what you're working at.
Pierre Léveillé: We have a lot of work going down there and I'm stuck at home looking at pictures and video clips. I have some very good people around me, it's not a not an issue. But you know, it's important to be there on site and see how it goes and make sure that I'm happy and satisfied.
Matthew Gordon: The only reason I ask is sometimes I'm asking the CEOs the question, have you seen your asset and they've never seen their asset, never been on site, never looked at it.
Pierre Léveillé: I’ve seen it very often. I walked on it very often with my geologists and on that side I'm fine. I'm glad I have a good experience with the asset. It's just that since a year ago, it's not possible, but that's okay.
Matthew Gordon: Hopefully soon, well, I'm glad you're well and it's good to see you. I wanted to talk to you because it looks like you've been quite busy since we spoke. It's been a while but there's a lot of things that you have done and things that you're going to do and I want to understand them. So before we kind of talk about those things, why don't you give us that 1-minute overview of what this is for people new to the story and I'll pick it up from there.
Pierre Léveillé: Yeah, that's fine. Deep South Resources is a TSX listed company. We're also listed on Frankfurt and OTCQB in the United States. We own 100% of our large Copper porphyry project in the south of Namibia. It's a large tonnage, low-grade project. We brought a different philosophy of development of the project than what we were seeing in the past. We have produced a very robust PEA in December, showing some very good numbers and now we're drilling the high-grade section of the deposit. We're finding high-grade zones and that will serve as the leg to go to a PFS and new resource estimation probably in around October, and a PFS early in 2022. We have resumed also some heap leach testing because that's the extraction technology that we're testing and that is very successful so far, so that's where we are.
Matthew Gordon: Fantastic. Last time we spoke your share price was about $0.11 which is up to about $0.23, $0.24 today. So that's good, but still only a $35M market cap company. What is working in your favour, though, is the Copper price, it has gone nuts, that's all good news so it's putting a little bit of attention back on Copper companies, are you finding that?
Pierre Léveillé: Yes, of course. We’re doing quite a lot of promotion but on top of doing promotion we’re requested to attend a lot of events by the market in general. We see there was a lot of demand to see us in the market and we can see our liquidity in the market has improved substantially and we are one of the traders in the market with an average of 500,000 shares per day, which is pretty good for a junior exploration company. That's basically part of the Copper price, it’s a part of that the reason why we have so much liquidity.
Matthew Gordon: Okay, so again, I'm just kind of conscious of there's so many new generalist investors coming into this space, I'm gonna kind of keep it a little bit simpler. It's been a while since we spoke, but I will refer people back to the business plan strategy, management team that we discussed previously on a couple of occasions. So don't need to go over there but with regards to Namibia, we know a little bit about Namibia, because there's a lot of Uranium miners in Namibia. We understand the ability to do business, mining code, mining law in the country and the government's desire to see mining so that's all good. But you're not there, your ops team are there, are they restricted in any way because of COVID?
Pierre Léveillé: No, not so much because most of our team is Namibian and 3 geologists are South Africans, so the neighbouring countries, so it's not a big issue. They have to pass a test before coming into the country 72 hours before and then they're free to go wherever they want so no, that's pretty easy. But all the drilling team and all the people on site, part of the 3 geologists are all Namibian so it's not a problem there. There's very good service companies in Namibia.
Matthew Gordon: Okay, so I do want to get down to the important components but I just wanted to take a few things off. Notice that you've raised, you've taken a few different opportunities to raise capital since we spoke since last August. So can you just run us through how much you've raised and why you raised the money?
Pierre Léveillé: We raised in 2 tranches, 1 in October, another one in January, about just a little bit over CAD$7M. It was good because we were having some debt and some accounts, so it was not a clean balance sheet. Now we have a debt free balance sheet, a very clean balance sheet. We started our exploration programme with a little bit more than CAD$5M in cash which is pretty good, because we have a drilling programme going on now. It has a cost of a little bit below CAD$2M and now we're also starting some heap leach testing, so we will probably have another million there. We're well funded to do everything we have to do by the end of the year. It's very important because it's going to confirm some theories that we were having about the deposit. There will also be some important steps to go to do a Feasibility Study at the end of the day, with a PFS on the way up.
Matthew Gordon: So, okay, so you've got the money to do the things that you need to do. I'm assuming most of this is going to be retail at the moment.
Pierre Léveillé: I would say most of it, yes. But there were 5 or 6 institutions that took small parts of the private placement. I would say on the 7M, we probably have near CAD$2M that were coming from institutions, which for us was pretty interesting, it's new for us.
Matthew Gordon: Well, it’s new for you because you're a company of a certain size you know, a small company they don't know normally take those sorts of bets so I'm assuming the kind of EV thematic, green investing is driving that. But you didn't go out seeking it, it just came to you, did it?
Pierre Léveillé: The financing you mean?
Matthew Gordon: Yes with institutional money, I mean.
Pierre Léveillé: Yeah, institutional money came with a broker, the brokerage firm brought that in. It was non-brokered private placement, but there were brokerages working around this anyway. So some brokers are supporting us now, which they were not doing 2 years ago, it’s because of the Green Revolution, and because of the commodity market. They're looking for these kinds of opportunities.
Matthew Gordon: Where were they a year ago?
Pierre Léveillé: I don't know. They were looking at Gold, probably and some other stuff but the markets are very good in commodities I would say since last April, about a year ago. It has started with Gold and Silver, and then it has followed other commodities late in the year.
Matthew Gordon: One of your other big shareholders is Teck, so how's that relationship?
Pierre Léveillé: Well, we have a good relationship with them. The thing is that we must understand that they are still involved in the company as a passive shareholder. They own 16% of the company but at the moment their real focus is really on the western edge of the Americas, Chile, Peru, BC, so we're a little bit like a guy in part of their team, but they keep an eye and they're very participative on the technical side. Anytime we need anything, they're there and it's fine but at the moment, we're really not their focus so who knows in the future, these things can change.
Matthew Gordon: Did they put money into the last raise?
Pierre Léveillé: No.
Matthew Gordon: Okay, so they're getting diluted down. It's non-core, it's not of a scale that would interest them yet. So how do you treat that and how do you as a board, look at that, do you think? Well, that's a potential overhang, if they start dumping into the market, that's a problem for us. So do you have a gentlemen's agreement or otherwise to say, hey, look, if you do want out of this thing, give us a chance to find a good home for that?
Pierre Léveillé: Yes, we have a gentlemen's agreement with them, and they have respected it so far, no problem. The thing is that they're an insider so if they start selling, their name will be all over the news selling and that's something they don't want to know that we see. So they're sitting there with their shares and potentially if one day they want to invest, then they will increase their shareholding fine, but if they don't want to invest, they will at some point in time, be below 10%. Then they can do whatever they want, but for now, we don't see that as an overhang. We see that as a potential opportunity, if they're not interested in the project but another major shows interest, then there's a block of shares that can be traded there, it could be an opportunity. So for us, we always look at the glass half empty, not half full.
Matthew Gordon: I know but planning is everything right? So you know, you go on the front foot and say, actually, why don't we have that discussion now?
Pierre Léveillé: We had that discussion already with them. At the moment where they are in their own business development, if we have a buyer, they will listen, they will be happy to listen, but as I said, things can change you never know. They were in the oil sands in Canada and suddenly boom, they turned around and said, we want to sell that. We all understand why but anyway, these things change quickly sometimes. Their Chairman at the time said that they want to go for green energy, and Copper will be at the centre of what they're doing so you can never know where they will go with that kind of statement in the future.
Matthew Gordon: Yeah, okay. Well, I guess the more people are aware that that's an option I guess more approaches you will have, but it's not the core focus for you for now. Let's get back into the actual projects and the money. Actually, before we do, we need to get some of the outliers, some of the phrases, some of the vocabulary because again for people new to this story. We've talked in the past about well you talked today about heap leaching but we've also talked about bio-leaching. You've just made an appointment of Dr. Martinez Bellange, special advisor on bioleaching, tell people why that's important for your project?
Pierre Léveillé: It's very important because bio-leaching first thing is it's a low-grade primary sulphide project. So it means that it's not so easy to leach and the way to kickstart the leaching and make sure that we have a good lead time for the leaching is to use bacteria that fix oxygen molecules on the sulphide and then oxidise the material and then it reaches quickly, rapidly. So the bio-leaching is very important but also what needs to be understood is that in the ore, in the mineral there is bacterial activity. There's always bacterial activity and the only thing we want to do is to analyse it and add some bacteria if needed to kickstart the thing and make them more productive. It's a very simple factor where you use sulfuric acid as a typical heap leach, in which you will add some bacteria strains specifically designed to kickstart the natural bacteria that you have in the ore.
Now, that's not mining per se, or even metallurgy, it's biology and chemistry. It's not so well-known technology but in the Copper space, it's mainly used by majors in Chile. One of them is Codelco that has used that on their Radomiro Tomic mine since 2014 successfully, but because it's majors, there's not a lot of information in the market. We were in need of getting a specialist on board with us and Dr. Martinez has participated in the development of the bio-leaching of Codelco. There are 2 versions, version 1.0 and version 2.0. He’s a renowned specialist all around the world. He has a very impressive CV, but it's very important for us for 2 things. It adds credibility to what we do and on top of that it helps us fine tune the heap leaching procedure we have and the bacterial strain activity and so on. He has over 20 years of experience in doing only that, and he's a doctor in biology, he's really a biologist. So that's very important for us to help to add value on the work we already do and fine tune what we're doing and also add credibility to the fact that we're using a robust technology but it is not well-known technology.
Matthew Gordon: Okay, so let's dig into that a bit because you said it's not metallurgy and it's clearly not but at least people understand the metallurgical process. And when you come and talk to us about it, we go, Okay, I understand that, in this instance, like you say, it's not well known. So how do we interpret what comes back? Because it's biological, it's a chemical process, how would we be able to understand what good looks like?
Pierre Léveillé: Okay, the first thing is that in a typical operation, we need to crush the material. The crusher brings the material down to about the 12mm size. We then use a technology called high pressure grinding rollers that will crush the material below 5mm. Arriving at that point, we have quite fine gravel, we will remove the very fine gravel on one side and we will keep the bulk of the gravel that is between, let's say, 2mm and 5mm. We will agglomerate, which means that we will re cement it a little bit to make sure that there is no plugging in the percolation. So what we do when we have that, we put that into stacks, layers of gravel, and we spray sulphuric acid on top with the bacteria. Then the bacteria and the liquid will go down at the bottom and will oxidise and capture the metals in the material. Then you have a pad of liquid in which you have the metals, you take these metals and go to electrowinning which is electromagnetic treatment that will produce/ get them the metal out of the pad, and then we will produce cathodes, not a concentrate. We go over concentrate, we want to go for higher value products so it's a cathode.
Matthew Gordon: But what I don't understand in that is the cost, how does that affect your margins? Is it a quick process, longer process, are recoveries better?
Pierre Léveillé: The recoveries in our case here are what we use in our PEA is 80%. We measure that we recover 80% of the copper that we have in the pad. Now, we know with the test that we're doing that we will be able to improve that most probably around 87%. So that's going to be a very high recovery. In the test, we have seen some recoveries going up to 96%. But it's not sustainable to that level, the sustainable level is 80 to 85% at the moment, and we believe we can bring it between 85 and 90% with more tests. So that's very high, it's a very, very good recovery. Now, on the cost side and even on the Capex, it's a very simple operation with not a lot of very energy demanding components, like a classical way, is grinding, crushing, grinding, milling, flotation, roast leaching, and then you go to SX/EW. What happened with that is that the Capex for an operation like this, the size that we're looking at, is $1.5Bn. The Capex for an operation that we're looking at is $350M because we don't need grinding and milling, we don't need the roasting and the flotation. We will use that but on a very small scale to treat the very fine material. That's something else that we are testing at the moment. So it's reducing the Capex substantially. When you have a low-grade ore you need to have a Capex as low as possible, and you need to have an expense as low as possible. One of the things in the classical route is grinding and milling and roast leaching are very energy demanding. So that has a serious cost of operation. Now in not having that our power demand is going very low and we're now at no the cost of operation is estimated at $1.34/lb. It gives us a pretty good margin with a price of copper over $4.
Matthew Gordon: That's very good compared to some peers, that's excellent. Obviously, I think people are trying to understand what this bioleaching process will do for you, you kind of indicate that.
Pierre Léveillé: The bio leaching we'll do one thing- it's a straightforward heap leaching project like we see everywhere in the world with the stacks and the sulfuric acid doing percolation. You can have a return, you start seeing your cash flow 50, 60 days after you've started that, but when it's primary sulphide, like what we have, it's normally taking 200 days and so it's a very, very long lead time, before you see your cash flow coming in. That's where the bacteria are very important, because they speed up the action of the leaching. Our last test was showing that we were at about 120 days for the full leaching and the average for the leaching of sulphide is 200 days in the world. So, we're better than the average and now we think that we can probably improve that probably around 90 days, which is pretty good. We're looking at having the fines being treated aside and that would potentially bring cash flow in the next 5 to 10 days after the start of the operation for a part of the recovery, then the rest will take us. So that's where the bio action and the bacterial action is very important. It speeds up the slow leaching process for sulphide.
Matthew Gordon: So with some of your drilling, some drill results come at 0.47% CuEq over 152m including 30m at 0.81%CuEq. So that’s pretty good, you'd be happy with that so when you say copper equivalent, what else is in there and how much is actually copper?
Pierre Léveillé: Molybdenum is there for about 10, 15%. In the past, PEA and resource estimation, Molybdenum was not included in our estimation, because there was only 14,000m that have assay for Molly out of a total of 66,000m so we were not having enough assays on the database to include it but we know it's there. So now in this drilling programme, we assayed for 33 elements, Gold, Silver, and many others, but specifically on Molybdenum because we know we have quite good content and it's the case. And then it increased the Copper equivalent by about 10 to 15% at the moment, that's what we see. Indicated grade at the moment is 0.31% Copper. If we were to have the Molybdenum, maybe our Copper equivalent grade would be around 0.35%.
Matthew Gordon: Okay, that's where it's getting to because earlier to describe this as large but low grades. So on the large side, you’ve got 66,000m of drilling. How much more do you need to do for the PFS, are you going to be infilling?
Pierre Léveillé: We are infilling at the moment with 10,000m and most probably we can do our PFS with that. If it's not the case, then it will be an updated PEA and for the Feasibility Study, we estimate that we will probably need another 25,000m of infill drilling.
Matthew Gordon: For which you will need to raise money?
Pierre Léveillé: Yeah, but somewhere in early 2022, or even before if we have proposals, we're always happy to listen.
Matthew Gordon: I'm just interested in how you kind of move the company forward because no one was listening a year ago, Copper, thematic, everyone's trying to find the next new Copper project. Low-grade, high-grade doesn't matter. It's about containing metal in the ground. So how do you, as a large, low-grade company, make yourself heard? Do you need to come to market with a certain I assume there’s going to be a new resource coming out, right? So when is that?
Pierre Léveillé: The resource is 850Mt at an average of 0.31% Copper.
Matthew Gordon: Right but you're going to add to that, you're doing infill drilling.
Pierre Léveillé: The first goal is to improve the grade and the second goal is to improve the tonnage. The tonnage we're certain we can probably at least double it. It's opened at the bottom, and there was a lot of alteration on surface we have not drilled yet. At the end of the day, it will probably be over 1.5Bnt it's very important but at the moment, we think, to add value and other serious projects we need to improve the grade. Not necessarily it's not never going to be a 1% copper project, it's not going to be that but if we go from 0.31% with the robust economics we have now let's say 0.38% 0r 0.40% CuEq, it's a huge improvement and then suddenly the lights on our project will flash more.
Matthew Gordon: Well, that's my point. That's what I wanted to get because if it points forward 30% increase, that's good news. So between now and the PFS coming out in the beginning or early 2022 no more money is needed but after that point you probably will I suspect you would expect to rerate or raise money reasonably cheaply to be able to do another 20,000m or 25,000m drill programme.
Pierre Léveillé: Yes, and some design engineering and more leaching tests to complete the Feasibility Study.
Matthew Gordon: So much money are we talking about?
Pierre Léveillé: Certainly another CAD$5M to CAD$7M, so another US$5M.
Matthew Gordon: So it’s cheap drilling, is this shallow stuff I mean, what so little money?
Pierre Léveillé: Yes, at the moment, we drill down to about 200- 250m, some holes are going to go down to 500m. But you know, it's $100/m so 20,000m at a cost of all included probably $3M.
Matthew Gordon: So it's shallow and therefore sort of quick, interesting.
Pierre Léveillé: There will be some holes at some point in time that will go down to 850m because when we drilled with Teck previously early in the 2010s, we did some holes that were going down to 850m and it was still mineralized arriving there. So we don't have a clue where the bottom of that thing is but so far, the resource estimated, indicated and inferred is from surface 250m.
Matthew Gordon: Okay and I know obviously, since the money was raised at the beginning of this year, you've appointed a bunch of people to the MSA group for the resource estimation, you've got nice in there for the Scoping Study, maths engineering to do that math work. So you've got the people that you need in place for this year to actually give us that data and get towards that PFS at the beginning of the year so that's all in place and they're started work.
Pierre Léveillé: Yes, everything is at work at the moment. So what we have going of course, it's the drilling and drilling is going to carry on until mid-July so we have drilling results every month, up to August. We have started heap leaching testing with METS in Australia and CSIRO in Australia. We have some Scoping Study on the work at the moment with Knight Piésold and they are covering alternative power, mainly solar power, because in our area, it's very important, it's a very sunny area. Water usage, we need to have a clear cut, you know on the water usage. There was also an environmental impact to the future impact study. They will also assess for leach pad, we have also an MSA group that started their work slowly and they will produce some updated estimated resource probably in October. All of these activities will generate results by between now and the end of the year so we have a pretty important result driven period for the next 7, 8, 9 months. It's very important, there will be a lot of activities that we’ll generate.
Matthew Gordon: Mining is so often about timing. I think Copper projects, it's good timing, you've got the money you need and as you said, I think people are just looking for that kind of succession of deliverables from you for the rest of this year. Great catch up, glad everything's going so well and glad you were able to get the money to actually start all of these activities as well. Stay in touch. Let us know how you get on and let's talk soon. Okay.
Pierre Léveillé: Yes, we will certainly, I'm always happy to talk to you and your investors and viewers.