Transcript: Gran Colombia Gold (GCM) - Dividend Paying Mid Tier in the Making

By
Morgan Leighton
·
June 17, 2021

Interview with Serafino Iacono, Executive Chairman of Gran Colombia Gold. Gran Colombia Gold is a Canadian-based mid-tier gold producer with its primary focus in Colombia where it is currently the largest underground gold and silver producer with several mines in operation at its high-grade Segovia Operations. Since we last spoke to Gran Colombia two years ago, they have been busy in several areas. Gran Colombia is now producing gold and their guidance for this year is 200-220,000 oz and they are well on track to meet that target.

We Discuss:

  • 1:40 - Then & Now: The Journey & Progress in the Last 2 Years
  • 4:16 - Segovia Project: Guidance Numbers & Production Targets
  • 7:19 - Business Direction & Strategy: Deals & Unconventional Financing
  • 11:51 - Valuation at Market: What are People Not Getting?
  • 15:04 - Share Registry Breakdown & Sorting the Shorting Problem
  • 19:01 - Toroparu Project: Potential, Plans, & Timelines
  • 27:37 - Mining in South America & Columbia as Jurisdiction
  • 32:55 - Guidance Hit in the Last 5 Years, Same to Expect in 2021?
  • 33:15 - More to Come: "The Proof is in the Pudding"

Matthew Gordon: Serafino, how are you sir? Long-time no speak. 

Serafino Iacono: Long time, it's been almost a couple of years. 

Matthew Gordon: You were in London, that's how long ago it was. So where are you today?

Serafino Iacono: In Punta Cana for a few months, working out of Punta Cana.

Matthew Gordon: Fantastic, and how's everyone surviving the COVID onslaught down there? 

Serafino Iacono: Here it’s not that bad. They've only had, in the year and a half, a very low amount of death. I got my shots about 3-months ago so this is a little United States so it's a lot easier to be here.

Matthew Gordon: Okay, I wanted to catch up. We've spoken offline but we haven't done and it's been about what you guys have been up to. Because you've done a few quite interesting things, I'm sort of intrigued. But first it might be worth, I usually get the kick off with the 1-minutes overview but I think it'll take about 10-minutes to get through because you've been busy. Maybe it will be easy to know where you were and where you are now. So there's lots of new additions and lots of new things. And I'll probably pick up on a few of those topics, if I may. So why don’t you kick off with what you've been doing?

Serafino Iacono: Since we've seen each other, we had a great conversation. And I remember the conversation talking about what Gran Colombia was going to do at the time. There was stabilised production, lower cost, and developed the Marmato mine. And the acquisitions that we had made at that time, are Gold X was something that we were monitoring, to see if it was going to be something that we were going to do. Well, we've done a lot of things since then, real quick, so that then we can go into the grain of things. Number 1, the production of the company has been fantastic. Gran Colombia is producing this year is going to do 200 to 220,000oz, this is our guidance. We're very much on track. We brought our costs down. The news of the company is that we're now paying a dividend. So this is a dividend paying company, it pays a 3% dividend a year. Our debt from last time that we spoke was close to $90M. It's down to less than $19M and by the end of the year is going to be down to 0. So all positive things. The most important positive thing that we did, we took something that was giving us 0 value, which was Aris Gold, the Marmato mine and we financed it, we raised $300M. It is now in the hands of a very capable management team headed by Neil Woodyear that is running the company, we're very happy with that. And for us now it's an investment but we created value for our shareholders. The other thing that we have done, we started looking at investments like Gold X. We waited almost 2-years, Gold X matured as a project, it's a fantastic multi-million oz project. And last week, we closed the acquisition of that and we are putting our portfolio additional things to look at. 

Matthew Gordon: Thanks for keeping it simple by the way. Let's go into certain components. I probably don’t have time today to cover everything because I think each one can probably be a conversation on its own. So let's look at the cornerstone components. Obviously, Segovia, that's the thing that's throwing out the cash, it’s allowing you to do all of these things. So you basically what guidance at 210 and 220,000oz and you've got the numbers down to what?

Serafino Iacono: Right now we're producing our Gold with old and sustainable costs through all in sustainable cost, unless they all end at about the less than $1100 sort of about 1500, somewhere around there. That includes servicing of debt and all of that. So let's talk about the production because I think that's the key as you say that we have to develop ourselves on. The company is doing fantastic. And it's producing, last year we did to a net of what Marmato gave us 200,000oz, this year, we're gonna do 200 to 220,000oz of Gold. Our debt is gone, almost gone and by the end of the year is going to be gone. So that gives us the capability of giving that dividend, the dividend is a fantastic dividend to pay. It's one of the highest dividends that is being paid by a mining company, in the rank of the top 5 companies we pay 3% dividend, which amounts to a great and a nice amount of money paid on a monthly basis. The company has got a bright future, we're going to be concentrating ourselves in the next 12-months to develop the other 24 fronts that we have in the mine, not only where we are producing our material, but also where we're producing our material we still keep on finding fantastic grades. Today, we announced a lot of results that people should pay attention to, incredible high-grades that shows us that Segovia has a long way to go and a lot of reserves still to be found.

Matthew Gordon: Okay, so Segovia is this high-grade underground mine, what is the life of mine currently? What do we know?

Serafino Iacono: Right now, we have 2.5Moz in resources plus 600,000oz in reserves. 

Matthew Gordon: So you've got a ways to go. And if you keep mining that properly, and let's say no problems down the line and you can grow it, that's your ATM, that's your cash at hand to grow this business. Is that the way you're looking at it because you're not shy about doing deals?

Serafino Iacono: No, the deal is because we have to add diversification and we have to take advantage of being a company that makes fun. Last year, we did $170M in EBIDTA. So it's a nice amount of money, comfortable for a company that had no money and 8-years ago was in a restructuring mode. So this has been an incredible turnaround for the company. And although sometimes investors forget last time, 2-years ago, when we spoke the stock was trading at $3 or $2.75. And even with today with the market that we have some people that complain that we should be worth more, we all like to be worth more. The stock trades in the $5, $6 range all the time. So we’ve given incredible returns to investors. We have a stable company now that makes money and that gives us the opportunity to look at deals like Gold X or deals like Denarius that is another deal that we just invested in.

Matthew Gordon: The one I’m trying to get at Serafino is that you've got a mine in the shape of Segovia, which is throwing off cash, right. So that's a nice and simple story. But then you do things like, you're quite creative financial structuring that you did in the early days to kind of get yourself in a position to take advantage of Segovia, that was kind of unconventional. So you're starting to do unconventional things. You're spinning out a company and creating another one. So with Aris Gold, that's great and that's probably a nice story in its own right, you've got 44% of that, super. Well, we probably won't talk too much about Denarius today, and you've got Gold X. So there's a lot of moving parts here. Do you think people are finding it hard to actually pigeonhole you and go this is what Gran Colombia is about? Do you need to strip it back a little bit for people perhaps? 

Serafino Iacono: Look, you've got to take direction when you put a business together. If I want to be a company that clips coupons, and just sits around to wait, eventually this mine is going to be a 1 mine that produces a steady 200,000oz of Gold and maybe it'll go to 250,000oz or 300,000oz and that's where it's going to be for the rest of its life. It's one type of company. We are in the model of mavericks like Yamana. I mean, Yamana is not a mine that stops and says, ‘alright, we just have a fantastic mine, now we'll just clip coupons’. And my job as executive chairman of this company is to create value. We already are in the process of realising value and increasing value in Gran Colombia. But if you stop there, then you might as well sell the mine. Because you reached what you have reached. What do we want to be? We have to decide. We were a little child, now we are a teenager. Now we want to decide what we want to do when we turn 18-years old. And Gold X for us is the 18-year old. We want to be a mid-size producer, that's what we announced that we want to be and that's the direction that we're going to take. We own 44% of Aris Gold. That is a fantastic mine with 6Moz of Gold, but we don't want to run it. We already have a project that we're running in Colombia, we have a fantastic team that runs it, we're happy to be investors. Someday that investment, it's either going to be an investment that we're going to distribute to our shareholders and an investment that we may sell and realise value for our shareholders. But now we’ve decided that the next place that we want to be is Guyana and that's where we're going to be developing this multi-million oz project.

Matthew Gordon: Right, okay. In fact, we didn't talk about Toroparu but do you think in terms of the valuation, every CEO says that they are undervalued, right, but you guys genuinely think you've just bargained on your cash production, not necessarily about the oz in the ground. It seems here, what is your $500M market cap today? You got 44% of Aris, you got 27% of Denarius. You've got Toroparu, you've got Gold X, it's like people aren't valuing those things and coming up with some of the parts.

Serafino Iacono: It's a puzzle to us, because I’ll give you a very simple breakdown just to have an idea. We sit on CAD$100M in cash right now in the back. We're a company that pays a dividend every single month so we make money. The value of Aris Gold is about close to $180M. The value of Gold X, we just bought it $250M, we got $400M right there and then. Another $50M out of Denarius, so it's $450M in value. So you tell me, there is a disconnect between investors, that's the job that we have to do. If I look at it, the way I look at my businesses all over, I'd look at a company, what is this company worth on a breakup value? And if I sold Aris Gold and if I sold Denarius because there are commodities that I have, the cash is cash, there is nothing cash is cash. And I take all of these pieces and I sell them. How much money would I make? And how much is Segovia worth? That's why I see it. And I know Segovia is now worth $50M, or Segovia is worth $450M. And all this security and the cash is worth 0. So where is the disconnect? We are a story that has gone through fixing itself, getting itself going. We're trying to find an identity of what kind of company we want to be. We've decided that we want to be a midsize company that grows and creates value for shareholders. I think we've done that. Our next job is going to be to go to investors and make realise institutional investors, how valuable this company is and what a great company is for growth. That's the job that we got to do. And I think that there's still a lot of people out there in the market that remember Gran Colombia for being what it was 6-years ago and not what it is today and the people that realise it are buying shares. I mean, we trade 600,000 shares a day. I mean, we're a very liquid company for good or for bad, we're liquid. We're not an appointment only company that trades. 

Matthew Gordon: So talk to me about the share register, how does that breakdown?

Serafino Iacono: This is where the problem is, I think that we believe that we have. When we felt at a point, we had about 50% of our shareholders, our institutional investors or sizable investors, I would say, probably 55. The other 45 are small investors, some of them have been long investors of ours and very unlike what they've seen, they've seen the growth. Some of these guys bought shares at $0.75; today they're worth $5. It's just that people forget that this thing used to be $0.75. And we are in their hands. I believe one of the things that I totally dislike about what's happening in this modern market is the exchanges allowing naked shorts. And I think we have fallen into the hands like a lot of these mining companies are in the hands of these naked shorts. Brokers, lending shares, electronic trading, doing, trading, shorting stocks and doing they're in, they're out, and it creates an instability in a stock. You can see it in the trading of our stock, Gold goes up, our stock goes up, Gold goes down, our stock goes down. And it goes with electronic trading, which anonymous trading blocks of 100 and 1000, the biggest, it's not anybody like institutional investors buying and selling this thing. Our job now is management, it's got to be to go and change that demographic of the remaining 45% to be 25% retail investors and given that liquidity that makes the stock attractive to computers to go away.

Matthew Gordon: Yeah, we've had a couple of companies on here, and we've actually interviewed someone about naked shorting specifically. But there's a lot of people who say shorting should be allowed. Naked shorting obviously is illegal but it's part of the market. And all you could do as a company is get on and do your business, I suspect. So if the one thing that you can do to change it is move it into institutional hands. Do you want to do that in Canada or do you want to do that in the US?

Serafino Iacono: Well, what we want to do is we are seriously thinking about listing in the London Stock Exchange, which I think it's a fantastic exchange and the big board. I think that's going to help. Believe it or not, a lot of the institutions that we have are mostly US institutions. There aren't that many institutional buyers of mining left in Canada now like the old age. We have some of them that are Canadian, but mostly are US and mostly are Europeans. So we want to concentrate. We are going to list in London. We have already decided as a company that we want to do that and create a market in an area that has a need for product and I think that's going to help us. Again, our job as management now is to get the story out there or where we're going to be. Our story has changed, we are not a 1 mine business, we have a fantastic mine that creates an incredible amount of cash flow. It's going to do that for many years. We are going to go into Guyana and develop our next project which in an area that I know, I've built many mines. 

Matthew Gordon: Well, let's talk about Toroparu. I'm going to assume Segovia is going to continue as it has been, okay. And I'm sure you'll tell me that you're going to scale it up as well but Toroparu, it's already got 7.35Moz of Measured & Indicated, it's already huge. It's low- grade so how much did you pick that up for and what do you think that's been values at because based on what you've already told, not a lot.

Serafino Iacono: If you look at our press release that we put out, there are 2 deposits over there. There is a deposit that is low-grade, but very fantastic low-grade. It's got almost 0.5% Copper, 1.5g of gold. It's got a 2:1 stripping ratio, 2.7:1 stripping ratio, so it's very easy. Saprolitic material in the first 250m, open-pitable. So it's very low cost, no explosives, no tax. That's the big deposit. But there is a new deposit that was announced by the Gold X people that is the hill project. Hill has got resources, about 3.5Moz, it has got 1.5Moz at very well defined in an open pit. But what a big difference, it's 2.5 to 3g/t open pitable, first 250m saprolitic, then it goes underground, and it's got a strike length of 3km still open, underground. So we know this type of deposit because I built a mine called Choco 10 about 15 years ago in Venezuela, that I sold to Gold Fields. It's the same kind of mine, I take the picture of the old and put it in and this is the same. So we see something that people haven't seen, which is this early stage deposit that we can take advantage of. It can be built at a very low cost and develop our project very fast and take out 2.5g material. Now 2.5g material is about $200 rock, $225 rock with a stripping ratio of 1.5:2:1. Even a 2:1 stripping ratio, it's nothing. It's an earthmoving operation, with a very low-cost gravitation of free Gold, there is no complication in this Gold, and the Copper is there. It's very good copper, it's about 0.5% Copper. So it makes money and it makes great money. In 4-months, while we're going to decide by August, we're going to have a Scoping Study that's going to tell us what direction to take. And that's going to be our first Scope, it's not going to be the 6Moz, it's going to be the smaller deposit.

Matthew Gordon: So when you say it’s low cost, obviously you’ve got a Scoping Study to do. But again, you tell me you’ve sort of looked at before, what’s the number?

Serafino Iacono: It's gonna be about $300M to build a mine that's going to process 7000t a day. Build the whole facility, including the building of the plant and everything, about 300 to $350M. Putting a lot of contingency on top, we're going to produce somewhere around 170,000 to 200,000oz of Gold. I think it's somewhere around 10,000t of Copper if we want to put the Copper plant in there. So it's a very profitable thing.

Matthew Gordon: Right but over what time frame are we talking about? Because obviously you're going to be diverting cash where you're going to be taking cash straight from Segovia, putting in the ground, you have to raise some cash.

Serafino Iacono: The good thing that we want to make clear to investors is that Gran Colombia right now sits in a very comfortable situation. Number 1, we got Wheaton that is ready to write a cheque and we have an agreement for them to write a cheque for $150M. So the money is there and Gran Colombia these days, that is a B plus rated Fitch company. And by the time we finish this Feasibility, and we start deciding to take that thing, we're going to have 0 debt on our book. It has the capability of going into the market and raising debt to build this mine. We are not going to be putting equity out to develop this mine. It's going to be done with that.

Matthew Gordon: Okay, so Wheaton $150M, you go to market, get some more debt? What's the timeframe? 

Serafino Iacono: We get $150M from the market, we got $300M from Marmato, we can get $150M for this project.

Matthew Gordon: Okay. So back to the question which is then when does that start contributing towards the bottom line? What was the sort of timeframe to get it up to speed?

Serafino Iacono: If we have the capability of using the Zijin plan we could do it within less than 8-months. If there is no capability of using the Zijin plan that sits 30km, 40km away. If we don't have the capability of doing that, and we have to build our own facility, 24-months we’ll be in operation.

Matthew Gordon: Okay, so between 8-24-months, I'm talking about Zijin, you're dealing with those effectively government entities there, are they quick to respond, are they helpful? Are you encouraged? 

Serafino Iacono: I'm very encouraged, they are very smart miners. They did a fantastic acquisition in Guyana. They're ramping up their operation Aurora operation, which is, like I said, 40km away from us. We believe that we have spare capacity, we have to sit down and seriously analyse, they have the spare capacity, but even if they have the spare capacity for 2-3-years, that gives me the time for me to use it, process, start the pit and then build my own facilities. The reality is that even if I don't have their capability of doing things, because they're a monster of a company, they're bigger than Barrick, if you look at it in market cap. We're going to build our own facility. 

Matthew Gordon: How much additional Capex will that require? And I assume, you're gonna say that can come from debt, whatever that number is. 

Serafino Iacono: We believe it's somewhere in the $300M range. 

Matthew Gordon: But what's it if you managed to do the Zijin deal? 

Serafino Iacono: The decision will be probably half, $150M and there is the money already in place. 

Matthew Gordon: Okay, I'm just trying to do some numbers in my head, trying to figure out the timing of all of this. Because, it's all about the bottom line because a lot of big companies fall into the danger of any money they produce gets ploughed back into the ground to develop the future. You know what I'm saying? 

Serafino Iacono: We earned the money, the money that comes out, we got to have discipline and we've been very good at discipline. We’ve shown it to reduce our debt and what we have done in Segovia, although Segovia is a cash cow, part of that cash is going to go, number 1) company's projects have to survive by themselves. You cannot borrow from one side to put it on the other side. That's an exercise in futility. While it happens, one has to learn lessons from their past. And believe me, we've seen it, we're making money here, let's put it here. No, the project's got to be a standalone project and the Toroparu project is going to be built as a standalone without using the money of Marmato or Segovia.

Matthew Gordon: We shall see as you announce more to the market, wish to see how you come at it. 

Serafino Iacono: ‘The proof is in the pudding’. 

Matthew Gordon: Always. Now let's talk about South America. Lots of headlines at the moment about what's going on in Peru, what's happening in Chile, what does that mean in Ecuador, doing business in Mexico, South America, so doing business in Colombia.

Serafino Iacono: Look, Colombia is going through the fashion of what's happening in Latin America these days. You have 4 countries that are going for election at the same time. That's basically 70% of the continent. You have an epidemic that is tired, South America is tired, the world. People have no money. Youth have no jobs and no future of jobs and that's why Chile has gone into a revolt. That's why Peru is going in my opinion in the wrong direction if they go with the sky, because again, you have to learn from the past. And if the world hasn’t learned who Hugo Chavez is or in Nicaragua who Ortega is then we don't learn from history. And unfortunately, Peru wants to experience something that they're going to regret and Ecuador experienced it. And that's why Ecuador this time went to the extreme from going left to the centre, now it went from centre to right. And Ecuador is a population, all these Andean regions have a very large indigenous population, which Colombia by the way, does not have. In Colombia, the indigenous population is only about 7% and then there are all sorts of people. We're all mixed, where we have our black, our white, Italian, French or Portuguese, so it's a little bit more homogeneous type of society. The difference between Peru is that Peru wants to experience something that I think it's going to blow up in their face. In the last 4 years, 3 presidencies, and all 3 presidencies have turned up corrupt. Chile has experienced a change in a demographic where youth want to see more money to be given to the masses than anything else, instead of being concentrated in an area. I think we have the same problem in the US. Colombia is going through the same thing. A year and a half of not making money, unemployment, and a presidential election with a president that has shown that he should be as strong as he should have been and as prepared, very smart president, we like him very much. But I think he could have been more forward in getting things moving. He made a mistake, you never put a financial reform to raise taxes on an election year, neither in South America, not anywhere in the world and they did that and that's what started it. The difference is Colombia is going to go the route of Peru or Chile? The answer is no. Colombia is a very conservative country with a lot of middle class. The most popular guy that is a left sort of guy in Peru has only 25% of the vote. For the past 6 elections that he's run, that's what he gets 25% and then everybody that is in the centre, left, centre, right or centre. At the end of the election, they all get together and they say, no, we don't want that guy and they move on. So I believe that that's what's going to happen. I'm very bullish on Columbia, I think Columbia is going to have after the election and incredible growth. You have a government that is still very much pro-mining, it's pro-oil, they want to grow, they realise that they need money. Now that they've been told that they cannot raise taxes, they have to tighten up their belt and they have to find a way to make things work and to create jobs. And the only way you create jobs is by having investments in the country. The only investment that there is in the world is foreign investment because nobody is going to be building a mine, a Colombian, very few Colombians will go and say I'm going to take my family fortune and I'm going to build a mine for $500M.

Matthew Gordon: Right, and the point I was getting to was you hit guidance last year, hit guidance for the last 5-years, you're gonna hit guidance this year?

Serafino Iacono: We are going to hit guidance and I'm going to be as bold to say that we're going to hit the upper guidance more than the lower guidance.

Matthew Gordon:  Okay, cool. I was just conscious of your time, we have covered a lot but at a very high level. I wonder if we can get you back on to talk about some of the other series to talk about, some of the actual projects, specifically now that we've kind of seen how it all hangs together.

Serafino Iacono: Anytime you want. We wanted to make sure if you remember because I have a pretty decent memory still, thank God that they invented this medicine for Alzheimer. The conversation that I had with you was ‘give me 2-years’ and we will have a conversation at one point for us to see what this company is. You look at what this company is from 2-years ago when it was trading. I think actually it was more like $1.75 a share because we did an issue at $2.20 at one point. So this company was trading at $1.75 2-years ago. Today this company is $8. Some people are complaining because unfortunately investors have a very short memory but that's the way it is. I'm very happy from where I used to be. We used to be a $0.25 stock when I picked up this company. Today we're $5.14, I'm very happy and our investors that invested with us a long way there. So we have a lot to talk about and we have a lot to show and like I said to you ‘The proof is in the pudding’. I would love to come back to you and talk to you about Gold X. The company that we created, Aris gold is going to be a fantastic company in the hands of a fantastic manager. You should interview him. I think he's worth interviewing him 1000 times. And what we're going to be doing with this company is also to diversify with the next project, that is the project that we picked up in Spain, that we believe that it's going to be so we'll do another story. You tell me, invite me.

Matthew Gordon: We'll get you back on real soon and we'll do a little deep dive on a couple of those things. Great job, let's not make it 2-years next time but we will be in touch and I appreciate your time today. Thanks very much.

Serafino Iacono: Call me back in September. Thank you.

Matthew Gordon: Thank you for listening. If you've enjoyed the interview, why not subscribe to cruxcast or our website cruxinvestor.com and of course our YouTube channel crux investor. Plus, you can catch us most days on Twitter and LinkedIn. We really love getting your feedback so please keep it coming and we'll speak to you again soon.

To find out more, go to the Gran Colombia Gold Website

FAQs