Transcript: Newcore Gold (NCAU,NCAUF) - 90,000m Drill Programme + 1.4Moz with PEA

By
Morgan Leighton
·
January 10, 2022

Newcore Gold offers investors a unique combination of top-tier leadership and prime exploration opportunities in one of the world’s most attractive gold jurisdictions.

The vision is to build a responsive, creative and powerful gold enterprise that maximizes returns for shareholders. The Newcore team, which includes some of the industry’s most successful entrepreneurs, is focused on advancing its 100%-owned Enchi Gold Project in Ghana. Enchi, with over a million ounces of inferred resources lies along one of West Africa’s most prolific and developed gold trends.

We Discuss:

00:00 – Company Overview

00:31 – Raising Money, Peak in Nov Chart, Economic Analysis & Money Supply

05:31 – Drilling, Consistent Numbers, Calculations, Deeper Drilling

11:04 – Gameplan 2022, Difficulties, Other Availabilities & Acquisitions

14:43 – Moving Share price Meaningfully, Cautious Approach, Market Reaction

19:27 – Exhausting Funds by 2022 End, Raising Capital, Time Frames

21:22 – Outro

Luke Alexander: Hi I'm Luke Alexander, CEO of Newcore Gold.  We're advancing the Enchi Project in Ghana, it's an advanced stage exploration project with a current 1.4Moz resource and fundamentally underpinned by a PEA with very robust economics. 

Matthew Gordon: Luke, good to see you mate.  I haven't seen you since June, we talked about the PEA back then, I think I came away thinking that it was pretty good.  You must have been pleased at the time but you've done a couple of things since we last spoke, you've raised some money, so that's good news.  How much did you raise?  Where is it from?

Luke Alexander: We raised $11½M at the beginning of August.  That allowed us to extend our drill programme from 66,000m at the time to 90,000m.  That financing, obviously it's been a very tough market for the gold sector as a whole and raising money during the summer was a challenge, but really the driver behind it was we were approached by a new shareholder, Franklin Templeton, who was keen to get involved in the company and they now own 8% of Newcore Gold.  That financing was also very well supported by a number of our existing institutional shareholders, we also increased the overall institutional ownership of the business from 32% ownership to 40% ownership on the back of that financing.  So it's great to have very deep-pocketed long-term focused investors supporting the company and recognising the true district scale exploration that we've got at our Enchi Project in Ghana. 

Matthew Gordon: That's good stuff but more importantly it allows you to, and by the way congratulations on moving the institutional side of things through.  It's been a pretty crappy year, well certainly for the last 5 or 6 months for precious metal companies, we all acknowledge that.  I don't think your chart looks too different, except for one anomaly, the beginning of December end of November, what was…?  There was a bit of a peak there, what was that about? 

Luke Alexander: Yeah so in November the stock ran up, I mean I presented at a couple of different conferences and the only thing that we can see is ultimately that, you know on the back of those presentations there was some meaningful buying that came into the market.  It also kind of transpired around a period where we did see a decent move in the gold price so I think a number of those things coming together at once ultimately drove some higher volumes and pushed the stock price higher. 

Matthew Gordon: Strange times and strange markets.  I'm not sure the same rules apply that, as they used to right?  I don't think we're seeing the same reaction, gold safe harbour, all of that doesn't seem to apply at the moment.  What do you think's going on out there in the marketplace?  What were you hearing when you were doing your roadshow back in June? I suspect the conversations very different from the one you'd have today? 

Luke Alexander: Yeah so I mean, just as a reminder for people listening, I spent the first 15 years of my career on the investment banking sell side of the business so was covering the mining sector; covering different companies around the world and Tier 1 institutional investors as well.  So I've followed the markets very closely throughout my entire career and you know, what we're seeing right now I've seen multiple times throughout my career where there's just, you know, an overall lack of interest in the sector.  I mean if we look at the broader market, the Dow Jones and S&P 500 are taking out all-time highs.  People can borrow for zero, plough it into the broader markets and get paid for that.  So I think as a result, yes there are a number of investors who are looking at gold and looking at that as a safe haven and a way to ultimately protect their portfolios from a downside perspective.  But with the broader market continuing to take out all-time highs I think, you know, that leads to a bit of a lack lustre appetite for gold as a whole.  Some of the things that I think are interesting heading into the end of this year would be you know, we've just had CPI hit an all-time high.  If you look at real interest rates they're currently at negative 4½-5%.  We haven't seen those kind of levels since the early 1970s and the correlation when you see these big spikes in inflation and the response that you see in gold is typically very positive. 

So heading into 2022 I think that's very encouraging for gold as well as if we look at money supply.  I mean that'd be another thing that ultimately really drives gold price and if you look at the amount of money that's been pumped into the market over the last 2 years it's almost double what we saw during the GFC in 2008.  So again that would point to me to gold being a strong sector in 2022; but given we're heading into the end of the year, typically what you see with portfolio managers and other investors is they're not going to make any drastic moves in their portfolios heading into year end.  But what I would expect is as they get back to their desks in January and are starting with a clean slate they'll start to look at these markets at all-time highs and start to allocate a portion of their portfolio into the gold space given it has typically been a very good area to protect value.

Matthew Gordon: Nice summary, I like that because I think people have been struggling to actually put their finger on it.  You know in terms of where the disinterest is coming from but I like that.  We should have you come back on and maybe talk a little bit more about your views on the macro and the economics too.  Let's get back to what you're going to do with this money, okay.  So you've 66,000m up to 90,000m that's a whole bunch of drilling, to what end?  What are you trying to do?

Luke Alexander: Yeah so if you look at the PEA and resource update that we released at the beginning of June and we spoke on the back of that Matt, so I'm sure that's out there if people want to listen in on some of the economics within that PEA.  But that included 20,000m of our current 90,000m drill programme.  So we've got an additional 70,000m of drilling which we will complete over the next 4 or 5 months and we'll get that out to the markets.  So to date we've released another 42,000m of results, so basically all of the results that you've seen in 2021 are additional metres that we've drilled that were not included in the resource updated PEA which leaves us with an additional 28,000m that we'll put out over the next few months and the goal of that additional 70,000m of drilling is ultimately to grow the overall size of the resource.  We currently sit at 1.4Moz and if you look at all the historical drilling that feeds that 1.4Moz you're looking at about 76,000m so needless to say an additional 70,000m is very meaningful. 

I would say about 50,000 of that 70,000 will go to additional resource conversion and then, you know, on the back of an updated resource we'll look to do an updated economic study as well and really highlight an even larger, more robust project.  If you look at our June PEA it outlined a $212M after tax NPV at a $1650 gold price, after tax IRR of 42% and just under 1Moz of production.  So if we can meaningfully grow the overall size of the resource we'd expect to grow the overall size of the project and the economics. 

Matthew Gordon: So in terms of the drilling you’ve done, you talked about adding, potentially being able to include another 50,000m on top of the 20 right?  Is it as simple as saying, oh we can see an extra 2½ times more than we saw in the PEA?  Because I'm looking at some of the drill results, they seem you know quite consistent, high-grade results here but then there's the odd, you know 1g over 103m.  So is it fairly homogenous?  Will the maths be that simple for us?    

Luke Alexander: Yeah, so the way to look at it is 76,000m fed the 1.4Moz, so you can look at it as an additional 50,000m on top of that.  So call it, what's that, two-thirds?  So those are the 2 if you're trying to do back of the envelope type calculations to look at.  In terms of the drilling itself, all of our deposits remain open along at all 4 of our deposit areas.  So we have continued to step out along and we've extended the mineralised footprint by a meaningful amount at all of our different deposit areas.  And those are, in our view, lower risk exploration ounces, given all of the geological understanding that we've got and a lot of those ounces are oxide ounces which, you know, lend themselves to a heap leach project which is ultimately what we outlined within that PEA at the beginning of June.  We're then also for the first time ever starting to focus on some deeper drilling.  So prior to this 90,000m drill programme the deepest hole ever drilled on our project was only down to 150m.  What we see with these greenstone hosted deposits along the Sefwi-Bibiani Belt including Chirano, Kinross' mine, 50km to the north of us is that where they really grow in size and increase in grade is as you start to drill deeper and get into the sulphides. 

We've been releasing some of these higher-grade results over the last 6 or 9 months and we feel that we've started to hone in on where some of these higher-grade feeder zones sit at our different deposits and we're now doing follow-up drilling to start to, you know hopefully be able to wrap a resource around some of those areas.  So that's the focus of the drilling, continuing to extend along with those kind of low-risk exploration ounces but then also adding some deeper drilling.  And then the third thing we're focused on is some new areas that have never been drilled before where we've done a lot of soil sample work, trenching work and are drilling those for the first time ever and looking to make some new discoveries across the project.  From that perspective we've identified 25 different targets across the project and to date we've only drilled on 7 of them.  So needless to say we've got a very large pipeline of opportunities or targets across the project that we will continue to work-up and look to add, you know drilling in those areas over time.

Matthew Gordon: Okay, so you're a markets guy, you said that earlier right?  You know how to play the market game here.  You guys are drilling which is obviously great, in-country and you've got the money to do that and there's a lot of metres added to this thing and you know we can expect to see a resource update at some point and you'll move along the study curve too.  But coming back to the market thing, whatever you are, $60M odd market cap, the share price has kind of come off, like a lot of precious metal companies.  How do you feel you need to play this in 2022?  Given what you think is going to happen in 2022, because there's a whole bunch of West Africa gold stories there, sub 1Moz or with no resource, perhaps financially stranded.     Do you get your head down and just focus on what you've got here or are you also having a look around at what else is available?  Because that, there's not better shortcut to a growth story than making acquisitions, especially if you're picking it up cheap and if I look at your Board, they're more than qualified to perhaps, you know tell that story well.  But at these prices you're not going to be raising capital any time soon, so how does that market look like to you in terms of opportunity?

Luke Alexander: So from a, call it M&A perspective is what you're kind of alluding to.  We're not interested in adding additional exploration to Newcore.  I mean we've got a district scale exploration project at Enchi.  We can drill you know, millions of metres here and still have further opportunities to drill so given the size of the exploration and district scale nature of our project, we would just be diluting that with additional exploration.  One thing that we've always talked about is, you know if there is an interesting production type opportunity out there that fit and our investors wanted to fund then that might be something that we would look at but it's not something we're actively out trying to pursue.  Again, where we think we’re going to create the most value for shareholders is with the aggressive drilling that we're currently doing on our Enchi Project and that's something that we're going to continue to focus on. 

Just in terms of your broader question, in terms of you know the overall market and how we approach that as a company.  I mean the one thing that none of us as CEOs of any gold company can control is the overall price of gold or the market sentiment.  So for us at Newcore and as a management team we really focus on our operations, on making sure that we're getting the most metres drilled possible and as efficiently as possible and our view is that if we continue to deliver operationally, and I've seen this throughout my career, inevitably the market will come back.  And our view is all of the work that we've done in 2021 will then get more quickly priced back into the share price and I would expect that we outperform a number of the other companies out there who haven't been able to do a lot of work in 2021 because the capital markets have been closed to them.  So it is one of the real advantages I think we've got at Newcore is the fact that we have been fully-funded for the last year and a half to aggressively drill, you know as and when the markets do improve and market sentiment comes back I would expect that we will meaningfully outperform on the back of that as a result of all of the work we've been doing at our Enchi Project. 

Matthew Gordon: Okay and I buy that to a greater degree, but it's always kind of worth exploring where your head's at; or the Board is at.  Because you're… you've got to some money, you talk about the 90,000m drill programme.  I come back to my original point of, you know the 'so what?' component is like do you think at that point, doing an updated resource is going to give you the traction that you need to move the share price meaningfully for you to be able to raise money for the next phase of development?

Luke Alexander: Yeah, look I mean obviously by meaningfully increasing the overall size of the resource that should flow through in terms of how people value Newcore relative to other companies out there.  Whether it's on per ounce in the ground basis or they start to look at, okay at 2Moz this is going to be a much larger, more robust project than was outlined in the PEA in June.  So all of those things start to factor in and one of the things that investors obviously like is having independent 43-101 resources that they can hang their hats on.  It's one thing for me to say, at Boin we've extended mineralisation by 1.4km on a 2.8km pit constrained resource.  But until all of that's been, you know compiled and put into a model and pits wrapped around it, you don't know what the ounces are going to be.  So that's why, you know getting resource updates are obviously important from a market perspective and from an ultimate valuation perspective and I think that, yes that can drive the share price for Newcore as well as then using that updated resource to then go and outline an even larger project.  I mean our PEA in June outlined just under 1Moz of production, if we can grow that to closer to 1½Moz of production you're all of a sudden looking at 125-150,000oz producer over a 10-15 year mine life.  Those are the kind of step changes that ultimately create real fundamental value for the company and ultimately for our shareholders.  So that's why we are focused on, you know making sure we hit those different milestones.

Matthew Gordon: Yeah but I'm not necessarily, I've sort of explained, obviously I want to talk about the company but I'm also really intrigued by your experience of the market, certainly the Canadian market right?  Because you don't want to be doing the next raise at lower than the raise in June which was at what, $0.60 right?  And you've got to believe that the work you're doing now, you know being able to put a resource update out and all the other things that you're going to want to put out is going to work.  So do you…?  How cautiously do you have to approach it because the market's not there for gold equities at the moment, the gold price is kind of fine, but the equities aren't there, the interest isn't there for the reasons you outlined earlier.  Do you have to have a watching brief and say, well let's see what other people are doing, let's see if the marketing is reacting and if they're not reacting do you kind of slow down the pace at which you're spending or burning through the cash that you've got and wait for the market to recover?  Or do you think, well actually no we believe that we can burst through the other side if we deliver you know things that you've just outlined that you want to try and deliver?  I mean, how do you think about it, as a markets guy?

Luke Alexander: Well the way we've kind of laid out our budget is that we're fully funded through 2022 and that includes completing the 90,000m of drilling as well as getting an updated resource done.  So that's kind of the way we've laid things out from a budgeting perspective, to make sure that we can weather any storms that may happen in the market which I think is essentially what you're kind of alluding to in terms of how do you approach things.  Well you know, in a wild bull market anyone can raise capital, you know when it's stormy in the markets it becomes more challenging and you need to pick your spots from that perspective.  So we're very mindful of that and that's the reason why we budget for the company to be able to make sure that we can weather any storms.  And if there's, you know a very strong market at some stage and it makes sense from a dilution perspective to potentially raise additional capital to drill more metres then that's something that you constantly evaluate as you're executing on your overall business plan.  

Matthew Gordon: Yeah for sure.  And can I just, how much, so you're through to the end of 2022 which is great, but does that mean that at the end of 2022 you'll have exhausted your funds?  You'll be ready to raise capital at that point no matter what?    

Luke Alexander: Yeah I mean listen, as you kind of move along there's always ways of cutting to be able to extend cash further, so on and so forth, but you know, those are kind of measures and things you analyse as you go.  But from where we sit today we're very comfortable with our cash position and the fact that we can execute on everything we've outlined to the market and it takes us right through to the end of 2022.

Matthew Gordon: Okay fine, well look it seems like drilling results every month for the next several months from you, more of the same please and hopefully we can get a sense of the, not just the resource size but move towards the sort of next phase of economics too.  That'll be quite exciting if we can get an understanding of the time frame for those things from you as you start to firm up on your plans.    

Luke Alexander: Yeah, yeah so that's exactly what we're focused on, is continuing to obviously execute on our drill programme as we've kind of committed to the market we'll continue to have results out on a monthly basis and if you look at our news flow over the last year that's kind of what we've delivered and then we'll wrap all of that into an updated resource towards the end of Q2, beginning of Q3.

Matthew Gordon: Okay Luke, appreciate you coming on and well done on the results so far, keep it going, stay in touch okay?

Luke Alexander: Yeah, thanks a lot Matt, good to catch up.

To find out more, go to the Newcore Gold website

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