OutCrop Gold (OCG) - 'Hybrid' Generator Clear on Narrow Focus

<strong>Outcrop Gold</strong>

• TSX-V: OCG
• Shares Outstanding: 84.97M
• Share price A$0.53 (23.09.2020)
• Market Cap: A$45.034M

Interview with Joe Hebert, President & CEO of OutCrop Gold (TSX-V: OCG)

OutCrop Gold is a Canadian precious metals explorer with assets in Colombia. The company operates under a prospect generator JV business mode: a strong hybrid business model. Prospect generators are generally a lot more honest and pragmatic than conventional miners. Their sole focus is monetisation and their fundraising capacity is usually severely inhibited.

Having recently raised $5.75M, OutCrop Gold are clear where is best to put this money. The share price has struggled in recent years, but a recent uptick has got the market interested again. OutCrop Gold has a portfolio of advanced exploration gold projects called Santa Ana, Cauca and Mallama; non-developed projects in Antares, Oribella, Lyra, Argelia and Kuntur; and also a royalty in the Willow Creek project in Alaska. There is an encouraging institutional backbone to this gold mining story, with Eric Sprott sitting on close to 20%. The management team holds 25%, so they are clearly aligned with shareholders. So, what will the focus be for OutCrop Gold?

Everything has been parked up except for Santa Ana, which is where Outcrop Gold will be spending all of its time, money and resources. The gold player will be chasing high-grade, narrow gold veins and is attempting to develop its gold asset in a methodical, logical fashion. We like what we're hearing so far, now it's time to deliver some value to the market.

We Discuss:

1. 2:20 - Company Overview
2. 3:13 - Business Plan & Strategy of a Hybrid Company
3. 4:43 - Team Track Record
4. 6:17 - Market VS Company: Drivers of Success
5. 8:51 - Comparisons & Competition: How Will OutCrop Gold Stand Out?
6. 12:16 - Accelerating Timelines: Any Changes in Planning?
7. 14:06 - JV Possibilities and Types of Deals Considered
8. 15:43 - The Assets: What Have They Got and What are the Plans?
9. 18:55 - Overvalued? Deliverables to Excite the Market
10. 23:59 - The Future and End Game Possibilities
11. 25:04 - Market Predictions & Expectations for Price
12. 27:56 - Shareholder Relations: Profits, Warrants, Options

CLICK HERE to watch the full interview.

Matthew Gordon: Give us that 1-minute overview on the business and we'll pick it up from there.

Joe Hebert: OutCrop is a hybrid generator in Colombia, or a prospect-generator in Columbia. When they say hybrid, we will do drilling as part of a joint venture model to add value, especially where it's fairly direct and relatively cheap exploration, to significantly add value to the project. We've been to Columbia, our entire focus now for 8 years. We've built an incredibly strong portfolio. And what we aren't currently drilling will go to funding joint venture. We have 3 flagship properties and one we're drilling on until further notice and on the others, we will try to seek joint funding, joint ventures.

Matthew Gordon: Prospect generator, we understand, what's your version of that?

Joe Hebert: We drill. We're not against drilling our own projects if there's a specific reason to do it and add value. Basically, if it's a no-brainer, we will drill it.

Matthew Gordon: When are you in a JV, or are you drilling outside of any JV in place?

Joe Hebert: We will drill outside of a JV. We'll drill outside of the JV, 100% property. Even though we intend to continue to bring in joint venture partners, hopefully, majors, if possible, to fully fund other projects.

Matthew Gordon: Are you tempted to be more than just a prospector??

Joe Hebert: In this market, you have to be reactive to value. We're fully funded to drill 1,600m p/m, or at least till next June. Actually, we would probably tee up another prospect, that might be Cauca or Mallama where we would do at least a scout drilling program and then use those results to attract better quality agreements and better-quality companies.

Matthew Gordon: What is your track record?

Joe Hebert: I've worked for Placer Dome, Ur-Energy, Superior Metals, some short contracts for Major Freeport McMoran, extensive generative work in Mongolia, Suriname and a bit in Mexico. Then I started working in Columbia in 1997, doing a big mapping project on Mt Moto, which is currently being divested, I think, by Gran Columbia to Calder, I believe.

I’ve spent a lot of time in Columbia. What Columbia offers is, it's the last place in the Andes to work where we acquire out cropping deposits. It's not conceptual, it's put your hand on it and drill it.

Matthew Gordon: What about the rest of the team?

Joe Hebert: The rest of the team is, we have a VPEx, Dave Thomas, who's married to a Colombian, he lives in Bogota. Then the rest of the entire team of geologists, GIS support and other technical work involved is all Columbia. I would say that's a big draw because we can do work that you couldn't do if you didn't have Colombians on the ground.

Matthew Gordon: The market has suddenly gone nuts. You're a beneficiary of that, but you haven't seen these dizzy heights for a long time. What's driving that?

Joe Hebert: What's really driving it is we've got a strong message that's being received by the market in Santa Ana. It really correlates with delivering some pretty impressive, over 4kg/t Silver in our drilling, up to 37g/t Gold. People are interested in the story and to date, we've said everything we said we'd do.

Matthew Gordon: Have you delivered real value on the ground?

Joe Hebert: No, I think we deliver real value in the ground. If you look at it historically, actually narrow veins produce more Silver than any other deposit type. The other thing is that we've been upfront about the narrow veins, but they are usually in packages. We have several examples: we have one example in Roberto Tovar, where we can composite 3 veins over 18m, straight-line dilution, and still arrive at 450g Silver. That's almost 50% more than the average grade that's in production right now for Silver mines.

The other is the number of veins will result in the number of faces that will result in a number of flexibilities in future mining, if it comes to that. It will be shrinking stope at 1.2m. You could certainly do it. It'd be Slusher Stopes, 1.8m and then it would be a composite and high-angle veins at bulk dunnage underground. It's all a matter of grade and, actually, narrow veins, very high grade - you move fewer tons than wide veins because it is just wide and high-grade veins - that is a unicorn - they don't exist.

Matthew Gordon: There have been some unfavourable comparisons made this week. What's your response to that?

Joe Hebert: There are 3distinctions that could be made: the size of the shoots. We have 200m ingenuous shoots at 10g/t equivalent Gold, 800g/t equivalent Silver. These things are massive with respect to epithermal systems. The grade contour is excellent. We don't have any knolls within the high grade. Every high-grade hole is within a 10m, 800g/t equivalent Silver contour. Then we have the composite veins. We have vein packages so you have narrow veins, but you might mine 3 of them a slot at over 18m at 450g/t. Narrow veins are the basis and what you have to work with, but depending on their characteristics, people mine them. It's better than some of the current Silver production.

Matthew Gordon: How do you go about making yourself attractive for what's to come?  How does that usually work and why is it different today?

Joe Hebert: How it's different presently is, I can tell you that Columbia was in a real dry spell, honestly, for prospect-generators that didn't also do drilling, as we couldn't sit on the money we raised. Also, news, like Santa Ana, drives joint venture interest from companies. I will say that majors don't go into Columbia except by juniors. Look in the phone book in Columbia and there aren’t many companies to go to. We have noticed a big uptick in companies that want to talk to us, want to visit us when they can, when to visit projects. There's no rule that says you can't JV and drill. It's just not commonly done, but eyes are on us for that drilling, for the drill results we have produced.

I'm have online meetings with three majors coming up in Beaver Creek, the Gold Summit. I'm fielding calls and we're not in a hurry to joint venture Santa Ana, because we control catalysts that way, but at the same time they're looking at it and at our other projects.

Matthew Gordon: Why are you not changing your plans?

Joe Hebert: We're bringing down the second rig on September 8th. What we'll do with that is, we've got three shoots identified. We've only drilled them to 200m. With that second rig, if we don't have additional shoots to drill for the second rig, we can come in and set up on the same or similar stations and drill from 200 to 400m. It's looking like those shoots don’t extend that deep. We are in the middle about a 5,000-soil sampling program, we're coming up on over 1km of trenching, if those result in additional targets, some gradient resistivity if those generate targets ahead of us, we can easily bring in a third rig in 6 months.

Matthew Gordon: What does that do? Does 1 rig deliver 1,600m a month or is that 2 rigs?

Joe Hebert: That's 2 rigs.

Matthew Gordon: Give me a realistic view of what a JV looks like in this environment, what you think it could be?

Joe Hebert: For us, the trigger would be when we are about to enter the resource or when the project is ready to enter a resource delineation stage. What the deal would like in this case, with a bona fide discovery and high grade, the framework of the deal would be a 51 JV and then maybe a 70 JV at their option. That total spend would exceed, in this case because we would have resources to delineate exceed USD$20-$25M.

We're not miners right now. The company has mined before. It's certainly less fun than exploration, and less forgiving, but I don't think we're going to become miners.

Matthew Gordon: Are you going to reassess those?

Joe Hebert: Yes, we are constantly looking for new stuff. We're actually considering another jurisdiction, but it would be limited in focus. If you look at Cauca, there's 22,000m in our Cauca project, it's a huge porphyry, the veins were never honoured in the models. We have re-logged, we have over 35 intercepts of epithermal veins, whereas you have an uninteresting porphyry of about 45 to 55M tons at roughly 0.5g. We think with a fairly small program, like Santa Ana come into the core of the porphyry and drill out high-grade veins, model that and maintain the tonnage or increase the tonnage and increase that deposit to a 1.5g mineable deposit.

Mallama is very similar. It is probably technically superior, possibly, to Santa Ana, in potential, because you have clustered veins of up to 8 veins over 0.5km. The miners, we know, they let us in the mines. They're producing at 23g p/t Gold and over 200g Silver. Mallama could be very similar to a Borrusica, so there's certainly going to be people interested in both projects. I would say we've got advanced discussions on at 3 three projects for a joint venture, on which we've done minimal exploration, maybe as much as USD$100,000-$200,000. If we weren't offered a JV on those, we would probably accept that those would be advanced.

Matthew Gordon: How much money does it cost you to keep those ticking over while you're focused on Santa Ana?

Joe Hebert: It is minimal, really just holding costs, titles. They have a canon fee. They have to have a work program in place, but that doesn't have to include drilling. Outside of Santa Ana, we might have a spend of USD$100,000, every 6-months on holding those, roughly.

Matthew Gordon: Are you attributing any value on the balance sheet to either of those at the moment?

Joe Hebert: There is a value on the balance sheet, but it's pretty much our dollars invested, it doesn't reflect really the value in it.

Matthew Gordon: Do you think you're overvalued, given what you've been able to tell the market so far?

Joe Hebert: No, not overvalued. You saw us go to USD$0.08c and you certainly saw pull back from there. I can't say I'm surprised. But I think, just benchmarking some other companies in a similar situation with respect to market cap, we still have significant room to grow.

Matthew Gordon: What are you going to be able to tell the market over the next year that's going to get them remotely excited?

Joe Hebert: When we bring in the second rig on the 8th, you're going to see a, assay turnaround of 2 weeks for the next 6-7 months. Our next 2 targets teed up, El Dorado and Megapozo, Eldorado has as much as 180g Gold and 2kg Silver over 0.6m, 1.2m, I believe. Our next targets are well supported by trenching. What we see at the surface, we expect in the drilling. You're going to see a continual flow of good assays, like in the past, they're going to conform to what people have seen so far, maybe higher. And then, what we showed in our last news release a couple of weeks ago is that we're now in Guanabanera below the mine zone. We are averaging up on our vein with, I think people are anxious to see that. Then we'll pull together 1-2 JVs in the next 6-8 months, let's say 1 in 6 months and 2 in 9 months.

Matthew Gordon: What are they waiting for?

Joe Hebert: Because major companies are slower than the second coming of Christ - it's just a fact. You baby them through the decision. You say, guys, it's right here, you know?  I've been in big companies. No-one wants to make a decision; it goes down the food chain until someone makes a decision. That's the way it's been in the past. We've had Newmont, we've had Newcrest and it's always, they're not companies, they're committees, honestly.

Matthew Gordon: There's a process you've got to get through.

Joe Hebert: You can look at Gramalote, we all know B2Gold, their only project in Columbia is Gramalote. We're in the same district. We have bigger soil anomaly. And you can probably guess that the companies, maybe a NewCo that might be attracted to Mallama, because it's so much like Borrusica. In the past, you might recall we had a fully funded generative alliance with Agnico Eagle, only 3 years ago, they spent over USD$3.5M. We spent 20% of that just to generate projects. Agnico Eagle has an office in Metagene and we can help them get traction in Columbia again. Columbia is a bit of a tar baby for some companies, but on the other hand, you have big outcropping deposits still. Relatively speaking, the technical risk is quite low. And then good, experienced companies that can deliver and be technically relied on by majors to either perform or generate projects for them, like I say, I can't think of another one in Columbia right now.

Matthew Gordon: What is the kind of rerate that you would be looking for once you do sign a JV? What are you looking for? What is a good outcome?

Joe Hebert: A good out for come for us, to leave the market cap side of it for a moment, the good outcome for us is a much bigger spin from third parties that just comes into the company. We don't have to raise, we do not dilute, and they keep for a relatively long term, because it looks like a discovery in front of them. Then I think we would see at least a USD$120M market cap per venture.

Matthew Gordon: What do you make of this Gold market? Are we going to see a pullback?

Joe Hebert: Yes, everything pulls back, but on the other hand, boy, I don't want to get too greedy. I'm happy as a clam at USD$2,000. What is that? Has it been USD$2000, in ‘83?

The other thing is, just looking at the performance lately with respect to where else you can go everyone talks about the historical ratio, but it's real, it's gone from 97 to 80 in less than 3-months because we had to revise all our equivalent calculations. But yes, this is great. These things don’t come often in your career, you can even count them on one hand. It's where all the excitement of the job is.

Matthew Gordon: How long do you think this thing lasts? You've been through a few cycles, why is this so different?

Joe Hebert: It is certainly different but it’s not that different. Maybe the numbers are different, but a 3-4 year bowl, it's not unusual. I don't see any large-picture things looming to detract from what's driving it now. It's cheap money, cheap capital. The investments are basically protected by the federal reserve, in a sense, from heavy retraction. Gold is exciting right now. It's going to take a while for that enthusiasm to peel off. We have a lot of investors that are very happy because they've made money and they think they'll make money again. They're sort of forgiving, not entirely, but they're a bit forgiving if you don't. I looked at a situation where the company is not too worried about the high-level metrics for the next 3-4 years.

Matthew Gordon: Taking advantage of the prices you're reaching for the first time in 3 years?

Joe Hebert: Do you mean investors taking profits? Well, they had better. I want them to.

Speaking of warrants, we have some warrant exercises that have taken an impact. We've been cashflow positive for 3 months with this drilling, you really can't fault people for taking advantage of their warrants. Internally, none of us can take any of that. We would, but we can't take any options. It's where every time we get into a broker placement, we're locked out for 4-6 months. We have this last financing coming, Cree trading, I believe October 19th, but I think what you're going to see is we're just going to absorb it. I think the interest is out there for people looking for big positions and it can be a buying opportunity, let's see what happens on about October 18th. I think it's going to be a whimper. I don't think we're going to see a lot of stuff.

Matthew Gordon: What was it done at?

Joe Hebert: 28. USD$0.28c per unit, half warrant at 60, I think, I would have to check.

Matthew Gordon: Good, that’s what we want to see. Thanks for the run through. I do like a prospect generator story. 2 drills, potential for a third. Keep the information coming out to the market, people want to know how you're getting on.

Joe Hebert: As I say, there was too long of an interval for a while, but we have 2 rigs starting the 8th. Once we get the lab loaded up, we'll see assays every 2 weeks.

Company Website: https://outcropgoldcorp.com/