Dr. Feng, both a geologist and an executive, has worked in the mineral resource industry for over 15 years. He’s been involved in several significant mineral resource discoveries in China, through Pacific Minerals (now Jinshan Gold Mines) and currently with Silvercorp Metals. Being well-versed in China’s legal framework and mining industry, combined with an extensive network in China, makes him one of the most knowledgeable geologists exploring there today.
As you’ll read, Rui came to North America with $100 in his pocket. Since then, he’s helped investors realize enormous gains with virtually every company he’s been a part of. His interview is both fascinating and insightful, not only on how he has been so successful with mineral exploration in China, but on why the country may be a safer place to invest than many think. Please help us welcome our 18th member to the Explorers’ League...
Explorers’ League Editor Jeff Clark: Welcome to Explorers' League, Rui! We’re excited to have you.
Dr. Rui Feng: Thank you.
XL: Let's start at the beginning. Tell us about your childhood and where you grew up.
Rui: I was born in 1963 and grew up in the Hunan Province in Central China. At that time China was very poor. My father was working for the Chinese Army, so I grew up in a military camp, and because he had to go many different places a lot of times, I went to a school in which you stay there, you live there. You came back only on the weekends. It was really not a very good-condition school; you lived there for one week, and then came back on Saturday, and you spent a Sunday at home. And you had eight people staying in one room. The food was not good, and I was always hungry because there wasn’t enough to eat.
So anyway, I graduated from high school in 1978 and took a national exam, like an entrance exam, to get into a university. I passed the exam and got in. But I was lucky; there were only maybe 2% of kids who got into university. We were the first students to get in after the Chinese Cultural Revolution from 1968 to 1978, and so the schools limited the amount of students who got in. I was also lucky because it's not like here where you have free access and can choose your specialty or what profession you want to study. You had to do that before you take the exam. So you kind of take a gamble. My high school teacher said, “Rui, since you like to travel, maybe you should study geology, as you would have a lot of opportunity to travel.” I said, okay, fine. So that's why I applied to two universities in geology.
XL: And this was 1978?
Rui: Yeah, I started university in September 1978. And because we were the first group of students getting into the university after the Cultural Revolution, everything was free – free food, free board, free tuition. We did not have to pay anything, which was great.
XL: So you got a college degree in geology, and then a Master’s and Ph.D., correct?
Rui: Yes, I did a master’s degree in geology from 1982 to 1985, looking at some of the gold deposits in China. Then I went to Beijing in 1985 to pursue a Ph.D. in geology. But at that time it was a challenge, because the situation in China was changing rapidly, as China was opening up more. And as a young guy, it was pretty confusing, so I said maybe I should go overseas to a Western country to get more experience, to study. I applied at universities in the USA and Canada and got accepted at the University of Saskatchewan.
XL: Did you speak English at this time?
Rui: Yes. We studied English in China in the university. And when we were doing graduate study in Beijing, there were some American students who came to China to learn Chinese. They were looking for part-time jobs, so a group of us hired one of them to give us some English lessons. That guy learned Chinese from us and we learned English from him, so it was kind of an exchange.
XL: What year did you come to Canada?
Rui: I came to Canada in February 1988, with $100 in my pocket. I even borrowed money from my friend to buy my air ticket! I studied at the university in Saskatchewan. I don’t know if you’ve been there or not, but it's kind of cold and not much going on. So it's the perfect place to do academic study. I worked very hard and got out in April 1992, in less than four years, while it took the most committed students five years to get a Ph.D.
XL: That’s impressive.
Rui: I was working very hard, working every day until up to midnight. And not much socializing.
XL: No chasing girls, huh?
Rui: No chasing girls. Maybe I had a social drink about once a week.
XL: And I see you got honors in your Ph.D. program.
Rui: I don’t know if it was honors, but I published a lot of papers, almost 16 papers. I think that's why I got the post-doctorate fellowship from National Engineering and Research Council of Canada. There was a lot of competition for those because they only had one or two for each field of science every year. For that year in the geologic field, there were only two for the whole of Canada. The Canadian government gave me a salary and a research grant.
XL: Did you aspire to become a field geologist at that time?
Rui: No, I was really into academics, and I really wanted to do research. I wanted to become a professor instead of a businessman. I thought it would be very cool to be a professor.
XL: So how did you go from teacher to explorer?
Rui: Well, in 1992 I went to the University of Montreal for my post-doctoral fellowship, but that was the time of the separation movement. Quebec had a referendum in October 1992 for a separation from Canada. It really scared me, because I'm just a Chinese guy! I could not speak French. I didn’t want to stay in that republic.
So I said, "I better get out of here." I applied for a job at the Geological Survey of Canada, called the Institute of Petroleum and Sedimentary Geology in Calgary, Alberta. I went there in '93.
The Alberta Mineral Program was something set up by the federal government, because Alberta produced a lot of oil and the government wanted to look for minerals to diversify their economy. So the research group I was involved with worked with the Geological Survey of Alberta. And there was a company at that time called NSR.
XL: NSR?
Rui: Yeah, and another called Tintina Mines. In the 1980s, the Geological Survey of Alberta had drilled a deep hole through the tar sands into the basement granite, and there was some gold mineralization in the granite. They thought there might be something going on underneath the tar sands. So our research group was involved in finding out if this was true or not, and in hoping to attract some investment to carry out exploration.
XL: Yes.
Rui: So our research confirmed there was gold mineralization, and we created a big staking rush in '94. By the spring '94, there was a huge staking rush looking for gold mineralization under the tar sands in Alberta. If you look at the Tintina Mines – their stock price went from $1 to $7.
XL: Wow.
Rui: Because of our research, Tintina, NSR, and another company called Focal were able to sign a big agreement with Lac Minerals, which merged into Barrick Gold. So in the springtime of 1994, these junior companies suddenly started hiring me. But I was already working for the Geological Survey in Canada. They said, "We want to hire your time after 8 p.m. We want you to work for us from 8 p.m. to midnight.”
XL: So that's how it happened [laughing].
Rui: They started paying me around $100 per hour. Every night I was making $400 and I had been doing that free for the Canadian government. Those guys hired me to work for almost three to four months, and their stock went flying from 20¢ to $4 after attracting Lac Minerals into the play. It got to the point where I was not able to carry out academic study anymore. I realized my time is worth a lot of money, and that I could create a lot of money for people. That's the whole idea, right?
XL: Right!
Rui: So at this point I said, "Look, maybe I can do the same thing myself." So I started looking into this Canadian junior company and how they operated. And I said, "Gee, I can do the same thing and my expertise will be in China.”
I quit my job and came to Vancouver in October ‘94. I teamed up with some people in Vancouver on a shell company to look for mineral projects in China. That's how I got started into the junior exploration business.
XL: Fascinating. Tell me about your first company.
RUI: One of the first companies was called Global Pacific Minerals. It was a shell, so we got a bunch of $0.05 stock and then my partner raised about $1.5 million at $0.30. With that money I went to China looking for opportunities. This was in early 1995, and the stock went from $0.20 to $4 by 1996.
XL: Why?
Rui: We had been working on a copper mine in China, and we also looked at some gold opportunities. In '96, the market was hot – all the junior stocks were flying. And we teamed up with a company called Southwest Gold. At that time it was a good company, and their market cap was almost at $300 million. So we had this alignment, plus the potential of making a discovery in China. Everybody was excited then.
XL: So the main reason for exploring in China was because of the opportunity?
Rui: Well, Canadian junior companies go to South America, Mexico, or Africa, and all kinds of countries looking for opportunities. But I said, “Okay, my expertise is in China.” It was very logical for me to go to China.
Secondly, China just opened up to foreign companies in terms of mining and exploration. Communism was reformed, and the government had essentially stopped financing exploration activities in China. The geologic teams were no longer controlled, and therefore I saw the opportunity.
XL: And your first big discovery was with Jinshan.
Rui: After '96-'97, the market went down for several years. There was nothing going on, and basically I was the only guy walking around looking for opportunities in China in '98-'99. And the market was only interested in platinum at that time.
XL: Did Jinshan have a platinum mine?
Rui: Yes, they had a mine that contained about 1.5 million ounces of platinum group metals [PGMs]. I was the guy at Pacific Minerals spending money drilling that project, in the Yunnan Province, from ’98 to 2000. And we found a lot of platinum, approximately 1.5 million ounces, plus 100,000 pounds of nickel.
By the year 2000, when gold was at $250 per ounce, I said, "Maybe this is a good time to go back into gold again."
So that's the time we started to acquire what we called the 217 Gold Project [now called the CSH Mine]. We drilled it in 1996 and then the market collapsed, so we had to give back the project to the Chinese owner. I still remember this project. I said “This project is going to be big.” So in the year 2000, we reacquired the project for a much cheaper price, like 2 million dollars, and got a 95% interest.
XL: Did you have a partner at that time?
Rui: No, I was the president of Pacific Minerals, which later changed into Jinshan.
XL: What happened after you got the property back from the Chinese?
Rui: We did 40,000 meters of drilling at the CSH project, and then in '02 we hooked up with Robert Friedland of Ivanhoe Mines. He wanted to do something with me in China, and so he looked at this project. He thought this was very similar to the Fort Knox Gold Mine in Alaska he’d sold to Kinross (T.K), which was 1 gram gold in grade.
The CSH gold deposit was very close to Ivanhoe Mines’ (T.IVN) Oyu Tolgoi project in Mongolia, a big copper discovery. It's like 80 kilometers away, just across the Chinese border. Maybe that was the reason Robert liked the CHS project. When it was sold to Ivanhoe, it was like 3.5 million ounces of gold. They later got 5 million ounces out of it.
XL: Exciting. And then you eventually left Jinshan. Was there any particular reason you left?
Rui: Well, because, you know, Robert was calling the shots, and so there's no need for me to be hanging around anymore.
XL: Okay [laughing]. So what did you do when you left Jinshan?
Rui: I took a little break, and then we hooked up with people like Arnie Armstrong. We restructured a shell company called SKN and went looking for opportunity in China again. Then in the springtime 2003, Southwest Gold claimed to have a big discovery in Yunnan Province of China. Southwest’s stock went from $1 to around $15. It was a big story in mining circles at the time.
So we went there to look at who owns the land package because we wanted to be an area player, right? And we located a property and called it Tubuka Project. Their project was Boka Project, ours was Tubuka, which was stuck right in the middle of their mineral trend. Our stock went from $0.30 to $6 by December 2003.
XL: I’ll say it again... wow.
Rui: Meanwhile, Southwest drilled something they called Boka 7, and they had a 100-meter intercept of 3-gram gold from there. And it’s only 200 meters away from our property boundary. So I said, "Shit, this is simple. Let's put several drill holes 5 meters away from the property boundary and see what happens." And we got nothing. [Laughs] Now we all know why.
XL: Nothing?
Rui: Nothing. [laughing] And after we released the results, Southwest never drilled Boka 7 again. So, after springtime 2004 we realized that we were just fooling around here. There's nothing here. We just said “Oh shit, we have bad luck.” So we reviewed many, many projects, and we identified this Ying project to be very exciting, which we acquired in April 2004.
XL: Ah. Your second big discovery.
Rui: Well, the property had a lot of showings here and there, and one hit had some very good numbers at depth, but there was nothing big, just structure. But I looked at it just in case, and I said, "Well, number one, there's lots of veins. And number two, there's a lot of high-grade pockets.” Based on the results from illegal mining, some of these veins were running in what I call the pay zone... I call it a pay zone if the vein is running over 100 meters long. I said “100 meters long... maybe not a workhorse, but it can make a lot of money.”
It was a 100 meter long and maybe a 0.5 meter wide. Multiply that times the density of 4, and you would have 20,000 tons of ore running those kinds of grade. You can start calculating like 2 kilos of silver at that time – 2 kilos of silver would be around 70 ounces, and at $5 per ounce that’s still $350, plus 50% lead, worth another $350. We figured if we had 20,000 tons per pocket, that's like 14 million dollars. With that, I didn’t have to raise money every year. It’s quite a project.
XL: Fantastic.
Rui: We bought the project for 3.5 million dollars for 77.5% interest. And I said, “If we found another pocket like that, we would get our money paid back already.” So that's the logic of why we acquired this project. But initially everybody thought, "This is going to be a grandma/grandpa operation.” Even I thought it could be. We got Doug Casey into a private placement early on, like $1.75 per share, but he was skeptical. He said, "Ah... it is great, but this is a grandpa/grandma operation.”
We did very extensive underground tunnels – in the first year, we did almost 50,000 meter underground tunnels, and we identified a lot of these high-grade pockets. And we converted this mine into one of the best silver mines around. And Doug Casey’s stock went from $1.75 to almost $30.
XL: Wow! So when did the name Silvercorp (T.SVM) come into the picture?
Rui: In October '05, we kept getting very high-grade silver from this mine. And looking at the Ying Mine reminded me of Goldcorp (T.G) because we would have $800-$1,000 per ton rock, narrow veins, similar to their Red Lake Gold Mine. So I thought we would market ourselves as Silvercorp, an analogy to Goldcorp, so investors could appreciate what we were doing.
XL: That's great. And it’s still a rich mine to this day.
Rui: Yeah, I think so. We still have almost 120 million ounces of silver, plus almost a million ton of high-grade lead and zinc.
XL: Is Arnie Armstrong still involved at this point?
Rui: Arnie retired from the company in 2005, maybe 2004.
XL: And with the Ying Mine, you went straight from discovery to production, as opposed to the more traditional route of developing proven and probable reserves. Tell us why you did that.
Rui: Well, first, I think a lot of companies do a lot of drilling. The reason for that is so that they can keep on pumping up the stock [laughs]. I saw a lot of junior companies drilling 10-meter centered holes and I said, “What's the point? We are wasting our money to do this kind of thing.”
And secondly, because the operations costs and development costs are so low, we can put this into production without an expensive study. The purpose of a feasibility study is to try to get somebody to invest money in your project, right? But in our case, we were financing ourselves already. Why spend so much money to convince other people that the economics are right? In one year, we dug 50,000 meters of underground tunnel along the vein, plus did 60,000 meters of underground drilling. Isn’t that a feasibility study? So, actually, we did all this work that was required under the feasibility study even though we never actually got somebody to put data together for a report. It is now economical, and we used action to prove that.
Also, because the grade was so high, we don’t want to broadcast it to everybody in China. We don’t want to get people jealous [laughs].
So in my opinion, in certain situations, you don’t need to do extensive studies. In other situations, you do need a study. Right now a Chinese engineering firm is doing a feasibility study on our GC project. And we are going to convert that into a Canadian NI 43-101-compliant report. The reason we did that was because it is a lower-grade mine, so it's not certain that you are going to make money. Therefore, you need to do a very thorough study, where in the case of the Ying Mine it was a no-brainer. I don’t need another engineer to tell me I’m going to make money at Ying.
XL: And it’s certainly paid off. Tell me more about the GC Project.
Rui: Yes. We acquired the GC Project and after drilling, we have 60 million ounces of silver, plus almost a million ton of lead and zinc, with a potential of up to 100 million ounces. Right now we are in the process of getting a mining permit, but we stopped drilling because there is no need to drill forever unless you are sure you have a mining permit, right? So this resource, where it stands at now, we would be able to develop it into a mine that can produce 2 to 3 million ounces of silver a year, plus 20,000 tons of lead and zinc.
XL: And you have some other mines in the Ying District.
Rui: Yeah, we acquired several other small mines, however, nothing as exciting as Ying itself. Still, we wanted to add some others to our total production. They are separate mines, but they would be brought into a central milling operation.
XL: Tell me what it’s like to work in China. It’s still a communist country, so what is it like to work with officials there, and is it much different than Canada or the U.S.?
Rui: Yes, China, they are communists, but I think communism is not like the word you think of when you read in your textbook or you were told in the movies – not that kind of a communist. I think that communist China is more economically sound and maybe there is more freedom than in North America.
XL: That’s certainly the trend.
Rui: In a sense, China’s following more the emperor kind of system, like before. I just went to one university where we donated some money. And you see the kids are told to be loyal to the party. There are still those things going on, but on the other side, you have a lot of free economy, free enterprise. And with more economic progress, you see a lot more freedom. A new property law was introduced last year, like a private property law. There are a lot of changes, so it's kind of confusing at times. Sometimes confusing even for government officials!
XL: Would you say the government is supportive of mining?
Rui: They are very supportive, but over the last several years they take a different approach... a lot of bad guys just started mining and don’t care about the environment or care about workers' safety. You hear a lot of stories of miners getting killed and the dirt spilling into the rivers in China.
So now the government says, “This mining hurts the environment and is getting people killed.” So I think there is tighter control of mining now. There's more strict rules and regulations on the environment and safety requirements. But generally, besides this, they are very supportive of mining. They just want to make miners better corporate citizens.
XL: Is there any fear of the government taking a deposit?
Rui: I don’t think so. China is now a big, dynamic country, and you can set up any kind of company there. Also, there are so many private property rights and other property ownership rights that if they tried to nationalize all the mineral property, it would create a revolution. There's no reason for them to work against us.
XL: How would you characterize the mineral potential in China?
Rui: I think there is still a lot of unexplored territory and a lot of exploration opportunities there. But China’s problem is that very few Chinese companies put money into exploration. You see a lot of them buying overseas, such as in Australia and Canada, but they only buy things with resources. You don’t see them putting money into exploration plays. They want to put money into exploration, but really, they don’t understand it.
Also, there is no financial exchange like the Venture Exchange, where you can raise venture capital to fund exploration. Plus, you need expertise and technology, but China doesn’t have much of those things in exploration.
XL: Is Silver Corp looking at any M&A [Merger and Acquisition] activity?
Rui: Projects with resources are already overvalued in China. It would be tough to buy a project with resources. Within China, we’re looking more at exploration because for anything with a resource, you have a lot of competition from other Chinese companies, and our expertise is in exploration. China has had no free flow of capital, therefore Chinese money can only stay in China. And only certain things can be bought if you are investors. So a lot of investors are chasing a limited number of resource assets.
XL: So, would Silvercorp look outside of China for a project?
Rui: Yeah, that's also what we are trying to do. In July we tried a hostile takeover of Klondike, so that's the indication we’re willing to go outside of China.
XL: Where is most of your focus right now, Rui?
Rui: My focus right now is on corporate development, and looking for new alternatives outside of China and also inside of China.
XL: What do you think is ahead for gold and silver?
Rui: I can’t give you much of an opinion, because we are a mining company. My focus is on finding high-grade material.
XL: How about the Chinese people – what do they think about gold and silver?
Rui: Chinese people have the money. Now that physical gold is available for Chinese investors, and a gold ETF, that's one more investment product they can buy. So they just buy. They don’t care. It’s just like buying an apartment. There's a lot of guys who even buy copper. They put the copper in their backyard. Just as a hedge against inflation.
XL: I read about that.
Rui: So I don’t think that gold will go down much. How high it will go, I don’t know, but because there's so much money running around, especially in China, they just buy. They’re thinking about inflation.
XL: They’re worried about inflation?
Rui: Yeah. Big time.
XL: What about the junior mining industry... would you say the worst is behind us, or do you think there are more problems ahead?
Rui: I think we are into some good times for the junior companies. I'm looking around for project opportunities to buy, and actually we see very few undervalued assets. Money is smart. They’re looking for assets which have a good value. I think the worst is behind the junior companies already, and we have a situation where it is starting to do better than worse.
XL: Any last comments you’d like to make?
Rui: I think this inflation thing is scary. So I think holding gold and silver is a good idea.
XL: You won’t get any argument from us on that. Thank you for your time, Rui.
Rui: You’re welcome.
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