Mark: I first fell in love with geology in university. It really spoke to me and I ultimately gravitated toward it as a career. Once I graduated from undergrad, I worked for a couple years in BC as a prospector and mapper. I was drawn to working in exotic locales, places off the grid, and loved the concept of having a career that allowed me to see the world, travel, and work outside. I then went on to do a Ph.D. in geology at Monash University in Melbourne, Australia, where I started focusing on the structural aspects of ore bodies. When I finished that, the world opened up for me.
Jeff: Where did you go to undergraduate school?
Mark: I split my undergrad work between two universities, Carlton in Ottawa and Memorial in Newfoundland.
Jeff: You’re Canadian?
Mark: Yes. I spent much of my childhood growing up in Newfoundland, where my Dad’s side of the family is from. I then moved to Carlton to finish my undergrad degree, and from there continued moving out west, eventually to Vancouver, the epicenter of the exploration business.
Jeff: You’ve been a part of five significant economic discoveries. There’s Long Canyon in Nevada, the Michelin/Jacques Lake deposits with Aurora Uranium in Labrador, then the deposits in Turkey that are hard to pronounce…
Mark: Agi Dagi, pronounced Ah-Dah – the g’s are silent in Turkish. Then Kirazli. The third in Turkey is Halilaga, a copper/gold porphyry that’s a true new discovery. And the fourth in Turkey, which is still taking shape, is TV Tower, which is what’s principally driving Pilot’s value right now. That will be our sixth overall major project.
Jeff: So let’s cut to the chase: how is it that you’ve been so successful? Many geologists don’t have even one discovery under their belt, let alone several. How does Mark have five?
Mark: Well, I think there are a couple factors that contribute to the success rate. First, there is a high turnover of projects in the industry. In our evaluations of projects, new opportunities often present themselves. We review and evaluate dozens of projects each year and it’s a process that never stops. So there’s a volume aspect to this that helps you cull the opportunities and focus on the best ones. There’s a quest, an incessant pursuit of quality for tier one projects that’s driven by, I guess, the idea that you can always do better. We are constantly striving for higher quality projects wherever possible. They say that comparison is the thief of joy, but in this business you need to be constantly comparing your assets to what else is out there, what else you could possibly get, and if what you’re working on doesn’t compare well, in terms of size or grade or location or cost structure, then there really is no point in carrying on with that asset. We like the assets we have now, and they have resulted from that intense comparison process. Still, we continue to look and compare, and we always will.
Then there’s the practical aspect, and that’s the team. None of these accomplishments are singular in terms of being attributable to me specifically. The people I’ve been able to attract and build around these companies are just fantastic. They are at the top of their game. They’re also motivated and hungry. Complacency is a killer and there is no complacency in the group.
Finally, you can’t discount the importance of luck in this business. I’m happy to take whatever luck has come my way.
Jeff: I don’t think it was luck that got Long Canyon sold to Newmont (NEM) for $2.3 billion.
Mark: That was the cornerstone asset of Fronteer that ultimately led to the sale. It was the key project that attracted Newmont, that’s for sure.
Jeff: Tell us the story of the discovery and how it resulted in such a big sale.
Mark: Well, like most discoveries, there are many players and many generations of explorers who have touched the project along the way. By the time we got involved in Long Canyon, there were probably no more than thirty or forty holes into the deposit. It had been discovered in the truest sense of the word by Pittston Nevada Gold Company, Ltd., a private company, about a decade or so earlier. They drilled a couple of holes, got some very interesting results, but then moved on. Then Ron Parratt, another member of your Explorer’s League, put together AuEx Ventures and revitalized the property area. He did some drilling, and then we came along and acquired the joint venture partner of AuEx, called New West Gold, which included Long Canyon. By this time there had been about 30 holes drilled, but there was no understanding or indication of what it was or what it was going to be. It wasn’t until our first round of drilling that we realized we needed to completely reprioritize our entire Nevada focus, so our team proceeded to singlehandedly unlock the secrets of Long Canyon.
It comes back to reprioritizing your efforts and focusing on your highest quality projects. Other projects in Nevada had priority until we figured out that Long Canyon was something special, so we put all of our effort there. Science is important, of course, but it all comes down to the importance of experienced, motivated people on the ground who simply want to figure out how these deposits hang together. A real key to unraveling the mysteries of Long Canyon was Moira Smith. She deserves a huge amount of credit for leading the technical charge and turning Long Canyon into what it became.
Jeff: Has this team followed you to Pilot Gold?
Mark: It has. One of the joys of the whole transaction was that not only were we able to extract a couple of key projects to populate Pilot, but the entire team built at Fronteer remained intact and we all stuck together. I’m happily enjoying the chairman role at Pilot and helping mentor a new CEO, Matt Lennox-King, and a new CFO, John Wenger. Matt’s been with me for the last 12 years, so when I first started Fronteer Matt was my very first employee. The mentorship aspect of my role and the evolution of these companies is an important theme for what we’re trying to do.
Jeff: People is one of Doug Casey’s 8 P’s, and we think the most important, so as an investor it’s attractive to hear that the same team is together. Tell us about the Halilaga property.
Mark: Halilaga is one of those truly virgin discoveries. It was an undrilled outcropping, copper/gold deposit in northwestern Turkey which has turned into a fantastic economic deposit. It was first discovered by Fronteer, but it was sort of buried and overshadowed by Long Canyon. It never really got to stand on its own two feet and attract the attention it deserved because it was overshadowed by something a bit more captivating at the time. Halilaga has lots of attractive attributes – it’s a mid-size porphyry with excellent grade at surface, strong economics, and has all of the hallmarks of a project that could become a mine one day.
Jeff: Halilaga looks like it has a robust PEA [Preliminary Economic Assessment].
Mark: It has a good, strong after-tax IRR [Internal Rate of Return] and a half a billion dollar NPV [Net Present Value], with modest metal price assumptions. It’s in an industrial part of northwestern Turkey, so there’s power and water nearby. There’s a high grade plume near surface that essentially pays back a billion dollars of capital in two and a half years. So it’s got a really strong payback and good economics and it should make a great mine one day. We own 40%, and Teck is the operator; after the initial discovery, Teck earned a 60% interest in the project and took over operatorship.
Jeff: How would you characterize the political risk in Turkey?
Mark: I think there’s been widespread acceptance of Turkey as a jurisdiction for mining investment. We’ve been in Turkey for eight years or nine years now, and were one of the first Western companies there. I recall early on starting every investment presentation trying to explain why Turkey was a good place to be. That’s not required anymore. There’s been enough success there with the likes of Eldorado, Anatolia and others, in terms of permitting and community and government support for mining, that investors are much more comfortable with it.
Jeff: Kirazli and Agi Dagi are with Alamos now, but tell us about those discoveries.
Mark: When we first moved into Turkey, they were two projects we focused on. They catapulted us into the spotlight and represent our first successes. We struck a deal with Teck to assume operatorship on these two projects and explored them hard. We had instant joy at the drill bit, and quickly took them from an incipient deposit to a collective 3.5-million-ounce gold resource.
Teck earned back a 60% interest in the project, which was around the time of the global financial crisis. They launched a companywide initiative to pay down debt and put most of their gold projects up for sale. We were both willing sellers depending on the price, but even though there were lots of bidders at the table, we wanted to make sure we sold the projects to good operators because we were going to remain active in Turkey. It wasn’t just about the highest price you could get for the projects. We wanted to make sure the incoming party would elevate the reputation of Western companies working in Turkey. We didn’t want anyone’s reputation damaged, so we were pretty selective in terms of who we sold them to. Alamos fit the bill, and we sold them for a total of about $91 million.
We probably put $15 million into the project, so it was a good return on our investment. Not only that, we held onto two key projects next door, which, in my view, form the backbone of that whole region from a tonnage point of view. And those two projects, Halilaga and TV Tower, now reside in Pilot.
Jeff: Alamos is close to making their two projects into mines.
Mark: They will hopefully become mines. We’re happy to have them as our neighbors.
Jeff: You’re not just a gold guy. You spun the Michelin deposit out of Fronteer into Aurora, and I understand sold it for $261 million. Tell us about that discovery.
Mark: My experience with Aurora marks some of the best and some of the toughest times in my career. There were moments of extreme excitement followed by some very tough times. During the uranium boom, Aurora was one of the blockbuster hits in the entire sector. Aurora was a pure uranium vehicle that was focused on drilling and advancing the Michelin deposit.
We had a fifty-fifty joint venture with Altius (T.ALS), run by Brian Dalton in your NexTen, and we both eventually decided that the best way forward was to take our fifty percent interests and roll them into a new public company, which I ran and our group managed. So that was the birth of Aurora. And based on the work we did there, we watched the valuation of this company roar from a $100-million asset to a $1.6-billion company in the course of three years.
Mark: It was the absolute market darling. It became one of the largest hard rock uranium deposits worldwide. It was a massive and growing uranium camp that we were at the very heart of.
Jeff: What year was this?
Mark: This started in 2003, and it really got rolling in 2006 and 2007. Then the uranium price crashed, the global financial crisis hit, and we watched Aurora drop back down to a $100-million company right before our eyes. The entire uranium sector went through the same thing. Fronteer was the largest single shareholder at the time – we owned about 43% of the company. We were long term believers in the quality of the asset and so kept our position. And when the stock crashed it was sitting on $100 million in cash, so it was essentially trading at cash value and the asset at zero, which was unbelievable to behold.
So Fronteer launched a bid and bought Aurora back. We then used the cash to fund our gold business. However, we kept most of the Aurora team employed, and waited for the right opportunity to resell it. Just before Fronteer was bought by Newmont, we struck a deal with Paladin and sold the asset for $260 million.
Jeff: Not a bad return after the crash in the uranium sector.
Mark: Exactly. And the quality of the asset is testament to that. If this was a third-tier asset – and there’s lots of them out there in the uranium space – we wouldn’t have had this type of outcome, but it was a very good quality asset and continues to be. It just needs higher uranium prices than what we have today, like most uranium companies.
Jeff: You’re not in the uranium business right now?
Mark: No, I’m not.
Jeff: I noticed that Pilot Gold falls under the umbrella of Oxygen Capital. What’s the relationship there?
Mark: Oxygen Capital is not a new concept in the mining business but it’s a new structure for us. It allows us to manage shared services like business development, communication, administration, etc. among all of our public and private companies, and seamlessly identify, evaluate and transact on new opportunities. Right now the Oxygen group of companies includes Pilot Gold, Riverstone Resources (formerly Blue Gold Mining) and True North Nickel, which is still private. Riverstone is a recent merger between Blue Gold Mining and Riverstone, where a low-cost, heap-leach gold deposit in Burkina Faso, West Africa is going through feasibility. So those three companies are being managed under the umbrella of Oxygen. Oxygen can also be thought of as an incubator – breathing life into new ideas. That is the rationale for choosing the name Oxygen.
Jeff: What’s happening with Riverstone?
Mark: I’m the Executive Chairman and working with the CEO Dwayne Melrose. A lot of the former Fronteer people are also playing key roles in the new Riverstone story. What appeals to us about the opportunity in Burkina Faso is the fact that it’s a low capital cost, low technical risk, heap-leachable deposit. It is a do-it-yourself type project that can move us into production relatively quickly and generate cash flow. As opposed to projects that are too big for the companies that own them, this is a project that our engineers estimate we can fund for under $150 million and produce up to 100,000 ounces a year. So it has great appeal, especially in this capital-constrained environment.
Jeff: Sounds exciting. How would you rate the political risk in Burkina Faso?
Mark: When you look at French West Africa, it’s certainly viewed as the best country to be in. West Africa shares a lot of the same political risks that South America experiences right now, but it’s more poorly understood from a North American perspective than, say, a European one. What appeals to us there is the fact that it is entirely possible to get a project permitted in under a year, as opposed to four or five or six years in many other locales. Yes, there are risks in West Africa that are undeniable, many outside our control, but I think that the opportunities, in this particular case anyway, outweigh those risks, just because of the uniqueness of the asset and the ease of getting it into production.
Jeff: I notice that you communicate to investors in a different way than many other companies. For example, Pilot Gold’s website features a surfer walking through grasslands…
Mark: Well, we coined a tagline about eight years ago called the Science of Discovery, and it was a big part of Fronteer and it’s now a big part of Pilot. It captures the essence of how we operate and is one of our guiding principles. We are all about applying solid geological science to the business of finding ore bodies – this is not a theoretical thing. We are interested in the commercial byproducts of science and we’ve traditionally focused on discovery because the discovery phase of the mining continuum is where the bulk of the value creation lies. It’s what drives companies from five cents to $10. It’s through those spontaneous discoveries where we create value, and I think the tagline – the Science of Discovery – is very apropos in reflecting our approach.
We do all of our marketing work with a great agency on the east coast called Target, and we have relied heavily on the power of metaphor to describe what business we are in. For example, we’ve used the strike zone in a baseball image to talk about the sweet spot. We’ve talked about salmon fishing and lunar landings, all of which are what we consider strong metaphors for the exploration business. Surfing is also an appropriate analog, because the surfer is in search of that perfect wave – they live and breathe for that perfect wave. And that’s no different than our incessant search for that perfect project, at the perfect stage, that’s going to catapult us to the next value level.
Jeff: I like it. Are you a surfer?
Mark: I am not a surfer, but I want to be.
Jeff: You’re a geological surfer.
Mark: Exactly. It’s funny, too, because these metaphors end up serving as conversation pieces. You go into a meeting and people start talking about surfing or baseball or salmon fishing and you end up leaving behind something that’s remembered for a much longer period of time.
Jeff: Mark, what’s your take on what’s happening with the junior resource market right now? As a whole the market was down 20% last year and 38% the year before.
Mark: There’s been such widespread carnage in the resource sector over the past 18 months or two years that management morale is low and treasuries have been depleted, even for companies that have good projects and good assets. So I think it’s a great buying opportunity, especially if you take a slightly longer term perspective.
What makes for a good attributes in a project are quite a bit different than they were even three years ago. We came through a period where bigger is better, with a fixation on drilling off the largest gold resource possible. But with rising capital costs and a difficult financing environment, these projects have become un-financeable and therefore unattractive to potential buyers who are already saddled with excessive amounts of debt. So the paradigm has shifted back to a do-it-yourself size project like Riverstone has in Burkina Faso, which is precisely why we were attracted to it. The capex is estimated at under $150 million as opposed to $700 million – you can finance that yourself. It’s also low technical risk, which means we can operate and develop it. We can become successful producers.
So the combination of low technical risk, low capex, near-term gold production, and a strong management team is the paradigm that works today. I think if you look at the junior world through that filter, there are opportunities that stand out that represent incredible buying opportunities at these lows levels.
Jeff: So based on your experience, what advice would you give to those who want to invest in the junior resource sector?
Mark: My advice would just be to look for quality. Do not be attracted to the optionality of big resources in the ground necessarily, but be driven towards projects that are financeable, that have good solid economic returns, that management companies can advance themselves, who are credible developers and operators. The food chain is broken right now and the acquisition cycle hasn’t really kept pace with people’s expectations, and that’s largely because the majors and mid-tiers are so laden with debt of their own that they just can’t take on any more projects. So companies that have a million ounce deposit, well, it better be a million ounce deposit they can mine and develop and finance themselves. Otherwise it is not going anywhere. It’s going to be dead money.
Jeff: Good point. Will the junior market turn around?
Mark: I think it’s going to be a very selective turnaround. I think there’s going to be widespread attrition. Of the 2,000 or so juniors out there, the bulk of them probably don’t have an asset to justify their future. So unless they’ve got a dynamite management team that can go drum up an asset, no one’s going to finance that group to keep the lights on. No one’s going to finance G&A [General and Administrative costs] right now.
Mark: So I think investors who are savvy to the mining space can go find 10 or 20 opportunities out there in this environment and back those horses.
Jeff: Speaking of which, what properties are you most excited about right now?
Mark: Pilot Gold’s TV Tower excites me the most from a sheer exploration perspective. It’s big, it’s high grade, and it’s in a good jurisdiction. It’s also brand new, and that’s captivating the market’s attention.
I’m also extremely excited by Riverstone’s prospects in Burkina Faso, the concept of getting our first mine up and running over the next couple of years with a respectable amount of production and lots of growth potential. The company’s been historically undercapitalized and we’ve now brought $18 million to the company, so it has a healthy treasury to complete a feasibility study and continue important exploration work to provide a whole new complexion to the upside. So those are my two strongest positions.
Jeff: There’s obviously a lot of potential with Pilot Gold, but the stock is up a lot and now trading around C$2.28/share. Is it too late to buy?
Mark: Not at all. Our 40% of Halilaga alone represents the entire enterprise value of Pilot Gold right now. So the current valuation of Pilot is justified by Halilaga, and everything else is free.
Jeff: Very good. Let’s wrap this up by talking about gold. Its logged single digit returns two years in a row, so what’s your outlook for the next few years?
Mark: The uncertainty that surrounds the debt crisis around the world and the U.S. in particular has only been deferred. If you look at the ways of dealing with that – for example, by raising taxes and cutting spending – those things are probably not going to happen. It’s ultimately going to be dealt with by paying down debt with newly printed money, which is going to devalue the currency further. Gold will do its job as a store of value in that dilution process. So gold is going to serve an important purpose as more and more money gets printed to pay down debt. And it’s probably not going to be a very pleasant economic environment.
Jeff: No disagreement here. Our final question is to always ask if there are others in the industry you think we should consider for our Explorer’s League. Anyone you think we should take a look at?
Mark: One name that comes to mind is Rob Pease. He’s someone I have a ton of respect for. Rob is on the board with me at Pilot Gold and was the guy behind Terrane Metals, a B.C. porphyry. He comes from Placer Dome and went out on his own and had a series of successful transactions. Some were original discoveries, some weren’t, but he’s a guy worth getting to know.
Jeff: Sounds good. Thanks for your time, Mark, and again, welcome aboard.
Mark: Thanks, Jeff.