There’s no denying that since 2014 the cannabis industry has increasingly grown a following with investors and, of late, mainstream media and conservative business service providers.
In this special edition of the CSE Quarterly, six CSE-listed companies operating in the rapidly evolving cannabis space are profiled. These firms, and the entrepreneurs behind them, showcase the diversity of opportunities and challenges facing an industry that is still in its earliest stages.
Featured in this special edition of the CSE Quarterly are:
Earlier this week, Peter Murray of Kiyoi Communications sat down with John Fowler, President and CEO of Supreme Pharmaceuticals (CSE:SL) to discuss his perspective on the commercialization of cannabis, how the landscape has shifted in the past several years and how choosing to list with the Canadian Securities Exchange enabled Supreme Pharmaceuticals to move quickly in this rapidly evolving space. Below is the transcript of the interview.
Ten years ago you were assisting medical cannabis patients with legal issues and now you are President and CEO of a company worth over $250 million helping patients in a more relaxed regulatory setting. How has the environment changed and when did you realize what a major business opportunity the cannabis sector would present?
It is impossible in this day and age not to have some understanding of the scale of illegal trade in cannabis. It is something I don’t participate in myself, but the point is that the business opportunity in cannabis, assuming a reasonable environment governing use for medical purposes, and ultimately for recreational purposes, has always been clear.
Regulated medical cannabis use became legal in Canada in 2001, so there was that setting from a patient rights perspective – a patient could legally access cannabis. But from a business perspective it wasn’t there. When Prime Minister Harper created what has now become the ACMPR (Access to Cannabis for Medical Purposes Regulations) – basically, highly regulated cannabis cultivation – I sensed the perfect business opportunity had arrived. This was an opportunity few are fortunate enough to have, the chance to create a business doing something you are passionate about. For me that was the combination of operating in a complex regulatory environment while working with the cannabis plant.
The best way to note the change is that when we founded this business in 2013 we expected it could take even up to 10 years post-licensing to complete the greenhouse project, and now we are looking to get it done in 24 months or less.
How has Supreme been able to develop into one of the industry’s leaders so quickly?
Our biggest advantage is that our team is committed to the cannabis space. Even though we have only been at this for three or four years, most of the team and executives who work with me have been thinking about this for much longer. What that has allowed us to do is move quickly to define our business, to recognize where we feel it is best to invest in core competencies, and for us that’s cultivation, and how to market a very transparent story.
When you are really focused and passionate about doing something well, which for Supreme is taking craft cannabis and developing it on a massive scale – in a nutshell, showing that “big pot” doesn’t have to be “bad pot” – that resonates with the market, whether it is the capital market, the general public or the consumer market. This has been our guiding vision, the goal of being a top cultivator and developing the competency of scaled cultivation that has allowed us to gain a favourable market position.
Supreme has always highlighted its role as a cannabis producer. Do you expect to extend the brand across different verticals in the future?
A lot depends on how the market unfolds. We are very clear at Supreme that we don’t have a crystal ball. Rather, we build competencies in a way that sets the company up for maximum flexibility.
I believe when you have a unique market opportunity like this, where the macro outlook is generally very positive – recreational legalization is coming and new international markets are opening – but the minutia at the planning level is still uncertain, you have to build in flexibility. We felt that by investing in the building of core competency at scaled cultivation and developing management systems to support that, we were building a business in the most moded part of the industry. Cultivation has the highest costs in terms of barriers to entry, Health Canada approval is a multi-year process, and it is hard to find transferable skills.
After that we can leverage our success in cultivation into whatever aspect comes next. In terms of what makes most sense at the time, it could be international, it could be products, it could be extracts – it really depends on what our market data tells us when we are looking to make our next step.
Supreme is based, and has its operations, in Canada but are there opportunities in the United States that the company could be attracted to?
The US is a fantastic market that is moving quickly. At the end of the day, cannabis remains federally illegal in the United States, so we are not looking at the US actively in terms of making large capital investments. That said, we take a lot of guidance from markets like California in terms of cultivation best practices, industry trends and product iteration.
How do you see the industry evolving going forward and what should be the main areas of focus from the standpoint of companies and investors?
As the cannabis market matures and grows, we should anticipate many more players coming into the space. I believe what that is going to mean is that companies have to specialize. I don’t think there is one aspect of the industry that is right for all companies. A company should have a core competency where they do something with the ambition of being the best in the world at it.
For us, that is cultivation. In the future we may expand that, but our goal is to develop a leadership position in cultivation. Any entrant into the space is going to have to figure out the aspects of the industry that they do better than anyone else in the world and focus their energies on that. And I think investors should be looking at that type of commitment to excellence from companies they are investing in.
Supreme is one of a handful of companies to successfully navigate the licensing process in Canada, raise the required capital and begin production. What does it take to get a production operation started and what advice would you have for potential entrants to the sector?
Getting a production license in Canada is quite challenging. It is a long and detailed process. We submitted our application to the Federal Government in autumn of 2013 and we were licensed in spring of 2016. For those looking to do it, I would say to make sure you have a clear plan, that you work with good partners and advisors, and that your project is correct and licensable. And more importantly that you have a business at the end of it. Some people think of a license as the finish line, when actually it is the starting line.
More generally, the cannabis industry offers opportunity beyond just cultivation. Entrepreneurs looking to get into the space need to think about themselves, their team, and think about what core competency they can develop so that they do something better than everybody else. That is their competitive advantage and that is how they will have a market.
If you look at conglomerates in other industries, they are generally grown in that fashion, where the company started with one great business, generated profitability, and that was leveraged into buying other great businesses or extending to other verticals. But it always comes down to that premise where you need to find something that you do better than absolutely everybody else that you can make the heart and soul of your business.
How are the evolving regulatory landscapes in Canada and the US presenting challenges and opportunities?
Challenge and opportunity are really two sides of the same coin. Regulatory requirements shape the business, but finding ways to operate efficiently within those regulations and ways to gain an advantage through those regulations is the opportunity for companies.
As an example, we saw a cannabis bill put to parliament this month. There are a lot of regulations and challenges in there, but for companies that navigate that well there is a lot of opportunity. At Supreme, we are spending time digging through that, assessing our business model, assessing what business models we think the future will allow, and finding the opportunity that comes out of those regulatory challenges.
With the experience of being an early license recipient, how important is first-mover advantage in this business?
We believe it is important to be early to market, but you don’t always need to be first. Many great companies in other sectors were not the first movers in their space. Business is a marathon, and it’s important not to be a quarter-horse in a mile race.
You need to be in there at the right time. The best business plan only works at the right point in time and under the right market conditions. For us, we saw an opportunity to leverage our competitive advantage in cultivation, to leverage the core competencies we were building as a group, and then we brought in team members to cultivation with the singular focus of producing some of the best quality cannabis in Canada.
The best way to market cannabis is not through the fanciest logo or best packaging, although that is important. At a high level, you have to remember that billions of dollars of cannabis is transacted per year with no brand name, in bags with no branding, based on “who’s got the good stuff.” At Supreme, we feel we are growing the good product and that is going to be the heart of our brand going forward.
When branding and advertising are restricted, your product must speak for the brand. We work every day to ensure our product speaks loudly.
It is almost three years to the day that Supreme listed on the CSE and began to focus on the cannabis industry. During those years, the company has grown its market capitalization to over $250 million. How would you characterize Supreme’s experience with the CSE?
Our experience on the CSE has been fantastic. First of all, it is debatable whether Supreme would even exist without the CSE, because the CSE allowed listing based on a clear, bona fide business plan to get into the cannabis space prior to us having a license. For the bulk of those three years we were an applicant entity.
In addition, the CSE was very entrepreneurial with its ability to work with Supreme so I could meet the objectives of the company and raise capital as we needed and work on growing our market, and that was invaluable. And doing it while being easy on our bottom line, for an early-stage company that at times was thinly capitalized.
As for where we are today, we have been able to do a lot of things we were told we couldn’t do on the CSE. We have been able to raise large amounts of capital. We raised $70 million last year. We were able to do a $55 million bought deal as a private placement on the CSE. And we were able to grow our market capitalization to over a quarter of a billion dollars while listed on the CSE.
I’d like to think we will be remembered for breaking through a number of barriers and bringing some investors to the CSE who perhaps had not looked at the exchange before. We’ll never forget the seminal role that the CSE played for Supreme and the ability it gave us to develop our business and get where we needed to go.
The precise number depends on the source you choose, but multiple surveys indicate that people spend hundreds of millions of hours playing video games every week. And that’s just in North America.
Considered another way, the Super Bowl and its famously expensive commercials attract around 110 million viewers in the United States, yet that occurs just once a year.
Clearly, then, video games are media – and immersive media at that – with millions of people engaged at any given moment. And most players pack enough disposable income that brands want very much to reach them.
The billion-dollar question is how to introduce a level of commercial marketing into the gaming environment such that it makes a positive impression on behalf of a brand, as the last thing you’d want to do is turn gamers off by being intrusive or annoying.
Versus Systems (CSE:VS) is confident it has the answer, and it revolves around encouraging both avid and casual gamers to opt into an environment where products and brands are featured in a way such that players become eager to interact.
Gamers are naturally competitive, so the idea of offering the chance to play for more than just an ephemeral digital points total makes sense. Playing for valuable prizes introduces a new degree of meaning to the activity, and it is this dynamic that is enabling Versus Systems to draw interest from an increasing number of brands searching for new ways to market their products.
“We’ve created a platform that does two things,” explains Versus Systems CEO Matthew Pierce. “First, it allows publishers and developers to offer prizes within their games to drive engagement. It makes them more fun to play and the idea that you can compete for everything from downloadable content to physical goods to energy drinks and concert tickets is an enormously powerful opportunity.
“The second thing it does is allow brands to be part of a promotions engine for in-game advertising and connect those brands to players and spectators. Our belief is that if you make it fun to try to win prizes and make it aspirational, and you find products that players actually want to play for, that is a really rich opportunity.”
The origin of Versus Systems is a fascinating story and helps explain not only where the core idea came from, but why the company is positioned to succeed in a business with immense challenges, both technical and legal.
Pierce is a Stanford graduate who started his own companies and worked for large consulting groups. Versus Systems was founded in a technology incubator Pierce worked in, but it was an incubator with a twist. Not only was it full of programmers and engineers with incredible skills and entrepreneurial zeal, but its main backer was a law firm, and this is the team’s secret sauce, if you will.
“The thesis was to work in areas that took advantage of the partners’ strengths,” says Pierce. “We thus wanted ideas that were technically complex, and we also needed the regulatory landscape to be complicated because we had access to tremendous attorneys. We are versed in the entertainment space and thus wanted to keep things in that sector. The first company we incubated was Versus and it is the best project I have ever worked on.”
Players who want to compete on the Versus platform must first download an app to their phone or computer so they can log into the community. Once in, a player finds that the Versus experience is additive and does not interfere with their fun by adding the conventional overlay of monetization approaches common to many games these days. Rather, Versus enables players to determine the parameters of interaction themselves.
“You log into your game and a new set of menus appears when you go to play,” explains Pierce. “Players can choose to play for money, for physical goods, or for downloadable goods. You can also decide if you want to play one on one, or perhaps one on five where the top three players win a prize. And gamers often like to play people they have invited because it means something if they can beat them.”
The beauty of the business model from the Versus Systems perspective is that the company does not have to make large financial outlays in order to attract users to its platform. As it aligns with popular games, players will naturally find Versus and its competitive options on their own.
For game developers, the appeal is a platform that is a total solution, managing prize and competition details for players, while also addressing administrative challenges they surely would rather have someone else take care of.
“The concept of creating a platform that solves a lot of the legal and regulatory burdens faced by game developers and publishers was an important part of the genesis of the company,” says Pierce. “We call the approach dynamic regulatory compliance, as we make sure that prizes are only available in regions and countries where those prizes are legal. It is a new approach and we have been writing patents to protect the intellectual property since 2014.”
Versus generates a number of revenue streams from its involvement with each game, the most important being revenue-sharing agreements with developers and publishers when brands pay to offer products or gamers choose a pay-to-play option from the platform. Integration fees help the company cover up-front costs.
“It has to be bespoke integration,” says Pierce. “Nobody knows the players better than the developer and we don’t want to take them out of that world. I don’t want this to be something that in any way detracts from the gaming experience, but rather helps to make it more engaging.”
Pierce and his team are currently working to integrate the beta model of the platform into a handful of games, while at the same time adding prize providers and signing up brands, some of which he expects to be very big names. Rapid expansion of the company and its reach is expected to follow.
“The games we are working with early on are really great,” says Pierce. “When we get out into the market and people see how exciting this is as an engagement engine, I think we’ll soon have to scale up to put this in more and bigger titles. All brands want to be where their customers are, and their customers are playing games.”
Getting in on the ground floor of an exciting new opportunity is one well-acknowledged path to success. Marapharm Ventures (CSE:MDM) CEO Linda Sampson likens it to finding a “once in a lifetime opportunity” and believes that is exactly what her company is moving forward with as it draws closer to operations at multiple facilities focusing on the medical cannabis industry.
Marapharm is taking a different approach than many of the other companies in the space, diversifying its portfolio across geographic regions and business types, and doing so in a way that marries its corporate strengths with the needs of different markets. It is a plan that at once helps manage risk while increasing the degree of success Marapharm and its shareholders can potentially realize.
Marapharm is advancing cannabis production opportunities in British Columbia and Nevada, and will also serve as landlord of a large facility in Washington State. It plans to not only grow cannabis but also process harvested material into products such as oils and edibles in jurisdictions where this is permitted. Production, processing, landowner, future retailer – put a check mark in the vertical integration box.
Fortunately, when it comes time to ship product, Marapharm’s boss is an experienced marketer. Sampson, originally from South Africa, enjoyed a career before agreeing to head Marapharm that saw her re-brand struggling companies and help turn their operations successful in relatively short order. Sampson also worked with commercial property developers to conceptualize projects, consult with designers to ensure details were right, and market them afterward.
Sampson’s skillset is being put to good use at Marapharm, which leans on her for real estate, market research, and strategic planning insight to name just a few challenging aspects of the fast-moving, big money industry that is medical cannabis in North America.
Marapharm has an application before Health Canada for a production facility in the picturesque city of Kelowna – also home to Marapharm’s head office – that has passed the Security Clearance phase and is now in the in-depth Review phase.
But moving faster thanks to different local rules are facilities in the US state of Nevada. Here, Marapharm is looking to be a major player in the Las Vegas market for medical, and soon recreational, cannabis and processed cannabis products.
“Marapharm owns a company called EcoNevada which holds a 204,000 square foot cultivation license and a 16,000 square foot processing license,” explains Sampson. “And at another Nevada project we own the land with no debt, have an option to purchase 85% of the production license for $250,000, and then can acquire the remaining 15% for $1,000,000. When you consider the three licenses together it totals about 304,000 square feet, which is the equivalent of six and a quarter football fields.”
The holder of the latter license is businessman Kurt Keating, an award winning organic cannabis grower who will work with Marapharm on its Nevada projects as general manager.
But Keating’s role does not end there. Being a Washington resident, Keating obtained a license in that state and will use it to operate a facility that would be situated on 13 acres of land Marapharm has the option to purchase. It already accommodates a 28,000 square foot building used as a cultivation facility and the plan is to expand that footprint.
Companies from outside of Washington State are not permitted to hold local growing licenses, and with Marapharm hailing from Canada that means it can’t be the licensed grower at the Washington site. The strategy is thus to purchase the land, build and outfit the facility, then lease it to Keating and other growers for their own production use. A departure compared to being the actual grower, but still a use of capital that generates a good return and diversifies both the company’s asset holdings and revenue model.
“Part of Kurt’s Washington license allows for unlimited processing,” says Sampson. “There is a building next to the production facility that we can turn into a processing center. We can equip it so as to maximize processing potential to be operated as a turnkey facility. For people who hold cultivation licenses but not processing licenses, we can allow cultivation on our property and then they can use the processing facility after harvests.”
Sampson says Nevada will be the company’s biggest cultivation center, as well as the one that receives the majority of the marketing budget. “The Nevada medical market is unusual in that it is a reciprocal state – if you are a medical cannabis user from another jurisdiction you can bring your card to Nevada and they will honor it,” explains Sampson. “Las Vegas gets 50 million visitors a year, and on November 9 the state voted to move forward with legalization, so that adds another aspect to the value of what we have there. I think our involvement in Nevada represents a giant step forward for our company.”
Looking out over the next 12 months, Marapharm intends to forge ahead with its application in Canada while completing the build-out at its Washington site.
In Nevada, the company wants to get production up and running sooner and use its processing facility to create edibles and other products suited to the local market. “We anticipate that the Nevada market will be more focused on processed products as opposed to the actual cannabis, as they can be used more discreetly,” says Sampson.
Reflecting the different regulatory atmosphere, the Nevada sites actually face April deadlines to begin operating, so Marapharm is working to have initial 5,000 square foot facilities functional on each within the prescribed time frame. “They are OK with us having a smaller building but with the intent to move ahead with a bigger structure at a later date,” Sampson says.
So, big plans and tight timelines, but how is Marapharm set to manage financially? To begin with, the Nevada land is paid for and the company does not have any debt, plus warrant exercises brought in over $1.5 million as the stock price topped the $2.00 level in November. The stock trades good volume between $1.00 and $2.00, which suggests the company has financing options that would not require it to accept undue dilution if it needed to go to market.
Marapharm also has designs on California, not to mention automated vending machines, that, using proprietary biometrics for identification purposes, would be used where regulations allow. It is a strategy of diversification, integration, but focus on a young, growing cannabis industry – the pieces appear to fit.
“It is not often a chance like this comes along – it is kind of like the gold rush,” Sampson concludes. “We just feel so honored at the opportunity to be in on the ground floor and be working in good jurisdictions with great people. I think the future looks very bright.”
Covering an area larger than Peru yet with a population of just 3 million people, Mongolia is the most sparsely populated country on earth. It is also a beautiful and fascinating nation, with traditions established before Genghis Khan founded the Mongol Empire in 1206 influencing lifestyles to this day.
While mindful of its rich culture, Mongolia is easing into the modern economy with commercial-scale mining leading the way. How could it not when minerals comprise some 80% of the country’s exports?
Mongolia’s most famous mine is undeniably Oyu Tolgoi, the copper-gold behemoth operated jointly with the Mongolian government by Rio Tinto (LON:RIO) subsidiary Turquoise Hill Mining since 2013.
But the country is home to other mines as well, such as Centerra Gold (TSX:CG)’s Boroo mine, a historic gold mine whose modern-day output began in March 2004 and continued until September 2012, though with a stoppage of just over a year beginning in November 2010.
Oriental Non-Ferrous Resources Development (CSE:URG) and its leadership team were attracted to the country for the same reasons as other companies – high-quality projects, proximity to Asia and a favourable permitting environment, to name a few.
The driving force behind the company’s strategy and operations, founder and director Youliang Wang, explains that the concept for Oriental Non-Ferrous Resources Development dates back some 20 years to when he was a banker at China Construction Bank, where his responsibilities included overseeing loans to Chinese mining companies.
Attracted by the scale and variety of opportunity in Mongolia, Wang first invested in a dairy business, eventually broadening into other agricultural businesses as complements.
Given his background in mining finance, though, it was only a matter of time until he created a plan to move into this sector. In 2013, Wang and his team immersed themselves in the Mongolian mining community, working with consultants and local exploration teams to examine various properties. The result was the company’s current land package, prospective for both industrial and precious metals.
Oriental Non-Ferrous Resources Development’s properties are located in the Bornuur district in the Tӧv Aimag, or Central Province, of Northern Mongolia. Its package spans roughly 1,050 hectares, comprised mostly of the Kharganii am-1 Molybdenum Property.
“Our licensed area is situated in the North Khentii tectonic belt and we have encountered gold, copper, molybdenum, tungsten and silver on its grounds,” says Wang. “The projects are located 24km northwest of Centerra Gold’s Boroo deposit and 15km east of their Gatsuurt gold deposit.”
Since acquiring the Mongolian projects, the company has completed extensive trenching and geophysical work, geological mapping, ground magnetic surveys and polarization gradient surveys.
“Our initial phase of exploration drill work has contributed to a database that contains approximately 3,501 drill core samples and 29 trench samples that were assayed for molybdenum,” says Wang. “This includes a current program which encompasses 29 holes for a total of over 11,630m.”
Wang explains that many of the holes have multiple intersections of molybdenum mineralization above 0.05%, with several intervals of between 1m and 2m exceeding 0.5% Mo. The best hole yielded a 3m length averaging 2.413% Mo.
Wang notes that the Mongolian permitting environment is very reasonable, with the various licenses Oriental Non-Ferrous Resources Development holds typically being extendable for up to 30 years.
P&E Mining Consultants of Toronto was recently chosen to complete a NI 43-101 report for the company’s Kharganii am-1 Project, which will reflect results from the current drill program and associated metallurgical test work. A concurrent evaluation of the preliminary economics of the molybdenum deposit is also planned.
The properties being situated within a recognized gold belt, Oriental Non-Ferrous Resources Development is also gearing up to initiate a property-wide evaluation of potential gold targets. The work will include mapping, prospecting and IP geophysics. Expansion of the property is also under consideration.
“The North Khentii gold belt has an extensive history of mining both alluvial placer and bedrock gold deposits,” says Wang. “After discussions with geologists from P&E, we are looking to evaluate high-potential targets within the property for gold mineralization.”
Wang says Oriental Non-Ferrous Resources Development is also evaluating both merger and acquisition opportunities and possible project procurements, the longer-term objective being to develop a portfolio of Asia-based projects diversified across various mineral types and regions.
Time will tell where these expansion efforts lead, but for the time being there is plenty to be excited about in Mongolia. The country has only been an internationally accessible mining jurisdiction since the mid-1990s, and if one considers what the industry has been able to accomplish in the last decade between new discoveries and active operators, Mongolia holds its own vis-à-vis many more mature mining jurisdictions in other parts of the world.
“We have long believed in the viability of mining projects in Mongolia, and when the projects in our current portfolio came to our attention, we thought what better way to get involved in the space than to make investments in some of these great projects, and then look to take them public,” Wang concludes. “Mongolia has a rich mining tradition, and we hope Oriental Non-Ferrous Resources Development will in time be able to play a lasting role.”
Anyone who knows anything about Canadian gold mining will be familiar with the legendary Red Lake Gold District in Ontario.
It’s home to the Red Lake mine, one of the world’s most prolific mines owned by one of the biggest producers of the yellow metal: Goldcorp (TSX:G).
The district has produced over 30 million ounces of high-grade gold, and other major operations in the area include the Madsen and Starrett Olsen mines, owned by Pure Gold Mining (CVE:PGM), and Goldcorp’s Red Lake, Campbell, and Cochenour mines.
Well on the way to making its own mark in the district is junior explorer West Red Lake Gold Mines (CSE:RLG).
The company’s 3,100 hectare property hosts three former producing mines, lies just 20km from Goldcorp’s Red Lake mine and boasts a management team that is expert in bringing gold projects to the point where they are bought out by bigger producers.
“We explore and develop gold projects – outline a gold deposit or what could be an underground mine in the case of our present project,” explains president John Kontak.
“We would, say, take a company of $20 million market cap and develop the project for a transaction that could be worth a couple of hundred million dollars. That’s what we’ve done before and that’s what we’re working towards now,” he said, adding that it’s a two- to three-year strategy.
And this team certainly has form.
Entrepreneur Tom Meredith is Executive Chairman. He was formerly head of VG Gold, where he worked with West Red Lake’s exploration manager, Ken Guy, and took a $3 million market cap firm to the point where it was sold to Goldcorp founder Rob McEwen in a transaction valued at approximately $200 million.
Meanwhile, Kontak was formerly president of Victory Gold Mines, where Meredith and Guy were also involved. It owned a former open pit east of Timmins that was later sold and is now part of Osisko Mining (TSX:OSK).
The team (including Meredith, Guy and Kontak) took on West Red Lake in 2014 during the gold bear market, sorted out some legacy issues, and in February of 2016 filed a NI 43-101 inferred resource estimate for the Rowan mine target of 1.087 million ounces at 7.57 grams per tonne (g/t) gold.
West Red Lake has three former mines on the property – the Rowan, Red Summit and Mount Jamie mines. The latter two are owned 100% by the company, while Rowan is 40% owned by joint venture and funding partner Goldcorp.
Rowan is currently the focus of attention, where the company is operator and over 500 holes have been drilled to produce that NI 43-101 estimate.
The Rowan project consists of two main exploration targets. At the former mine, the goal is to significantly increase the resource to allow for a long mine life.
Then there’s blue-sky potential at another target, a structural intersection where two regional gold-bearing structures meet.
“That’s what happened to Goldcorp,” exclaims Kontak. “It found a zone and that took it from a junior to a multi-billion dollar company.”
It’s worth noting here that Goldcorp’s Red Lake mine produced a whopping 375,700 ounces of the precious metal in 2015 alone.
The geology of the Rowan mine is a fairly simple archean greenstone, Kontak explains, whereas the intersection target is more complicated, involving folding rocks.
However technological advancements in exploration nowadays means finding that “needle in the haystack” is increasingly plausible.
West Red Lake started drilling again at Rowan in January, having completed two programs last year, and plans to start a campaign every quarter while releasing assays from the preceding program.
The near-term aim is to expand the existing resource and in the future to upgrade into the higher-confidence “indicated” category.
The resource is open at depth and to the east and west, and there’s a 12km strike length so there is plenty of opportunity to work at increasing it, though there’s no specific time set for the release of the next estimate.
“This could be turned into an operating underground gold mine,” Kontak said of Rowan, pointing out there were many mills with spare capacity around in the area, along with good infrastructure and water.
The Red Lake region’s propensity to yield high-grade gold is also key to the story.
The 1.087 million ounces of inferred resource at 7.57 g/t was at a 3 g/t cut-off, and at a higher 5 g/t cut-off there were still 850,000 gold ounces inferred from just 2.5 million tonnes. The basic message is the higher the grade, the lower the costs.
Kontak explains: “You have to dig less rock out of the ground, you have to transport less rock to the mill and you have to crush less rock at the mill to get the gold.”
West Red Lake has a team in Toronto already trying to attract potential production companies who may be interested in buying the project in two to three years.
Financially, the company has around $1.5 million in the treasury, and is funded for its drill programs in the first and second quarters.
Management are significant shareholders, so they are obviously keen to see value enhanced.
With some attractive targets and apparent multi-million ounce potential, West Red Lake Gold Mines has it all to play for at a time of rising sentiment in the gold market.
Throw in an experienced management team and you’ve got what many would see as the complete package.
With its two assets and strong mining team, Winston Gold Mining, which raised C$545,000 when it listed on the CSE last March, appears to tick all of these boxes.
While it is still in the early stages of developing its Gold Ridge property in Arizona and its namesake Winston project in Montana, the company holds historic data (particularly on the latter) which suggests both projects have more than a fighting chance of success.
Winston is located near Helena, Montana – an area with a rich mining history dating back to the 19th century.
The district is reported to have produced 100,000 ounces of gold from only 150,000 tonnes of ore back in its heyday at an impressive average grade of 22.8 grams per tonne (g/t). A quick look at the records will tell you that the Custer mine – which lies within the Winston property – was a major contributor to that figure.
Similarly, the Gold Ridge project near Willcox in Arizona yielded some good grades in the past, too.
“It was acquired from some people we know very well. It’s also a historic mine, but not quite as prolific as the Winston claims,” explains the company’s chief executive Murray Nye.
The Gold Prince deposit on the project was mined sporadically between 1932 and 1996 and produced 22,000 ounces of the precious metal from multiple veins, averaging almost 12 g/t.
The low price of gold back in the eighties forced the previous owners to move out of the property, but Nye’s interest was piqued by what was left behind.
“What we liked about that was that it had a lot of development done already. They had set up two drill stations underground and we went down and checked it out and they were both in good shape,” he explains.
“Both the drill stations were ready to go and drill below the level they were mining, so we thought there was a pretty good opportunity to start some bulk sampling or test-mining there on a near-term basis.”
This is exactly what Nye and his team look for when assessing potential projects.
“We’re after properties that we believe can get to a development or bulk sampling stage as quickly as possible because the investors who we’ve aligned ourselves with are looking for that kind of opportunity and we think we’ve found a couple of assets that fit those criteria.”
Given that it only acquired Gold Ridge at the back end of last year, not much additional work has been carried out at the property. The company’s primary focus has been on its flagship Winston property.
“We think it has more opportunities in terms of tonnage,” says Nye.
The project had around 630 holes drilled down to around 100 metres or so as the previous owners tried to assess the potential for an open pit operation. They estimated it could be host to around 500,000 ounces of gold, potentially more.
“That’s not 43-101 compliant but it certainly gives us an indication that there are some pretty good gold values in the property and many of them were very high grade,” says Nye.
The CEO and his partner Mike Gunsinger think the real potential of the Winston project lies in the untested geology further below ground.
“Our thinking is – and three geologists have also told me this – that this project is better suited to underground mining. What we’re doing now is drilling underneath where the old workings are.”
Recent results would seem to back up this theory. In January Winston appeared to locate a “high-grade gold vein which could be amenable to underground test-mining.”
Drilling along the Edna-West vein, as it has now been called, yielded grades of 8 g/t up to 44 g/t.
The bonus of these high grades is that it would make the project relatively low-cost.
But it’s not just the grades that make Winston such an exciting project; the fact that the infrastructure is already in place is also a plus-point.
“There’s a major highway within a half-mile of the property and there’s a major power line running right through the middle of it,” says Nye.
“The elevation is also low by Montana standards so Winston would lend itself to year-round operations.”
The plan is to carry on drilling here for another few months and then go underground, with a view to getting into production within two years.
“If we were to start something [underground] eight months from now, you’d be doing the development which would probably take another eight months,” explains Nye.
“Depending on how long the vein is and what you’re mining it would at least take you another eight months to develop that into a shrinkage stope operation.
“So within a couple of years – maybe a year and a half – you’d be in a production scenario if everything went to plan.”
“Our goal is to develop underground access and gradually ramp up to a 300 tonne per day test-mining stage. If all goes according to plan we believe we could achieve this for about CDN $10 million. Of course the ultimate number of ounces produced will depend on the average grade recovered.”
That’s not a lot in mining terms, but it is a tough ask for a fledgling business. But that there is where the experience and connections come in.
Winston is the second mining company Nye has headed over the past decade, and before that he was involved in financing projects, while Gunsinger has over 50 years of mining experience to draw upon.
So they know mining money people and are also pretty well up on the laws and regulations, especially in Montana.
“Operationally we’ve got a very experienced mining team and management is key in this. We’re very familiar with the state, the regulations there and we have very good relations with regulatory bodies,” says Nye.
The one thing Nye can’t control is the price of gold, although things are starting to look up here too.
“The gold market, in my opinion, is a place to have a serious look right now – it bottomed out but now seems to be back on an uptick,” the Winston CEO says.
Is this another box ticked for Winston Gold Mining? Very possibly.
When one thinks of Japan, sushi, Shinkansen bullet trains and onsen hot spring resorts come to mind more readily for 99.9% of the population than precious metals exploration. But those famous hot springs are plentiful because of geothermal activity, and this special geological phenomenon in Japan has given rise to some rich gold mines in years past.
The most impressive example in modern times is the Hishikari mine located on the southern island of Kyushu. Operated by Sumitomo Metal Mining Co. Ltd. (Tokyo Stock Exchange:5713), Hishikari is very high-grade in nature, averaging some 40 grams per ton of gold in its ore.
Quinton Hennigh and Akiko Levinson knew about the potential for exploration in Japan as they were building up ounces at the Springpole deposit in Ontario while running Gold Canyon Resources. Springpole developed into a resource of over 5 million ounces of gold before the company was acquired by First Mining Finance in 2015.
As part of the deal, Gold Canyon spun out a new company with Levinson at the helm. She and Hennigh had for years agreed that if they ever started a new company, it would focus on Japan. The new vehicle was their chance and Irving Resources (CSE:IRV) had its direction laid out from the get go.
As 2017 kicks off, Irving has a project portfolio with all the hallmarks investors like to see – multiple projects with high-grade gold and silver showings, sound infrastructure, and a friendly jurisdiction to work in. Combine these attributes with good share structure and a healthy treasury and the Irving story has become an investor favourite, its stock price rising over 600% in the past 12 months to around $0.90.
In November 2016, Irving raised just short of $6 million, with famed precious metals investor Eric Sprott personally providing the lead order. That leaves the company with over $7 million in the treasury, or to put it another way, all the financial runway it needs for well over a year to begin showing the world how rewarding precious metals exploration in Japan can be.
“We are one of very few exploration companies operating in Japan,” explains Hennigh. “We are building relationships in the country and it is a very pleasant place to work.”
Irving, though a local subsidiary, has thus far acquired three projects, all located on Japan’s northernmost island of Hokkaido. Each of the projects holds great promise from an exploration standpoint, but Omui is the one that excites Hennigh most at this early stage, and with good reason.
Chip sampling off float boulders on the property returned assay numbers the company termed “exceptional”. The assays included samples of 480 grams per tonne (g/t) gold and 9,660 g/t silver, 143.5 g/t gold and 2,090 g/t silver, and others of similar quality. Even the newcomer to investing in precious metals will recognize those grades as being virtually off the charts.
“Omui is a very high-grade epithermal vein system exposed at surface and there was limited mining there in the 1920s,” explains Hennigh. “We expanded our land position by filing for applications for additional tenements, and have also started to prospect beyond the historic Omui mining area.”
Importantly, the exploration team has also found Omui’s rock to contain silica, a common element accompanying veined precious metal deposits, and critical to ore processing in Japan. The early results indicate rock at Omui being very low in toxic elements such as arsenic and antimony as well, suggesting any deposit outlined at the project could yield ideal smelter feed for domestic refineries.
While Hennigh and Levinson will be spending quite a bit of time in Japan going forward, when not there they have teammates to rely on in the country who are second to none.
Hidetoshi Takaoka enjoyed a long career at Sumitomo Metal Mining, helping to explore the Hishikari deposit and sharing credit for finding and developing Alaska’s world class Pogo gold deposit. “I’d say Mr. Takaoka is Japan’s best known geologist,” says Hennigh.
Irving also considers itself fortunate to be working with Haruo Harada and Mitsui Mineral Development Engineering Co., Ltd. (MINDECO) for assistance with permitting applications and other work with specific engineering requirements.
Dr. Kuang Ine Lu, an Irving Resources director who earned a Ph. D in Economic Geology from the University of Tokyo, brings yet another experienced hand to evaluate projects and strategy based on years of local experience.
Longer term, the plan at Irving is to prove up deposits from which to sell smelter feed to domestic smelters.
Hennigh is quick to point out, though, that the company intends to move ahead in a methodical manner, so as to make the most of its financial resources and ensure the highest possible likelihood of ultimate success.
“We are looking to shore up our land positions in the next few months and then starting in May begin field work on the various projects,” says Hennigh. “Omui will be first, as it is our most advanced project and is giving us the best numbers. But we will explore Utanobori, Rubeshibe and possibly other projects we are considering with chip sampling, mapping, soil sampling and maybe some geophysics. This year will focus on refining targets and it will probably be 2018 when we are ready to get drills turning.”
Interestingly, Hennigh says that experienced drill teams are available in Japan not only owing to mineral exploration but also because resorts and energy projects drill to tap hot springs throughout the country. They use core drills primarily, which is exactly what Irving wants so that it can preserve layers of rock and assess veining at various depths in detail.
Shareholders will be happy to learn that the depths Irving envisions its targets at are not that daunting, with Hishikari’s deepest levels of 350m serving us a good indicator for a Japanese precious metals deposit.
And because of Japan’s size and advanced development, project accessibility is not an issue. “Most areas in Japan are accessible by road and we don’t have to walk more than half a kilometer to any of the sites,” says Hennigh.
The stars seem aligned to make 2017 an exciting year for Hennigh, Levinson and the rest of the Irving Resources team. With field work starting in a few months and early project showings nothing short of outstanding, the company is set to draw attention to a country whose potential for precious metals exploration has largely been overlooked.
As many seasoned mining professionals know, two of the key ingredients to survive the often-harsh world of mining and exploration are hope and enthusiasm. At this year’s PDAC conference in Toronto, however, there was something more in the air – a feeling that has been missing for some time – excitement.
Despite political uncertainties at the start of the year, prices for commodities and precious metals have rebounded enough compared to last year to give the mining and investment communities many more reasons to smile and, most importantly, to make deals. And it appears that deals are happening. In the fourth quarter of 2016, for example, CSE-listed companies in the mining sector managed to raise over $30 million signaling that deal flow, while modest, is improved over the same point a year prior for junior and small cap companies.
With the PDAC typically drawing in well over 20,000 delegates (this year they pulled in 24,000), hundreds of exhibitors and dozens of sessions and networking opportunities, it’s not enough to walk the walk – to get the most out of this show, companies and investors must also talk the talk.
In recognition of how important (and daunting) the PDAC can be for small cap mining firms looking to raise capital or for investors trying to navigate opportunities, the CSE, along with several like-minded event partners and sponsors, sought to help by putting the right ingredients in place to enable entrepreneurs and investors to have a positive PDAC experience.
PreDAC: Building Connections Early
Whether it’s polishing a pitch or simply mastering the subtle art of balancing finger foods, a drink and a conversation with an industry colleague, networking with the right people at the right time makes all the difference to an entrepreneur. Of course, it helps to get a head start.
To that end, the CSE along with its event partners, aimed to help PDAC attendees – as well as those who might not be able to attend the convention itself – connect with one another at two pre-PDAC sessions, known as PreDAC, in Toronto and Vancouver.
In each case, not only was there a solid turnout, but attendees were genuinely excited to connect and discuss the industry and outlook for the near term ahead of the whirlwind that is the PDAC. Based on the level of interest and enthusiasm with attendees of these events, PreDAC sessions were on point in getting folks in top form for PDAC 2017.
In Toronto, PreDAC was held at the fun East Thirty-Six resto-bar. Co-hosted by OCI Group, the session included insightful presentations from Dr. Francis Manns, Consultant & Independent Geologist; Krystal Ramsden, Mining Analyst at Extract Capital; Peter Campbell, Investment Banker at OCI Inc; Lawrence Devon Smith, Consulting Engineer; and Katherine Fedorowicz, VP Marketing & Investor Relations at Red Cloud, Klondike Strike Inc. To view more images from PreDAC Toronto, check out the Facebook album here.
PreDAC Vancouver took place at event co-host Clark Wilson LLP’s scenic downtown offices. Joe Mazumdar, Analyst and Co-Editor at Exploration Insights and Matt Zabloski, Founder and Lead Portfolio Manager of Delbrook Capital, provided attendees with their perspectives on what to look at when evaluating a mining company as well as the investment landscape for natural resources respectively. To view more images from PreDAC Vancouver, check out the Facebook album here.
Following the presentations at both the Toronto and Vancouver events, attendees enjoyed networking opportunities, appies and drinks with industry peers, investment professionals and others during the networking session.
The CSE at PDAC 2017
PDAC is always a busy but this year was busier than most for the Canadian Securities Exchange. In addition to exhibiting at the Investor’s Exchange, the CSE hosted the increasingly popular PDAC Investor Luncheon, launched a special edition of the CSE Quarterly and co-sponsored an evening networking reception. All this in addition to the many meetings with investors, entrepreneurs and other industry professionals in and around the convention.
PDAC Investor Luncheon
The PDAC Investor Luncheon continued its growth in both attendance and popularity again in 2017, making it a must-attend event for those interested in the CSE as well as companies listed on the CSE.
In addition to a delicious buffet, attendees were treated to quick pitch-style presentations from several CSE-listed company executives, as well as a keynote special presentation on raising capital in the US by guest speakers Kenneth Sam from Dorsey Whitney LLP and Chris King from OTC Markets Group.
On the exhibition floor, the infamous CSE booth and lectern made their return to the PDAC. With a larger crowd at this year’s show, there was a noticeable bump in traffic to the CSE booth. In addition to the exchange itself, the CSE was also well represented around the convention floor with nine CSE-listed companies exhibiting.
It wasn’t all work at the PDAC. CSE team along with friends from MNP LLP and Aird & Berlis LLP got together at Taverna Mercatto to celebrate another successful PDAC. This event, like many others around the show, was also busy and offered up the chance to recount stories of the day and to make plans for future meetings.
Recipe for Success
PDAC 2017 was undeniably great for the CSE as well as for CSE-listed issuers and the growing number of investors who are interested in the Exchange for Entrepreneurs.
As this world-class event continues to grow, so too does the importance of getting the most out of the time spent at the show. Judging by the response from industry experts, investment community professionals and investors who attended the CSE’s events, the extra support these activities provided might just be the extra ingredient needed to stay a step ahead.
The Special PDAC Edition of the CSE Quarterly is Now Live!
As the world’s leading mining conference, the PDAC is a great example of how truly global the mining industry is.
This special issue of the CSE Quarterly profiles several CSE-listed mining and exploration companies on their global journey to seeking out interesting projects from Montana to Mongolia and many points in between.
In addition to the profiles and update on the CSE provided by CEO, Richard Carleton, this edition of the CSE Quarterly contains some new features.
First, a “Company Snapshot” has been embedded at the end of each article providing a more well-rounded view of the company as an investment opportunity. Second, the Quarterly now more clearly identifies companies who also trade in the US on one of the OTC Markets tiers.
Featured in this special PDAC edition of the Quarterly are: