The Art of a Deal Majors Interacting With Junior Explorers AME Roundup, January 2018 Vancouver, Canada

Transcription

1 The Art of a Deal Majors Interacting With Junior Explorers AME Roundup, January 2018 Vancouver, Canada

2 The Art of a Deal How did we get here? How are the majors coping? What s the attraction? Let s make a deal Summary and conclusions Page 2

3 How did we get here? The Art of a Deal Drop in reserve and grade Low cash generation Declining grassroots exploration How are the majors coping? What s the attraction? Let s make a deal Summary and conclusions Page 3

4 Gold price giveth and the gold price taketh away Gold price move up (up 385% or +US$1,200) to over US$1,700 supported an 85-90% increase in reserves to ~650 Moz over a decade Gold price fell to US$1060 (down 40% or US$600) dropped global reserves by over 200 Moz to just over 400 Moz Source: Goldcorp Page 4

5 Low grade ounces added from Gold grades fell by half over a decade or so to ~1.5 g/t Au and has since flattened to 1.6 g/t Au Source: Goldcorp Page 5

6 Grassroots gold exploration declining since 2003 Source: S&P Global Market Intelligence and Exploration Insights Page 6

7 Barrick s exploration expenditures flatten Exploration and G&A expenditures as a proportion of Sales Revenue (%) 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 1997 M&A Homestake M&A Placer Dome Exploration Global Financial Crisis Andes porphyry program Alturas discovery (19 targets, 4 HSE) Chairman Thornton G&A H Source: Barrick Gold and Exploration Insights Page 7

8 ABX production profile shrinks to flatten AISC Source: Barrick Gold Page 8

9 Major gold producers generated US$35 M/y Net cash flow (US$ million) $1,200 $1,000 $800 $600 $400 $200 $- $(200) $(400) $(600) $(800) $(1,000) Net cash flow on average was US$35 million per year per company. Companies represent ~350 Moz of reserves and 20.6 Moz of annual production (US$25-27 B) G.T ABX.T NEM.NYSE AEM.T YRI.T K.T NCM.ASX Source: Investing.com, Company financial reports and Exploration Insights Page 9

10 The Art of a Deal How did we get here? How are the majors coping? Junior explorers getting financed Majors funding juniors What s the attraction? Let s make a deal Summary and conclusions Page 10

11 Part of an integrated approach to LT strategy Highly active exploration development teams in major producers Source: Newmont Mining Page 11

12 Looking in all the right places 2017 change in attendees (2016 vs 2017) 50% 40% 30% 20% 10% 0% 27% 27% 39% Integrated teams of business development people have invaded the premier venue for precious metal companies to present their wares 22% 20% 25% Source: Precious Metal Summit and Exploration Insights Page 12

13 Financings for juniors was +50% in 2017 Financings (C$ million) $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $- TSX financings (C$M) TSX-V financings (C$M) -16% +50% 2016 YTD 2017 YTD Half of all 2017 capital raised by junior gold issuers was from major gold producers previous years <20% Source: TMX Group and Exploration Insights Page 13

14 C$860 million in potential funding from majors Funding for juniors (C$million) $400 $300 $200 $100 $0 Active 10 companies 29 deals worth C$860 million mostly in precious metals Passive Source: Company press releases and Exploration Insights Page 14

15 Passive versus Active Technical support Programs are wholly run by junior Only equity investment, no joint venture or earn-in January 2017 Goldcorp (G.T, GG.NYSE) purchases C$35 million (12.5%) of Auryn Resources (AUG.T) priced at C$3.67, 50% premium with no warrants issued [C$1.52] September 2017 Kinross Gold (K.T, KG.NYSE) purchases C$15.9 million (~9.9%) of Aurion Gold (AU.V) priced at C$2.32, 9% discount with no warrants issued. [C$0.84] Page 15

16 Passive versus Active Technical support Transition to operator by major JV or earn-in with or without equity investment March 2017 Gold Strike (GSR.V) forms a strategic alliance with Newmont Mining (NEM.NYSE) to advance the Plateau project with multi-stage 75% earn-in (C$49 M) and equity placement (94% prem., C$6.0 M, wnt) totaling C$53 million. [C$0.47 vs C$0.20] April 2017 Barrick Gold (ABX.T, ABX.NYSE) earnin to Atac Resources (ATC.V) Rackla gold project with multi-stage 70% earn-in (C$55 M) and FT equity placement (19% prem., C$8.3 M) totaling C$63 million. [C$0.50 FT vs. C$0.53] Page 16

17 The Art of a Deal How did we get here? How are the majors coping? What s the attraction? Exploration target Technical team Jurisdiction, local knowledge Let s make a deal Summary and conclusions Page 17

18 Barrick s Carlin play in the Yukon Phased and multi-year expenditures with option to pull out after 2-4 years Stage 1-60% C$35 M to 2021 Stage 2-80% C$20 M to 2026 Long term strategic plays (+5 years) Large district scale land package Rackla >1,700 sq km Mining friendly jurisdictions Yukon Leverage its own expertise Carlin style Page 18

19 Newmont s Pogo play in the Yukon Phased and multi-year expenditures with option to pull out after 2-4 years Stage 1-51% C$17.4 M to 2021 C$8 M in payments to GSR Stage 2-75% C$21.4 M to 2027 Long term strategic plays (+5 years) Large district scale land package Plateau >350 sq km Mining friendly jurisdictions Yukon Leverage its own expertise Pogo style? Page 19

20 The Art of a Deal How did we get here? How are the majors coping? What s the attraction? Let s make a deal Junior perspective Summary and conclusions Page 20

21 Dancing with the right partner Match project with JV partner (right size and fit) Bigger the better - Stand alone would attract multiple suitors, 20-30% of something for the junior is better than 100% of nothing Equity placements At a premium Cash payments Sustains junior, maintains share structure Operatorship Up to resource definition but not for de-risking engineering studies (not area of expertise), management fee Technical support - Leverage expertise Page 21

22 The Chess Match Staged earn-in with minimum expenditures Opening - Well defined expenditures and program Middle game - Incentivize JV partner to Go Big or Go Home End game - Funding to production or dilute to royalty (no buy back clause) News flow - Deliverables (drill meterage, geophysics, resource, PEA, FS) generate marketing documents for junior Fall back - If major does not complete earn in project reverts to junior Page 22

23 The Art of a Deal How did we get here? How are the majors coping? What s the attraction? Let s make a deal Summary and conclusions Page 23

24 Summary Higher gold prices lead to adding reserves with lower grades to 2013 Grassroots gold exploration declining since 2003 Little free cash flow generation over past several years JV projects held by juniors to boost project pipeline for high margin projects Big land packages, large deposit analogues, good jurisdictions, long term plays Juniors seek: Endorsement Cash Expertise Deliverables Fall back Financing to production or royalty Page 24

25 Conclusions Major producers need high margin projects to provide the returns investors want. Few exist to replace what mining industry digs up. Decimated exploration budgets force majors to invest in juniors to fill pipeline. Trend will benefit top tier prospect generators and grassroots exploration companies which often have more grassroots exploration expertise than the majors. Grassroots exploration companies operating in mining friendly jurisdictions with competent technical teams have the highest probability of success in a highly risky sector. Page 25

26 Exploration Insights Independent, unbiased and technical commentary on the junior mining sector Brent Cook - Independent exploration analyst with over 30 years of experience in both property economics and geology evaluations. Joe Mazumdar Geologist (10 years), commodity analyst & trader, equity analyst (9 years), corporate dev/strategic planning (4 years) Page 26