Goldshore ticks all the boxes

2021.10.01

Hi

I’m Rick Mills, editor of aheadoftheherd.com. Today I’m speaking with Brett Richards, CEO Goldshore Resources.

Rick Mills: Can you give us an intro to Goldshore Resources Inc. (TSX.V:GSHR) and a bit of the history of its Moss Lake project, why it was so attractive?

Brett Richards: It all started with a discussion of a number of guys on our advisory board we had around this time last year, we were talking about what’s next in the gold space. I was just coming off a project for a private equity client, where they said “we love the space, we got a great return on this project you helped us with, let’s look for something else.” They wanted leverage to the gold price because they believe that gold is going to trade north of $2,000 for an extended period of time, we’re just in a new place right now, given the macroeconomic outlook and current and future outlook of the world.

So I shared that view with some guys in Vancouver and one of them, David Garofalo [former CEO of Goldcorp] said we’ve been talking about this project Moss Lake. It’s low grade but big tonnage and it’s got a lot of potential. Would you take a look at it? We need somebody to run it.

I did a very deep dive on it and we entered into discussions with Wesdome. We put together a team of supporters and everybody wrote checks to finance this.

After a couple of months we successfully acquired 100% of the Moss Lake project from Wesdome, the deal was signed on Jan. 26 2021. On Feb. 26 we went out and marketed the deal and our strategy, and we were able to quickly put together a $25 million financing, $15M in hard dollars, $10M in flowthrough.

Rick Mills: Why it was so attractive, to you, to investors?

Everybody was asking “why do you like this project, what’s so good about it”? My answer then, and still is, take a look at the history of Detour Gold. Detour had, back 8 or 9 years ago, a very similar profile to where Moss Lake is today. Now they’re a 750,000 ounce a year producer.

Detour Lake is highly leveraged to the gold price because you’re moving so much volume. The NPV (net present value) of these projects, because you’re producing so much, really gets pulled forward and accelerates with a rising gold price. Every $100 increase in the price of gold advances the NPV of these project significantly, in some cases like Detour’s $200 million for every $100 of gold price increase. That’s what Moss Lake represented to me, to us.

That’s why I got involved, that’s why we got involved. Of course the fact that it has a 4Moz historical resource, it’s been explored by prospectors since the 1900s, it’s had a lot of formal prospecting and exploration work done on it by Falconbridge, Noranda, by the Tandem and Storimin JV, played a huge part as well. Several land packages have been bolted onto this and we started 100,000 meters of drilling to take us where we are today.

Note that’s 4Moz on the largest land package in northwestern Ontario for a mining company. I thought not only is the size and scale there, but the potential to grow the resource is also there, those are game-changing statements and quite frankly I believe in them, and that’s why I, and others, wrote big checks to get into this company.

RM: I can see the company is moving at quite a pace, since February you’ve put in a camp and core shack, you’ve got one drill going. A second is starting soon, in November you’re going to have four drills turning. A 100,000 meters of drilling through the winter into August or so of 2022, you’re trying to hit 400m a day target.

You’ve done a VTEM survey and it looks like you’ve got several smaller faults but a big fault system running 20 km end to end of the project. It looks possible to extend Moss Lake along strike and to depth because it’s only drilled to 250m, there’s been a lateral step-out and you’ve got a magnetic coincidence matching the magnetic coincidence where the resource is.

Can you tell us a little bit more about your approach? Why such a warp speed program? It’s not often you see a company get off to such a fast start and have so much accomplished in such a short time.

BR: I’m a big believer in speed to market. I think there’s a lot of things that we’re doing to not only accelerate development, but accelerate decision-making points down the road for whomever it is we partner with and I say that very openly because realistically the team at Goldshore are probably not going to build the Moss Lake deposit into a gold mine. Somebody will, but chances are good it won’t be us.

I just want to make sure that we’re able to, not just by adding ounces but adding value. Value can be perceived in a number of ways, a potential partner or suitor is going to say “Hey Brett why did you do the environmental baseline study so early?” Well we did it because we’re going to shave off about a year, maybe a year and a half off permitting, which gets you into construction and production a year and a half sooner, which pulls forward $150 million or $200 million of NPV. That’s real value that we’re creating.

Why are we engaging so deeply with our First Nations host communities? Because we want to get to an agreement to de-risk the project for whomever comes in at the end of the day.

And it’s under-drilled. The historical drilling goes down to 250m but this deposit (historically) is 2 km long and about three quarters of a km wide, and we see significant expansion potential in every direction.

We will expand the resource at depth but of course there are limitations to doing that. If you look at Detour’s mine plan or other big low-grade, high-tonnage-deposit mining operations, given the lateral size of the pit shell you can probably get down to 400-450m over the life of the mine. You go much deeper than that and there’s just no return on it because it’s not mineable product, it doesn’t really come into the contained gold input of a PEA.

The next thing is we are wide open at strike as you can see on our VTEM survey this fault system is significant and it goes on for quite a distance. We could theoretically add several kilometers of this laterally. That’s going to take a lot of drilling so what we want to do is test it, we’ll know soon with our first drill results, because that’s the orientation of how we’ve drilled the first few holes. When we understand the lateral extension, we will drill it to be able to bring these results into our resource statement.

The detailed infilling and the detailed step-outs will have to occur down the road but now we’re talking about a massive resource we’re talking about a Detour-sized project in both capex, production profile and size of resource, that is what we’re aiming for. I’m trying to look at those types of deposits in and around Ontario, we’re trying to replicate that.

RM: You do have some copper prospects, you’ve got Coldstream and Hamlin, big high magnetics. In your corporate presentation you talk about future copper optionality, could you explain that?

BR: We did some IP (induced polarization) and some high-mag resonance at either end of our land package which is Coldstream and Hamlin Lake.

There are several historic drill holes at Hamlin and there are several up in the North Coldstream, East Coldstream, Iris Lake area. We have all the core for validation, but we need to test with our own drill holes to see whether or not if these are substantial copper anomalies.

Because we have already sent some samples to the lab we know there are gold, copper, silver and moly in some of these holes. We know there’s going to be multiple elements in there, we simply need to test them with our own holes. We’re not running a scout drilling program, we already have mineralization. Now it’s all about definition drilling, understanding the parameters of the deposit, whether it’s the IOCG (iron oxide copper gold) style deposits at Hamlin, or whether it’s the big VMS up at Coldstream. We need to understand it and we can hang something together.

The optionality I speak of is whether the results from Hamlin, North Coldstream, East Coldstream and the Iris Lake area are material enough to do a copper spinco down the road, for the lack of a better name call it Coppershore Resources. Is there a Coppershore Resources down the road with these targets? That would be great optionality for Goldshore shareholders.

RM: Yes it’s interesting you’ve got gold, copper and copper-gold. You’ve also  got cash of $11 million, your market cap is roughly $62 million, what’s the insitu value for indicated gold Brett?

BR: It takes about $20 to find, and turn, an ounce of gold into an inferred oz, it takes about $35 to $40 to find indicated ounces and it takes about $120-140 to bring them up into proven and probable. Just looking at the insitu valuation of our historic resource you can easily get to a magnitude of about $80-90 million without putting a drill hole in the ground.

If you multiply two and a half by $20 or $25, you get $60 million and if you’re going to take the balance of 1.5 million ounces at $35 or $40, you’re easily going to get another $20 million. I don’t think it’s a stretch to say the insitu value is anywhere between $80 million and $100 million today.

RM: With cash in the bank of $11 million and market cap of $62M at the time of this talk, that’s undervalued. Let’s remember the numbers and take a look at what are your peers trading at for an ounce of gold in the ground.

BR: I talk about this quite regularly because our market cap to attributable ounces of resource we trade at about $15 per oz. That’s obvious @ $15 X 4Moz gets us to a $60M market cap.

The following numbers are put together by banks, this is not cherry picked or hand-picked by Goldshore in any way. Our peers range from a number of companies that all operate in Tier 1 jurisdictions — Ontario, Quebec, US, Maritimes — and they’re all at a similar stage, whether that’s resource development or PEA or early PFS. And they all have a maiden resource of 2Moz or greater.

So our peer group has all the same relative risk, the same relative attributes, and all have low-grade deposits in and around a gram. Some under, some 0.8 some 0.7 some 1.1 and in some cases 1.5 or 1.72. The average insitu gold oz value is roughly $46 today, the mean is a little higher at $50. That is an industry-chosen peer group calibration, currently we’re sitting at the bottom of the fourth quartile.

There is no shame in that, we’re only a three-month listed company. Post covid vacations became the norm this summer because nobody had vacations last year and the market pulled back quite significantly in the this summer as did gold. The market will eventually wake up and think we should be recalibrated so there’s opportunity here. Goldshore and Moss Lake should be rated on a per ounce basis certainly much higher. So to our shareholders getting in today that’s a multiple just getting up to a mean or the average of our peer group. That’s before we put anything in the ground, I see it as an opportunity.

RM: I agree the market’s been a little tough for awhile now on gold companies and being a new one, I think what you’ve managed to accomplish, the raising of $25 mil, getting the camp and the coreshack, doing the deal for 100% ownership shows the quality of management.

You’re drilling 100,000m, in your corporate presentation you say that will be done by next August and you are immediately going to do a resource estimate update and revise the PEA on the new RE, on a new gold price, plus the copper and the copper-gold potential to the north and the southeast. That’s a lot to look forward to, could you speak about the current resource update and the PEA?

BR: I can, first I need to caveat this, a lot of the things I’ll share with you are my view, and they have to be supported by results. We’re going to have some results going out into the market starting in a couple weeks time, our first drill results. They are going to start to paint the picture, hopefully back up the story I’m telling.

But if I just take the historic resource at what the base case was back in 2013, and let’s remember gold in Canadian dollars was at par, $1,546 oz, the NPV (5% discount) of the project was $353 million pre-tax. If we sensitize that now up to $1,700 and I make inflation adjustments for capax, opex and forex, at a $1,700 gold price today the NPV of this project pre-tax, before we do anything, is $1.032 billion. So this is a billion-dollar project before we get started and it’s just under $600 million after tax NPV (5% discount) so this is a 32% IRR (internal rate of return). This is a real project.

Our job is to increase the quality of it, increase the quantity of it, and keep all of these factors in the back of our mind about how do we manage a big capex from blowing out, how do we look at things differently, laterally, to decrease capex as we go forward, how do we make this work and optimize it?

RM: Can we talk about management? Besides yourself you’ve got some stellar people on the board could you talk about each of the guys?

BR: Absolutely. The first guy I’ll talk about is the guy I brought on to be our VP Exploration, Pete Flindell. Pete and I were just together on site, Pete has the same years of experience as I do, we both have 35 years in this business and ironically we both cut our teeth with majors, Pete started out for 14 years with Newmont I started out with Kinross, then we both spun off into a number of directions. The takeaway is Pete and I have worked together for almost 18 years now on the last nine projects. We’ve had early-stage exploration, we’ve had development projects like this, we’ve done feasibility studies, we have built mines both in Africa and in southeast Asia, and we’ve taken existing mines and taken them through a rehab, a refinancing, we’ve done a lot of things together.

I put a lot of faith in Pete’s experience and his view of things. When I brought him into Goldshore he was more excited about this project than he’s been about anything over the last 10 or 15 years, he’s very excited about the size, of the scale, how this can grow. Pete’s hour QP (qualified person) and he knows what it’s going to take to be able to develop the Moss Lake project that’ll be suitable for a transaction with a major or mid-tier.

About my board I’ve got a balance of guys and they’re all participants in the financing. Our board starts with Galen McNamara who’s the Chairman, then we have Doug Ramshaw, Brandon Macdonald, Shawn Khunkhun and Victor Cantore. And we just brought on Joanna Pearson in the summer, and we have two Wesdome appointees, Mike Michaud and Heather Laxton. Galen and Doug and Brandon and Shawn these guys are all CEOs of junior or mid-tier mining companies in their own right, anywhere from a $50M valuation up to $150-200M, they all are very active in the space on boards etc., Victor has a large company Amex Exploration doing very well in Quebec, so these guys know what it takes to be successful. Joanna Pearson is a colleague that I spent a lot of time with in West Africa, I got to know the guys from Endeavour Mining quite well and she’s the current CFO of Endeavour Mining. She’s Canadian but living in London, she brings a skill set that we wanted and needed to our board and she is the chair of our audit committee. Mike Michaud is the VP of Wesdome and Heather Laxton is the chief governance officer at Wesdome, they’re just quality people. With Wesdome as a 30% shareholder we want to keep them engaged as well.

And then we move on to another level of support, our strategic advisory board. These are guys who elevate us to the next level. The board is led by David Garofalo, David being the former CEO of Goldcorp, who transacted with Newmont last year, and is now the CEO of Gold Royalties. David’s very active in this space he’s probably one of the top five CEOs in the gold mining space in Canada and he is well renowned and needs no introduction. He likes this project, he’s participated in this project and he’s got his shoulder behind this as well. Craig Parry is the current Chairman of Skeena, he was the CEO and founder of IsoEnergy again another quality guy, Bryan Slusarchuk, the names keep going on here, Leo Hathaway of Lumina Gold, Daniel Kunz who’s the CEO of Prime Mining and Adrian Rothwell’s the CEO of Angold.

RM: As equally impressive as your management and advisory board is your share structure.

BR: Yes we have a pretty tight share structure, we’ve got 100 million shares out and the way we structured the $25m financing was that Wesdome got $19.5 million of shares or 30% of the total float. We also agreed Wesdome would lock up all of their shares into escrow, they would be released 15% every six months for the next three years. Of course all of the Goldshore shareholders have the same policy, so there are no common shares from the 63.8 million share tranche. Only 21 million shares are in play right now, it is the current flow-through. So we’ve got like 21% of our shares trading today everything else is locked. Yes, they come unlocked but over a gradual period of time which makes it much easier for the market to absorb. So it’s a very tight cap [capital] structure.

RM: We’ve had a pretty good talk. Would you like to say anything in conclusion?

BR: Rick I really appreciate your time and everybody’s time to read this interview, you know we tick a lot of boxes. It’s not just a singularity play here, we have a very large land package in a very good jurisdiction. We have already identified we have 4Moz of historical resource and we’ve already identified a number of targets along strike and a 20-km known mineralized trend. We have been gifted a very good starting point, we’ve got a lot of guys pushing from the board level, and we’ve got a tight share structure. When you start looking at all of this put together you can see how this could easily attain a higher value within our peer group and become more closely valued to the historic insitu value of our gold resources. I’m excited this is a great entry point for shareholders, thanks for your time Rick.

RM: I 100% agree with you. I see us going into a rising gold price environment and historically the greatest leverage to a rising gold price is a quality junior. I do agree Goldshore ticks all the boxes, thank you for your time, we’ll speak again soon.

Richard (Rick) Mills
aheadoftheherd.com
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