RE:Will be hard to ignore ExcelsiorHere are Eric Coffin's notes from yesterday. There are some management comments in here as well. Overall he remains positive.
Excelsior Mining (MIN-T, EXMGF-Qx; off 18 cents on 4.1 million shares at $0.94) has had a
busy 24 hours. After running higher yesterday (up 15 cents on 1.8 million shares- huge volume
for MIN) the stock was halted just before yesterday’s close for the announcement of a $20
million bought deal. The pricing did not thrill shareholders, but this is a management team that
has always been very conservative about having a good cash cushion, come what may. My
guess is that Excelsior management made it known they would be open to a bought deal, but
not at the pricing that prevailed before yesterday. I suspect a few large players bought the stock higher and then presented management with the 95-cent bought deal offer, which was
accepted.
This morning, before the open, MIN announced the $20 million placement has been increased
to $28 million and the brokers retain a 15% “greenshoe” so the placement, in all likelihood, will
come in at $32 million. I spoke to the CEO after the announcement yesterday. He described
the financing as being “a replacement of the cash flow spent through 2020 when covid-19
meant we could not do much but the overhead and project holding costs didn’t stop”. They still
have some covid restrictions, both government mandated and self-imposed, which slowed the
production ramp up, though those are expected to ease over the coming months.
I asked about copper precipitation at the well-heads in the ISR field, which Twyerould admitted
was an unexpected issue but one he says MIN has not had that much trouble dealing with.
Excelsior replaced the wellhead pumps over the past few months with ones that allow for flow
reversal (return pumps that draw up pregnant solution can be switched so that acid solution is
pumped back down to “flush” the pump and drill bore, and vice-versa). The copper precipitation
was occurring because the Ph of the return solution was too high leading to copper minerals
dropping out of solution before exiting the pump. The new pumps installed last year allow for a
secondary valve to he used to pump or draw solution. MIN has been injecting more acid
solution though these secondary valves to bring the overall Ph back down within the pump,
dissolving the copper precipitates and allowing them to be flushed out and drawn into the return
line to the pregnant solution pond.
Twyerould said the new switchable pumps were working fine and that Excelsior continues to
ramp up production and still expects to hit the 25 million pound per year of coper production
later this year. He said the copper precipitation issue arose because more copper was being
liberated, more quickly, than envisaged by the feasibility study. That is obviously a “good”
problem. It is too early to tell whether this is just a start up issue or whether it implies the overall productivity and, hence, ultimate copper recoveries, will be higher. Twyerould has always been
very conservative and was not willing to be drawn out on the subject much, but he pointed out
that MIN has always tried to be conservative with its production assumptions so that surprises, if they occurred, would be to the upside. He also pointed out that Excelsior had always planned
to add new switchable pumps to the field; they just did not expect to have to do it this early in
the production life. I think MIN does expect overall copper recoveries to come in ahead of plan
but is not willing to say that until they have more data.
Bought deals are always done at a discount to the trading price when they are announced, and
the stock pretty much always trades down to, or near, the placement price, regardless of
demand. In the case of Excelsior, the fact the units have full warrant exercisable at $1.25 for 18
months just adds to the appeal and makes it more likely shareholders with free trading stock will sell it to replace it with units if they can. That is clearly what is going on today, with MIN trading
below the placement price.
The bought deal will weigh on the stock for a while. I do not love the full warrant and the dilution it implies, but that is not stopping me from putting my hand up to try and get some of the bought
deal myself (never said I was not a hypocrite!). I have not heard anything that leads me to
believe MIN will not hit its production target this year. If recoveries are ultimately higher, we
could see a lowered AISC once enough data is in and Excelsior is already estimated to have
one of the lowest copper production costs in the sector. If that is borne out and copper prices
hold up, MIN has good upside from current levels. I expect if things go smoothly, we would see
the company moving on to increase the capacity of the plant and field more quickly than
planned in the feasibility study and that too could increase the upside as we move through
2021. Excelsior is a buy at current prices as there should be some upward re-rating ahead of
the free trade date of today’s placement.