Transcript of President Sheito's interview Mountain Lake Resources Inc. (MOA )
MOUNTAIN LAKE RESOURCES INC.
INTERVIEW DATE: 8/6/02
CEO: Could you begin with an overview of the company and then we’ll get into your diamond play in greater detail?
MOA: Mountain Lake is on the TSX Venture Exchange. The symbol of it is MOA and was incorporated in March 1986. The stock is presently trading in the .60-.65-cent range with a market cap of about $10 million Canadian. There are 15 million shares outstanding of which 30 percent are in safe hands. The company has no debt and the burn rate is about Canadian $5,000 a month. The directors and company executives, including myself, take no salary, as we prefer to spend the money in the ground. We focus in general mineral exploration and mining of diamonds in South Africa, with gold being our other commodity. I’m 65 years old, a graduate geologist (1960), spent five years with De Beers where I ended up as a chief geologist for West Africa, after which I spent 30 years with Inco, which was my last post. I finished with them as president of Inco Gulf. I’ve been president of Mountain Lake since November 1994.
CEO: Let’s start, if we could, with the opportunities in South Africa. How have you identified the kinds of properties that you consider pursuing?
MOA: When I was with Inco I was sent to Ghana to negotiate the purchase of the Ghana Consolidated Diamond Mines. There, I met up with a Dr. Bert Gerryts, who was the diamond guru of South Africa. He asked me at that time whether I wanted some good diamond properties, alluvial properties, and I said, sure, I’m always interested. So I put some money together, the seed money, and we got the seven concessions and the rest is history.
CEO: Let’s start, if we could, with the Mooi property. Where is it located and why is it so promising?
MOA: All right. It’s called the Mooi. Mooi means beautiful in Afrikaans. The Mooi River property consists of four concessions. It’s about an hour and a half’s drive west of Johannesburg on a paved road. Approximately 250,000 carats have been mined south of the main road, which runs east-west. We own the properties north of this main road. We’ve recently carried out a bulk sample, I think it started in March, and so far we’ve gotten about $900,000(U.S.) worth of diamonds out of it, the biggest stone weighing 18.96 carats, which sold for $94,000 U.S. dollars. We estimate that there’s about 100 million tons of gravel in the Mooi River area and it’s wide open.
CEO: What about some of the quality there? What would suggest that the quality here was strong?
MOA: The fact that in the 1,500 diamonds that we sold, yielded an average of $592(U.S.) a carat, is very good because the norm for alluvial gravels is roughly $400 to $450(U.S), and that’s what we’re getting in the Ventersdorp area, which is where the mine is being constructed. This mine is located about 40 miles further west of the Mooi River. But in the Mooi River, the diamonds appear to be bigger and of better quality, with the average size being about 1.4 carats per stone.
CEO: Given the opportunity here, how large a prospect could this potentially be and how much geological work have you done to date?
MOA: In the Mooi we dug some prospect pits along the whole strike of the Mooi River basin. It’s a huge river basin. The river is, during normal times not more than five, six feet wide. During the flood plain times it’s about half a kilometer wide. But we dug pits with a backhoe and we know that the gravels are diamondiferous from top to bottom. The fact is that, as I said before, they took out over 250,000 carats south of the road, and the road doesn’t stop the gravel run, as we all know. Which continues in a northerly direction.
CEO: What about the work that you’ve performed versus Mountain Ash? What are your respective roles?
MOA: Well, we owned 100 percent of Mountain Ash and I gave away 75 percent to Etruscan, who have become the operators. I’m just going to sit back and collect royalties!! But we used to own it all. Etruscan is developing it for both Mountain Lake and themselves. Does that answer your question?
CEO: It does. Now, of course, the company has other concessions. What are your thoughts in terms of pursuing those?
MOA: We have concessions in the Mooi and we have concessions in the Ventersdorp area. In both areas, we have about 45,000 acres, which is a hell of a big area. We have outlined in both areas a minimum of 200 million tons of diamondiferous gravel. The revenue per ton is roughly $6 U.S. per ton, that’s in situ. The grade is one and a half carats per hundred tons times $400 a carat. The operating cost to remove the stones is about $3/ton, leaving an operating profit of $3 a ton. So as you can see, it’s a very lucrative operation. You may ask the question, well, why haven’t people taken the diamonds out beforehand or five or 10 or 15 years ago? The answer to that is they could not attain the water. Today, with sophisticated drill rigs, we were able to penetrate deep enough to get ample water to wash the gravel. In previous years, they could not do that. Now, our Phase I production in the Ventersdorp area is 100,000 tons per month, or 1.2 million tons per year. We hope to commence Phase II six months later by doubling this tonnage. MOA, as I said before, has a 25 percent interest. I figure that this could yield 13 cents per share in year one and 26 cents per share in year two. Depending on what multiple you use, you can see that our share price is grossly undervalued. The first phase will be in production in about six weeks, and to date, the project is on schedule and under budget and more importantly, as I said before, there’s plenty of water to wash the gravel.
CEO: What about construction activities on the Ventersdorp mine? Where are you there in the process and once it’s up and running, how rapidly will it produce?
MOA: Well, if you look at the web site www.mountain-lake.com I think that there’s pictures there of where we’re at presently. We should be in production I’d say by the 10th of September or so. I plan to go down there shortly thereafter for the official opening of the mine, but we know that there’s plenty of diamonds there because south of the fence we had another company called Zootpan who have taken out 2,000 carats from the area. I don’t have at my fingertips the amount that we received per carat, but it does exceed $400 per carat.
CEO: The Company recently announced that it had expected generation of perhaps $28.5 in after-tax profits over 10 years from the mine. In order to achieve this results, what would you need to see occur?
MOA: I think that’s just based on Phase I, based on about 19,200 carats a year. That would yield $7,680,000 U.S. per year at $400 a carat, and that’s using a grade of 1.6 carats per hundred tons. I think if you do the math, you’re going to find that Etruscan’s share, which is 75 percent of this amount times 10 years works out to the $28 million. We get 25 percent of whatever Etruscan gets.
CEO: As you now look at some of the key milestones that are likely to occur in the coming quarters, what should investors focus on?
MOA: Key milestones. Well, the first thing is that in September that we are in production and that we’re finding diamonds. And then if everything goes to plan, and there’s no reason why it shouldn’t, within three or four months I think the decision will be taken to double the production. And so I’d say by the end of September is the first milestone, and the beginning of 2003 is the second one. We hope to build four, five or six of these units with one central sorting area, which is the most sensitive component in a diamond mine, as you know. If you bring your concentrates from location A, B, C, D and its processed in one place, you know that your safety factors are pretty well in place.