The following is a Stockhouse Q&A interview with
Mega Precious Metals Inc. (
TSX: V.MGP,
Stock Forum) President and CEO Glen Kuntz.
Background
Mega Precious Metals is a Canadian precious metals exploration company with projects in Manitoba, Red Lake, Ontario, and Nunavut. The company’s flagship asset is the Monument Bay Project, which is located 570 kilometres northeast of Winnipeg.
What is the investment case for Mega Precious Metals today?
If you look at Monument Bay, we own a district-size gold camp, with multi-million ounces of gold already defined. It comes with a tungsten kicker and a high grade starter pit. Over the past six months, we discovered multiple parallel (geological) structures that can host gold mineralization.
We are in a mining-friendly, safe jurisdiction. The provincial government is actively putting road and hydroelectric infrastructure into the region. We have some of the lowest power rates in the Americas and a good relationship with local First Nations. I think it ticks a lot of boxes. We are highly undervalued.
What is it that sets you apart from the competition?
Our grades (2.7 grams per tonne in the starter pit) are fairly rich in comparison to other bulk tonnage deposits. We have a growing tungsten asset within our gold orebody. We are able to separate the tungsten very quickly. From a base revenue perspective this gives us some bandwidth. We already have 3 + million ounces of gold that was outlined with a conservative gold price of US$1,092 and an exchange rate of 95 cents. In today’s environment this mine is profitable. There are a lot of things moving forward in a very positive way for the deposit. In recent Fraser Institute Survey, Manitoba was ranked fourth best place in the world for investing in mining projects.
In a nutshell, we have a great project, with good upside potential, and we are in a place where it can actually be mined.
What is your view on the outlook for gold?
I think it will trade somewhere between US$1,200 and US$1,300. With the U.S./Canadian dollar exchange rate, you are now talking US$1,500 gold Canadian. That is very attractive. To put this in perspective, I survived US$250 gold when I worked at
Goldcorp Inc.’s (
TSX: T.G,
Stock Forum) Campbell mine near Red Lake, Ontario way back in 2000.
What is the investment case for tungsten?
Tungsten is a very interesting element. It is used primarily for electronics and hardening steel, drill bits. There is a military component to tungsten as well. Tungsten is also used in cell phone manufacturing. Buyers want to gain access to tungsten that is being produced in conflict-free countries.
Is there a ready market for tungsten?
It can be sold to metal traders. They will buy it from multiple sources and then sell it. At Monument Bay, we won’t need to mine the tungsten from a skarn deposit, so we don’t have to worry about dealing with the usual impurities.
Can you give us a brief history of the Monument Bay Project?
I worked on the project when it was held by Noranda in the late 1980s. Since then the property has been held by a number of companies, including Wolfden and Bema Gold. Bema focused its drilling on the Twin Lake deposit. When Bema got taken out by
Kinross Gold Corp. (
TSX: T.K,
Stock Forum) it went to a company called Rolling Rock. Then it basically sat idle.
In December 2010, Rolling Rock and Mega Precious Metals merged. When we picked up the asset, we had about one million ounces of inferred material only. There was no tungsten. We have taken the resource from a narrow underground vein-type deposit to a large open pit system with underground potential. We picked it up with 85,000 metres of drilling. Now we are at 154,000.
What do we know about this project today?
The company has just announced that initial exploration drilling on regional targets has identified a new regional structure called the South Limb Shear Zone. It is located parallel and to the south of the Twin Lakes Shear Zone which contains the known gold resources. Widely spaced drilling has intersected broad areas of alteration with consistent anomalous gold mineralization over a strike length of more than 20 kilometres.
We are seeing signs that this could be a very large gold camp. This is similar to what you would see in Hemlo and Timmins. The former Hollinger mine produced a lot of gold and tungsten mineralization. We have started to get multiple styles of mineralization, building on a 3.5 million ounce base. Depending on the price of gold, we are almost approaching 4 million plus ounces.
What sort of targets are you aiming at before considering bringing the project into production?
We are trying to grow this right now to where we can demonstrate that we have a resource of over 5 million ounces and a combination of gold and tungsten. That would allow us to set up the engineering studies so we can look at multiple ways to mine this project, both in terms of large scale and small scale mining, and different financial scenarios from a low cap ex to a large cap ex.
We think we have the geological setting that would allow us to double or triple the amount of ounces that we have now. It is basically a 10 million ounce camp now. That is what we are chasing.
What do you see there in terms of production in the future?
We have run multiple scenarios. We have looked at 5,000 tonnes per day, 10,000 tonnes per day and up to 18,000 tonnes per day. Using an average grade of 1.5 grams per ton, you are looking at production of anywhere from 200,000 ounces per year to 600,000 ounces per year. On top of that you are going to get some tungsten. This would be open pit at the start (even at 10,000 tonnes per day). Then you would transfer into an underground-open pit scenario.
Where do you see the company in a couple of years from now?
Realistically, we are an exploration and development company. My background is in geological engineering and working primarily in development and production related projects in various countries. We would like to de-risk Monument Bay and all of the other projects we have. We would like to find a partner help fund exploration and development. We would keep a small interest.
We want to take undervalued assets like Monument Bay, with poorly understood deposits, and bring them about to their full potential. We have demonstrated clearly that we can build multi-million ounce deposits. As for Monument Bay, we have no intention of mining it and it is not the focus of our company.
How much cash does the company have right now?
About $2.5 million.
Are you planning to raise any new money this year?
The way we have structured ourselves, we have designed it so that we don’t have to do a raise in this market. We have other non-dilutive ways to finance our company. Some of our assets in Red Lake, Ontario and Nunavut are very attractive. All have 43-101-compliant resources. So we could get some non-dilutive capital from any one of those projects.
How much is the company planning to spend this year on Monument Bay?
We started the year with a budget of about $2.5 million that will fund a 5,000-metre regional drilling program. That was back in January. We always run under budget. We are pretty creative with our money. So we try to be smart with it.
This year we have planned a 5,000 metre regional program.
We have been doing in-pit sampling inside the proposed Twin Lakes pit. We use an Old Core Assay Program (OCAP) for gold and tungsten.
We have an assay lab on site that preps the sample and gives an indicator gold assay. It is an independent lab run by Accurassay Labs. The old core assay program, we process core that was previously not sampled for gold and tungsten and first complete an MIBK analysis, that gives an indication if there is gold mineralization. If there is gold mineralization then we send the sample for a gold Fire assay and also XRF analysis if including tungsten at Accurassay Labs in Thunder Bay. We do find material that is running as high as 9-10 grams per tonne that was never previously assayed.
If we drill or sample a piece of core or channel sample, we receive a general indication within a couple of days if the core may also have gold mineralization. Once we get this indicator, we send the pulps out for a final FA and XRF if including tungsten analysis. The old core assay program has added ~500,000 ounces into our current resource.
Who are the biggest shareholders in Mega Precious Metals?
Pinetree Capital and Pacific Road Capital (private equity) each own around 20% of the company. Sprott has 1%, Insight Capital (Australia) own about 4%. Of the remaining 46% is retail and 10% is held by smaller funds.
Do you see any catalysts to get the stock price up in the near future?
We have multiple irons in the fire. There is the exploration work at Monument Bay, discovering new zones. We also are looking at selling some assets, a move which should help our balance sheet.
What are some of the goals that you hope to reach in 2015?
Ensuring that we have a strong balance sheet, growing the project, and potentially bringing in a strategic partner to provide financing. This is a capital intensive business. We remain optimistic as we have been able to access capital, even in tough times. At the end of the day, we also want to de-risk the project and really demonstrate that this is a camp, not just one mine.
What do you think it will cost to put this project into production?
It depends on size. $200-$300 million could get us up and running.
How soon could the mine be in production?
Realistically to take it from a preliminary economic assessment (PEA) to a feasibility study, you would need a couple of years, once you have said that’s enough drilling. Subject to a positive feasibility study, we would be looking at a couple of years of construction. So you are basically looking at the 3-5-year mark.
FULL DISCLOSURE: Mega Precious Metals is a client of Stockhouse Publishing.