Originally posted June 22:
If you invest in mineral exploration companies and know what you’re doing, I don’t need to tell you about Gold Mountain Mining (GMTN.V). You already know.
GMTN is breaking all the rules of how you run an exploration company and making CEOs of other outfits look decidedly pedestrian in the process.
Think of how Tesla (TSLA.Q) opted to build a car not by taking the most recent model of Ford and changing it a little, but by throwing the entire thing into a pile in the middle of the room and asking, ‘what if we did it from scratch?’
That’s what Gold Mountain set out to do, and their first six months on the public markets have been a rocket ship in every sense. To understand just what a rare bird the company is, you need to understand how most mining exploration works.
When you decide to invest in mining exploration companies, and you should as a matter of practice, you’ve got to understand you’re going for a long ride. Unless the company you’re getting into has already got a producing mine, you’re in the business of literally exploring and, as anyone who’s read their Christopher Columbus history understands, exploration isn’t a quick whip around the mountain.
Whether you’re looking for the mighty Mississip’ in the 1700’s or you’re out there trying to find some gold scratchings in some cow pasture around modern day Moose Jaw, exploring is a long, arduous business that involve sticking drills in the ground multiple times and hoping they hit metal.
Generally speaking, exploring starts with flying a helicopter over a bit of land or sending a geologist out to mingle with bears, and see if you can turn something over that makes people back in the city interested. If you do find something somewhere that looks like maybe it’s got some metal in it, you pitch it to people with money and hope they’ll give you some, then you go take some more pictures and fly some more helicopters, maybe send some rocks to a lab, raise a bit more money, maybe drill some more…
If you’re lucky, and actually find something interesting, you begin to build a resource estimate which convinces more people with money to give you some. Then you try to build a Preliminary Economic Assessment (PEA) which tells you what a mine might cost and whether you’ll likely make it feasible, then you go ask more people with money to share some, then you try and build a mine plan. You try to establish off-take agreements if you’re REALLY cocky, and you do more drilling, and you ask more people with money for… well, you know.
Eventually, after raising and drilling and planning and permitting and raising and drilling and planning and raising, after several years, eventually you get to a place where you might just have some sort of indication on the horizon that there’s an actual mine to be had here. Then, naturally, you raise more money.
If this process seems interminable, that’s because it is. But if it seems like nobody makes any money while that process is going on, that’d be incorrect. In fact, a lot of the time, the long process is not a bug, it’s a feature.
Mining companies make money by producing metal. Mining ‘exploration’ companies make money by raising capital. And the longer your process in getting to that eventual production piece, the more you can raise – and pay yourself – whereas working hard and fast can sometimes lead to the realization there’s no gold in your project, while investors still have money in their pockets.
For every 40 mineral exploration companies that engage in this pageantry, you get one that actually moves the ball forward to actually do what they say they’re going to do.
But that might take five to ten years.
Gold Mountain is much of the way there in its first six months.
SIX MONTHS.
In May 2019, the precursor of Gold Mountain, AKA Bayshore Minerals, acquired a property from Equinox Gold Corp for $10 million. They put a million dollars down and agreed and $9 million interest free promissory note for the rest and then I envision CEO Kevin Smith yelling “START THE CAR!” as he bolted into the parking lot, the signed papers clutched to his bosom.
Why? Because this asset had 127,000 meters of historical drilling and has been producing gold before the market went kablooey in 2012.
Let me just repeat that for the people in the cheap seats: 127,000 meters of historical drilling in past producing gold country, off the highway between Vancouver and wine country.
Normally you’d need to build moose-proof houses for your staff in some backwoods tar pit. But here? GMTN can send their people for wine tasting tours after work.
As soon as GMTN got into the data, they started spotting targets, and high grades, and places where a guy could just start digging and be pretty sure it wouldn’t be in vain.
The concept GMTN came up with was the Tesla of gold exploration. Instead of doing things how they’d always been done, what if you were exploring for gold like it was the first time anyone had done so.
What if you just dig in with a backhoe, pull out rocks with drill holes in them, process the ore, sell it, get some money in the door, and do it again?
This method isn’t entirely new – anyone who watches the mining shows on Discovery Channel have seen this concept, only usually being executed by private two-man crews who jump up and down when they find $5 of shiny in the bottom of a steam shovel and spend most of the day sifting river mud.
GMTN is going larger – they’re foregoing the $500m mine plan in favour of the $50m mine plan, or $15m.
They’re going to where there was an existing gold mine, where they really we’re actually producing high grade gold, and they’re saying, okay, if we dig in right here, where the last guys were finding ore, and keep costs down and focus on manageable growth financed as they go by the gold they produce and sell, they can pour the profits from every pour into expanding the dig, and chasing the veins that they see right in front of them.
Alright then. Good plan. But what has Gold Mountain done to actually make that plan happen?
Well, they got a public listing on the last day of 2020 so basically, they are only as old as this year.
- In January, they did a partnership with a mine construction group to establish a fixed cost of the construction, mining and highway haulage, and then they signed an ore purchase agreement with New Gold Inc to sell on what they dig up. NOTE: Nobody does this unless they’re serious about producing.
- In February, they closed a $10 million oversubscribed financing. Also in February, they engaged JDS Energy and Mining to complete a pre-feasibility study, which would validate the open pit mine plan contemplated for years 1-3 before transitioning to an underground mining and open pit hybrid in year 4.
- In March, they completed an 8700 meter drill program, digging in on that existing data to really isolate some targets, because why not while you’re waiting for your paperwork to land, and found grades reaching as much as 124 grams a ton.
- In April, they got their Notice of Departure from the Ministry of Energy, Mines, and Low Carbon Innovation, which will allow them to begin actual mine construction.
So, let’s get this straight: They start in January, and by April you’ve got permission to start mine construction. These guys went from, “Hey we’ve just bought an asset,” to, “We’re ready to start putting offices into the place,” in four months.
- In May, they announced the conclusions of an updated preliminary economic assessment that’s outlining a 19,000 ounce annual production for years one to three, expanding to 65,000 ounces for year four. Also in May, flush with newly raised cash, they paid down $3 million of the $10m property payment to Equinox, which removes a massive perceived risk surrounding the project.
- In June they received the draft mining permit and permission to to review document terms, and provide comments prior to receiving their final permit, which they submitted that same month.
- In September, they expect to begin mining along the high grade 1300 vein, and add an additional diamond drill rig for their Phase Three exploration program .
- In October, they expect to complete the pre-feasibility study and increase the mineral resource estimate past a million ounces. Also in October, they expect to deliver their first gold to New Gold, to b paid for by the following month.
If all this can be done in a year, this is a land speed record. This is ‘Go Speed Racer, Go!’. This is holy shitballs, they’re doing the thing that everyone else takes 10 years to do, and they’re proving out a business model that others have been too weak to try out.
Gold Mountain is doing it, and people who disregarded Gold Mountain for the past six months are going through some emotional things right now, because this guy, Kevin Smith, CEO of the company, came right out and called his shot.
And everybody had the opportunity to back him, to be the believer, and get in at 80 cents, or not believe and watch the damn thing just trend upwards to $2.50 like it has.
I’ve been of the former. A lot of people were cynical all the way up the ladder but, I gotta tell you, if you look at Gold Mountain today and you don’t see a company that is putting it all together, that is bringing down the thunder from the mountain, I don’t know what I can do for you, because we’ve been telling you all the way along they’re going to do this and that, and then they come out a couple of weeks later and slam dunk the news.
I have no hesitation recommending Gold Mountain as being something that you should look at. And if you’re into mining if you’re into resource companies, you understand how these guys are doing it. If you’re not into resource companies, if it’s a mystery to you, I’m going to break it down for you real simple.
They’re just doing it the way it should be done if the goal is to produce gold. Not a billion tonnes of gold, and not with a half billion dollar mine, but done if the idea is to make a profit that you can use to build from without the decade of delays.
For the next six months, this thing is going to generate more and more interest and, for mine, it’s important you don’t leave the good companies on the table just because you weren’t there for the first 10% of its run. There’s a lot more of meat on the bones of this thing.
— Chris Parry
FULL DISCLOSURE: Gold Mountain is an Equity.Guru marketing client
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