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Avanti Mining on Resource Intelligence TV

Avanti Mining on Resource Intelligence TV

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Avanti Mining on Track for Largest Canadian Molybdenum Mine

Kitsault Project will Generate an NPV of $550MM; Company is Completing a Feasibility Study

Resource Intelligence: My next guest is the President and CEO of Avanti Mining, which has one of the most interesting molybdenum plays in North America. Avanti has produced a positive pre-feasibility study on the past producing Kitsault project that outlines a fifteen year mine life in an open-pit-style deposit that could inject hundreds of millions of dollars into the provincial and local coffers. The company is in close consultation with the Nisga’a First Nation band in Kitsault, BC on the development of the mine and the President and CEO of the company is Craig Nelsen and Craig joins us today. Craig thanks a lot for coming in.

Craig Nelsen: Nice to meet you Doug.

RI: Your pre-feasibility study came out in 2009 and it told you a lot. I’ve looked it over. It’s four hundred and ninety plus pages, but one of the things about it that’s interesting is the number of signatures on it. You’ve got Knight Piésold, Wardrop, RDI, SRK and the list goes on. Why do you need so many industry giants involved in a paper like this?

CN: Well Doug, its sort of horses-for-courses in this business. We use the best consultants in their particular area. Knight Piésold is the best at tailings management-facility design, Wardrop is a terrific engineering group for overall project costs. Rescan is a great environmental consultant and we use the people that are best in the field.

RI: Right. So what did the report end up telling you?

CN: That we have one of the top five undeveloped primary moly assets in the world. It’s a unique position for a junior resource company to be in, to have an asset of this quality.

RI: How profitable does the report tell investors this project can be?

CN: Well at the price assumptions we’ve used Doug, this mine on a pre-tax basis has a fifty percent profit margin. After tax, after royalties, after all costs it still has a very enviable thirty percent profit margin.

RI: So what’s the net present value of the Kitsault project?

CN: It has a discounted net cash flow value of $550 million today. On an after tax basis its worth about $1.6 billion. If we have one year that moly returns to the values that it was between 2004 and 2008, which is close to $30 a pound, this project will pay back all its capital costs in less than a year.

RI: So this is really huge project with a 15 year mine life, 40,000 tonnes per day at about 0.1% molybdenum. What percentage is that of the world’s production of molybdenum?

CN: Five percent of the world’s supply. It’s a very attractive project.

RI: Let’s talk a bit about your market valuation. Your pre-feasibility said you’re very close to production–you think you can be in production by 2013. But is the market giving you the value that you think you deserve? If we pull up your stock chart here, you’re trading in the 17 to 20 cents per share range right now. What is it that investors are discounting this for right now–or they just not getting the picture?

CN: Well I think almost every moly stock goes through this evolution in its valuation and the closer and closer you get to feasibility and permitting and financing, the higher and higher your share price is going to be to reflect the valuation of this asset and at this point I’m estimating that we have about a twenty percent valuation of our asset. When the feasibility study is done and financing is placed we should have about a sixty percent valuation. So that means in today’s terms, we could be going to a market cap of something like two hundred and seventy five to three hundred million dollars.

Fortunately we have two other fairly significant prospects on the project, as well. We haven’t gotten them to the point where they have qualified resources yet by Canadian standards, but they do have very significant historical resources.

RI: So looking forward to the time when you may be mining at Kitsault, how many people would the mine employ and how many people could you employ during the construction phase of the project.

CN: Well in the construction phase we’re looking at between two and four hundred jobs, depending on the season and the time of the year. The mine itself calls for 330 fulltime employees for 15 years and if you look at the statistics of spin off jobs or other jobs that are created, by having 330 fulltime mine employees, you could estimate between 5 and 6 other jobs. So we could be looking at between 1,500 and 1,800 hundred other jobs in the Kitsault and Prince Rupert region just to support this mining operation.

RI: You know in some ways the project sort of looks like an inevitability. It will create hundreds of jobs, it will provide very low cost molybdenum, but what I’ve been wanting to ask you is about the management team. How you put together the management team that you have? It’s got some major mining legends on it, for one Pierre Lassonde. So how do you go about gathering a group of people like this.

CN: Well, it’s actually people that I’ve worked with in the past. Pierre Lassonde helped me start Metallica Resources; Bob Cross was an early financer of Metallica when he was with Gordon Capital and people that you know and you’ve worked together with for a while, tend to stay with you. A.J. Ali, I’ve known for a long time. He was the audit committee chair of Metallica and he is really one of better mine financers around. He’s my partner and my CFO. We each own a very large portion of the company. We each own over 10 million shares of stock that we have purchased and we are firmly committed to the success of this company.

RI: History would suggest that bringing giants into production is a very difficult task. What are the issues? Permits and financing primarily, I’d say. So let’s talk about both. How are you dealing with the permitting process?

CN: We’ve just opted into the BC environmental assessment process. We did that for two principal reasons. One is we think it helps us comply with the requirements under the Nisga’a final agreement, the treaty that the Nisga’a have, and it’s a process that they understand. And secondly it has a legislated time-frame and that’s very important for us, to have a very clear time frame. And I think the province of British Columbia has done a fantastic job of sticking to that time frame over the last couple years. They’ve made a very serious commitment to clarity in the permitting process.

RI: That helps. What is the time frame for getting through the environmental assessment?

CN: Well, from the time you submit the application, the environmental assessment application; it’s about a 270 day period. So about 9 months.

RI: Less than a year, that’s not bad.

CN: Yes, and we hope to be able to submit that application at the end of this year.

RI: And what about financing. The capital cost that you’ve looked at in the pre-feasibility study is $641 million. How do you go about getting that?

CN: Well we think about 60 percent of it can be raised in debt and we have WestLB working for us as the principal arrangers. They’re one of the largest European resource banks and they’ve told us if we can find offtake purchasers at a fixed base price, so a floor and a collar for the commodity, for only 40% of our production for the first five years that will guarantee the revenue to pay back that debt. So that’s our target right now: to find steel producers that will purchase 5-year contracts for up to 40% of our production. Now the remaining 60% we sell at market price and it’s in the hands of the shareholders. It doesn’t have to be used for debt service.

RI: Craig, in Avanti’s case you’re going to be working quite closely with the Nisga’a First Nation. How involved are they in the mine development process and also in the sharing of the potential revenue at a mine at Kitsault?

CN: Well, first off we have to comply with the environmental assessment provisions of their treaty. So they’re involved with the BC environment assessment act process. Secondly the government has already indicated a willingness to share revenue with the local communities from the BC mine tax that we will pay. You know, that’s about a third of the tax we pay on this project. Total tax we estimate at being over $800 million.

RI: Craig, can you explain the scope of the Kitsault project for investors?

CN: Well, it really is a very significant asset. As I said, its one of the top five undeveloped primary moly assets in the world right now and in full production it will generate about five percent of the world’s supply of the commodity. It will be the largest molybdenum mine in Canada. It will provide a lot of jobs and salary revenues for local residents. It will pay a huge amount of tax to the provincial and federal governments and a portion of that will come back to the local communities. It’s a very significant asset.

RI: Time frame. What needs to happen between now and 2013 to get to production?

CN: Three things. Complete the feasibility study; based upon that get the mine finance arranged with offtake agreements; and lastly get the environmental permits to start construction.

RI: And certainly when that happens we’re going to see a big change in the share price.

CN: Yes, we believe so.

RI: Craig Nelsen, thanks a lot for coming on the show today. We really do appreciate you coming on and we hope to see you again.

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