from Financial Survival Network
Patrick Donnelly, president of our sponsor First Mining Finance, joined us today… There’s a new sheriff in town and as a result Trilogy Metals is on the move. VP Patrick Donnelly tells us that as a result of streamlined Federal environmental/land use regulations, Trilogy is moving quickly ahead with its Arctic and Bornite Projects (located in the Ambler District situated in Alaska’s wilderness). The state’s governor is pushing for the project as well. As a result, a much needed 211 mile industrial road is being permitted and will be built shortly thereafter. It will connect the district to the Dalton Highway that traverses the State and thereby facilitate development and production of the projects. Trilogy is in the unique position of having high cash reserves with more on the way. Its JV with South 32 could provide another $150 million by next January. The project is a monster with billions of pounds of copper and lots of Cobalt, Gold, Silver, Lead and Zinc as well. It will be producing for decades to come.
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Transcript
Kerry Lutz: Welcome. You are listening to The Financial Survival Network. I’m Kerry Lutz. You know we love to showcase companies, sponsor companies that have amazing prospects, that are amazing values especially in this depressed resource sector. One of these companies is Trilogy Metals, which is a little bit of a misnomer but you’ll understand why in a little bit. Trilogy is a company that is getting things done. So often in the resource sector viable projects, for reasons of financing, regulation, first nations issues, indigenous peoples, ecological issues, they get tied up for decades literally. This is probably the biggest crime because true wealth is created from the earth, it’s extracted from the earth and you just have to look at history to understand that. This company, Trilogy Metals Inc., it’s on the NYSE, the New York Stock Exchange and it’s under the symbol TMQ. You’ll also find it under the TSX. TMQ right now it’s trading in the mid $2 range.
Kerry Lutz: Found out about this company a while ago when I was at PDAC, that’s the show in Toronto, the show of shows. Trilogy had by far one of the best stories there, they had a virtual reality display showing the magnitude of their deposit, the extent of their project. It was amazing. Without further ado, I’m going to bring Patrick Donnelly on. Pat, you’re Vice President Corporate Communications and Development. You shouldn’t be fooled by Pat’s title, I mean you started your career 25 years ago as a project geologist exploring for precious and base metals, diamonds in western and northern Canada. I should mention, this project is in Alaska and when you think Alaska you think cold, and definitely here. Pat, it’s great to have you back on. This must be an extremely exciting time to be involved with a company like Trilogy.
Patrick D.: Yeah, absolutely. Thanks, Kerry, for having me on. I keep telling people the stars have aligned. What I mean by that is copper fundamentals are very, very, very strong. We’re in a great jurisdiction in Alaska, great support from the Governor and great support from the US federal government. Fantastic relationships with the indigenous peoples, and great support from one of our partners, South 32, which is a multi-billion dollar Australian company. Not to mention, we have a fantastic asset that has some of the highest grades in the world.
Kerry Lutz: I was recently saw you do a presentation. You were down here in my neck of the woods in south Florida. There was a group, I’d say about 60, 70 very sophisticated investors. When you told them Trilogy doesn’t need any money, we’re not looking to raise capital. We’re looking to raise awareness of the opportunity because the market does not accurately express the value of the company. I swear to God, their jaws dropped, Pat. I mean, well wow, we don’t see anybody who doesn’t need money. They don’t usually come on this circuit. It was quite interesting the response.
Patrick D.: Yeah, I left the begging bowl back in Vancouver. It’s nice not to need money and you can focus on the business. We have $30 million in cash, US. All our warrants are in the money. We have over, I think six and a half million warrants that are set to expire in July and they’re all in the money so that will add another $10 million to our treasury. We’ve got a very ambitious $18.2 million budget this year for exploration work and permitting, and feasibility work at our projects in Alaska. Yeah, it’s nice to focus just on the company and tell people what we’re doing. Also mention, it’s nice that we’re listed in New York. Which brings a big sigh of relief to people because a lot of people don’t like trading on the TSX or the TSX venture or in the OTC. We’re a legitimate company on New York and also have some very sophisticated shareholders as big shareholders and that helps as well.
Kerry Lutz: Yes, absolutely. There’s two projects, two lead projects, you’ve got others of course. That’s Arctic and Bornite. Arctic is the one that’s moving ahead. You’re currently in the midst of getting a highway permitted. Can you just explain how that works?
Patrick D.: Yeah, I mean the projects we have, arctic and bornite were discovered decades ago. The issue has never been about whether they’re economic or not. They’ve always been economic, the issue has always been that they’re remote. Last five or six years now the Bureau of Land Management of the federal government has been moving forward to permit a 211 mile industrial road to the project. What that would do is link us up to the Dalton Highway. The Dalton Highway is the main highway that goes north south in Alaska, it connects the north slope oil and gas fields to Anchorage. The permitting development in this road is a critical catalyst for this company and the government, like I said, the US government, the BLM has been making incredible progress on getting this road permitted, which will be done by the end of this year.
Patrick D.: It will be a private road, it will be for industrial use only and the taxpayer will not have to pay a penny for this. This will be financed with a public, private partnership between Alaska Industrial Development Export Authority, which is a state infrastructure bank and ourselves. There will be a toll for the road and the toll will cover the maintenance cost, and the capital cost, and the interest for the debt finance, support the road. This has been done before. This is a model that’s been done before in Alaska. The Red Dog Mine, which is about 200 miles away from us, which is owned by NANA Corporation, which is a native corporation and operated by Tech Resources, which is $13 billion Canadian mining company. That mine was built i30 years ago and they needed a road and port. AIDA permitted and financed that road, raised debt in the private markets and the mine paid a toll in the road in the port. They paid it off a few years ago and now it generates around $20 million a year revenue for the state. That model’s been done before and it’s a model that we’re going to apply to the road that we need to support our project.
Kerry Lutz: Right. A 211 mile highway, that’s pretty substantial so I totally get the environmental aspects. All of this is moving ahead and you’ve got a pretty aggressive timetable, especially because you’re dealing with the government and you never know what’s going to happen. They seem determined, correct me if I’m wrong, to really get this thing going.
Patrick D.: Yeah. It’s funny, United States right now, unemployment is very, very low and there’s plenty of jobs in the lower 48. People don’t realize that Alaska is in a recession and that’s because historically Alaska is derived I think 80% to 90% of its revenues from the oil and gas industry. The amount of activity has slowed down considerably in the last few years. The governor of Alaska is adamant to diversify the economy of Alaska. One way is to support the mining industry and he’s very, very familiar with mining. His three daughters worked at the Red Dog Mine, which is the second largest zinc mine in the world. The governor lived in the area where we are for many years so he’s seen the positive benefits that mining has done for the region. It’s created a lot of jobs, it’s created a lot of revenues for the government and for the local peoples. He’s incredibly supportive.
Patrick D.: Also, I have to give a tip of the hat to the Trump administration in Washington. They truly are pro-business. They’re not cutting corners or anything, they’re just getting things done. Things are moving and it’s very, very refreshing to deal with a government that wants business, they want jobs, they want people, the local Joe’s to do well. Yeah, just an absolute pleasure to deal with governments that are very, very supportive. Like I said, they’re not cutting any corners, it’s just simply making sure that the process is moving along. Like I said, we’re going to have the permits for this road by the end of this year. It’s a big catalyst for the company. I don’t know any other jurisdiction right now globally that’s this efficient and this supportive of jobs and generating wealth for people.
Kerry Lutz: It’s pretty amazing and it’s 180 degree turn from the prior administration where one of the things that they were doing that was literally going to destroy the mining industry in the US and just drive out the miners was a requirement that once a mine was expended, obviously, there’s remediation and that’s the right thing, but you would have to monitor that mine for 30 years after it was sealed off, remediated, to make sure nothing happened. Once a mine is closed and it’s remediated, unless there’s water running through it, that’s it. Nothing is going to happen. Normally, in remediation you channel the water away from the expended mine so you don’t have ecological issues.
Patrick D.: Yeah. Nowadays, one you have to have a closure plan. It has to be very, very detailed and well engineered. Two, you got to put up a environmental bond up front so that … the funds have to be set aside up front to close or remediate the mine. To be completely up front with you, Kerry, in the past 20, 30 40, 50, 100 years ago mining companies were not good citizens. Usually when a mine got depleted, they just simply walked away. That’s not how things are done anymore. You have to have a closure plan and you have to have a bond. The closure costs for Arctic is over $60 million. That has to be set aside up front for the remediation closure and monitoring of the mine. Like I said, with the government, all we want is the process to move forward. We’re not asking to cut any corners. We have to abide by the rule log, which we will. Not just abide, but do everything above and beyond what’s required because the potential effects of mining longterm are significant. We have a partnership with the local native corporation, we have incredible support from the native peoples because they know that we’re doing everything to make sure that when this mine does shutdown one day that it will be remediated appropriately. Again, there’s funds set aside to deal with that.
Kerry Lutz: That’s definitely a good thing. Hey, let’s talk about the resource itself.
Patrick D.: Sure.
Kerry Lutz: Two projects, Ambler mining district. The first one is Arctic and Trilogy sounded good at the time I’m sure because there were three basic metals you expected there. As it turns out, you’ve got like five metals in that one alone.
Patrick D.: Yeah. Arctic is what’s called volcanic sulfide deposit. It was formed on an ancient sea floor. These kind of deposits, the nice thing about them is they’re poly metallic. In the case of Arctic, as you alluded to, it contains over 2% copper, 6% zinc, plus lead. Then it’s got quite a bit of precious metals in there as well. It has about I think it’s half a gram gold and an ounce silver. The beauty is when you do a copper equivalent grade it’s 5% copper equivalent. It’s a very, very high grade rich mine. What’s nice is the precious metals there it gives you optionality. There’s historically been an inverse relationship between copper and gold prices so even copper prices go down, well then gold prices are most likely to go up so that’s the beauty of this thing. It also gives you financing options as well. This mine’s going to generate 160 million pounds of copper, 200 million pounds of zinc, and 30 thousand ounces of gold, and over 3 million ounces of silver and yet the precious metal revenue is only costing you about 12% of the potential revenue. You can do some of the precious metals, you can sell them forward to help finance the project. It’s really nice because of the precious metal credits, if you use them in the cost your average cast cost is 15 cents a pound of copper.
Kerry Lutz: Wow.
Patrick D.: Right now copper’s been under a little bit of precious because of what’s going on between US government and China. That being said, even a $2 copper, this thing makes a lot of money. That’s what’s unusual about this project and that’s why it’s unique and there’s very few projects in the world, if any now, that have these kind of grades and economics.
Kerry Lutz: Very few. I should mention that as of today copper is trading at about 2.65, 2.66 per pound so it’s still profitable even at that price. In all likelihood there’s not a lot of major new sources of copper coming on board. Over the years of this mine’s life, it’s highly likely that copper prices will increase.
Patrick D.: Oh, the copper fundamentals are very, very strong. Just for example, mining companies have not been putting money back into the ground. Just for example, Codelco, which is the world’s largest copper company. It’s owned by the Chilean government and it produces about 9% of the world’s supply of copper. They’ve got to spend $3 to $4 billion a year just to maintain the production profile because their grades are going down, their projects are getting deeper. Two of their biggest projects are transitioning to underground. The fundamentals are very, very strong. This year alone, even if there’s tepid demand, we’re still supposed to go into a deficit. In the next five or six years, we’re going to see a real supply side crunch. The fundamentals are very, very strong. I don’t think people realize that a modern society is highly dependent on copper. People think a lot about oil and petroleum but don’t realize that everything we use in society requires copper. Average car is 50 pounds of copper, average house is 200 pounds of copper, computers, cell phones, dishwashers, toasters.
Kerry Lutz: Everything.
Patrick D.: Everything we use is copper. Now with the threat of global warming and the move to electrical vehicles, copper’s going to become even more critical. Average electric vehicle is 200 pounds of copper.
Kerry Lutz: I know.
Patrick D.: We’re moving into what I would call is a renaissance for copper and a copper future. There’s no substitutes for copper either. Right now is a perfect time to get in as you said. Coppers at $2.65. Once we get over this thing with China, copper’s going to move really nicely and we’re going to see $4 copper in the next couple years.
Kerry Lutz: As we know, aluminum is not a substitute for copper wiring in a home.
Patrick D.: No.
Kerry Lutz: It doesn’t have the conductivity and there’s all sorts of problems with it, as we found out in the past. Hey, not to mention, so looking over at Bornite. We’ve got six million pounds of copper and 77 million pounds of cobalt. Another metal in very tight supply that is essential to electric vehicles.
Patrick D.: Yeah. What people don’t realize is most of the world’s copper comes from the Congo. There’s no other supply of copper, I mean sorry, cobalt in the United States. This would be the only cobalt mine in the United States. There’s some cobalt in Canada. The vast majority of it comes from Russia and the Democratic Republic of Congo. Cobalt’s now been designated as a critical metal by the United States government. Lisa Murcowski, the Senator from Alaska has just put forward a Bill to designate cobalt and a few other metals as critical metals, and strategic metals. Cobalt is used in batteries, obviously, it’s also used in specialty steels. Many of these specialty steels are used of military applications as well. Yeah, we’ve got 77 million pounds of cobalt at Bornite. We have six billion pounds of copper at Bornite, and growing. We’ve done some work on cobalt and we’ll continue with that to see if we can produce a saleable product. As you said, again, this is a strategic metal and strategic for the United States.
Kerry Lutz: So let’s talk about Trilogy’s team.
Patrick D.: Sure.
Kerry Lutz: Obviously, you’re on it, which is a good sign. What about the team? This is a very complicated project, time consuming, and to have one of these projects come to fruition in your lifetime is an amazing thing. To see multiple ones is really an accomplishment.
Patrick D.: Yeah, Kerry, one thing I’ve learned, I was also a mining analyst for a while, picking equities and doing analysis. When I’ve been in this business for, I don’t know, 25 years now, I was a geologist, or an analyst, or on the corporate side and one thing I’ve learned is when you’re trying to … there’s thousands of junior mining companies out there and when you’re trying to separate the weed from the chaff the first thing I look for is management. I’ve seen bad management ruin good projects. Also, as you’re fully well aware, mining is a complicated industry and I’ll even go as far as to say probably the most risky industry out there. Because of that, it just makes management even more critical. Our President, CEO, Rick Van Nieuwenhuyse is one of the best in the business. He wears a lot of hats. He’s an Alaskan, he’s from there, he grew up there and he’s plugged in. He knows all the stakeholders, he’s got a home in Fairbanks. That’s how much time he’s up there. He’s plugged in, he does a fantastic job with his relationship with the indigenous groups. You’ve got to have indigenous support anywhere to build a project and he knows who the leaders are and he develops close relationships with them. Rick was also incredibly technical, he’s a geologist. He’s been doing this 40 years now and just very strong technically. He’s done this before, he turned Nova gold from nothing into a multi billion dollar gold company. Again, he’s our leader, he’s the one that’s leading the charge and he’s assembled a really strong team. We’ve got Elaine Sanders, our CFO. Her and Rick have been working together for close to 20 years. You need a strong CFO in place to move projects forward. Bob Jacko our VP of Engineering, he built the Red Dog mine and was the general manager there. He knows the area, he’s built mines in that jurisdiction and that climate. He knows Alaska well. You need, again, strong technical people.
Patrick D.: Then the rest are Andy West, again, he’s an Alaskan. Lives in Juneau, worked in the Greens Creek mine. He’s our senior geologist and he’s been doing this for 30 years as well. Cal Craig does our environmental work. Then obviously, we have great support from the people of Alaska. Last summer we had 70 people working at our project and 70% of them were indigenous. They were incredibly supportive and productive with our project. Yeah, we’ve got a great team, I feel very fortunate to work with these people. They’re highly competent, they’re highly professional, and they know how to work up in Alaska. I always tease Rick, I call him Mr. Alaska. He really is because he knows the Governor personally, he knows all the movers and shakers in Alaska personally, the indigenous groups, and that helps. You see a lot of mining companies in Alaska run by outsiders, but he’s not. He’s an insider, he’s from there, he’s a good old boy from Alaska and that helps.
Kerry Lutz: A definite plus. I guess we should talk about the relationship with South 32, where you’re going in the future with them. Aside from the fact that you’ve got a large institutional holding, including management, it’s over 65% so there’s not a lot of float in this stock. The South 32 relationship, really important.
Patrick D.: Absolutely. They’ve been absolutely fantastic to work with and it’s a really solid relationship. Just for your audience, they’re a $13 billion Australian mining company. They were spun out of BHP Billiton a few years ago. Their assets are in Southern African and Australia in base metals. They have manganese, nickel, coal, aluminum, zinc, and nickel. They don’t have any copper assets so what drew them to us is the fact that we have one of the highest grade, highest quality copper assets in the world and also, they like Alaska. They want to get away from Southern Africa and go to jurisdictions where the rule of law prevails like the United States. We have an option agreement with them, formed a joint venture. They had to pay us $10 million a year for three years for a total of $30 million, which they’ve done already.
Patrick D.: Now, to maintain the option and the option itself is the right to form a joint venture, a 50/50 joint venture. If they exercise that, they have to put another $150 million US into the joint venture company. They have to do that by the end of January next year. We fully expect they will do that and it’s great having a big company standing behind you. It gives you credibility, it gives the government and other stakeholders comfort that we’re building the road for permitting, financing building the road, and it gives us the operational experience and technical experience to build and operate the mines. They’ve been tremendous to deal with, it’s a very good relationships, they’re very, very competent and we feel very fortunate to have a partner like South 32.
Kerry Lutz: Yeah, hey, definitely blessed. There’s a good possibility that they’re going to commit the 150 million but even if they didn’t for whatever reason, that’s not going to leave the company out in the cold for very long, or if at all, is it?
Patrick D.: No, we’ve got other groups circling that want to get in the door. If they did walk away for whatever reason then they get nothing. They would’ve put the 30 million into the ground for us anyway and we’re well financed. We’re in a good position. Like I said, if they walk away, that’s actually not a bad thing. Like I said, we’ll have suitors lining up pretty quickly to replace them. Whatever way it goes, it’s all good for us. I don’t worry too much about that.
Kerry Lutz: Suitors lining up on better terms, too I’m sure. This is a lot different project than from when South 32 signed on.
Patrick D.: That’s a good point, Kerry. When this company originally signed the agreement with them we were at $60 million market cap. Now we’re around, our market cap now is almost $360 million US. We’re a lot different now than we were a few years ago.
Kerry Lutz: The projects are that much further along as well.
Patrick D.: Exactly.
Kerry Lutz: It’s all the more reason to expect them to go ahead. As I’ve learned, and I’m sure you’ve learned in life, until the ink is dry on the contract and the funds have been wired into your account, anything can happen. The odds are pretty good, sure. Hey, when we check back with you again say in the next couple of months, where do you think we’ll be? The road will be getting closer to fruition, won’t it?
Patrick D.: Yeah. This is a critical year for us and I think the next two big catalyst at least in the next couple months are one, the government issuing the draft environmental mpact statement. That’s a big catalyst. As I alluded to before, we have a $18.2 million program this summer. We’re going to put $9 million into Bornite of the in field expansion drilling. We’re also going to put in another seven million into Arctic for permitting and feasibility study work. Then we’re also spending another $2 million exploring the rest of the Ambler Belt. The focus has always been on exclusively Arctic and Bornite but we had dozens of other deposits that we haven’t even touched on the rest of the Ambler Belt. We’re going to drill some of those and get some noise, and show it to the market that we don’t just own two mining projects, we own a whole mining jurisdiction, mining district. The Iberian Pyrite Belt in Spain, similar geology, similar type of deposits, that’s been mining since the Romans and it’s still being mined.
Kerry Lutz: Wow.
Patrick D.: We want to demonstrate to the market what we really have and why companies like South 32 are really, really interested in the story. Lots of news and then end of the year or by the end of October the final environmental impact statement should be filed. Then shortly thereafter, a month or so after or by the end of the year we’ll have the record decision and the 44 permit. This year is a big year for the company.
Kerry Lutz: Big year.
Patrick D.: Obviously, South 32 has until the end of January next year to exercise their option. This is a big, big year this year, lots of catalysts. Right now is a great opportunity for shareholders or potential shareholders to get in and do well. I don’t know any other story like it right now.
Kerry Lutz: There isn’t. There really isn’t. Having looked at hundreds of different companies at PDAC, you’re one of the top three stories for sure and your virtual reality demonstration at your booth was pretty impressive, I’ve got to say. One thing is, there’s only seven months now, actually six and a half months between … you’ve got seven months between January and now. As that time goes by, and as more happens in the company, obviously you can predict the price of the stock. I mean, that’s the ultimate forward looking statement that nobody’s prepared to make, but it’s not unreasonable to expect that as that deadline gets closer price is going to go up. They could pull the trigger at any time. They don’t have to wait until January of next year.
Patrick D.: Absolutely, absolutely. I wouldn’t wait until then. There’s going to be lots of opportunities to get in and we’re seeing this trade war with China right now and there will be days where like the rest of the markets we may see some pressure. That’s an opportunity to get in. I went in last December, we saw the markets really pull back, including us. We really pulled back and that’s when I came in. I started buying as many shares as I could. I’m getting ready to buy some more. I think this summer’s a great opportunity to get shares. Typically, the markets are quieter and it’s a great time to load up. Yeah, don’t wait until January. I would load up ASAP.
Kerry Lutz: Hey, no better endorsement than when the insiders are buying the stock. As they say on the street, there’s many reasons why insiders could be selling a stock. There’s generally only one reason why they buy. We’ll leave that to your imagination. Pat, it’s been great talking to you and catching up on what’s going on with Trilogy. I should mention yet again that the company is traded on the New York Stock Exchange and on the TSX under the ticker symbol TMQ. Last time I looked, it was trading at US dollars 2.67 per share and around 3.58 Canadian. That will fluctuate so that was about a couple of hours ago. The stock chart, which you really should take a look at where you’ve seen these resource stocks just starting from the left side and going down to the right, this stock has done the opposite. It’s been going up solidly for the past two years with pullbacks, of course, because that’s what happens in the market. It’s been going up pretty steadily and if the trend continues, and don’t forget, the trend is your friend at least until the end. It could very well keep climbing.
Kerry Lutz: Anyway, check out the website because that’s where you’re going to get the most up to date information. That is, trilogymetals.com. Make sure you take a look at that, there will be a link to that in the show notes to this interview. Patrick, it’s always great to talk to you. Sounds like exciting times and wish you the best of luck. We’ll talk to you again real soon.
Patrick D.: Thanks a lot, Kerry. Good talking to you.
from Kerry Lutz Podcasts – Financial Survival Network http://bit.ly/30OpODQ
