In conversation:
Part 1 of 2. In a wide-ranging interview, we talked with Eclipse Gold Mining (TSX-V: EGLD) Director Douglas Hurst about double safe havens, digging deep on high-grade and the oxide advantage. Douglas has a long track record in identifying assets, unlocking value and creating shareholder success. He was executive chair of Northern Empire, acquired by Coeur Mining for $117 million in 2018; founder of Australian producer Newmarket Gold, acquired by Kirkland Lake Gold for $1 billion in 2016; and founding executive of International Royalty, purchased by Royal Gold for $750 million in 2010.
Q: Gold has long been considered a safe haven, which is certainly proving out recently owing to fiscal and monetary policies in response to COVID. However, you suggest investors should be looking for a double safe haven: gold exploration or production located in Tier 1 jurisdictions.
Douglas: You can relocate a factory, but you can't move a deposit. Geology and endowment are obviously important, but it's just one determinant. A clear sightline to the finish line is imperative when you are investing hard money into capital infrastructure. You need to invest in a stable jurisdiction where the government supports mining, there is security of title, you can get things permitted and the tax or royalty regime is not onerous. Newmarket was a great success because not only was the geology fantastic, but the mining environment in Australia was supportive. That's why we love Nevada: it has all the ingredients. For gold, there's no better place than Nevada in terms of geology. Northern Ontario is very good, but the legacy of gold in Nevada is undisputable. We had great success with Northern Empire in Nevada's Walker Lane Trend and are equally excited about Hercules gold project which lives in the same neighbourhood.
Q: There's the popular saying that grade is king. High-grade headlines certainly excite the market as the gold space gets more attention and heats up. Does highest grade win the day?
Douglas: The end goal is to advance and build an economic deposit. High-grade intervals certainly help. However, people don't really look at how deep they are. If the intervals are below 300 metres, you would have to mine from underground. Success then becomes riskier. It takes years of underground work to figure out the mineralization on two or three sides. The amount of the energy and capital to excavate tunnels to determine mineralization is enormous. The great thing about Hercules is the intervals of gold mineralization we've drilled are at, or close, to surface. This would be the profile for a potential open-pit deposit. With delineation of a potential open-pit deposit, drilling gives you enough of a three-dimensional view to quickly determine optimal mining and fast-track permitting.
Q: For a senior miner, the right deposit profile is one that produces at least 100,000 oz/yr and has a life of mine of 15 years or more. And yet, some companies are getting strong valuation for advancing smaller oxide gold deposits. Why the premium?
Douglas: There's a few drivers underpinning this for companies like Liberty Gold in the U.S.'s Great Basin. One, Tier 1 jurisdictions with an existing large footprint of gold producers – the need for ore supply. And, two, the low capital expenditure profile of a shallow gold deposit that is largely oxide. As mentioned, underground is more expensive. On top of that, the spend to build and operate an open-pit oxide mine is much lower than it would be for a sulphide deposit in terms of the processing cost for gold recovery. For an oxide deposit, you can set up a heap-leach pad which is dramatically cheaper than the capital cost of building a mill. You can get to production and positive cash flow much quicker.