Thanks to Peter Clausi (@pclausi on CEO.ca) for speaking to me about Silver Bullet Mines! This is not sponsored content. I am invested.
PB: Hi I'm Peter Bell and I'm here with Mr. Peter Clausi, a Director of Silver Bullet Mines. Hello, Peter!
PC: Hi Peter, how are you doing?
PB: Pretty well. It's a bit of a chaotic week out there -- first week of July, Fed day, and lots going on. It seems like lots of people are losing their heads.
PC: As you know well, I've had to keep my head down this week because we've received conditional listing approval and we're closing the financing. We have operations on site and we're just sticking to our dates and getting our job done. The Fed can do whatever it wants, but it won't affect me in any way.
PB: That's been a bit of solace for me too -- to get away from the noise you get in day-to-day market action and focus on things that you can do well. That's one of the things that drew me to this Silver Bullet story. There's a lot to it. I’ve spent a lot of time studying it and I've been chatting about it online quite a bit publicly. I look forward to seeing what happens because I see a lot of things coming down the pipe. I also expect surprises too.
PC: Yes, there is a lot to Silver Bullet. Let me simplify it for you. We own five past producing silver mines near Globe, Arizona. Globe is like Timmins or Sudbury -- places that exist to support mining. It's a great place to be. We're aiming for the first of those five mines to go back into production in Q4 of this year. The mining industry is all about mitigating risk, and we're going to minimize it by producing revenue. Then, we have the other four mines that we can bring into production as well. The second one to go into production will be the McClellan Mine. Incidentally, that mine is the source of the legend of the Lone Ranger.
PB: Yes, this history of the silver bullets is amazing.
PC: The legend started at the McMorris Mine years and years ago. It is, geologically, a fascinating part of the world and I'm planning on being down for a site visit in September because I wonder what a seven-foot wide filter vein looks like.
PC: Not much to add after that, eh?
PB: Well, you're only on mine number three! And you said five mines.
PC: Yes, and we own the entire basin one hundred percent, which appears to be underlain by a copper porphyry. A porphyry is usually high tonnage and low grade, but we think there is one present with high tonnage and high grade because the copper in the soils are running very high.
PB: There's so much to talk about this property, let alone the other ones in the company. But it’s simple for me because of the patented claims. The fact that you have that anchor position where you can go in and get to work with simpler permitting timelines is important. It's a lot simpler to work there than some of your other ground because you are in a national park. Forest service permitting can be a bit of a nightmare.
PC: Yes, but we can navigate that. Don’t forget we own our assay lab so that eliminates costs and risk due to the inability to get your assay results back. We own our underground drill, as well. We own our own milling facility! We can control our costs like no one else can.
PB: So unusual. I've been focused on Newfoundland the last few months, and it is a scramble out there to find people and equipment to do work. I’ve enjoyed the pivot to look more in Arizona. I've looked at Globe before, and I was always really impressed by that big open pit copper mine at Miami. I don't know the history of all that, but that's a big mine! Now I've started learning about the silver history in Globe and that’s amazing, too. I had no idea about the stuff with the Apache Indians and the silver bullets -- these are wild stories. I find that the best deals get better and I had this Globe, Arizona ranked pretty highly, but it’s quickly getting better. I didn't really have any way to invest in it before, but that changed when I found you guys in the last couple of months.
PC: We've been very vocal about the plan because we have a high degree of confidence in it. If we execute on the plan that we've laid out, then we will be in production at the Buckeye in Q4 this year. If that is the case, then the most fascinating document will be our financial statements that will come out at the end of February 2022; not for the revenue number, because we'll just be ramping up, but those financial statements will give a sense for our operating costs. And once you know our operating costs, all you have to do is make an assumption about the grade of silver going through, and then you can figure out what our free cash flow is going to be. That'll be an exciting time.
PB: Those are some pretty big assumptions about grades that start to make people uncomfortable, too. There's some high-grade silver in there and the historic production numbers are impressive, but I don't know of anybody who has a mine plan that looks anything like those historical numbers. Anybody who is trying to put it into production today is approaching it like a modern, big, new mine. But why don't we go back to what they were doing a hundred years ago and see if we can have another look at a small-scale, fast, high-grade, high-profit mine? That's a great story for a junior.
PC: That's basically what we're doing. The processing technologies have advanced around the world, just look at Energy Fuels processing rare earths in the continental US for example, but sometimes the old ways are the best ways. When you're processing this kind of native silver, the old technologies from the nineteen forties work. These are not complicated; it's so easy that a lawyer could even run it.
PB: That's another fun thing for me -- getting to know you guys over the last couple of months. I didn't know you before all this, Peter. You reached out to me around PDAC and asked if I wanted to do an interview, but I don't think I replied! I was concerned where we’d go if you get me talking about this or that.
PC: At PDAC, I wanted to talk to more people. I was here at home, so I reached out to a variety of people online and I wound up making new friends.
PB: Yes, I've seen that in this group of people around you. There are lots of community builders and I think that's important.
PC: Our CEO and I go back about 25 years. We've known each other so well that we can't remember where we met! The CFO and I have been together since 2004 as business partners. I've known Ron Wortel since probably 2000-2001 as well. He's on the board and he's a mining engineer. Our CEO John Carter has known the Murphy family in Arizona for an incredibly long time, too. All together, this is a group of people who have known each other and believe in community, working together, and making money together for the shareholders.
PB: I love the Murphy connection, too. They live in Globe, they are mining engineers and mining educators -- what a great piece of the puzzle. Again, all this stuff in Newfoundland that I’ve seen recently made me understand how important it is to have local people who really know how to get work done. To see your company also get that stuff covered is great.
PC: CSR is so important, both as a means of social license and also so that you feel good about yourself. It’s very powerful to say that, “At the end of the day, we made that community better by being there”.
PB: I look forward to that. The closest experience I have for that is comparable stocks. There's one other company that came public maybe six or eight months ago now and they've been on a big run: Gold Mountain Mining Corp. GMTN. They have a story about a new production plan with an ore purchase agreement, don't call it toll milling, where they're selling their stuff to New Afton. They have a higher grade blend they can provide that helps boost what New Gold is getting at New Afton. That’s the one other story where I've seen somebody come to market with a new production story and a fast timeline, but it's very different from Arizona. They're in a good mining neighbourhood in BC and they're getting respect in the market for it, but I feel like it's a little easier in Arizona to get it done.
PC: There's a gentleman I met on Twitter of all places whose handle is “The Due Diligence Guy” and he's refined the concept of the pre-production sweet spot. When a mine is in the pre-production sweet spot is the time when you want to be writing your biggest check. The risk has been rung out of the program, you've proved the resources, built your relationships with key communities nearby, fixed the inevitable mistakes that happen along the way, and you're almost in production -- you're almost in cash flow. That's the pre-production sweet spot, and it’s a very juicy place to be.
PB: Lobo Tiggre is a legend. I remember years ago hearing him give a speech at the Sprott Symposium in Vancouver in the summer about this sweet spot and being blown away. It was probably five years ago now, and it was work he'd done several years before that, too. This is an idea that Lobo Tiggre has known about for a long time. And it's a well-known idea in the literature, too. I think it’s called the pregnancy period sometimes by engineers and analysts. The statistics on stock returns around new production stories are way skewed to the positive side. There are definitely some disaster scenarios too, but one thing that really strikes me about what you guys are doing is that you're launching something new into the market at that stage. Normally, all this stuff happens with a company that's already public, so the market already knows about it and the shares have a chance to discount what's coming. But we don't have that with Silver Bullet because you're coming straight into an RTO here. You've raised money privately to do some work and the shell is whatever it is, but it’s a mystery for the market to some degree. I think the valuation numbers so far are conservative, which is good because it gives people a reason to buy. I don't want it overpriced out of the gate.
PC: When we were structuring this transaction, Peter, we made a conscious decision to undervalue the mining assets. If we can get three mines into production, then it is inevitable that one of the intermediates is going to show up and take us out. When we get taken out, does it really matter if you own six or seven percent of the company? No. The correct answer is no. We wanted to undervalue the asset so that the financing is a success. It's apparent that we did the right thing because we set out to raise three million dollars and wound up raising six million. Even as of this morning, we are turning away money because we have conditional listing approval on the terms we set before. As a team, we could have raised a lot more.
PB: But you also don't want to over capitalize it. It's good to be cheap, but then sometimes when things are cheap people over-capitalize, or they bring in the wrong shareholders, short-term guys who are going to strip warrants and do things like that. It's really tough to balance all these things. All the homework I've done has left me very surprised with what you have done. There's not many people who try to even tackle this plan, let alone accomplish it.
PC: And by raising the six million dollars, we've been able to push a few things past what we were budgeting. For example, do you buy or rent equipment? Do you stretch your cash or do you go out there and buy your own bulldozer? Well, if you only have three million dollars then you rent at three thousand dollars a week or whatever the price is. But when you raise six million dollars, you can go buy a used bulldozer for twenty-five thousand dollars! When you raise more money, you have power to do things a lot more efficiently.
PB: But you gotta have somebody local who can look after that dozer! Because if you buy a bulldozer and it's sitting out in a garage, then it could get stolen. Maintenance? It’s a lot easier to rent.
PC: You are correct.
PB: I think you’re making the right decisions buying key equipment like that, but I don’t see many other people doing that. One question I’d ask is about how the market has seen this project before. I wonder about that. It’s great to get all excited, but maybe I’m making a mistake. I've told some people about this and they feel like they’ve already seen this show -- they saw the original and they don’t need to see the remake. But I’m not so sure they have seen this before. The public company that had this project before never really committed to this plan all the way; they were trying to use a normal Canadian approach to the exploration business. You guys are not talking about an exploration play now, you're talking about a small scale development story. And it's a fundamentally different approach.
PC: Actually, Peter, it’s production. It’s not even a development story, it’s a production story. And when this other public company, Northern Sphere, owned some of these assets, silver was around ten dollars an ounce. Not an easy environment to raise capital versus today when silver was 26 this morning. It’s a lot easier to raise capital now and that's why our financials at the end of February are going to be fascinating because the world will be able to figure out our operating costs. If you know how much ore we’re looking at, what kind of mining rate is possible, and what we can put through the mill per day against the silver price then you'll have some perspective on our economics.
PB: Well, you're not going to have an economic study so that changes things. You can’t give production guidance. And you can't even call it “mining” either. It’s just bulk sampling. There will be a bunch of people who will be uncomfortable about this.
PC: This is a large vein-based system, and you'd have to drill the vein every 50 metres over two kilometers.
PB: And they’d still make you put a top cut on the grade!
PC: We made a decision not to do a resource estimate and not to do a PEA. Let's just go to production and let the numbers speak.
PB: I’m glad! I love it, and it's so rare to find that. Are you risking a catastrophic failure?
PC: I don't think so.
PB: I don’t think so, either.
PC: This isn’t ore in the traditional sense of what you may be thinking. These are big silver veins. You can see the vein and easily tell the difference between the vein and the rock that it's hosted in, so it makes it a lot more difficult to go wrong.
PB: And the level of capital -- you're not talking about a $250 million mine build.
PC: Agreed. This is the Pat Sheridan theory. God bless Pat. I miss him. The mining shows are not the same without him. Pat would tell people that if you know where the mineralization is then go get it! Don’t come to me for a million dollars to drill more -- go get it! The gold's over there, go get a backhoe, go get a dump truck, use the backhoe to scrape soil into the dump truck, go custom mill it or whatever phrase you want to use. He was right! You don't need a 10 million ounce deposit. You can make money off a 50,000 ounce deposit.
PB: But permitting. Is that the impediment for putting these smaller deposits into production? I think it must be.
PC: There's also ego. Nobody wants to say I found a 50,000 ounce deposit. That's like being a manager of a preferred share mutual fund. They want to say I found 8 million ounces or 10 million ounces or 15 million ounces! I found a copper deposit grading four percent copper. I think ego is in the way. And then the economics of the larger companies picking them up -- the deposits have to be of a certain size before the larger companies can direct resources to them. For smaller companies like us with fewer resources, we are far more nimble.
PB: There's a story Ross Beaty tells about how early in his career he was trying to produce a permit a mine that had like a hundred thousand ounces or something like that. He had spent years trying to permit it. It wasn't a hundred thousand ounces a year, it was a hundred thousand ounces total. It's not even clear if they ever got the permits, I don't know the punch line, but the moral of the story was don't go after small mines.
PC: At Silver Bullet, we have our permits. We even have a demolition permit to handle dynamite.
PB: That's one of the most important ones. Handling those explosives is serious -- transporting the explosives on the roads is serious. When you're on patented claims, it's one thing, but moving it to site gets to be a little tricky. Non-explosive blasting is a useful technique they use in the construction industry and I think it might have application in some of these settings when you're close to people's houses, and you don't want to be putting charges in five times a week. You'd be a nasty neighbor pretty quick with some of these blasting schedules for open pit mines, but that’s not a concern at Buckeye because you're in the hills a few miles from Globe.
PC: One thing that you wouldn't have realized is that you see fires out there all the time. What's our fire risk? We don't have one because a fire blew through this area three years ago and burned all the fuel, so we have zero fire risk.
PB: Forest service permitting -- do you guys have permits for exploration work in the national park?
PC: I don't specifically. I can find that out and get back to you.
PB: Even if you just stick to the 20 of patented claims acres then that’s plenty of ground when you're dealing with high-grade. You can make a lot of noise just on 20 acres when you have old adits and shafts. It keeps it really simple. Sometimes I've seen juniors that have mining rights, but they don't have the surface rights. Thankfully, you guys haven't fallen into that trap. The whole group there has enough understanding of the legal land rights in the US. These things are very different than the Canadian system, and I've seen Canadians who can't really function in the US environment. Even today, Rob McLeod was tweeting a video in the Golden Triangle of BC talking about he crossed over the border in Alaska and all of a sudden he has to put up markers along the boundary of his claims to stake. The difference between map staking in BC versus on the ground in Alaska is just night and day. That's an impediment for Canadian juniors who think they can just roll up in Arizona and start working on some of these high grade old mines. You need that local team.
PC: Our local team is very important for us.
PB: Do you have all the pieces of the puzzle, corporate wise? When you go public are you going to be ready on day one to prepare for day two? Or are you ready to come out swinging?
PC: I think we're ready for day seven right now.
PC: It's always a fascinating time when you go public, but we've lined up our thesis and we like our board. Boards always have to evolve and I’m sure this one will over time, but we're ready to go. Now it's just a process of paperwork with the stock exchange.
PB: Have you been through RTO stuff yourself with this group?
PC: I've been in the securities business since 1992. If I tell you I've done 300 RTO then I'd be right within 50 either way. And yet there's always something I learn on every transaction.
PB: It’s been fun watching you with the shareholder activism stuff, too. I think that's probably not done enough in Canada. I think we're probably a little too timid. It's easier to just leave it -- it's somebody else's mess. And then that creates a culture in the markets where it's okay and then there’s a slow slide in standards over time.
PC: That informs our view of our roles as directors. The shareholders own the company and we answer to the shareholders. That's very much a big part of our mindset. If you know you answer to the shareholders on a daily basis, then give your phone number out. I give my phone number to everybody who wants it. I've had the same phone number since 1998. I will talk to any shareholder for any length of time anytime.
PB: They may not like what you have to say, but that's another issue.
PC: That's okay. If somebody's not happy with something we're doing as a management team then I want to hear about it. It might be right or it might be wrong, but at least we could have a meaningful conversation on it.
PB: Yes, that's what I found with the online stuff. Even when you have anonymous people chirping and saying things that seem stupid, sometimes there's a grain of truth or something useful in those comments. It can be difficult to listen to those people and hear them, but you can benefit from it because sometimes they're pointing out your biggest flaw. And if you can fix that then let's fix it!
PC: Any Silver Bullet shareholder listening to this, if you have anything to discuss then just give me a call.
PB: Absolutely. Real treat to talk to you here, Peter. I’m really glad to be looking at all the stuff you are doing. There's a bunch of stuff that I see in your world that's kind of unusual and I like it. Good work.
PC: Looking forward to talking to you at the end of February when we can talk about our costs, so you can extrapolate cash flow.
PB: I can't wait to start doing some cash flow models for you here. As an independent person, there's a little bit more leeway for me to throw some raw meat to the street too. I think there are other people that'll be happy to do the same. And beyond the cash flow modelling, there is the geology. I encourage you to publish as much of the technical data on the projects as you can, as well. There's something to be said for making the whole data room publicly available for free. Imagine if you made all the technical exploration data that you have public for these roving geologists, like Due Diligence Guy, so that they can build their own 3d models. They're happy to do it if you give them the data.
PC: I will take that up with the operational side of the business.
PB: Yes, and I'll keep agitating for it! In these situations where you don't have a PEA or a feasibility study or anything, if you make all that data available to the street, then you may find that somebody anonymously produces one that’s at the same quality as what you would have paid a premium consultant to do. That came up with Minera Alamos recently. I was talking to Doug Ramshaw and I said that to him. They don't have economic studies either, but imagine if they put all their data out there and let us internet people go to work building up our own 3d models and figuring out our version plan of what you might do. It's rough and it's a little scary, but you want to embrace that uncertainty and you want to embrace the crowd. I think that if you can get the crowd rooting for you then that's what makes the market get really excited. It's such a promotional business, so you want to play for the crowd.
PC: I'll take that up with operations. That's not my area of expertise.
PB: And it's a legal question, too. If you take it the operations, then they might say, “Can we? Are we even legally allowed to do that?” so it may come right back onto your plate, Peter, before you know it.
PC: And if they do then my answer is yes.
PB: That's the right answer! Well done. A big shout out to InvestorIntel, too. I have a lot of respect for them. I've followed them for years and I missed the call this morning with them but am glad that that community's going along. It's pretty tough in the Canadian juniors because it’s quiet in the bear times and it's hard to survive, then it's easy to get crowded out in the bullish times. Having groups like that help with the community piece again. They help bring people who understand the common goal of what they're working towards. They also have some accountability on who's done what in the past and whether or not we want to associate with them again in the future. Treat to talk to you, Peter! Thanks again.
PC: You’re welcome. Thank you, Peter. Goodbye.