There are few mining executives in Canada with the boardroom and community track records of our pal Mike McPhie, Executive Chairman of IDM Mining (www.idmmining.com) (TSX.V: IDM), Managing Director of JDS Copper and JDS Gold, Chair, BCIT and past Chair, AME BC.
Mr. McPhie has over 20 years of global mining experience involving financing, permitting, and developing projects. He has been a part of the executive management team or board of three companies that have been acquired over the past 10 years. They include Extorre Mines which was acquired by Yamana Gold in 2011, Silverquest Resources which was acquired by Newgold in 2012 and Curis Resources, where Mr. McPhie was the founding CEO, which was acquired by Taseko Mines in 2014.
Mr. McPhie was generous enough to sit down with me to share his thoughts on the gold market, experiences navigating numerous bear markets, and an update on the 100% owned near-term development Red Mountain project in BC’s Golden Triangle.
Thanks for joining us Mr. McPhie. To start off, where do you see the gold market heading?
Gold is starting to stabilize around the $1,200 per ounce level but the price is still much lower than it was two years ago. This is not a bad price in terms of value – as long as you can keep your costs of capital and operating costs low a project can still be profitable.
What’s forcing downward pressure on gold right now is the strength of the US dollar and the positive economic numbers coming out of America. Typically, people use gold as a store of wealth and to counter-balance currency fluctuations and inflation. With the US dollar so strong right now and interest rates remaining low with low inflation, there is not as much motivation for people to buy gold.
The demand for gold still remains reasonably high, however this is the result of consumption in India and buying in Europe as a hedge against some of the dramatic economic uncertainties in the Russian economy. Further, in terms of future supply and demand dynamics, there are a minimal number of projects being built across the industry right now as capital is scarce and very little exploration is happening. Ultimately, there will be a supply deficit which will put upward pressure on prices.
For the short to medium term I still see gold bouncing around at its current levels, but 6 to 9 months out there is a good prognosis for upward momentum.
You’ve been through a few bear markets, what have you learned and how are you applying that to IDM Mining today?
I started in this business in 1993, a time when the industry was coming out of a deep bear market. Fortunately, diamond exploration in northern Canada helped to lift the sector due to major discoveries being made north of Yellowknife. Those discoveries generated a huge amount of enthusiasm and spurred the creation of a whole new industry in the north. This was my first introduction to the dynamics of the industry.
Five years later, gold prices tumbled below $300 per ounce. The company I was with had a number of operating gold mines and they ultimately went bankrupt because their costs of production were higher than the commodity price.
As a young man in the business, going through that rough downturn was a difficult and humbling experience. A significant number of people lost their jobs and investment flowed out of the industry. The market remained in a slump until the early 2000’s and many companies disappeared or changed direction completely. The investment environment improved a few years later and we ultimately had a big rally in share price. But then, as a result of the housing crisis in the US among other things, we all experienced the 2008 financial crisis. Once again the market fell dramatically and once again it recovered. Finally, things began to fall apart again after March 2011. We’re now nearing the anniversary of a 4 year bear market and things remain pretty tough.
You have to keep in mind cycles are real, and although it can be very difficult when they are happening, you always come out of them. The commodities that miners produce are fundamental to any modern society, but prices will go up and down as investment flows in and out and demand and supply fluctuate.
But right now is when fortunes are made! Choose companies with good stewards of their treasury, good projects, and a strong, experienced technical team. When the market starts to turn and you come out of the other side – that’s when immense value is created.
I can’t pinpoint when the index will begin to change and we’ll see an upward trend but it will, l and that’s the number one thing for anyone in this business to understand. Tough times are followed by good times and you just need to keep that historical perspective in mind. Timing is everything.
Coming from Curis Resources, a copper play in Arizona, what attracted you to the gold space and IDM?
I partnered up with Robert McLeod, CEO of IDM, who is from the Stewart area where the Red Mountain project is. He actually worked on the Red Mountain project out of college and so was aware of the deposit. Rob and I looked at it, really liked the high grade gold, low cost underground mining potential and regional exploration upside of this prolific area.
There has been a tendency in recent years for the mining industry to chase mega billion dollar capex open pit projects which, in a capital constrained world such as the one we have now, have become unfinanceable.
What I like about Red Mountain is that we have a very high grade deposit here with a manageable capital cost in the $70 – $80 million dollar range and very low operating costs, estimated at less than $500 dollars per ounce. Further, the project is situated in an excellent socio-political jurisdiction – within the N’isga First Nation traditional area, and we have a very good relationship with the N’isga.
So all the boxes on our checklist to acquire the property and work to develop the deposit into BC’s next underground gold mine were ticked.
Let’s touch on the risks and major hurdles that face the Red Mountain project.
Every mining project has risks and uncertainties associated with it. The biggest factor is that we know what the existing resource is; it’s been pretty well defined. We have taken a very conservative approach to what we anticipate we can mine in the PEA from July 2014.
The risk side is that we do not know whether the resources that we think are in the broader system are of economic grade or not. All indications are that the system is likely to host multi-million ounces of gold which would fundamentally change the perspective of Red Mountain and put it in the league of other major deposits in the region, like Pretium’s Valley of the Kings/Brucejack depost, Seabridge Gold’s KSM deposit or Teck/Nova Gold’s Galore Creek deposit. We believe that we will be able to demonstrate that potential in the future but the nature of exploration is that you don’t know until the drill results are in. The other major risk is that IDM, as with all mining companies, are price takers in the sense that if gold prices continue to fall or falter, the economics of the project will obviously be impacted.
Within the context of what we can control; our team, our intellectual knowledge, our experience, we can manage a great deal of the project risk. What we can’t control are things that happen beyond our company and the global economic issues.
What geological features do you think make the Golden Triangle great to explore and what future for mining lies in the region?
The golden triangle is a prolific geological area within Canada, certainly one of the most prolific in the world in terms of historical mineral production and future opportunities.
One example is the Eskay Creek mine, probably one of the richest gold mines in the modern era. It produced 9 million ounces of gold equivalent from 1 million tonnes and it is just extraordinary what that particular mine was all about.
Discoveries are being made as a result of recent glacial retreat; many projects possess well known deposits that until 10-15 years ago were covered by ice. Recent examples of this phenomenon include the Valley of the Kings/Brucejack and KSM discoveries made by Pretium Resources and Seabridge Gold over the past 6 years.
At Red Mountain we are finding new zones such as Cambria because of glacial retreat. The benefits of glacial retreat are it leaves behind bare land with visible outcroppings. You can easily assess the ground and it gives you ready access to the mineralization so you can explore intelligently.
The fact is both from a historical production point of view and what we are doing now, there’s just incredible opportunity for more in this region.
The last thing I will mention is the government of British Columbia has recently built a massive $600 million dollar high voltage power line along highway 37 in North Western BC. There are not too many places in the world that have recently had that kind of government infrastructure investment to facilitate economic development. This is exactly what it was and that, combined with a predictable permitting process, a supportive mining community in Stewart, and a highly skilled local workforce places Red Mountain in a favorable position for success.
It’s an exciting time up there.
Follow Mike McPhie on Twitter:
— Michael McPhie (@michaelmcphie) July 30, 2014
Forward-Looking Statements: Some statements in this article may include forward-looking information or forward-looking statements for the purposes of applicable securities laws. These statements include, among others, statements with respect to proposed exploration and development activities and their timing, resource estimates and potential mineralization, a financing and consolidation and the anticipated acquisition of property interests. These statements address future events and conditions and, as such, involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the statements. Such factors include, among others, receipt of regulatory and shareholder approvals, completion of anticipated transactions, the timing and success of future exploration and development activities, exploration and development risks, mineral resources are not as estimated, expenditure and financing requirements, title matters, third party consents, operating hazards, metal prices, political and economic factors, competitive factors and general economic conditions. In making the forward-looking statements, the Company has applied several material assumptions including, but not limited to, the assumptions that: the proposed financing, consolidation and acquisition of property interests will proceed and be completed as planned; required regulatory and shareholder approvals will be obtained; the proposed exploration and development will proceed as planned; with respect to mineral resource estimates, the key assumptions and parameters on which such estimates are based; market fundamentals will result in sustained metals and minerals prices and any additional financing needed will be available on reasonable terms. The Company expressly disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise except as otherwise required by applicable securities legislation. IDM Mining is a CEO.ca sponsor. Always do your own due diligence.