Greg Smith, CEO of Anthem United Inc. (www.AnthemU.com) (TSX.V: AFY) is a Canadian Chartered Accountant (CA) making a name for himself as a rainmaker in the Vancouver exploration industry. With 3 large value transactions under his belt, Mr. Smith has earned a reputation for coming through on promises and acting in the best interests of shareholders.
After leaving a management role in KPMG’s mining division, Mr. Smith joined Minefinders as CFO in 2006. He was integral to the development and eventual sale of Minefinders’ Dolores project when it was acquired by Pan American Silver, a Ross Beaty company, for a staggering $1.5B in 2012. Mr. Smith then took the reins at Ezperanza Resources as CEO and after only 1.5 years sold it for $70M plus warrants to Alamos Gold in August 2013. His most recent transaction was as director and Chair of the Special Committee of Premier Royalty through its sale for $30M to Sandstorm Gold in September 2013.
The common denominator in these transactions is that they all offered significant premiums to shareholders in a dismal commodity market.
Smith’s latest venture, Anthem United, is a new public company focused on industrial milling, property acquisition, and mine development of precious metal assets. Anthem United is currently developing the Koricancha gold mill in Peru which will be operational and generating near term cash flow in 4-6 months. He also serves as Chairman of the Audit Committee for Chesapeake Gold Corp and acts as a director for Lowell Copper Ltd.
Mr. Smith was gracious enough to share his time with me to discuss the future of mining and Anthem United.
As economic mienral discoveries become rarer where do you see the future of mining going? Are you anticipating a consolidation of the industry?
It is becoming increasingly challenging to discover a mine and go through the permitting, financing, developing, and operational process due to lower grades, changing political environments, lack of infrastructure and oppositional special interest groups. Assets which are in places that have a stable and friendly mining regime, such as Canada and parts of the United States, that are geologically well endowed, with technically proficient workers, these projects are always going to trade at a premium.
To increase value to shareholders it makes economic sense to consolidate mines. A ‘one mine’ company has a large degree of risk associated with a single project which can be a tough sell for investors. To reduce the risk in a mining company they must have a well-managed treasury and balance sheet, diversified projects across various political and socio-economic environments and some would argue even diversification in terms of metal production.
Consolidation can also lower the cost of capital, reduce general and administration costs as part of unit production costs or as a percentage of assets and facilitate effective triaging of investor funding or production cash flow into the assets where the highest risk-adjusted returns are probable. All of these can lead to better returns for shareholders. The industry could be run and perform better. Overtime, shareholders will help drive that.
Why would investors see the Koricancha Gold Mill as a good investment opportunity? If gold continues to falter, how will this impact your project?
In Peru there is a formalisation process requiring small scale and artisanal miners to use legal, modern and more efficient mills to process their material since most do not own a processing plant and the ones that currently exist are rudimentary, illegal, violate tax and environmental laws and provide low metal recovery rates.
The government is striving to eliminate these illegal processing plants and ensure there is enough capacity for the formalised small-scale and artisanal miners. The benefits for these miners include higher recovery rates and faster payment. The benefits to the government and the country include increased tax revenues and decreased environmental damage (primarily through reduced mercury contamination). Overall, the establishment of new mills such as Koricancha results in a win for all stakeholders.
The business model has the mill buying gold ore directly from the miners at a price that is, to a large extent, indexed to the gold price. For example, if the gold price decreases the cost to acquire ore decreases. The margin in percentage terms is essentially protected. There is significantly less risk as opposed to a traditional operating mine. If the gold price drops $1,000 we are not out of business.
What are the risks associated with the Koricancha Gold Mill?
The Koricancha project is an industrial processing plant which will process high grade gold ore (15-25 Au grams per tonne) supplied from Peruvian small scale and artisanal miners. The mill will have a processing capability of 350 tonnes per day. To ensure constant ore feed, multiple contracts have been secured or are pending to provide the mill with sufficient tonnes of high grade ore per month. Project economics have been calculated using a base case of 20 Au GPT which results in $10.7M annual after-tax cash flow attributable to Anthem United over the first 5 years.
Unlike a traditional mining company, the Koricancha project’s main risk is that it does not have a company owned mineral deposit to provide ore feed to the mill. To mitigate this risk, it is essential we develop long-term contractual relationships with a number of small-scale and artisanal miners. With no mineral assets, the company also lacks the upside leverage associated with exploration.
Another risk is that the mill could break down which would immediately halt cash flow. Other risks are that you won’t be able to secure the quantity, quality, or grade of ore at the cost that you want to feed the mill. But these risks face any type of mining business from small to large scale.
The Koricancha project is a joint venture with EMC Green Group, a private Peruvian company owning a 25% stake, subject to an additional COGS royalty payable to Anthem United. We see this as significant in mitigating social and country risk. EMC Green is responsible for mill operations, permitting, compliance and legal issues, sustaining ore contracts, and are essentially the people running the project. Anthem United is an active investor, representing the majority of the joint venture management committee to which EMC Green reports as operator. As significant equity holders at the operation level, EMC Green is a motivated operator and partner.
Tell me about your Not-For-Profit, Young Mining Professionals. What is the aim of this group and what events do you host?
Young Mining Professionals was founded in 2006 by a few KPMG mining professionals and alumni who wanted to keep in touch and have a reason to get together for steak dinners. However, YMP went on to grow significantly and was formalised in 2007 with an aim to assist young professionals in the industry to develop the necessary skills, knowledge, and contacts to be successful. These goals are achieved through relevant networking, social, and guest speaker events held periodically throughout the year.
From personal experience, the opportunity to have dinner or partake in a Q&A session with high calibre mining CEO’s was incredibly valuable for me when I was starting my career in mining. I was lucky enough to have exposure to guys like Kevin McArthur and Chuck Jeannes when I was an auditor of Glamis Gold and then Ian Telfer during my time at Goldcorp.
Each year we strive to have 1-2 distinguished speaker events (ie. Beaty, Telfer, Quartermain), one pro-am golf tournament in the summer (mining CEOs are the pros), a 20 person Christmas Lunch at the Vancouver Club, and usually a Lunch & Learn. As a Not-For-Profit, events are priced at $100 per head which helps ensure that the people who attend are the ones who really want to be there.
As many of the founders have progressed in their careers, we have recently been integrating the next generation of young driven mining professionals into the executive group to ensure the group remains valuable to its members and sustainable in the long run. YMP is a powerful networking tool and remains highly relevant for new professionals in or entering the mining industry in Vancouver.
What are 4 rules which have guided you towards success.
- Associate with the best possible people.
- Employ perseverance and tenacity in pursuing your goals. Always fight for success and for opportunities in this industry.
- Employ the highest ethical standards in all you do and do what you say you will do.
- Never give up!
The people that can do this are the people I want to work with and are the ones who can create long-term value in what can be a challenging, but very rewarding, industry.
This release contains certain “forward looking statements” and certain “forward-looking information” as defined under applicable Canadian and U.S. securities laws. Forward-looking statements can generally be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “continue”, “plans” or similar terminology. Forward-looking statements include, but are not limited to, statements with respect to the development of the Koricancha Mill, including the completion of construction activities, receipt of equipment orders, the approval of certain permit applications and the requisite timing of the foregoing. Forward-looking statements are based on forecasts of future results, estimates of amounts not yet determinable and assumptions that, while believed by management to be reasonable at the time of such forecasts, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Certain of the statements made herein by the Company are forward-looking and subject to various risks and uncertainties, both known and unknown, many of which are beyond the ability of the Company to control or predict.
Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Forward-looking information is subject to known and unknown risks and uncertainties that may cause the Company’s actual results, performance or achievements may be materially different from those expressed or implied by such forward-looking information, and are developed based on assumptions about such risks, uncertainties and other factors set out here in, including but not limited to the inherent risks involved in the exploration and development of mineral properties, the uncertainties involved in interpreting drill results and other exploration data, the potential for delays in exploration or development activities, mine development and production costs, future production levels, the geology, grade and continuity of mineral deposits, the possibility that future exploration, development or mining results will not be consistent with the Company’s expectations, accidents, equipment breakdowns, title matters, labor disputes or other unanticipated difficulties with or interruptions in production and operations, fluctuating metal prices, unanticipated costs and expenses, uncertainties relating to the availability and costs of financing needed in the future, the inherent uncertainty of production and cost estimates and the potential for unexpected costs and expenses, commodity price fluctuations, currency fluctuations, regulatory restrictions, including environmental regulatory restrictions and liability, competition, loss of key employees, and other related risks and uncertainties. The Company undertakes no obligation to update forward-looking information except as required by applicable law. Such forward-looking information represents management’s best judgment based on information currently available. No forward-looking statement can be guaranteed and actual future results may vary materially. Accordingly, readers are advised not to place undue reliance on forward-looking statements or information.
FOR FURTHER INFORMATION PLEASE CONTACT: Anthem United Inc. Greg D. Smith (604) 336-8190