CEO Stephen Stewart still believes Orefinders (TSXV:ORX – OTC:ORFDF) could one day deliver “that billion-dollar drill hole.” In fact, that is why he negotiated a deal with Kirkland Lake Gold where they can earn up to 75% of Orefinders’ Mirado, McGarry and Knight projects in exchange for spending C$60M on these projects. Stephen believes this deal eliminates the dilution and financing risk for Orefinders’ shareholders while simultaneously increases the possibility of producing “that billion-dollar drill hole.”
Orefinders is gold explorer with the third largest land package on the Ontario side of the prolific Cadillac break in Canada and is about to commence six to nine months of non-stop drilling at its projects. In addition to the tremendous discovery potential, the company has an approximately one million gold ounce resource (historic and NI43-101) at its three projects combined as well as three control block positions in three prospective junior miners. In this interview, CEO Stephen Stewart explains why the deal with Kirkland Lake Gold makes sense for Orefinders’ shareholders and how it better positions the company for a potential major gold discovery.
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0:00 Introduction
1:17 Why ORX deal with KL makes sense
6:16 We’re designing our future drill programs with KL
9:38 ORX pace moving forwards?
10:51 How deal benefits both MIS & ORX shareholders
12:07 Increased odds of “billion-dollar drill hole”
12:54 Huge inefficiency in how MIS & ORX are currently priced
14:23 Trading at only $10-12/AuOz in the ground
15:41 Possible risks
16:46 Next 12mos
TRANSCRIPT:
Bill: Thank you for tuning into Mining Stock Education. I’m your host Bill Powers. Joining me today is Stephen Stewart, the CEO of Orefinders, One of our sponsors. I invested in Orefinders back when we originally previewed them and profiled them last fall. The share price I got in at was about $.10 Canadian. After that, it went up to about $.25 Canadian. At one point, I was 150% up. Right now, I’m under water. Actually, it’s been trading as low as $.07 cents in the last week, so I invited Stephen back onto the show. Stephen, tell us what’s going on. You did this deal with Kirkland Lake Gold. The market seems to have not valued it and seen it the way that you’ve seen it. I’m underwater on my investment right now, convince me to keep holding your company please.
Stephen: Well, sure. Thank you for having me Bill. First and foremost, I think this deal is a great deal for shareholders. And of course, it did the same thing with Mistango as well. I think it’s important to say this was a joint deal between the Mistango and Orefinders, so both companies did nearly an identical deal with Kirkland Lake. Why I think you should continue to hold your shares is because this completely de-risked the company. Now, there’s always going to be risk in this business, but it’s a very, very risky industry that we’re in. I’ve been on your show and I’ve said many times before, we are after a billion dollar drill hole, both Orefinders in Mistango. We are in the right district. We have the right rocks. We think we have the right team. And now, we have a lot of capital to go out and do it.
When we approached Kirkland Lake to do this deal, it was really fundamentally about increasing our odds of achieving success. Success comes in many ways, but if we are going to do… achieve a billion dollar drill hole, which is a new discovery on that trend, it’s going to take more than one or two or 10 drill holes. That is what this deal ultimately represents to shareholders. It’s mitigating our downside risk. If we do not want to live or die on our last most recent drill results, which is what a lot of juniors do. This was me and our board building a future, building a company. That’s what that represents.
Now, for those who don’t know, the deal Kirkland Lake came in and acquired 9.9% of both companies, so they own the shares and then they are spending up to $120 million split equally between Orefinders and Mistango to earn up to 75% interest in those company’s assets. That means $120 million will go into the ground before Kirkland Lake earns their interest. In effect, that gives us a free carry until they spend that money and that’s an awful lot of money. I would wager that if we spend $120 million and we don’t find a billion dollar drill hole, then it’s not there. I think this allows us to exhaust all the possibilities and probabilities that if there’s an orebody there, chances are we’re going to find it.
In the meantime, we’ve got this fantastic treasury between Orefinders and Mistango, approximately $15 million in cash. Over and above that, we have well over $20 million in working capital, which constitutes mostly Orefinders’ position in equitable securities. It owns a good chunk of Mistango. It owns a good chunk of QC Copper and same with American Eagle, which has spun off. We have an extraordinarily strong balance sheet. Those who follow our group will know we’ve had a very contrarian view of the market. The last five years has been spent with Orefinders and subsequently Mistango identifying opportunities, buying them cheap when nobody else was doing and looking for distressed situations, looking for problems that we believe we can buy cheap and then solve and create value there. That is going to be… Really, my task right now is intelligently allocating that $15 million. Where are we going to spend it to get the best bang for our buck? At the same time, we’ve got Kirkland Lake Gold funding us in our operations to go after that billion dollar drill hole.
I thought this was a deal that we couldn’t pass up. I think honestly, it’s enviable. I think there are… I don’t want to speak on behalf of the entire junior industry, but I absolutely know that my contemporaries and competitors would absolutely love to have a group like Kirkland Lake Gold in their corner. I think it just opened a lot of doors. It brought visibility. Retail investors can rest easy. When you get a big company, best in class, like Kirkland Lake, willing to invest in the team and the assets, that alone says something about the team and the assets. They don’t put their money anywhere. They are very choosy because they can be and they invested in us and that’s just a level of due diligence that I think your typical retail investor can sleep a little bit better. That’s how I feel about it.
The last point I make, I’m buying the shares, Bill, so I’m putting my money where my mouth is. I’m in the market. I’m buying. On Orefinders, just for the record, I am not able, as a securities law issue, I’m not able to buy Mistango shares in the market because my personal position. I’m the third or fourth largest personal shareholder of Mistango, but securities laws lumps me together with Orefinders, so our position together over exceeds 19.9%. Hence, I would trigger a takeover bid if I did buy Mistango shares. I participate through through Orefinders, which has a position in Mistango anyways.
Bill: So Stephen, there’s a lot of people that I talked to, including Rick Rule, who I just interviewed this week, they really like the Prospect Generator Model. They acknowledge though that it requires patience in a longer term outlook. Myself and a lot of people listening to us are more impatient. I’m impatient. I’m just telling you I’m impatient as a speculator. I’m being very aggressive. I’ve invested in your exploration companies, other exploration companies. It’s too large of a percentage of my portfolio. For most people, I would never advise doing what I do in terms of percentage and exploration companies because I’m very aggressive in what I believe to be a gold up cycle. When you get an impatient investor invested in your company, looking at Orefinders last year, I thought we would get drill results over the next 12 to 18 months and I’m looking at a five plus… 10 bagger. Now, yes, you’ve minimized the downside clearly. The dilution risk is gone, the financing risk is gone, but you’ve also given away 75% of the upside. I’m also wondering what is my timeframe now because I’m impatient. Is it still 18 months? Can I get a five bagger? Or is it more like five to seven years? What are we looking at here?
Look, things can change on a dime in this industry. Speaking of drill results, both companies have finished drilling this particular campaign, but Mistango’s got 33% of its asset is outstanding from this program, this highly anticipate. We’ve only released 66%. We didn’t hit it yet, Bill, but we got 33% of those holes to go. Then last week, we were up in Kirkland Lake, sitting down with Kirkland Lake Gold, designing our future drill programs. Same thing with Orefinders and Orefinders also has 17% of its assets outstanding. So both companies, things could change very quickly tomorrow off past drill programs. We’re absolutely going to be drilling tomorrow, so nothing changes. Things can change very quickly in this industry. Just wait to see what happens if us or anybody hits a big drill hole next to a major mine.
As you know, Mistango is focused primarily on it’s Kirkland West Project, drilling beside Macassa. The stock, I think, would go through the roof if we could delineate a nice intersection right beside Macassa. That prospect, nothing’s changed. In fact, we’re better capitalized to do that. Now, Orefinders, the same thing. It’s next drill program is going to be on, it’s McGarry. It’s really quite analogous to Macassa and our Kirkland West Project. McGarry is located directly adjacent to the Kerr Addison. For people who may not know, the Kerr Addison was the Macassa of its day. It produced for 50 years, over 11 million ounces of gold, the high grade. It’s just like Macassa and it’s 20 kilometers to the east. We have the property next door. Orefinders just completed an IP and an MT, magnetotellurics survey, to look deep because that’s where we believe we’re going to find an orebody if it exists on the McGarry and that’s where we’re going to be drilling soon.
If we can poke a hole into McGarry and do the same thing we’re trying to do on Kirkland West beside Macassa, well, look, things would change awfully quick, Bill, especially as gold is approaching $1,900. We’re back out there exploring. Nothing has changed and things can change quickly.
Bill: I agree with you that the amount of money you were able to get Kirkland Lake to potentially commit is impressive, but my main concern, honestly, was the pace. What pace are we going to move? Because you need them more than they need you. Are you telling me that the pace is going to be at least what you were planning to do before this deal? Is that what I’m hearing?
Stephen: Well, I don’t think… I can’t speak to the pace that it’s going to go. We’re going to go one step at a time. We are absolutely going forward with a drill program on Kirkland West. We’re going back out there. The same thing for McGarry. So first things first. I mean, as far as pace goes, expect us in the, not too distant future… I don’t want to say time because we’re just sitting down with Kirkland Lake and talking about the program, but largely they are looking to us. Nobody knows our projects better than us. They are asking our opinion, but we’re certainly soliciting theirs as well, particularly on the Kirkland West where they know exactly where to drill. That’s going to be very valuable information. So in terms of the pace, I think investors can expect us, in the not too distant future, to come out there with the second iteration of their drill programs for those properties that I’m talking about. We’re pushing as quickly as possible. We’re permitted. We’re ready to go. Let’s do this
Bill: Stephen, one of the things that was articulated online was that the Mistango shareholders didn’t want to be grouped together with the Orefinders’ shareholders. Can you talk to that situation because you’re a leader of both? Perhaps did you treat one child a little better than the other in arranging this?
Stephen: Well, absolutely not. Literally, both companies were virtually identical in terms of their cash position and their market cap. They have different assets and different possibilities, but ultimately at the end of the day until you find a discovery, you can’t say one has a better shot or not. Both have assets that are adjacent to world-class mines. As I said, the Kerr Addison for one and Macassa the other, and they have secondary assets as well, with both very substantial 43-101 resources. It’s a matter of opinion and my opinion is that the companies were treated exactly equally. The deals were identical, in terms… Kirkland Lake invested 9.9% in both. The earn-in options for $60 million each, so $120, were identical. I can’t imagine how any company was treated any differently. In fact, they were treated equally, were like twins.
Bill: So you haven’t given up that billion dollar drill hole because that’s something you mentioned the first time. You just feel like you haven’t-
Stephen: Giving it up, I’m after it and this increases our odds. We don’t want to live or die on our last drill result. That is a very difficult business model, especially in the junior mining industry. We have covered our downside, that if any one of these projects do not deliver that… And Bill, let me tell you, odds are you do not get that billion dollar drill hole. I mean, HELMA was found on hole 84 and there are many, many other examples. Could you get lucky? Of course, you could. Do I want to get lucky? Do I want to come out with a billion dollar drill up tomorrow? Of course, I do. But odds are, we’re not, Bill, and hence why we did this smart deal with the best partner in town.
Bill: So Benjamin Graham, he said, “In the short term, the market is a voting machine. But in the longterm, it’s a weighing machine.” Do you think that applies to what we’re talking about here?
Stephen: Well, sure. I mean, there is no more inefficient segment of the publicly traded stock market than the junior mining industry. It’s inefficient as it gets and it’s about identifying those inefficiencies to the upside and to the downside. And right now, I see a huge inefficiency in how Orefinders and Mistango are priced. Price versus value, as Mr. Graham always says and, of course, one of his proteges, Warren Buffett. The value baked into Orefinders and Mistango relative to the price you have to pay today is extraordinary. Look at their balance sheets, look at their investments in other companies and then look at the assets that they have combined with the partnership of Kirkland Lake, who is committed to spend $120 million, big, big numbers here.
Our enterprise value in those combined companies was $28 million. We signed a 75% deal at $120, not bad economics. I don’t see how anybody could blink an eye at that. I see huge value. And ultimately, everything comes down to our drill results, which could change any day. So as long as we’re drilling, which is going to be the secret to our success, then I sleep well at night in terms of delivering what I said I would do to our shareholders.
Bill: All right. So with speculative value through the drill hole, we’ve been talking about that, but you also have resources. Just if we take enterprise value versus gold ounce in the ground, what are we trading at right now?
Stephen: Enterprise value right now, let’s say we’re $14 million… $10 to $12 an ounce, nothing really. We are not in the Arctic. We are not in the DRC. We are in Kirkland Lake Gold, excuse me, Kirkland Lake Ontario, no better place to be on the Cadillac, which is extremely prolific. And I’ll note, in an area where there’s an awful lot of activity. Not only do we have Kirkland Lake and their flagship operation, we’ve got Agnico Eagle with the Upper Beaver there. We’ve got the Kerr Addison. I mentioned the Kerr Addison, a world famous mine. They have now reinvented themselves as a six million ounce open-pit deposit. They floated their perspectives not too long ago. We’ve been aware of what they’re doing. That’s coming into the public domain, so we’re thrilled to welcome new neighbor, a major, major anchor type deposit.
There’s all sorts of things happening. I think even the folks that New Found Gold are spinning off their property in the Kirkland Lake. There’s an awful lot of activity up there. All else equal, there’s no other place I’d rather be looking for gold right now, other than Kirkland Lake.
Bill: With an explorer, the obvious risk, key risk, would be coming up with dusters an, not discovering what you want to discover. But besides that, over the next 12 months, what would be some of the key risks for Orefinders?
Stephen: Oil price. The toughest challenge we have is mother nature. There’s no question about it. That’s the risk people take and it requires patience, but I understand that investors are impatient and they see things, fast money, and they chase it. I get it, but that’s not how to run a business. You have to look over the horizon for the longterm, cover your risk, but keep the upside. And boy, do we have upside. So outside of us working our projects, don’t forget, we’ve got this $15 million to deploy and we’ve been pretty creative. Anybody that’ll look us up, we have been creative in how we deploy our capital. We do it quite creatively. We took over Mistango River Resources for $250,000. That was in a different market, but that’s the sort of deals that we like to do and that’s… So with $15 million to deploy, we’ll see what happens.
Bill: Okay. As we conclude, the final question for this impatient mining speculator, 12 month target, you got to put a carrot out in front of this rabbit. What should I expect? What’s the goal, 12 month target? Give me something to visualize here.
Stephen: Share price. Oh God, I never prognosticate a share price. There’s just too many variables. I don’t think that’s the right thing to do, except that I think we’re going in the right direction. I think right now… Let’s talk about where I think the low is. I think right now, we’re not going to get any cheaper. That I can feel very comfortable saying. Whether we’re going to be $.50 or $1. mother nature, plus gold price, those are the variables that will have the biggest say in where we’re at. But I think in terms of, if you want a quality team that’s well financed with assets and excellent jurisdictions, world-class jurisdictions, next to great world-class mines with the backing of Kirkland Lake Gold, take a look at Orefinders, take a look at Mistango.