Lionsgold Ltd (LON:LION) Chief Executive Officer Cameron Parry caught up with DirectorsTalk for an exclusive interview to discuss their Feasibility Study Preliminary Results
Q1: Now Cameron, you had an RNS out yesterday with the latest on the Jonnagiri project stating an NPV of $25 million and that the plan is to proceed?
A1: We were quite pleased to get this out, it’s the preliminary results of our feasibility study. It relates to a probable reserve of 151,000 ounces that we’ve got there in southern India, at the Jonnagiri project, based on 8.5% discounted cash flow rate. The NPV comes out at $25 million, pre-tax, using the average gold price for the last 3 years in the market that we’re selling which is India, which actually achieves a bit of a premium to the global spot price.
We announced there’s the capex component would be $39 million to do the project and that gives us an all-in cost of around $753. Once that capex component is repaid, as we sort of announced there, the operating cost of production is under $570 per ounce which is getting down to some of the lowest costs of gold production in the world.
It’s generally quite positive, it’s something we want to move forward with and I guess the FS was about taking the project to a decision to mine and making that decision. That is a positive one and we’re looking to move forward with that.
Q2: Lionsgold owns 21% of Geomysore, who is doing the project, how will LION fund its share i.e. the $8.2 million?
A2: Of the capex? Having the Geomysore shareholders, of which we’re one of 4 major shareholders, having them fund the build is not the path we’re taking, the financing of the project forms part of the MDO contract which is a mine developer and operator contract that is currently in process and currently in the process of being negotiated. I don’t want to pre-empt the outcome of that but certainly that is the plan for how the mine will be built and funded so it’s not something where Lionsgold needs to come up with that figure you said, 21% of £39 million, $8.2 million. So, it’s not like something we have to put our hand in our pocket for.
Q3: An NPV of $25 million pre-tax isn’t a huge sum considering the capex is $39 million, are you not tempted to drill more resource out first before committing to such a big expense?
A3: We’ve got an opportunity and our plan is to get the mine build going and to continue to drill more resource out during the life of the mine whilst producing cash flow.
There’s a big difference between operating, by doing this and progressing these things now, come late 2019 and beyond there’ll be a big difference to be operating in India producing and adding about 20% to the country’s domestic gold production, which is what this will do. Having brought on, and to having a track record of bringing on, a producing mine and then concurrently drilling and increasing the size of the resource; than just being pure exploration and increasing the size of the resource through more drilling which you do to a certain extent but you get to a point when, on balance, you want to proceed and try and develop the mine.
So, our partners in India and ourselves, we’re comfortable that on that balance, the right time to progress things is now. So, then it all comes down to financing, it’s a big sticking point and if you can get the financing sorted then you should get on with it. So, we’re working on the financing aspect, it’s part of the mine developer/operator agreement and should that proceed, that’s probably the most painless way that we can progress to do the build and start producing gold.
Q4: If the post-tax NPV to LION is $2.7 million, how does this support a market cap above where you currently are and thus why people buy shares?
A4: Our market cap, I think, must be just under £2 million at the moment, the market reacted and it actually went down off the back of this announcement. This can be for other reasons but if it’s on the basis of this announcement, possibly, maybe it’s not clear that there is actually more value in doing Jonnagiri now and even more value to come potentially than just that $25 million pre-tax NPV, although we do touch on that in the RNS.
I suppose if you look at the $2.7 million, that’s sort of our portion of that value, if you want to look at things that way; we announced in May the results of the independent valuation on the rest of Geomysore portfolio that we benefit from, excluding the Jonnagiri project and the surrounding exploration there, that was another $1.6 million attributable, if you like, to Lionsgold.
The likelihood at Jonnagiri is that the mine will run for several years beyond the first 7 and at an extremely low cost per ounce gold production, so that being less than $570 an ounce adding to the NPV beyond just the probable reserve which is the subject of the feasibility study, it’s limited to mining just the probable reserve.
It’s not just trying to come to get to a figure based on that. By doing Jonnagiri we have a profitable business engine, once it commences, to continue to grow Geomysore and its portfolio and develop other targets and other opportunities in India as well as to continue expanding what can be achieved at Jonnagiri. That’s a very healthy commercial outcome, a good target for us to be developing and to reach which we intend to do, obviously, over the next couple of years.
Lionsgold also has 28% currently of a private gold exploration company in Finland that we expect should produce around $2 million of gold by the middle of next year and then that becomes a sustainable, growing-in-value of commercial proposition.
We’ve built a stake up in what we expect to be a rapidly growing fintech business that relates to gold and holding and trading in gold for individuals, and we expect that to grow rapidly over the course of the next 12 months with delivering gold-backed online bank-type accounts to individuals, as I say. From the commitment that we’ve made on that, that then goes beyond that timeline as a sustainable, growing, valuable proposition.
So, Lionsgold is a combination of many factors and there’s certainly even many factors in play just in India, beyond what we’re doing with the feasibility study at Jonnagiri. It’s obviously up to individuals to decide but all of those factors potentially support a higher market cap and perhaps makes now an opportunistic time for people to buy shares. We’re pleased where we’re at, it’d be better if the share price was more reflective of the positive attributes that have been building in Lionsgold but we think we’ll get there over time and it won’t take a lot of time. We’ve still got quite a bit of news to come out this year so I guess timing, no one has a crystal ball but certainly it may be an opportunistic time to come into Lionsgold; but time will tell.