Ivan Bebek | Trench Results At Sombrero Continue To Indicate A Possible World-Class Copper/Gold Discovery

In this interview, Executive Chairman Ivan Bebek provides an update on Auryn Resources’ Sombrero project in Peru.  This massive project, which is 120,000 hectares, has become the envy of the major mining companies, many of whom have signed confidentiality agreements to take a closer look at the project.  The Sombrero project is being compared to the world-class Las Bambas copper deposit (50M oz gold equivalent).  With the most recent trench results of 232 meters of 0.55% copper equivalent, Ivan believes Sombrero continues to look like it could become the next Las Bambas.

0:05 Sombrero Project’s world-class analog of Las Bambas

2:40 Positive trench results consistent with Las Bambas potential

6:13 Common features of a copper deposit that differ from gold deposits

7:34 Upcoming catalysts for Sombrero

10:45 Auryn’s recent financing explained

14:02 Update on the possible sale of some of Auryn’s projects

14:45 Why Auryn trades at a premium when compared with peers


Bill: Welcome back ladies and gentleman and thanks for tuning into another Mining Stock Education episode. I’m Bill Powers your host. Today we’re going to be getting an update from Ivan Bebek, the executive chairman of Auryn Resources regarding the work that’s being done at the company’s Sombrero project in Peru. Auryn trades in Toronto and New York under the ticker AUG. Ivan, before you address the press release that just came out today regarding your Sombrero project, I’d like you to first start by reminding listeners of the analog that you’re comparing this Sombrero project to.

Ivan: Sure. The Sombrero project is in southern Peru. It’s next to some of Peru’s largest porphyry deposits and skarn deposits on a belt that’s well known with a mine called Las Bambas. So Las Bambas is 1.7 billion tons or 0.6% copper-molybdenum equivalent. That would be approximately about a 50 million ounce gold deposit equivalent in value today. So like a $60 billion ball of metal in the ground. What we’ve seen at Sombrero to date, and we’re very public about it in our online disclosures and our presentation materials. We’ve seen all the same rocks, the same type of limestone, the same age of rocks. We’ve seen all of the above in the actual surface work that we’ve done to date, and we’ve also seen the scale. And the only difference between Las Bambas so far, and ourselves, is the gold instead of moly being the second metal that goes with the copper, which is obviously much more fortuitive for us.

Bill: What was the buyout price? Wasn’t it like $8 billion on that project?

Ivan: They got bought for 8 billion. They had 5.8 billion in the metal value. That’s where they got paid for that. The balance was for the infrastructure component. One thing that is really important. I don’t get asked enough about this, and when you talk about, or we talk about a copper company, you have to take in consideration is the access to infrastructure. That controls your CAPEX. A lot of big copper deposits, have huge CAPEX. You’re talking 2 to 5 billion to build them. When you go to Sombrero, the first think you’ll see is these shiny, brand new, high tension power lines that come right over top of the property. Essentially mine power is at the project. A road goes right into the project.

And then the other factor is the terrain. It’s moderate hills, which are very favorable geometry that you’d want in an open pit mining scenario, you’d want to consider, versus being at the bottom of a valley where the strip and the amount of rock you’d have to move before you got to the ore would be substantial. Sombrero boasts some of the best infrastructure we’ve ever seen pre-drilling, and for a copper project to have power lines on it before you drill, is truly spectacular.

Bill: So if Las Bambas is the analog that we’re comparing the current Sombrero results to, what would be considered positive trench results?

Ivan:  Well, we’ve already had those last year to start. We trenched 109 meters of 0.7%. Las Bambas is 1.7 billion tons of 0.6% average. So we’re in the ballpark, and there’s a saying in the mining world, especially copper deposits: “If you are trenching considerable widths of a grade that’s being mined profitably next door, in the copper world, generally you have a really good chance that you’re going to have a mine that can make it through economics.” What happened on this trench that we’ve talked about today, originally we went to this trench, we got excited, start of the year.

We resumed work right after the break and we thought, “Okay guys, we want to explore some new areas, get some great news flow for shareholders,” and the guys mentioned they’re going to start doing some ground sampling and basically it’s not even trenching because it’s off the surface exposed bedrock is there. They went out with, “Ivan, I think we’ll get about 80 to 100 meters of width here at best”, and probably around the grades we were getting is what we thought we’d get. We got 184 meters that we’ve added with today’s press release, another 48 meters to. We ended up 232 meters of 0.55% copper, which is close enough to 0.6 that you can be excited that you’re in the same grade category as Las Bambas. Las Chancas, which is in between us and Las Bambas is actually 0.47%, I believe, their grade. So we’re in the neighborhood of the Las Bambas grade, spectacular check mark.

Then secondly, the 40 meters of 1.26% copper, now this predominately comes where the skarn shows up. In a big copper system like the one we’re looking it is actually predominately skarn, exo and endo skarn. Exoskarn is generally going to be high grade, endo skarn tends to be lower grade, but you get a blended grade across the trench. What we’re also seeing is a lot of porphyry dykes coming into the system, and you could imagine swarms of porphyry dykes coming through. Or they come through and interact with these cool rocks called skarns, or endo skarns. You’re seeing plus 1% copper. So when you look at the model, and what we’ve shown the whole world so far on this project, we have about 7.5 kilometers of magnetite skarn that’s been mapped, and we use magnetics to get the signature to indicate that this magnetic rock that likely hosts potentially copper and gold, in a skarn setting is present.

What we’ve said in our press release today is the 40 meters of 1.26%, essentially there’s 7.5 kilometers of strike length for us to go test with the drill bit to hopefully get that kind of grade. In that model, some areas, we’ve already seen it through the magnetite skarn. It’s going to be between 100 and 150 meters thick, which is a lot thicker than 40 meters, but if all of that ran north of a percent, even on a 40 meters thickness, you’re talking way bigger than Las Bambas. You’re in a world of massive tonnage, really high grade, right from surface. It would be a spectacular mine. We certainly don’t expect it to uniformly and consistently all run that grade, but having 7.5 kilometers of real estate to start putting together tonnage of both copper and gold of the right type of rock that’s going to carry grade is truly spectacular.

Bill: There’s a lot of people listening to us that focus more on gold deposits. Can you talk about some of the similarities and differences between a copper deposit and a gold deposit?

Ivan: Yeah, that’s my background and our background as a group. We’ve been predominately gold bugs and we’ve looked for gold mines. We’ve found a gold mine, a 5 million ounce gold mine in Africa. We sold 100 drill holes in a gold deposit for $200 million, so coming into copper, there’s a bit of an educational curve, and for us it’s just refreshing stuff we knew about, but we haven’t thought about in a while. And the most underlining comment about a copper system, versus a gold system is … One of our large shareholders reminds me of it all the time. Copper doesn’t go away when you drill it. It’s quite homogeneous and whereas gold can be very erratic. There’s a lot of variability in gold systems. They can be faulted off quite easily, they can pinch and swell, they disappear quick on you sometimes.

The risk of finding a major gold deposit that has continuity is one of the biggest challenges, where in the copper world, the risk is not continuity, it’s volume and average grade. So I like to think, and we all do internally, and you can see it in our share price by outside investors as well, the possibility of this copper system being substantial and developing into a mine is a lot better than a few trenches in a gold system because of the homogeneous nature of copper and how it sits.

Bill: So on the Sombrero project, basically for the next several months, are we looking at more surface samples, results, refining targets before you bring the drills on later this year?

Ivan: Yeah, so we’re amidst the permitting process. We’re quite advanced into that process and we’ve got another major community agreement that should complete in April, and this will give us access to the northern half of our project. We’ve established great rapport in the communities. Once you do that, you propose an agreement, you collect signatures. We’re at the end of those signatures now for this agreement, so they’ll just be a meeting to approve it coming up here soon. We’re really excited to work with these communities, and they’ve been really nice to us since we’ve been there and likewise, but the targets we’ll get access to … There’s one called Nioc, it’s got about 9% copper, 5 g/t gold on surface in one place, and 4% copper, 2 g/t gold in another. It’s got an extremely strong magnetic signature, which indicates a lot of skarn in comparison to the other areas so we’re really excited about it. Then also to go with that, a massive chargeability factor, which would indicate sulfide, the type of metal you’d want to see associated with the magnetic skarn.

So that’s one of the ones we get access to, as well as there’s a cliff called Good Lucky, and it’s a real snapshot into the side of what the system might look like vertically. There’s old mining adits in that cliff that were running, from what we’ve heard, in the 20’s of percent copper, but on the top of the cliff, there’s a lot of real estate that goes back into the hillside, and that’s where we would spend time trenching, and eventually drill. Then Totora, now you’re even further up to the north. Now we’ve identified about a 30 kilometer long trend with multiple clusters of outcropping copper and gold mineralization. Totora is about 50 meters of porphyry sticking out on the surface on the side of this porphyry rock, and porphyry being the key rock that’s hosting Las Bambas and some of the big mines next door, is that it has a high grade dike that runs up to 5 g/t gold up to 3% copper. So it tells us that not only is it the right type of rock, but it has a really good gold and copper budget in it.

So what we kind of look at, and when we tell you in the market, that look we think we have a Las Bambas on our hands, I think that’s the first three of five targets we’ve identified so far. That would be Sombrero Main, Fierrazzo and Nioc. Then when we look beyond that, start looking at Good Lucky the cliff, or the Tortora, the big porphyry target, and then all the way back down south to Milpoc and to the rest of our claims, we’re looking at only 10% of our 120,000 hectares with all the stuff that we’re comparing to the Las Bambas factor.

We don’t talk enough about what we’ve screened and acquired, but we’ve screened 7,000 square kilometers to be the first movers on this part of this belt and get all the best real estate we could get before everybody caught onto it, and before Sombrero started putting out results. So its a tremendous opportunity. The blue sky real estate beyond what we’re going to drill this summer is tremendous. It will certainly help us carry a really good premium on this company once and if we get into the substantial discovery we think we can get into.

Bill: Ivan I’d like you to address your recent financing. You originally announced it at $3.5 million, but then you ended up raising $5.25. Could you explain why?

Ivan: Sure. Well first off, we were being offered a lot more from the market, from the street. We were getting $10 to $15 million US bought deal suggestions from some bankers that had been very supportive. We were a little reluctant, very reluctant, to take dilution on at this stage, because we think there’s a lot more news to come, or we believe strongly between now and when we drill. And we think the company, based on what it has in front of itself at Sombrero could be worth a lot more before we take on that kind of dilution. Secondly, we didn’t want to do any warrants, and if you know our nature, it’s all of our companies, we rarely have done them, maybe once or twice in the last 15 years out of several financings.

So we looked at the share price, we were a $1.60 Canadian, and we had a discussion internally, and we came up with, “Let’s just do a modest $3.2 million as a raise, predominately internally, meaning some friends and family, and one of our largest shareholders to top up our positions.” Then insiders, to my surprise, until after the news release I wasn’t even aware of it, one of our new directors, Jeffrey Mason, who has an incredible pedigree in the business, he showed up and a few other, Steve Cook and Russell Starr, and they bought $1 million worth of the placement, which was the reason why we’ve increased the financing from what we originally did. So in a very macro, simple concept, we did a financing at market, and arguably tougher market conditions, no warrant, and we oversubscribed it internally with friends, family, and insiders.

If that’s not a signal to our confidence level, where we’re going, here’s the other factor the $1 million purchase by insiders is the single largest purchase of Auryn by the insiders in one transaction since the company’s been in existence. I’ve bought over $3 million of shares, predominately in the open market, but I’ve never bought in one purchase a million dollar worth of shares. So that’s something probably, one of the most unbiased opinions, or maybe biased opinions, but money where the mouth factors, that we could possibly state to the market. We’re not buying this to support the stock after it’s moved from $1.15 Canadian to $1.60, we’re buying it because we think we have a monster in Peru.

Bill: Yeah, your financing that you just completed, that is a stark contrast to when I was at PDAC where there were a lot of companies, quite frankly, that had cap in hand trying to raise money. So you’re in a much better position.

Ivan: People made this comment at an interview the other day, a great interview with Cory Fleck, and he said, “Ivan, $5 million is a lot of money in this market.” And I had to disagree with him, not because I’m arrogant or I’m disrespectful to the tough times that we’re all facing, I’m certainly aware of that. But I think for us, the amount of money that was being made available, and the caliber of the projects that’s on hand, we’re talking about a spit in the bucket kind of thing. That’s why I came back with that surprise that I think that’s a really small number for a project that could be as successful as this one is.

Bill: In our last interview you mentioned possibly selling off a couple projects to self-fund. Can you address that? Is there any update there?

Ivan: You know, it’s ongoing in the background. We have some hard bottom lines on price that we’re not prepared to move from, and we see enough value going forward. We see the gold market improving, not getting worse over time. So we’re not in as much of a rush, but if something like that happened in the next few months, don’t be surprised. Those are possibilities that are really, really awesome to have in the background as an executive, but also as an investor. Just not going to go into too much detail about them because a lot of news release surprise the market that way, but it is definitely an ongoing possibility.

Bill: Ivan, as we conclude, I’d like you to address an email that I received. It was from somebody that thinks highly of the company. They had not looked at the company in a while and they emailed me and they said, “Bill, I’ll take a look at the Sombrero project and Auryn now.” But their opinion was pre-Sombrero, before you were announcing a lot of what’s going on at Sombrero, they thought the market capitalization of Auryn was too high relative to your peers and projects. Can you address that?

Ivan: Sure. We faced this when the share price, I’ll use Canadian prices and US. We were around $4 and change Canadian, and market cap was around $250 million at the time. We had seven projects. We were going to drilling at Committee Bay, as you know its a huge greenstone belt, 300 kilometers long, a deposit in the middle, gold up and down the belt. So speculation came into the stock and when we get it right at Committee Bay, I will say that with confidence in a forward-looking statement. When we get it right, I think that would be a cheap market cap, but because of all our peers in the market we’re in, people were saying we’re out pricing ourselves.

And one factor that nobody realizes, is that we had Sombrero at the time when we had that market cap. What happened there was, Sombrero we did not have surface access, so we couldn’t do any work on it, but we knew when we acquired Sombrero, the whole premise of why we acquired it, that it would develop into something with low risk to be this appealing. We knew there was high grade copper and gold around. So if I would challenge that market cap and put Committee Bay on a good day pre-drilling, as well as the revealing nature of what Sombrero’s become, and say, “Hey, is that fair for value?” I think we make a more compelling argument today, just because more projects are active within the portfolio.

The other factor, and this is an important one, is the premium that you see with us, that you’re going to see with us going forward, something we work extremely hard for, for our shareholders is, we market ourselves quite well. We have a pretty healthy marketing budget. We do follow pretty aggressively into a global market. We want to be at the forefront of anybody who would want to be part of a major mine being found as a shareholder. We want to be in front of all those investors, whether it’s Europe, Asia, the US, North America, and so on. So we spend a very good effort to do that, and it’s important, if you’re going to find something substantial or spectacular, everyone should know about it. That’s how you’re going to get a share price performance. That’s how you’re going to get tremendous financing opportunities. And lastly, that’s how you’re going to get the attention of some of the top major mining companies in the world about what you’re up to.

So think about this in reference to our peers. Think about our capacity, our track record of success. Think about our understanding of how important the marketing is of a potential massive find is, and compare that to other stories. Some have great projects, but they certainly don’t push the marketing side as much as we do. We’re inside buyers of our stock, predominately not sellers, and that’s a different ingredient as well. We’re not trying to build the share price up to benefit ourselves personally. We’re trying to build the share price up to catch up to the value of these things that might exist, which leads me to the last point and I’ll wrap up on this. Is our market cap is predominately going to be driven off speculation.

We sold 100 drill holes in 2014 for $205 million. There was no deposit officially, and there’s no resource, and that was purely selling speculation. In terms of Sombrero’s speculation, if we’re right and this is another Las Bambas, which is worth about $60 billion of gross metal value in the ground, what are we worth before we turn the first holes on a very obvious start to a very big system? Are we worth $200 million? Are we worth $500 million? The value proposition of where we’re at today, I would argue that we are quite cheap, just for Sombrero alone, which has been the main catalyst so far this year.

However, you will hear more about Committee Bay in the coming weeks, and I think at some point, we will consider splitting the company because it’s impossible to get value from both at the same time. So that we could actually, to even say that we’re considering the split, means we’ve achieved two flagships in one company, and we can benefit shareholders twice as much as they would any other company that’s not splitting for two flagships.

Bill: Ivan and the team at Auryn Resources is on a massive treasure hunt in the Arctic and in Peru as you can hear today in this interview. To learn more, go to aurynresources.com, and you can also find Auryn on Twitter for updates, and make sure you sign up for their email list at their website so you can get the results of the trenching and the upcoming drilling later this year. Ticker again is AUG in Toronto and New York. Ivan, I thank you for stopping by and I look forward to catching up with you later in the year.

Ivan: Thank you so much, Bill. Appreciate it.


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