Minefinders is also listed on the NYSE AMEX Exchange in the United States. Web address: minefinders.com. Mark, thank you very much for joining us for this interview.
Mark Bailey: Thank you, Harry.
Please give investors a brief introduction to Minefinders and the company strategy for creating value.
Minefinders is a gold and silver producer. We have our first mine in production in Mexico; it’s called the Dolores Mine. It’s a large open pit gold and silver producer, heap-leach operation. We’re going to get up to about 120,000 ounces of gold production per year and about four million ounces of silver when we reach steady state at the end of this year, early next year. 15 year mine life, it’s an exciting project.
We have a portfolio of other properties including La Bolsa, La Virginia which we’re drilling on and La Bolsa in pre-feasibility and a good package of six properties in North America. We feel we’re a good value opportunity for the marketplace with 65 million shares outstanding and an operating mine producing gold and silver, and selling it at least at current market prices.
Other projects are coming along in our pipeline including La Bolsa and La Virginia. We don’t see ourselves trading at the value that our peers do; we’re trading at discount from net asset value or not trading at the same metric as most other producer’s trade at. We expect to see that re-rating as a producer in the next quarter too, as we achieve steady state production.
Minefinders has just announced a discovery of a new zone of mineralization, a couple of hundred metres to the north of the main deposit at your Dolores flagship project. What can you tell investors about this discovery, Mark?
Well, we started drilling again at Dolores having gone through the construction phase. It, kind of, disrupted our drilling and due to further exploration, we reinitiated that a year ago and in the process of following up previously discovered mineralization on the East Dike and we stepped up to the north of that.
There we had some surface anomalies and what we call the North Dome, another intrusive dome similar to our main deposit. We were successful in defining the shallow, silver rich mineralization, near the top. We’ve only drilled 300 feet in depth with small RC drills; we weren’t able to drill very deep. Very typical of what we saw at the top of the Dolores deposit, a high silver grade with increasing gold grades at depth.
We’re now going to put a core rig out there and extend the drilling to depth to see if we can discover any high grade gold mineralization lying beneath this silver cap. So, that’s an exciting new discovery for us and that’ll open up another part of the deposit, or district, for further development. We have about a million ounces of other mineralization on the property. Below the pit we have about 800,000 ounces of gold, 200,000 in M&I and about 600,000 in inferred.
This is high grade underground mineralization that we’ve extended for about 200 metres below the current pit bottom, or life in line pit bottom. Our goal is to continue infill drilling that, bring more of it up into the M&I category and then go with an underground operation to develop that ore. Mineralization does extend along strike from the main deposit for a kilometre in either direction.
We’re drilling on that now and in this peripheral mineralization that we just talked about, the North Dome and the East Dike, are 300 -600 metres to the east of the main open pit mine and both come to the surface and will be something we’ll look at developing in the future.
You gave guidance to market that Minefinders would have a weak first and second quarter ending June 30th. Please would you talk through the results for this period and what are your expectations of performance for the second half of the year, Mark?
We had a delay getting into the middle of our deposit, there's a central dome which is really the heart of the deposit and on the south flank of that there had been an old village. There were a few squatters who were staying in a couple of the run down adobe huts there, trying to get us to pay them extra money to leave. We had to wait for the local community and the state to evict them.
That was completed late last year and we started getting into that part of the deposit early this year. We reached a steady state of 18,000 tonnes production from the phase two of the pit in April of this year, about a year behind schedule. That’s had an impact on our grades and the material we’ve put on the leach pad. We’re getting back on schedule with the open pit and that will get us back on track by the fourth quarter of this year.
So, that’s been a big impact on us. We do expect and we guided that the first half of the year would be weak. Third quarter will still be a bit weak because we had a leak in our liner in the first phase leach pad we had to repair. That required us to take some of the material out of irrigation and that will impact recoveries until we put it back into irrigation, which will happen, hopefully starting by the end of this month.
We’ll be loading our phase two pad right now and that’ll have three years of production and that’ll be much quicker recovery, if we move that pad into 18,000 tonne per day production. So, we’re moving forward with the project and we expect to reach steady state production by the fourth quarter of this year.
You received a positive draft feasibility study for an additional mill at the Dolores mine, which assumed open pit ore reserves. How do your underground discoveries affect your thinking about expansion at Dolores?
Well the mill we designed and did the feasibility study on was designed for only the proven and probable reserves contained within the open pit. That, as I mentioned, has about 2.4 million ounces of gold, 126 million ounces of silver. There are additional reserves below the pit. A resource we have about 800,000 ounces of gold beneath the pit in high grade underground type operations; much different mining methods and grades than you would see in an open pit, with large trucks and shovels.
We had to design the pit, or the mill, using only the reserves we had to qualify for NI 43-101 report. Now we are looking at the underground to scale the mill to a smaller size, say 2,500 to 3,000 tonnes a day as opposed to 6,500 tonnes per day. Scaled to handle an underground operation and then supplement that with open pit high grade ore as well.
We're doing that now and will scale back to 6,500 tonnes a mill to a manageable size, say 2,500 to 3,000 tons per day. That will be scaled to an underground operation; it will still produce high grade from the pit but it will be more designed to operate for an underground production level.
You received a positive pre-feasibility report for La Bolsa gold and silver project in July and you filed an NI 43-101 report. What can you tell investors about the pre-feasibility report on La Bolsa and the way forward there?
Well, that’s a smaller deposit, it’s a grass roots discovery made up in northern Mexico, right on the US border. It's got about 344,000 ounces of measured and indicated gold and a little under five million ounces of silver. It's a very simple system; shallow dip, near surface, minimal strip. Capital costs will be less than $30 million, at $1,200 gold and $18 silver it kicks out about $120 million of free cash flow with an internal rate of return of about 95%.
So, it's a positive pre-feasibility study but it is a small deposit and so we're looking at the options on that before we go forward to a final feasibility. We are looking at some interest from the market to maybe purchase the property or joint venture it, let someone else build it.
That would save us time and management on something that won't really move the needle for the company. It will produce 40,000 to 50,000 ounces of gold over a five to six year period and then it will be done. So, we're looking at all options on moving that project forward. We’ll make a decision in the next few months.
What's happening with drilling at La Virginia property in Sonora, Mark?
We started drilling at La Virginia in April of this year, it's a large property, we spent two years consolidating. There's quite a bit of historical production, some high grade structures in a portion of the property and we wanted to consolidate the whole district before we started doing any extensive work. It took us two years to do that.
Initial drilling, we’re on hole nine or hole ten right now. We have results from three or four holes in and another three or four holes in the lab, it’s diamond core drilling. We are following up on the high grade surface mineralization that we identified and it’s the first drilling ever done in the property or in the district. There are five targets in the district, we're focused right now on the La Virginia target, which is a seven kilometre, 7000m x 2000m structural zone.
We're stumping around with the drill, some drill spaces are up to 1,000 metres between holes. We'll be putting up results of that in the next couple of weeks. It looks very good and hopefully we’re onto a new discovery in Mexico.
What is Minefinders financial situation going forward, Mark?
We're in good financial condition. We're making good money off of Dolores that meets our sustaining capital requirements for Dolores this year. We're spending a fair amount of money on improvements at the mine, expansion of the heap-leach pads, building a dam for a reservoir above our pit; so we are spending about $29 million in sustaining capital this year and that’s all coming out of mine cash flow.
We have some $20 million in the bank, we have a $50 million line of credit, we do have some debt outstanding. It's a convertible debt due in 2011, still a year and a half out and we expect that to convert in the shares. We do have to pay interest on that but it’s only 4.5%.
We’re in a strong, you know - generating strong cash flow. This year we’ll put most of our money back in the mine, next year we’ll generate very strong cash flow. We have very minimal capital expenditures next year.
There we had some surface anomalies and what we call the North Dome, another intrusive dome similar to our main deposit. We were successful in defining the shallow, silver rich mineralization, near the top. We’ve only drilled 300 feet in depth with small RC drills; we weren’t able to drill very deep. Very typical of what we saw at the top of the Dolores deposit, a high silver grade with increasing gold grades at depth.
We’re now going to put a core rig out there and extend the drilling to depth to see if we can discover any high grade gold mineralization lying beneath this silver cap. So, that’s an exciting new discovery for us and that’ll open up another part of the deposit, or district, for further development. We have about a million ounces of other mineralization on the property. Below the pit we have about 800,000 ounces of gold, 200,000 in M&I and about 600,000 in inferred.
This is high grade underground mineralization that we’ve extended for about 200 metres below the current pit bottom, or life in line pit bottom. Our goal is to continue infill drilling that, bring more of it up into the M&I category and then go with an underground operation to develop that ore. Mineralization does extend along strike from the main deposit for a kilometre in either direction.
We’re drilling on that now and in this peripheral mineralization that we just talked about, the North Dome and the East Dike, are 300 -600 metres to the east of the main open pit mine and both come to the surface and will be something we’ll look at developing in the future.
You gave guidance to market that Minefinders would have a weak first and second quarter ending June 30th. Please would you talk through the results for this period and what are your expectations of performance for the second half of the year, Mark?
We had a delay getting into the middle of our deposit, there's a central dome which is really the heart of the deposit and on the south flank of that there had been an old village. There were a few squatters who were staying in a couple of the run down adobe huts there, trying to get us to pay them extra money to leave. We had to wait for the local community and the state to evict them.
That was completed late last year and we started getting into that part of the deposit early this year. We reached a steady state of 18,000 tonnes production from the phase two of the pit in April of this year, about a year behind schedule. That’s had an impact on our grades and the material we’ve put on the leach pad. We’re getting back on schedule with the open pit and that will get us back on track by the fourth quarter of this year.
So, that’s been a big impact on us. We do expect and we guided that the first half of the year would be weak. Third quarter will still be a bit weak because we had a leak in our liner in the first phase leach pad we had to repair. That required us to take some of the material out of irrigation and that will impact recoveries until we put it back into irrigation, which will happen, hopefully starting by the end of this month.
We’ll be loading our phase two pad right now and that’ll have three years of production and that’ll be much quicker recovery, if we move that pad into 18,000 tonne per day production. So, we’re moving forward with the project and we expect to reach steady state production by the fourth quarter of this year.
You received a positive draft feasibility study for an additional mill at the Dolores mine, which assumed open pit ore reserves. How do your underground discoveries affect your thinking about expansion at Dolores?
Well the mill we designed and did the feasibility study on was designed for only the proven and probable reserves contained within the open pit. That, as I mentioned, has about 2.4 million ounces of gold, 126 million ounces of silver. There are additional reserves below the pit. A resource we have about 800,000 ounces of gold beneath the pit in high grade underground type operations; much different mining methods and grades than you would see in an open pit, with large trucks and shovels.
We had to design the pit, or the mill, using only the reserves we had to qualify for NI 43-101 report. Now we are looking at the underground to scale the mill to a smaller size, say 2,500 to 3,000 tonnes a day as opposed to 6,500 tonnes per day. Scaled to handle an underground operation and then supplement that with open pit high grade ore as well.
We're doing that now and will scale back to 6,500 tonnes a mill to a manageable size, say 2,500 to 3,000 tons per day. That will be scaled to an underground operation; it will still produce high grade from the pit but it will be more designed to operate for an underground production level.
You received a positive pre-feasibility report for La Bolsa gold and silver project in July and you filed an NI 43-101 report. What can you tell investors about the pre-feasibility report on La Bolsa and the way forward there?
Well, that’s a smaller deposit, it’s a grass roots discovery made up in northern Mexico, right on the US border. It's got about 344,000 ounces of measured and indicated gold and a little under five million ounces of silver. It's a very simple system; shallow dip, near surface, minimal strip. Capital costs will be less than $30 million, at $1,200 gold and $18 silver it kicks out about $120 million of free cash flow with an internal rate of return of about 95%.
So, it's a positive pre-feasibility study but it is a small deposit and so we're looking at the options on that before we go forward to a final feasibility. We are looking at some interest from the market to maybe purchase the property or joint venture it, let someone else build it.
That would save us time and management on something that won't really move the needle for the company. It will produce 40,000 to 50,000 ounces of gold over a five to six year period and then it will be done. So, we're looking at all options on moving that project forward. We’ll make a decision in the next few months.
What's happening with drilling at La Virginia property in Sonora, Mark?
We started drilling at La Virginia in April of this year, it's a large property, we spent two years consolidating. There's quite a bit of historical production, some high grade structures in a portion of the property and we wanted to consolidate the whole district before we started doing any extensive work. It took us two years to do that.
Initial drilling, we’re on hole nine or hole ten right now. We have results from three or four holes in and another three or four holes in the lab, it’s diamond core drilling. We are following up on the high grade surface mineralization that we identified and it’s the first drilling ever done in the property or in the district. There are five targets in the district, we're focused right now on the La Virginia target, which is a seven kilometre, 7000m x 2000m structural zone.
We're stumping around with the drill, some drill spaces are up to 1,000 metres between holes. We'll be putting up results of that in the next couple of weeks. It looks very good and hopefully we’re onto a new discovery in Mexico.
What is Minefinders financial situation going forward, Mark?
We're in good financial condition. We're making good money off of Dolores that meets our sustaining capital requirements for Dolores this year. We're spending a fair amount of money on improvements at the mine, expansion of the heap-leach pads, building a dam for a reservoir above our pit; so we are spending about $29 million in sustaining capital this year and that’s all coming out of mine cash flow.
We have some $20 million in the bank, we have a $50 million line of credit, we do have some debt outstanding. It's a convertible debt due in 2011, still a year and a half out and we expect that to convert in the shares. We do have to pay interest on that but it’s only 4.5%.
We’re in a strong, you know - generating strong cash flow. This year we’ll put most of our money back in the mine, next year we’ll generate very strong cash flow. We have very minimal capital expenditures next year.
The rest of this year is just to get up to our production targets, which will be in the fourth quarter. As I mentioned, the third quarter will still be a little weak because of this tear in the liner and having to take some of the material out of irrigation.
We should have that repaired and at steady state with higher grades going to the pad, better recoveries of the higher grade. Fourth quarter should be a pretty good quarter for us and then next year we'll be going along at the same level as the fourth quarter, which should be somewhere around 25,000 to 30,000 ounces of gold produced per quarter and a million ounces of silver per quarter.
We’ll be steady state following that. That will be really what the market is waiting for us to achieve and that's what we’re excited about getting to. That’s when the company will get valued as a producer and not just as a developer.
http://www.proactiveinvestors.co.uk/companies/news/20948/minefinders-audio-interview-transcript-with-mark-bailey-president-and-ceo--20948.html
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