Rob McLeod: Climate change leading to major new mineral discoveries

President and CEO, IDM Mining Ltd., Rob McLeod: Hi, Collin, great to be here. Thanks for having me.

CK: Yeah, it is a real pleasure getting you on. You have a very strong background in mining. In fact, you founded Underworld Resources, which was ultimately bought out by Kinross. I am going to start by asking you to tell us a little bit about that story. How you got involved in the Yukon there and the aftermath of the Yukon after the buyout from Kinross occurred?

RM: Yeah, sure. You know my history in mining goes way back to basically the day I was born. I am a third generation miner. Both my father and grandfather were underground miners working throughout British Columbia and Alaska. I grew up in the mining town of Stewart, which is located near IDM’s Red Mountain project.

I always loved the industry, had a fascination for the natural world and for rocks. I knew this was always a career that I wanted to pursue. Being from northern Canada, I love working in the north and know how to explore. In 2007, I formed, with a couple of partners, Underworld Resources, and thought that the Yukon was an ideal place to look for a bedrock lode gold sources to abundant placer historically and currently-producing placer beds up there.

In 2009, we drilled a large gold soil anomaly. It is a preferred exploration tool for us geologists to go in. If you cannot see any rocks you go and sample the dirt or sample the overburden and look for anomalies that lay underneath. Our discovery hole was over a hundred meters of three grams per ton gold. It precipitated in ’09, the largest staking rush in the Yukon since the Klondike. It was really fun to be part of history.

Subsequently, in the following year— and we already had Kinross as the shareholder and a great relationship with that major. They took over Underworld in 2010 and really kind of represented the peak of the excitement that Yukon Gold Rush, the second Yukon Gold Rush, had. There is still been some other successes up there such as ATAC Resources and Kaminak Gold where they are looking to develop a mine basically across the Yukon River from Underworld’s, now Kinross’ White Gold project.

CK: Having a major shareholder from a major or getting bought out by a major is kind of the holy grail of building a mining company, so congratulations on that point. I want to talk to you about what people should be looking for today? There are many different ways to speculate as we are at the bottom of a market. One way to go about it is investing in a project that has very, very high CAPEX and low grade and hoping for higher gold prices. But that takes a long time to wait and those projects simply are not getting financed right now. What are you seeing actually getting financed? What is the recipe to get big investors in and get a mine built?

RM: Well, right now, since the gold prices pulled back from $1800 or $1900 highs and sort of hovering around $1150 to $1250 per ounce, the majors, and certainly the mining financiers, those that are still out there, they are looking for high-grade, low CAPEX type gold projects preferably underground, or sometimes the low CAPEX type projects that look like they should generate high rates return. Companies such as Dalradian, Integra, some of the companies that have been doing reasonably well in this exceedingly challenging market. That is where investors and the groups that are financing mining or mine development, that is what they are looking for.

One of the big, kind of mistakes, whether the biggest mining companies in the world like Barrick straight down to the smallest junior, everybody focused on at the top of the cycle trying to make as much metal as possible instead of making money. You cannot be a high-grade underground gold project that has rapid payback. It is much less risky for investors. Another example is Continental that is currently exploring in. These are projects that look very robust at the current gold price and they are phenomenally leveraged as well to the inevitable increases that we will see in the precious metal.

CK: Rob, I want to get to a point that you talked about in an article that you wrote for CEO.ca. It is about climate change, and it is not exactly what somebody would think when they hear the word climate change. But, essentially, there has been melting of ice and maybe growing of ice in other parts of the world, but that is opening up new landscapes and it has actually played into the company you are running and a few other companies that you are aware of. What can you tell our audience about how climate change is affecting the mining world?

RM: Yeah, it is really fascinating. I am a geologist in mine science. We look at climate and earth processes in long terms, not in ten or thirty year bites. We look in thousands and mostly millions of years, so I am not necessarily going to comment on some of the hysteria around climate change. You know the earth is warming, that is for certain. Glacial ice sheets and alpine glaciers, they have certainly been melting.

I guess you could say it is not necessarily a good thing for the planet, but one of the few I guess industries or individuals that do benefit from a warming earth are us, exploration geologists. See, mostly what we do when we are exploring like if there is a quartz that has a whole bunch of high grade gold and it is sticking out of the ground, somebody has likely found out already and has probably been mined out. Mostly what we do is trying to see what is underneath, overburden, and that can be forests. It can be artic tundra. It can be desert sands. We use geo-chemistry and geo-physics and geological mappings to try and vector in where deposits might be.

It is actually quite rare to see that fresh outcroppings of mineralization that no other prospector or geologist has seen. In around Northwestern British Columbia near my hometown, Stewart, over the past decade or so there has been some remarkable discoveries due to melting ice. One of the best examples is Pretium Gold, which is located just to the north of us with IDM’s Red Mountain project. The Valley of the Kings alone back in the ‘90s was still underneath a small ice sheet. The company that had the junior at the time, junior mining company called New Hawk Gold that, in fact, my uncle was the president of. They knew that there was a high-grade gold occurrence sitting underneath this ice sheet. They could see at the toe of the glacier and there was all sorts of visible gold.

The company was sold in 1991 to Silver Standard Resources. Silver Standard just inventoried ounces in the ‘90s and the first half of the 2000s. It was not until around 2005 they came back to the property and that ice sheet was gone and there was tremendous visible gold all over the place. The Valley of the Kings has a very special deposit. There is not really any global comparison to the grades of gold and silver that they get within the high-grade veins. It is recently melted out from the under the ice.

Seabridge is also nearby. They have their KSM Project. I worked on that project when I was an undergraduate student in 1990 and it was just Kerr and Sulphurets. The Mitchell zone was underneath the glacier. When Seabridge came out to explore, same sort of time, 2004 to 2006, they found all this gold and molybdenum and copper mineralization and that was the Mitchell zone which is over ten million ounces and a significant room for expansion. That is a recent discovery.

At IDM’s Red Mountain Project since the last round of serious work was done in 1996. Since that time one of the adjacent glaciers has retreated up to two kilometers and has exposed all sorts of new gold prospects that we sampled during the 2014 season. It is really kind of a cool part of mineral exploration in Northwest B.C. that there is this all new exposure that no other geologist has set foot on.

CK: Rob, being up in the northern territories doing a lot of exploration there over the years, have you noticed that geologists are actually looking for the next areas that are having these glacial melts and going there to try and stake property, or have these discoveries simply been a consequence of the fact that these areas have been exposed?

RM: It is both. The claims where there has been discoveries at Pretium or at Seabridge. Another example in 2000 is NovaGold, in fact, with their Galore Creek property; there are new discoveries there. It was melting on pre-existing claims. Similar to our Red Mountain Project claims had been around since the ’80s, so there is new exposure there.

There are also some veteran explorers that have been working in the northwest for the past thirty plus years. It is in August or September and you are flying along in a helicopter. You fly right adjacent where the ice is melting and you can see what is coming out from underneath. It is not, say, a pre-planned strategy in a lot of cases; it is mostly just serendipity that you never know what might be melting up from underneath.

CK: Okay, the last question that I want to ask is specifically about IDM Mining. The asset that you are building there is potentially world-class. It meets those criteria of being low CAPEX, high-grade, very profitable situation. But a lot of companies, including IDM, are running into the problem of their market cap is under $10 million and there is a CAPEX on a project of $50 million plus potentially. How do you go about in this market financing a mine, or do you cut back on expenditures and wait for the market to kind of pick up before you go ahead and try to attain that mine financing?

RM: The number one thing that most of the different— mostly boutique and some larger banks that underwrite mine development is the political risk and permitting. With our project, we are laser-focused on getting our permits in place. Northwestern B.C. is an exceedingly mining-friendly jurisdiction. I think it is one of the best in the world so we are pulling out all stops and using our cash through equity financing to get the permitting in place and to get our engineering complete.

In the case of Red Mountain, it is a fairly simple project. It is very high grade. It averages between seven and ten grams per ton and it is also a wide ore body. It averages 45 to 50 feet thick so it is amenable to bulk underground mining. And since it is underground it makes it easy to permit. You do not have the big footprint. First Nations that have title in the area, they are pro-development. They signed agreements with Pretium and Seabridge. It is lower cost work that really adds significant value once you get those permits in place. Since our project has a rapid payback, there is no shortage of options for project finance.

For a thousand tons per day underground mine, in the first year we plan on producing around 85,000 ounces of gold. Our CAPEX is only $76 million, and that includes a $10 million contingency. That is eminently financeable versus some of the big, say, open pit, one gram or less type projects where you require billion dollar plus expenditures. You can get some reasonable terms through debt. There are a lot of different groups that do offtake provisions, and also there are options through royalties streaming. Honestly, it is easier to raise $76 million to build the mine than it is to raise $1 or $2 million to go out and drill an exploration property in this type of market.

CK: Alright, well, on that note, Rob, thanks so much for coming on. Just a note to all of our listeners, you do write occasionally for our friend, Tommy Humphreys, over at CEO.ca. You have had some very popular articles sharing insight into the market, into the mining space. I would urge everybody to go take a look at that. Rob, thanks so much for coming on the program.

RM: Yeah, thanks so much for having me, Collin.

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