Interview with Wade Dawe - President and CEO of Linear Gold A golden future
An exploration company which doesn’t want political risk in addition to a geological risk – which you always have – has to go to politically stable countries. In cause of the fact that many companies think in this sense, it is hard to find high-quality assets in politically stable countries like Canada. The Canadian exploration company Linear Gold recently made the step from a pure exploration company to a near-term producer by acquiring a Canadian high-quality gold project from another company.
We spoke with CEO Wade Dawe about the new Goldfields Project, the constructed mine-equipment and Linear Gold’s golden future that was provided with the acquisition of the Goldfields Project.
Wade, Linear Gold recently announced the acquisition from GLR Resources Inc. of all of its interest in the Goldfields Project located near Uranium City, Saskatchewan, Canada. Does this mean to acquire the whole company or the Goldfields Project as a single project?
Linear Gold acquired a 100% interest in the Goldfields Project, which includes two gold deposits – the Box Mine and the Athona Deposit. Both the Box and Athona are past producing gold mines – from 1938 to 1942. In addition to these two gold deposits, we also acquired a substantial acreage of exploration claims which will allow Linear to conduct gold exploration while adding to the current reserves and resources. The acquisition is inclusive of two past producing mines, a gold reserve and some substantial acreage for future gold exploration.
What is the exciting thing on this project?
The project is a near term low-cost gold producer. Gold deposits are becoming increasingly difficult to find and often they are found in countries that are totally unstable, difficult to access or obtain a power supply. The Goldfields Project is located in Canada. It will be a low-cost open-pit mine, with quite attractive grades. There are power lines right to the site and the capital costs are quite manageable at 63 million USD. It will produce substantial cash-flow and can be brought into production in the near term. The Goldfields Project is unique, because it will allow Linear Gold to move from being an exploration company to a producing company with a very substantial gold asset. Therefore we are in a good position because we can secure gold production and substantial cash-flow for our shareholders. Gold deposits like this one are very hard to find in Canada. We will become a growing gold producer with this acquisition and that should substantially re-rate the value of the company and increase shareholder value.
How does the infrastructure at the Box and Athona Deposits look like?
Uranium City is located in the north-western area of Saskatchewan. It was used to support the surrounding mining area in the past. In present times it is also used as a supporting center for exploration activity in northern Saskatchewan. Uranium City has an airport, it has full power and very good telecommunications. There are high quality roads in summer and in winter. Right on our project we have a field office, a core storage facility and living quarters for our staff. The project is easily accessible, it hosts low cost power for the mine and there is adequate labor supply in the immediate area.
What are the next steps for the Goldfields Project?
The next step will be to hire a Chief Operating Officer who will oversee the development and construction and then the gold production from this mine. We are in the final stages of hiring a world class Chief Operating Officer. The second step will be to continue with the procurement, construction and development processes which will lead to low cost gold production from the asset. A great portion of the required equipment has already been constructed and we will continue with that process and move it on to the full mining of the ore. We have also contracted an engineering firm to update the feasibility study. In the near term we hope to announce an updated resource estimate which we expect will be quite positive with new economic numbers based on current gold prices. The old feasibility study was based on a gold price of only 525 USD. Therefore we expect a much higher value for the project when we announce a new resource estimate and new economic data based on current gold prices.
What kind of equipment is already on place and when do you expect to be ready for the production start?
GLR had contracted to purchase processing equipment that will be mobilized to the site once it is fully constructed in China and in Australia. That equipment will form a significant portion of the producing facility on the property. In 2007 GLR completed a feasibility study on the deposit after holding it for about 20 years. In 2008 they secured a debt facility with a European bank to fund the construction of the mine. As part of this debt facility, GLR was required to raise equity as well – by issuing shares. But as we all know the market conditions deteriorated in mid 2008 and prevented GLR from completing the financing, which caused the company to run out of cash and move to a status of financial distress. GLR then was forced to sell the Goldfields Project and as a result they also lost their deposits on the equipment. The equipment is partially built (about 50%). Linear Gold has assumed those contracts and we are in the process of reimbursing GLR for this equipment. A date for the production start will be released in the 4th quarter of 2009.
What more potential do you expect from the Goldfields Project area?
Adjacent to the Box Deposit there are a couple of other zones of where exploration work was carried out in the past. Some of the past exploration and drilling were just excellent. There is a target called “Golden Pond“ where one drillhole intercepted 16.5 g/t of gold over 13.6 meters. Another hole on the same target intercepted 5 g/t gold over 15 meters. At the moment there are no resource estimates on this target but there are good gold showings and we are excited about the exploration upside potential and the possibility of adding reserves to the overall property package which will extend the mine-life for the Goldfields Project. As a result of the large land-package that Linear holds, there is a lot of upside potential at the Goldfields Project. Therefore we intent to undertake additional exploration work to demonstrate that there is more gold on the property package.
Are there further opportunities for acquisitions and/or exploration near the current licenses?
Our strategy is to become a growing gold producer. Our initial focus is to bring the Goldfields Project into production. We also continue to search for additional acquisition opportunities which will provide a pipeline for future growth. We are confident that Linear will find such opportunities. We are looking for acquisitions in political stable areas, which are easily accessible and areas which have positive attributes for gold production.
Linear owns further projects in Mexico. There you have a joint venture agreement with Kinross Gold for the Ixhuatán Gold Project. What is the current status of this project?
In Mexico we decided to attract a well funded joint-venture partner where Linear can be sure to advance its Mexican exploration projects without taking financial risks. Kinross is committed to spend 15 million USD over a 24 month period on Linear’s project. At the end of this period Kinross will have the opportunity to purchase up to a 60% interest for a onetime payment to Linear of 45 million USD. Under the terms of that agreement they must advise us if they intend to make the purchase by December the 31st 2009. The timeframe for the spending of the 15 million USD is to October 31 2009. From this date Kinross has a period of 60 days to make a purchase decision. Linear Gold originally made a gold discovery of 1.2 million ounces of gold at its Ixhuatán property in Mexico. This discovery and the exploration potential of the surrounding lands attracted Kinross to the project. Kinross felt that there was additional potential for gold in this area. Kinross‘ goal is to find an economic deposit of 2 – 3 million ounces. If they are successful in finding such a deposit they would very likely pay the mentioned amount. If they are not successful, the project will be 100% redirected to Linear Gold plus all of the data of the work that has been completed by Kinross. Both decisions would give Linear Gold significant benefits. On the one hand Linear could receive a large cash payment, while on the other hand Linear would get back a 100% interest in the project plus all the exploration data.
In the Dominican Republic, Linear Gold has a joint venture with Everton Resources for a gold project nearby Barrick’s multi-million-ounce-project Pueblo Viejo. What do you expect from this joint venture agreement?
In the Dominican Republic it is a little bit different. Everton can earn an initial 50% interest in three projects. With these deals Linear Gold receives cash payments and share payments from Everton Resources. In addition to that, Everton has to pay 100% of the exploration costs for the three projects. One of the projects is directly adjacent to the Pueblo Viejo Mine, which is held by Barrick Gold and Goldcorp. That mine is under construction and hosts approximately 20 million ounces of gold. Essentially, Linear Gold‘s assets in the Dominican Republic are located in a proven gold belt next to an elephant gold deposit. Should Everton’s exploration result in a new gold discovery it would be very positive for Linear Gold. Everton can earn an interest up to 65% by carrying all expenditures on the properties right through to feasibility. As a result of this, Linear Gold has no downside risk, but much upside potential at no cost.
What are the next big milestones for Linear Gold?
The next big milestone for the company is hiring a Chief Operating Officer, which is in the final stages. We are in the process of completing an updated feasibility report for the Goldfields Project. And we are commencing the development of this project which will lead to full commercial production. On the exploration side in Mexico, Kinross is continuing its work which will lead to a purchase decision. If Kinross elects not to purchase the property from Linear, this Mexican project would be an ideal future development project for Linear because of its known resource of 1.2 million ounces of gold, which might be too small for Kinross, should no additional ounces be found. That means Linear has an enormous upside potential with this project – whether Kinross decides to exercise its option or not. In the Dominican Republic the next milestones will be drill results. The upside on our shareholders will be dependent on whether or not Everton is successful in finding new gold mineralization. If no more mineralization is found, there is no downside risk for Linear Gold. We have structured both joint venture agreements to provide upside for our shareholders without taking any financial risk.
Why should potential investors invest in Linear Gold right now?
At the present time we are in a long term secular bull market for gold. There are a number of ways to invest in gold. It has been proven over time, that companies that are capable and able to move projects from the exploration phase through to production, receive a substantial appreciation in their share price and in their market cap. Linear Gold is in that process of moving a project into the development and the production phase. While we are doing that we also have the exposure to quality exploration projects with good joint venture partners. I believe Linear Gold is very well positioned in this gold market. We have quality assets and we have gold resources on our projects (over 3 million ounces of gold). If you compare the value of these reserves and resources in the ground with our current market-cap and our strong balance sheet you will probably agree with me that Linear Gold is an undervalued company and represents an excellent investment for people who are interested in gold securities.
