With the commencement of mining operations at its Red Dog gold mine in September, junior mining company Matsa Resources has ambitions to become a large gold producing company. Jessicia Cummins spoke with Matsa Resources’ executive chairman Paul Poli about the miner’s plans for the near-term and its partnership with AngloGold Ashanti. Q. How does it feel to now be mining at Red Dog, and how do you respond to those that may “scoff” at something this size?
Last year we mined the Fortitude trial pit which was the precursor for us to go to the full scale of stage two mining at Fortitude, which we hope to kick off early next year.
We believe the Red Dog mine is extremely valuable for a company like us and very significant – it feels great.
When you produce, and you are not exploring but actually making money, for a small company that is fantastic – it means we do not need to raise capital from shareholders or investors, it means we do not have to increase our issued share capital so to us it’s very important.
To those that claim that it is small and irrelevant my answer is quite simple – we will make in excess of $5 million in 12 weeks – I can’t think of any small company that is able to make a net profit of $5 million in such a short time period.
A lot of our colleagues with large mines aren’t making that kind of money.
I have had some people criticise saying “you are only a small mine why are you wasting your time” well if I wanted to raise $5 million dollars, I would have to issue 40 million shares – we got it at 170 million shares this year, for us to raise $5 million dollars I would have to dilute the company on a 1 to 5 basis or issue 20 per cent of our company’s stock out.
Now to me that is significant, that is a lot of shares on a ratio basis.
If I’m saving that dilution it is a wonderful event.
If I could have three or four of these mines in a row, that would be wonderful.
The other very important thing is that this ore deposit has been only explored very shallow, we do not know what is underneath, we do not know if there are extensions – this mine will provide us with money to explore underneath.
Q. Take us through your agreement with AngloGold Ashanti, and how this has benefited you so far?
I am under confidentiality with AngloGold Ashanti, but what I can say is a similar formula occurs this time as we had with the Fortitude mine trial pit; in that we deliver ore to AngloGold Ashanti and all risks of that ore transfers to AngloGold Ashanti at the time that we deliver that ore.
We get the full benefit of the daily gold fluctuations in price, so we have not locked in the gold price – and we get the disadvantages of a falling gold price.
But the gold price is going our way in Australia at the moment.
We have already pre agreed our grade – we have already done all the grade control drilling for the entire ore delivery volume.
That is being done on a 10 metre by 10 metre basis, so we have got very high confidence.
It is a very fortunate circumstance for Matsa to have such a great relationship with AngloGold.
We have an enormous amount of trust in them and they are displaying a lot of trust in us – that is significantly shown in the MOU that Matsa resources and AngloGold have.
We share technology, share discovery, share know-how, share access roads, share infrastructure, share emergency response and share research and development technology.
The relationship probably advantages us more than it advantages them.
They have a massive plant, their Sunrise Dam plant is huge – nearing 4 million tonnes per annum – so if they can source feed from a reliable and trusted outsider like Matsa that preserves their stockpiles and their ore in ground.
It is a win-win scenario for both companies and that is a good way to be.
Q. Do you think more juniors should partner up with bigger players in similar arrangements?
Each circumstance is different, each project has its own unique requirements. We are very fortunate that the whole team at AngloGold are good people.
Obviously Matsa have done things right by them; we have proved to them that we can be trusted; we have proved to them that we can deliver on what we promise; we have proven to them that our ore and gold resource is quality; and we have proven to them that we won’t let them down.
I encourage any junior to get married with a larger corporation where that relationship can be founded on mutual trust and mutual benefit, and the parties produce a win-win scenario for all involved and it is not one sided.
Q. You’ve had some drilling success across other areas at Lake Carey recently. Can you describe the significance of recent results?
We desire to have a large gold producing company as quickly as possible. Matsa currently has just under half a million ounces of good quality gold in resource. We have got the Red October gold mine and we are working very hard to get that into production, which we hope we will be able to do in the near term.
We have got the Fortitude gold mine that has approximately 340,000 ounces of gold in resource that we hope to get into production by early next year, and of course we have Red Dog.
To make Matsa a convincing long term gold play we need to find more gold, and we think that we are on the cusp of a significant discovery just north of the Fortitude gold mine.
We are currently drilling 4km north of Fortitude at our prospect called Fortitude North, and are hoping to get results next month.
I note that a lot of our ground is part of Lake Carey — any ground in the Lake Carey region that is on the lake has been very poorly explored in the past. Drilling on a lake historically has been very difficult and very expensive.
In fact, AngloGold Ashanti vice president WA Mike Ericson in said at Diggers and Dealers that in his opinion Lake Carey is one of the hottest exploration areas in Australia and we totally agree with that concept because it has been poorly explored.
Q. What is your plan after the three month mining campaign at Red Dog?
We expect to make more than $5 million profit in this three month period and we will immediately turn our hand at getting Red October into production.
We think Red October will be a significant high value gold mine for the company..
We will then also turn our hands simultaneously to get Fortitude into production, and of course we will continue exploration and hopefully by then be onto something that is already significantly discovered.
Q. How do you see the resources sector evolving in the next few years, and how will that affect the way Matsa Resources does business?
I think that the resources sector is a very good place to be.
I know right now and the last couple of months has been a difficult area of the market. It has been quite negative.
But it is my opinion this fall in metal prices is overdone, not sustainable and I believe that the metal prices will recover.
The impact on Matsa will be significant. Our resources, especially Fortitude Gold, are directly correlated to the gold price.
If that price goes up Fortitude really comes in to play.
Red October is profitable now if we can get enough reserve behind us, which we think we can.
But Fortitude, which is very sensitive to the gold price, if that can go to production Matsa can be quite a good gold producer. It could be approaching 50,000 to 60,000 ounces per annum.
For a company that only has a $25 million dollar market cap that we speak of today with quite a small number of shares with little debt of $3 million — an increase in gold price would be a significant positive effect on our production capacity and will have a significant effect on our share price.