Newest Mike Hoy Article
He said I could post around.
FIELD OF DREAMS:
By
Mike Hoy
11-3-15
I have followed Lion One Metals (LIO C and LOMLF US) since before they came public in late 2010 when the company was known as X-Tal Resources. I wrote my first article on LIO in January 2011 and I have followed them very closely ever since!
I have been captivated by the potential of this company from day 1 as I came to realize the existing hi-grade low cost epithermal system on their Tuvatu project, on the Island of Fiji, is located in “Elephant Country” where many of the world’s largest mines exist.
Much work was performed on Tuvatu through the late 1990’s as 80,000 meters of drilling resulted in an indicated and inferred ore body of 650,000 oz backed up by a feasibility study by Bateman Kinhill in the early 2000’s. The results of the study claimed that Tuvatu was economic at that time with gold at roughly $300/oz.
Over the last five years much time, work and expense has been carried out on the Tuvatu Project culminating with the granting of the mining permit in March 2015, and the release of the Preliminary Economic Assessment PEA on 6-1-15. Both of these events are milestones within any company worthy of notice by the investment community!
Since the public release of this information there have been two news releases stating in the first release that work would begin to dewater the existing drift with plans to build a second drift followed by a second news release announcing the filing of the PEA with Sedar. Other than that nothing!
Why is it, with mining permit in hand, a very positive PEA and an ongoing process where a debt financing to bring Tuvatu into production is in advanced stages that writers and the investment community, outside of two excellent articles written in the last eight months by Eric Coffin, have paid absolutely no attention to the very credible accomplishments performed by the management of Lion One Metals?
Without a doubt, the last several years have been the most challenging market in history for those who own precious metal equities. We are now beginning to see a strong resurgence within that sector where equities, which have been trading for a fraction of their fair values, are beginning to show signs of life. Sophisticated precious metal investors are backing the truck up taking full advantage of fire-sale bargains they know they will never see again!
Which leads me to ask the question; “why has Lion One Metals been over-looked in their purchases?”
Those of you who have worked with me in the past know the amount of time I spend on researching a project I choose to become involved with. All the research in the world is pretty much worthless if I have no idea what management is thinking and their plans to develop a project. They are the hands on experts, not me as my opinion or thinking means absolutely nothing if I am not on the same page as management! Therefore, communication from top level management is a must if any investor is to put any faith in what I say!
I have always taken pride in being able to answer the vast majority of questions from shareholders and potential shareholders. Under no circumstances do I accept “I don’t know” as an acceptable response for any questions I am asked.
Like me, many shareholders have become rather frustrated by the lack of information and communication being released from Lion One Metals. Many of you who have spent time on the phone with representatives from the company know exactly what I am talking about as, more often than not, your calls ended with more questions than you started with.
On 10-22-15 I had a short conversation with Walter Berukoff who is the Founding Father and CEO of Lion One Metals on this exact subject. In this conversation he made it very clear to me the answers I seek simply cannot be released without repercussions from the regulatory authorities. LIO was not allowed to update the previous feasibility study performed by Bateman Kinhill which resulted in the release of the Preliminary Economic Assessment PEA. This appears to be the greatest hurdle keeping a lid on the quantity of information being released to the public.
I have no doubt that some of the answers I seek may have, unintentionally, crossed that line. But, I also believe there is much to be said which can be released from LIO giving shareholders a much better understanding of the progress and direction being pursued by management to bring Tuvatu into production.
WITH THIS BEING SAID!
Regardless of what I think and feel, Wally and his team are obligated to conduct business in a manner which follows the rules and regulations of the exchange. In other words “it is what it is and that will not change until it does!”
After my conversation with Wally and hours of thought I have come to the conclusion that those who are currently shareholders in LIO are in for some very pleasant surprises down the road where their returns which, most likely will be measured in multiples, will more than offset the pain of investment exposure in the precious metals sector for the last several years.
There is much more I would like to say on this topic but that would turn this article into a book. Suffice it to say that the information I have gathered over the last several years on LIO from my research and conversations with key personnel within the company, most of which came from Wally himself, is not common knowledge fully understood among the investment community.
Many pieces to the puzzle exist for those who do their own due diligence; those who take the time to put these pieces together fully understand the potential rewards to shareholders as Tuvatu crosses the threshold into production. I have found that many investors who have built what is considered to be a sizable position in their own portfolios have done so as a result of their own homework and due diligence.
I personally believe the bits and pieces to the puzzle of Tuvatu are quickly coming together where the conclusions and thinking possessed by those who have spent endless hours of time on due diligence and research in LIO is about to become common knowledge understood in the investment world.
My conversation with Wally had some real rough edges to it. He has a company to build with a mess of regulatory restrictions compounding his efforts to do so. In my case, I possess knowledge gathered from research that I would love to have made public so investors and potential investors can formulate their own conclusions from their research publicly affirming to them that they are on the right path. Investors would much prefer to hear what Wally is thinking versus the thoughts running wild in Mike’s head!
A perfect example of this deals with information listed in the PEA which states Tuvatu will be closed in 6.2 years. Wally is not allowed to expound upon this but anyone who believes that Tuvatu is a small mine that will produce only a total of 350,000 oz of gold and then be closed in 6.2 years is sadly mistaken.
Successful work programs over the last several years have identified several hi-grade targets at surface which, in my opinion, when further explored will easily expand production by years. The proposed second drift alone is proof of what the future holds where no information has been released beyond the proposed development.
With the mining permit in hand I also believe there is a strong possibility that surface work is ongoing where a bulk sample program is underway to not only explore the land where these hi-grade trench assays are present but also have the additional benefit of building a stockpile where 1,000’s of oz of gold will be sitting on the ground waiting for the arrival and completion of the mill. The cost associated with the ounces of gold in the stockpile will be as low-cost as it gets. Unfortunately, I am not in a position to confirm this strategy as I do not know! But, I can’t help but think about the possibility of having 10,000-15,000 oz/au stock-piled at a low cost and what that means for any investor looking to participate in the debt financing. Seems like pretty good collateral to me!
WHAT I DO KNOW FROM THE INFORMATION RELEASED ON 6-1-15 IN THE PEA!
Below you will find a cash flow analysis I constructed from information which has been publicly released in the PEA on 6-1-15. I only forecast the cash flow for the first three years in line with what is stated in the PEA as peak production drastically falls off in year four and beyond. As a conclusion to the content in the paragraphs above, I personally believe there is a strong possibility production is very likely to not only extend well beyond the 6.2 years but also increase beyond the first three years stated in the PEA as new drifts and resources are brought online.
CASH FLOW ESTIMATES;
Below is a simple cash flow chart where total revenues are subtracted from total expenses. If the financing is to be raised where shares are issued instead of debt then these forecasted cash flow estimates would be divided by the total number of shares outstanding after the issue to arrive at earnings per share figures.
Since LIO has proposed a debt issue where physical gold is a redemption option versus cash to retire the debt; one would have to deduct the quantities of physical gold from net production while keeping the total all in cost associated with that production as an expense. This would initially be dilutive to earnings until the debt is retired but would result in substantially less shares outstanding which will sharply increase earnings per share after the debt is retired.
ASSUMPTIONS AS STATED IN THE PEA PUBLIC NEWS RELEASE ON 6-1-15;
Year 1; Total Gold Production 68,200 oz Total Cost; $622+$211=$833/oz
Year 2; Total Gold Production 78,600 oz Total Cost; $518+$211=$729/oz
Year 3; Total Gold Production 79,300 oz Total Cost; $499+$211=$710/oz
Total $ revenue/oz – Total all-in cost = Cash Flow with the price of gold at specific levels;
NUMBERS LISTED IN US MILLIONS;
GOLD PRICE; $1,100 $1,200 $1,500 $1,750 $2,000 $2,500 $3,000
Year 1;
Revenue; $75 $82 $102 $120 $136 $171 $205
Expense; $59 $59 $ 59 $ 59 $ 59 $ 59 $ 59
Cash Flow; $16 $23 $ 43 $ 61 $ 77 $112 $146
Year 2;
Revenue; $86 $94 $118 $137 $157 $196 $236
Expense; $57 $57 $ 57 $ 57 $ 57 $ 57 $ 57
Cash Flow; $29 $37 $ 61 $ 80 $100 $139 $179
Year 3;
Revenue; $87 $95 $119 $139 $159 $198 $238
Expense; $56 $56 $ 56 $ 56 $ 56 $ 56 $ 56
Cash Flow; $31 $39 $ 63 $ 83 $103 $142 $182
It is impossible at this time to predict the share structure of LIO until the financing has been completed.
I personally believe gold prices will be in excess of $1,500/oz in Year 1 making the cash flow of $43,000,000 US 2.5X the current US market cap of $17,000,000 and almost 2X the $22,500,000 Can market cap.
What if there exists 10-15+ years’ worth of additional epithermal production at Tuvatu? Just imagine, if you will, the share price of LIO in the event the supply of gold suddenly disappears and gold prices explode to levels not listed in the above cash flow chart.
What if, down the road, the public is denied the opportunity to purchase physical gold and silver at a time their emotions trigger an insatiable desire to own true wealth while they panic to unload interest rate sensitive bonds and inflated stocks in a market full of “Bagholders” supported only by the Plunge Protection Team?
What if the overseas banking issues of Cyprus and now Greece spreads to the most indebted nation of the world where there is a “slight of hand” transformation from traditional US taxpayer funded bank “Bail-outs” to depositor funded US bank “Bail-ins?”
Where do you think the money fortunate enough to escape a massive theft of this diabolical design will find a home? When do you think the public will begin to recognize the inherent risk associated with the deposit of one’s wealth and savings in a bank where there is virtually no return to the depositor and no repercussions to the thieves as they raid their, excuse me as I meant to say your “piggy bank?”
Multiple price increases would be in store for LIO shareholders in the event any of the above scenarios play out. The real payday separating LIO from the rest of the “pack” would occur in the event exploratory deep drilling discovers some very pleasant surprises beneath the epithermal system.
How many junior mining companies exist today with excellent projects where their market caps do not allow them the opportunity to fund ongoing work programs without diluting existing shareholders to infinity?
On a worst case basis; LIO’s epithermal system stands to make shareholders piles of cash for years to come. To be in a position where cash flow is available to fund exploration on a project as exciting as any in the world today with virtually no dilution to shareholders is a benefit shareholders have in LIO that few juniors can even dream about today.
Of the 80,000 meters of prior drilling, 60,000 meters of drill core remains on site where only two holes were drilled to depth. Both holes hit multiple pay zones where one hole returned assays of 284 grams au over 3.72 meters. Does the proposed second drift have anything to do with the results of this drilling?
Bottom line; the occurrence of any of these “what if’s” would create a whole new ball game for shareholders of Lion One Metals!
THAT AH HA MOMENT
This is the point in time where I was clearly able to recognize that all the frustrations built up inside of me, for whatever reasons, was a very large positive and not a negative!
My point of clarity; those who have done their homework are the investors who truly do understand what is going on in LIO and that is a very small group of investors. Proof of this is the fact that as LIO distinguishes itself as a leader in their sector there is virtually no volume in the market where the share price is well below being classified as “dirt cheap” and nothing is being publicly written or said.
Many may be aware of the existence of LIO as they may have had an introduction somewhere in the last five years; BUT, with the accomplishments in LIO and the fact that only one writer, guru or investment firm has jumped on board the bandwagon telling the story in search of future bragging rights preaches volumes to me! I believe the next few months will reveal an awakening in the investment world of LIO’s accomplishments spreading the LIO story in a whole lot of places it has never been before.
For those of you who are frustrated; relax and have a little faith in the knowledge that you possess. This is one time that you are onboard before the HERD! For those of you who do not currently own a position now might not be a bad time to stop your procrastination. I believe the stock has bottomed and the real challenge faced by investors with a desire to accumulate shares will be the availability to acquire those shares from the market at prices anywhere near these levels.
LIO’s recent move from $.29 C to $.45 C on total volume of 180,000 shares is a warning to all that the float is thin and any amount of buying pressure will move this company to a whole new level.
One question I did get a straight answer to from Wally is one that pretty much sums up the whole discussion for those with more questions than answers; “do you still feel that LIO is the best company you have ever had?” His answer, without skipping a beat, was in the affirmative.
The current market cap of $22,500,000 Can and $17,000,000 US with fully diluted shares outstanding of roughly 63,000,000 trading at $.355 Can is a far cry from his successes at Miramar and Northern Orion where they were bought out at $1,000,000,000+ and $1,500,000,000+.
Now you know why this article is titled “FIELD OF DREAMS!” “IF YOU BUILD IT, THEY WILL COME!”
As always, these are my own opinions and I have put my money on the table. I do own 200,000 options @ $.35. Other than that I have received no other compensation from LIO. The fact that my opinions and homework is the overall basis for this article means it is more important than ever for each of you to do your own homework as in the end your opinion may vary from mine.
I invite anyone to call with any questions, as I am sure there are many, at the number listed below or e-mail at the address listed below!
402-483-4484 Between 8:00 AM and 8:00 PM CST
mhoy@neb.rr.com
Mike,
