Mexus Gold US (MXSG)

[TMLonggun]

Tyler Martin Mexus Interview

http://vocaroo.com/i/s0hWFrAJQKmT

Hey this is Omer Aubin and I am here with the speculator Tyler Martin and today we will be discussing Mexus Gold US and junior mining in general.

So, for starters, who are you?

My name is Tyler Martin and I have been investing since I was eight years old. I have also become a pretty proficient junior mining speculator over that time, although investing and speculating are two very different disciplines.

What are the differences between speculation and investment?

A speculation is an educated bet on something that a company or person has no or limited control over. Examples of speculative questions would be: how can I profit from a political event? is a mining company capable of discovering something? Are they likely to? If they do can they expand the deposit, can they mine it at a profit, will they be able to receive permits or social license, raise money etc? On the other hand, investing is usually just basic math: you buy undervalued companies that exhibit strong profits, dividends, low ratios etc that are trading at cheap prices and then you hold these stocks until the market recognizes these facts. The beauty about junior mining, aside from its great wealth creation, is the fact that if you correctly pick your stocks you can often make a lot of money on the speculative side AND THEN make even more money on the investment side if a miner goes on to produce at a profit.

What are some of the things you are known for?

I have done a few interesting things including calling the 08/09 bottom for commodity stocks and then going on to rank in the top ~10-20 for publicly performing portfolios on Motley Fool for a couple years or so. At about this time too is where I really got a strong appreciation for junior miners and commodity stocks along with the wealth creation they can produce. There was this perfect moment back in 08/09 when mining companies were still making money and yet were priced as if the world would immediately stop consuming commodities and was going into an apocalypse that they would never recover from. Many of those stocks ran up over a thousand percent, including TCK and ANV. Commodity stocks are the only type of stock aside from technology where they can start with almost nothing but a dream, and then through discovery, create enormous value. In the past ten years I have publicly called at least 50 500% + multibaggers, even managing to buy the bottom and sell close to the exact top more than a few times, not always, but quite often. There is clearly a time to get in and out with these stocks. In recent history I had a position in one of Canada's 2016 top gold performer, Claude Resources, a company I bought the low and sold the high within a few percentage points for about 1000% in two separate instances over several years. Claude was bought out in 2016 for a large premium after a great run-up after the company made some changes and became profitable. Claude is a good example of a speculative miner that becomes an undervalued investment, shifting from an educated bet to a no-brainer Ben Graham style value investment. Other than that, my family owns lots of SCY, (Scandium International) a very unique mineral company that has an absurd amount of potential and that could radically change many industries and products for the better including fuel cells, bloom conversion technology, and aluminum alloys for aircraft and light vehicles among other things. SCY has gone up about 1500% or more since I entered and I would say SCY is the limit there. Last but not least, I own a decent chunk of Mexus Gold, and as far as I know, it is the top gold performer of 2016 in the gold sector for about a 16,000% increase from its lows to highs. I don’t have 100% accuracy - but I am well above average including many highly paid analysts. I have only had one notable mistake in recent memory, which was Rubicon Minerals, a company I previously made a pretty decent % off of on the exploration but lost on the production speculation.

As of this moment, Mexus Gold US is currently the only junior mining company I own in my personal accounts and for very good reason.

What is Mexus Gold?

Mexus Gold is a US based junior mining company that has its main mining operations in northern Mexico, in Sonora state along the Sonora-Mojave megashear geological formation that is home to some of the largest and most successful gold mines ever. The flagship property, the 7300 acre Santa Elena, is located northwest of Hermosillo and is a high grade, near surface deposit that is geologically simple to interpret and chemically advantageous to process. The mine is anticipated to pour its first gold dore in March or April of this year. Mexus also controls another nearby mine, the San Felix, which has substantial infrastructure in place along with a very large land package of 26,000 acres with several unmined pits cleared of overburden which should reduce initial mining and startup costs. As the mine is already built, the San Felix is could be placed into production very swifty at relatively low cost. Both the Elena and Felix are operated by Mexus’ JV partner, MarMar, under an agreement by which they construct and operate the mines in exchange for half of the revenue after operating expenses (once startup costs have been repaid). Mexus also controls several other exciting nearby exploration projects including the high grade and near surface mineral prospects of the silver discovery at Ocho Hermanos and the very impressive copper and gold target at Scorpio, with both target’s initial surface results currently many times the industry’s mined average. In my opinion, the company’s high grade projects, large production potential, low debt, and low cost philosophy make it a compelling value generator compared to the vast majority of other juniors.

What is the company's current focus?

Mexus and MarMar are focused on getting their primary project, the Santa Elena mine, into production. The objective would be to pour gold at a profit, optimize and expand the operations, and then begin to shift focus to development at San Felix’s parallel crew. Once the company has both operations producing they will then start to explore their other properties along with the current mines in an attempt to discover more minerals for future production.

Could you tell us a little bit more about the Elena project and why you think it will be a successful mining operation?

Sure. The Elena claims were family controlled for generations and this kept it off the direct market and out of Fresnillo’s paws. Mexus made an agreement with the family in 2011 to develop the property. They did a bunch of initial discovery work that found excellent results following a system of gold bearing quartz veins and the surrounding shear zone that the veins have eroded into over time. High grade mineralized material was found throughout the area and the decision was made to place the project into production to mine the obvious high grade sections visible from the surface. As of this moment construction appears to be complete on the Merrill Crowe recovery plant and the associated pads and ponds along with over 3 meters of material stacked on their pad, just waiting for the spray lines and cyanide. The long, costly road of mine development is nearing its end and Elena has got there early and well under budget.

The main reason I have always believed that the project would be JVed and ultimately mined successfully is because the Elena project is impressive on a relative basis. If you look at the trend itself and these gigantic gold mining operations, from La Herradura to La Colorada, Noche Buene etc, you will see that these world famous mines all around the area are producing profits at tiny fractions of a gram (0.56,0.64, 0.79 etc and even well under half a gram in Durango), even during the currently depressed gold price environment. So if some of these guys are mining low grade sulphide ore deeper in their pits and trucking it for miles...and still doing it with a smile on their faces and earning lots of money… then comparing this to the Santa Elena where there is no overburden, the gold bearing material starts at surface, the grades are anywhere from say two or three to several hundred times what everyone else is mining, and then they only have to move it a pitiful distance while still operating within that same low cost district.... That seems like a scenario that has a very compelling risk and reward equation to me. This relative margin that these deposits represent is a competitive advantage and the reason other miners have been interested in the property for decades.

But how do you know that the gold is there? Isn’t entering production without traditional exploration and feasibility work risky?

Sure, of course it is risky - everything is risky, but to be fair Mexus has done a lot of exploration work - just not at the level of a bankable feasibility study. Mining is a risky business in general, notorious for delays and high profile failures… but there are also common sense elements that can be applied to this. First of all, even doing all that very expensive, time consuming work is still not a guarantee of success or future results. Examples like Rubicon spring to mind - it looked great on paper and pleased all the government officials and geologists but ended up being a complete disaster for shareholders. Despite a near billion raised and countless encouraging studies spanning 1000s of pages it didn’t - or hasn’t yet led to any profits and the old holders were wiped out. That is an example of something that looked impressive at first, second, and third glance, it pleased all the experts, but was actually highly flawed. Mexus sort of gives the opposite impression, if you only do ten minutes of research you will be disappointed by their lack of cash and rough appearance and then potentially dismiss what is probably one of the most compelling opportunities I have ever seen in this sector. There are some that will point to the lack of feasibility work as if it means the project is highly unlikely to succeed without it but I would point to the tens of thousands of years of human history that existed before 43-101s and IG7 compliant reserves - there has always been a way humans have mined, even with no technical skills or geological knowledge whatsoever. It is called common sense and mining what you see and then stopping when you run out. This is the old timer method and it works marvellously for near surface deposits with visible gold and easy to understand geological cues. As evidence of this I would point to the thousands of examples of this being successfully done during the last few gold rushes.

So do I think there is gold on the property? Absolutely! For starters this area is famous for its gold discoveries and its well known mining heritage and the trend itself is now home to gigantic, world class mines. The Elena mine site once had outcroppings in the multiple kilos of gold per tonne range (this is in the ballpark of 100 oz/t gold you stub your toe on). These outcropping were high-graded long ago as part of the artisanal and historic mining work on the property. Many other comparable areas with such finds would have been mined extensively and drilled to oblivion but this property has not been, owing to its strong family ownership over the years. To me, that alone, demonstrates this is a property with very high exploration potential and more than a decent chance of striking a bonanza. Even if the old timers would have mined huge sections, which they did not, choosing instead to cherry pick the best surface material they could find, there would almost certainly be a lot of lower grade ore that was unappealing to them but would make an excellent heap leach project in 2017. Mexus has also found large amounts of visible gold in the drill cores from the veins and shaft area. Most mined gold nowadays is microscopic so if you can see it with the naked eye that is very encouraging, and rule of thumb is it is economic as long as it isn’t in Antarctica, deep, hard to recover, or under a lake. The shallow shaft on the property has ample historical production and current assays in the hanging wall of gold measured in ounces per tonne - this proves that the surface grades continue at depth and become substantially higher grade, at least in some areas, down to 50-100 feet at the very least. There are assays up to about 6.5 oz/t from the underground and I am aware of limited historical production done relatively recently that was in the neighbourhood of sat .25 to .5-20 oz/t from that same underground mine, making at least a section of it one of the highest grade gold deposits on earth. This is all located a small distance away from where they are now mining and seems to be one connected system. There are mining companies that haven’t heard the expression “ounces per tonne” in decades! If you extrapolate out the results from the shaft and match it with the 800 meter long vein system it is a slam dunk for a million ounces minimum in my opinion and I don’t think it is that hard of a prediction to make. Estimating the size of mineral deposits in early days is something I have had a lot of success with, and, in my opinion, Mexus’ is the easiest million oz I have ever looked at. There are examples like Golden Eagle that show a company can be bought out for a huge sum with limited drilling as long as long as they demonstrate a large, simple, high grade, and above all consistent project that has obvious merit to a buyer. I don’t know for certain how much gold is there but an initial potential deposit of 1-3 million ounces seems like the tip of the iceberg. Third party assays of average looking rocks laying around the area often assay at 10-20 grams per tonne or more. Mexus and MarMar geologists have done lots of sampling and assays demonstrating there is lots of mineralized material in the 1 to 2 gram average range, enough for a year or two of production without much additional exploratory work. The company recently released a column test with a recovery of .7 grams, which is well above the head/assay grade of many of their renowned neighbours and is right on target for a conservative 1 gram average stacked on their pads. The general area of the mine is also famous for its large, very high purity nuggets and historical placer and artisan production. Some of the nuggets found by Mexus shareholders on brief site visits to the property were just absolutely immaculate - way bigger than anything I have ever found prospecting or even bought online. These are some of the most beautiful, pure, and massive nuggets I have ever seen, they are clearly close to a lode source and the veins they eroded from. The claims are also in the general area of the famous Cortez Boot discovery, the largest nugget found in the western hemisphere, at nearly 400 troy ounces. The number of stories and anecdotes goes on and on forever… from panning gold on the haul roads to old nugget discoveries from hundreds years ago. Some of the information is perhaps unreliable, not well recorded, or lost to time but, there is still enough evidence there to make it obvious to me that they have a desirable project. So in the end is there a piece of paper that says they have proven a million ounces of high grade gold beyond the shadow of a doubt? No, but there exists so many signs that I think it is likely the Elena claims have a lot of economic gold, probably at least a million ounces representing lowest quartile costs to produce because of the project merits and high grade relative to their low cost peers.

What can you tell us about Mexus’ management team?

Mexus’ management team is Paul Thompson. He is an experienced serial entrepreneur that has owned and operated gold mines in Mexico and California. He also is a skilled fabricator and low cost operator with expertise in construction and project management. If you want something built at low cost and with a little unconventional ingenuity I would say he is your man. Paul has proven himself as a trustworthy CEO and dealmaker.

Mexus also has a small team of advisors that assist Mr. Thompson.

The current company structure is, at the moment, more dependent on Mexus’ JV partner, MarMar than on Mexus itself.

What can you tell us about MarMar?

MarMar is a Mexican holding company run by Marco Martinez, a wealthy businessman and entrepreneur from the area. MarMar has done contract work at several of the nearby mines including La Herradura and they have directly applicable production experience at similar mines. They also control a very large fleet of heavy equipment and have the manpower to operate them. If they use even 20% of their capacity Mexus will be a large regional producer and most likely enter six figure gold production. The deal with MarMar is one of Mexus’ strongest advantages over similar companies. They gain not only cash to construct their mine and an experienced regional operator but also access to equipment and labour including specialists like geologists along with political and legal capital they would not otherwise have access to as a foreign operator in Mexico.

What do you think is a reasonable market cap for Mexus if it had both mines producing at a profit? What do you think of the company’s long term potential?

Hard to say without knowing exactly what grades they consistently stack and how much they produce over time. Mexus can conservatively be worth 10-20x their net income, so if the grades are average at 1 gram and they achieve 10k t/day as their first target at Elena that is probably around 25,000 oz, or somewhere around 20 million dollars after tax. A low ratio of ten to fifteen puts them at about 200-300 million market cap, around 50 cents a share.

If they did about the same at San Felix that is around a dollar for fair value using earnings alone. If you start adding in values for other properties, equipment, plants, exploration work etc there is a lot of additional market cap there without even applying a premium that Mexus should likely receive as the preeminent project in the area with what I believe will be much larger profit margins than their peers.

Now here is where things get interesting - that is about a ten bagger for what I view as a fairly conservative case - but what if we go beyond? What happens when they ramp up from 10 to 20k a day to 25k a day at both projects? What if grades come in higher than that base case as I expect? What if gold prices rise? What about the other high grade properties?

Well I will let people crunch their own numbers but, needless to say, the potential values start to get enormous. Then, long term, if you imagine three to five years out, dividends paid and gold flowing while exploration programs churn out impressive results from already known high grade zones… Mexus is limited purely by what it can profitably produce and find along with the prevailing gold sector sentiment. If the properties are the limit then we are in great shape because I believe the Santa Elena will rival other mines of the area and that the value goes DEEP here. The surface seems like more than enough to make current holders rich - what lies beneath is nothing less than the potential for one of the largest gold mines on earth.

Where do you think gold prices are headed?

I honestly don’t know and I am sort of agnostic to this. I am biased towards it going higher, especially over a long term period but over say the next year or two? No idea. This is one of the reasons I like Mexus and high grade projects in general. Gold prices stay the same? We make bank. They drop significantly? They could survive and live to fight another day. They rise? Bust out the champagne - we got that upside for free! At $800/oz Mexus is worth very little; at $2-$5000/oz it is a multi billion dollar venture.

Did you have some other points that you wanted to add?

I wanted to just quickly elaborate on something I mentioned before. One of Mexus’ core strengths is that they have achieved remarkable progress without taking on significant debt - this is largely unheard of in the mining industry. Miners are some of the most indebted companies on Earth and often take over a decade and tens to hundreds of millions to develop and then, when they finally start production, they have a noose around their necks. Mexus has done it all in a few years with no real debt to speak of. Mexus is also owned and funded by shareholders, not by banks or vulture financiers, which is highly unusual.

This tightly knit shareholder group means that the float is controlled by smart money and any buying or selling pressure will have exaggerated moves on the stock price. I feel these shareholders are also likely to hold the majority of their stock because they appreciate and understand the company’s potential and are convinced by the evidence there is enough gold to get started and lots more to be discovered in the local proximity.

Among these shareholders are successful junior speculators like Don Phillips and myself, along with several others. As far as I know Don is probably at the top of this sector, he doesn’t pick many stocks but the ones he does tends to be enormously successful. From GORO, US Gold, Goldspring, Mexus etc… he is usually in early and becomes one of the largest shareholders well before the potential becomes apparent to a casual observer. His endorsement and large position is another reason to consider looking closely at the company. This industry is full of pitfalls and it is difficult to survive and that is why listening to those who have navigated it successfully before on multiple occasions (in public) is a strategy that has merit. Mexus holders are on average, far more experienced and informed than is typical for a junior. There is a reason the company is mostly owned by private holders and not the cartels who tend to have their fingers in most precious metals ventures. I encourage listeners to do some research and see if they can get a little glimpse of what current Mexus shareholders seem to see.

Statistically, picking losers in this sector is very easy, most of the stocks are terrible and it can be done with a simple dart board. Repeatedly picking the top 0.1-2-5% is, however, MUCH more difficult and requires more than a dart board and luck. So the simple question to observers would be: why are there so many top ranked junior speculators in Mexus, especially if it has some obvious deficiencies? What attracted them and why did they stay and increase their holdings over time, even during moments of absolutely abysmal sentiment? There is obviously something worth investigating going on here.

To be fair let’s briefly talk about the other side. What are some of the things you don’t like about the company or see as potential risk factors?

The main risk for a junior like Mexus at this stage is dilution. Every delay and mistake will increase the share count and lowers the overall profit potential for holders. Mexus at 200 million shares is an easy $1/share eventually but that same market cap on 600 million shares is only .33 cents a share, a billion is 20 cents. Once they achieve profitability this risk factor is less important but everything seems to take longer than expected in this industry.

Mexus, like many startups with limited management and money, is not the best at communication or promoting themselves. Their website is ...not impressive and there are frequent paperwork delays. Any company at this stage would probably have a lot of warts and frankly Mexus is a lot less “warty” than I would expect for a company that is in Mexus’ position.

There is also all the countless, normal mining risks: government, geological, gold price, weather etc in addition to the extra risk of not having a fully compliant resource report and the deposit drilled to Swiss cheese before turning a spade. I don’t believe that they need to do so for initial production, nor do I believe such an expensive report would guarantee success, but these things should be considered.

Mexus’ unconventional approach to modern mining will save them a lot of time, money, and dilution - and this goes directly to the bottom line if the project is successful. I have very little doubt they will be.

Any final words?

2016 was an exciting and turbulent year for Mexus. Things were grim early on in the year after their former partner left but they have since rejuvenated themselves, formed a new JV and completed nearly all pre-production activities in a remarkably short time. Gold dore should begin to appear in March or April and I think the numbers will be pretty good by the time summer rolls around. What happens when a company that has spent money for years finally makes that turn around and starts making money hand over fist? I believe the stock will rise to the occasion.

Mexus has already exceeded most of the commonly referenced famous junior mining boom examples for the 70s gold bull including Wharf Resources and Lion Mines.

[• Lion Mines – 1975 price: $0.07 / 1980 price: $3.80 i.e. an increase of 5,327%
• Bankeno - 1975 price: $1.25 / 1980 price: $4.30 i.e. an increase of 243%
• Wharf Resources - 1975 price: $.40 / 1980 price: $5.60 i.e. an increase of 1,290%
• Steep Rock - 1975 price: $.93 / 1980 price: $4.40 i.e. an increase of 372%
• Mineral Resources - 1975 price: $.60 / 1980 price: $4.15 i.e. an increase of 590%
• Azure Resources - 1975 price: $.05 / 1980 price: $1.09 i.e. an increase of 2,079%

•Mexus Gold US early 2016 price: $0.0015/.0019 late 2016 price 23.5 cents, 15,566%/12268%]

I have often heard these names touted and Mexus is light-years ahead and they haven’t even started the 2nd, most profitable, leg of their development life-cycle with the excitement of gold bars and profit. We are just getting warmed up! When gold begins to be poured with regularity and they get Felix up and running, I have a feeling Mexus will join the ranks of the legendary party anecdote and generate a lot of discussion in the industry just as Gold Resources did before it. I think that should Mexus produce a fraction of what I expect then those percentages may very well place Mexus in the mining hall of fame if it isn’t there already.

To conclude, I believe Mexus is one of the highest potential junior miners ever and that its simple, high grade, near surface material can be mined at a substantial profit. These profits will support a higher stock price and allow Mexus to expand, pay dividends, and begin more conventional exploration programs to prove out the huge volume of minerals its shareholders believe are waiting just beneath the surface.

Thank you for listening! And thanks for the interview, Omer.

You’re welcome.

Take care!