Excelsior Mining Corp (EXMGF)

[Photonics_Guy]

Excelsior: 2018 In Review

Here is a quick overview of Excelsior's accomplishments and disappointments this past year and some musings on what may be in store for 2019 and beyond.

The resource sector had a challenging year, no question about that. Trade sanctions, rising interest rates, competition for investment funds from pot stocks and blockchains have tarnished the attractiveness of mining stocks. All of these factors have contributed to a huge reduction in the stock prices of most every mineral that comes out of the ground. However, these setbacks set in motion undercurrents that create opportunities for those who are patient. To quote Warren Buffet, “The stock market is a device for transferring money from the impatient to the patient.” We will prevail if we adopt his philosophy to stay the course and not get too rattled by the latest stock quotes.

The Accomplishments

Permitting

Excelsior received full, uncontested permits for mining the Gunnison Copper Project in southeastern Arizona.
• State ADEQ APP (Aquifer Protection Permit) – Sept 11, 2017
• Federal EPA UIC (Class III Underground Injection & Control Permit) – Oct 16, 2018

Financing

Excelsior received full financing to initiate and complete Phase I (25M lb/yr capacity) construction and production capability. The financing received is more than sufficient to ensure the wellfield is producing copper to validate the recovery numbers in the Feasibility Study (FS). The financing was secured during a time when resource stocks are depressed on very attractive terms that result in minimal dilution to shareholders.

Construction Start

• Construction of the wellfield started in December 2018
• 5 drill rigs on site (three now and two more in January)
• The wellfield will total 63 wells (41 production wells and 22 compliance wells)

The Disappointments

Trade Tariffs

Earlier this year, President Trump initiated trade sanctions against various trading partners. Whether you agree with the sanctions or not, they had a profound impact on commodities in general, and – in particular – copper. Many of the sanctions have been resolved in revised trade agreements between the US and Mexico, Europe, and Canada. However, the dispute is still ongoing with the elephant in the room…China. As you can see from the chart below, Asia, specifically China, is the world’s largest consumer of copper. China leads the world in manufacturing almost everything. And many, many products require copper.



Recently, there is reason to be optimistic about an eventual resolution to the trade dispute between US and China. Here is a quote from a recent article dated 12/20/2018,

“China and the United States will hold fresh trade negotiations in January, with both parties having already exchanged points of view, officials said on Thursday.
The two superpowers have been involved in a trade war in recent months, although both sides agreed to a 90-day truce to seek to a resolution to the dispute.
Addressing a press conference in Beijing on Thursday, Chinese Foreign Ministry spokesperson Gao Feng said the two countries would organize consultations and meetings to promote the implementation of the consensus reached between Chinese President Xi Jinping and his US counterpart, Donald Trump.
The spokesperson did not provide details about who would take part in the talks or where they would be held.
"The potential for trade cooperation between the two countries was huge and the nature of win-win cooperation would not change," Gao said, according to state-owned newspaper the China Daily.
Xi and Trump agreed on the 90-day suspension of the trade dispute on Dec. 1 during a working dinner held on the sidelines of the G20 summit in Buenos Aires, Argentina.
Since then, China has adopted several goodwill measures such as lowering tariffs on vehicles imported from the US, and the resumption of purchase of soya from the country.
Trump, meanwhile, suspended the tariff hike - from 10 percent to 25 percent - on Chinese goods worth $200 billion.”

Mining Sector Weakness

The slowdown in China, rising interest rates, a stronger dollar and other economic factors have deflated the resource sector. A recent article from Bloomberg dated 12/21/2018, discusses the Bank of Montreal (BMO) and their strategy to work through the industrial metals downturn:

“An economic slowdown in China, the world’s biggest commodity consumer, along with trade tensions and a strong U.S. dollar drove down prices of industrial metals this year, while gold also was hurt by the dollar’s gain. Still, prospects are strong for most metals as supplies shrink and mining investments stagnate. Deals are still getting done, allowing investment banks to collect fees for advising on takeovers and arranging financing… It has been our objective over the last little while to expand our efforts in this business, to grow it and be as relevant to us as the investment-banking side,” said Paul Rosica, BMO’s head of corporate sales and structuring. “This presented itself as an opportunity for us to really accelerate our growth plans.”

BMO advised Excelsior during the recent US$75M streaming agreement we inked with Triple Flag. BMO is a dominant force in mining investment. They would not be doubling down on their resource stock focus if they were not convinced that the weakness in this sector is temporary in nature.

Looking Forward

Excelsior in Production in 2019

• Wellfield completion scheduled for Q2 2019
• First production scheduled for Q4 2019. Excelsior is working aggressively to a July 2019 production start.
• Company management is highly incentivized and motivated to meet this milestone.

The Case for Copper



Historically, if the large mining firms see a protracted weakness in their products in the years to come, they hold off on making major investments in discovery, infrastructure improvements and acquisitions. This time around, that is simply not the case. The major miners are accelerating their investments as discussed in this Bloomberg article dated 12/20/2018:

“Don’t listen to what miners say. Look at what they do.
That’s good advice for working out the long-term direction of commodities prices. Ask mining companies which of their mineral assets will see good long-term demand and they’ll naturally answer, “All of them.” But a look at spending can give the lie to that rosy outlook — and highlight the times when they’re putting their money where their bullish mouths are.
Right now, that suggests that the recent gloomy outlook for copper may not last. More than a third of capital spending by big diversified miners is being dedicated to the metal at the moment, up from levels of 20 percent or less earlier in the decade. That represents a substantial bet that forecast deficits for copper over the next decade will indeed materialize. Aluminum, zinc, and platinum-group metals are currently running red-hot, too — but iron ore, petroleum and fertilizers seem to be fatally out of fashion.”

Prognistications Beyond 2019

We have reason to be optimistic and encouraged for Excelsior’s future.

• Excelsior is one of the lowest capital intensity mines not just in North America, but the entire world. The ISL method used by Excelsior on the Gunnison property allows for extraordinarily low cost of production ('All-In Costs' US$1.23/lb per the FS). Even at current copper prices, that yields approx US$1.50 profit per pound of copper produced when they get to 125M lb/yr production levels.

• Copper inventories are at greater than five year lows. That makes copper particularly sensitive to supply disruptions or demand spikes.



• As a result of Excelsior’s extraordinarily low production costs, the company will be extremely profitable and very resilient to dips in the price of copper.