In-Depth with Rockhaven Resources and MJG Capital

Trevor [00:00:06] Everybody welcome to Mining Stock Daily. It is Friday August 2nd. Thank you for tuning in. We've got another in-depth interview and actually this is going to be two interviews. My last round of interviews from round of content produced out of the Yukon Mining Alliance trip just two weeks ago. We got great discussions with Matt Turner from Rockhaven and a young fund manager by the name Matt Geiger. You may recognize. So that's just coming up here and moments. We would like to show our appreciation and give our thanks to the show's sponsors. That's Brixton Metals, Pacific Empire Minerals and Integra Resources and Western Copper and Gold. Thank you so much for your support of the podcast. So I went over these next two interviews hopefully next week we're gonna get back on a regular schedule with the news Monday through Thursday and then the interviews again on Friday. So stay tuned for that. My discussion with Matt. He chats a lot about being the CEO of a small exploration play in the Yukon and how you manage that during such a bear market. We just got through and Matt gives us a little bit of insight into how he evaluates stocks and where he's been placed and some of his money. That's all to come here the next so about 15 18 minutes so I'll see you on the flip side. Thanks for listening. I can't I can't thank you enough for tuning in each and every day. We'll talk to you again next Monday. Enjoy your weekend. Take care.

Trevor [00:01:46] Welcome to Morning stock daily. This is Trevor Hall your host for today in sitting with me now is Rockhaven Resources CEO Matt Turner. Rockhaven resources trades on the TSX Venture with the symbol RK. Matt good to have you for some on the show. We had a nice little property tour. With your stuff on today and it was kind of fun. We've got a hike around the bush a little bit on top of a mountain.

Matt Turner [00:02:12] Probably a unique tour for most you guys to actually go out and almost get sent prospecting.

Trevor [00:02:18] Yeah it's fun. You know you should give us a sack or something to start pulling rock stuff.

Matt Turner [00:02:22] Yeah let's. That's one of the neat things with classes though is that there's so much to see within kind of the general area of camp and you can literally visit the the tops of the resources and and get a sense of the mineralization and the continuity and all that. Just on within. What it take us about a 45 minute hike around. Yeah yeah yeah. You got to do that.

Trevor [00:02:46] So I think one of my biggest takeaways is we you know you really took us on a tour of the mineralization the veins that are coming up from coming up on the surface so you can kind of see the structure and how it moves down the hill. And so from that you can almost feel like you can envision what a mine plan would look like. It's literally step by step moving down. So that was really nice. You know kind of for those of us for those people listening who weren't there. Give us a kind of rundown of that structure and the poor free mineralization that is below that.

Matt Turner [00:03:25] Yeah. So the. The the minerals is the minerals and system systematic Klaza is is almost textbook. When you're when you're looking up porphyry epithermal transition model or so on the property itself we see the porphyry and we can follow the structures that basically radiate off that porphyry center that which is essentially the heat source and and partially in the metal source for mineralization. We can follow the structures up the hill. And and along strike to where they really start producing the the accuracy of the ounces that we see and the high grade ounces that that that the resource host. But it's one of those really amazing deposits where you can literally walk. You know basically a textbook example of a porphyry to epithermal model and. And you can get kind of out into the distal part of the Epithermal system where you really get the nice high grades with the high grade gold but with the high grade silver lead and zinc.

Trevor [00:04:39] So most of the high grade gold stuff came from drilling last year right.

Matt Turner [00:04:45] Actually the when we first really identified the high grade gold portion of the of the system was back in 2013 and that was through those trenches that we would've visited. So that was the really neat thing was when we did those closely spaced trenches we were really able to prove what was potentially there right at least on surface and then we were able to raise money off those trench results and that was a really tough market to 2014. It was it was a rough one and we were able to raise a couple million bucks we went out there and hit on essentially every hole and hit a really nice high grade mineralization. And then from that we were able to raise probably another five million or so and that led us into that was a 20000 meter drill program back in 2015.

Trevor [00:05:36] So I do want to ask you about managing a company like this through bad markets and so that's really important to bring up. But I do want to ask you about the resource estimate that you put out last year that had a 1.62 million ounces of gold equivalent of about 6 grams per ton. Very good. Hi great numbers. You know I think the market wants to see 2 million ounces and there's really good potential with what I saw that there is 2 million ounces. But I was wondering are you were you too conservative with that estimate?

Matt Turner [00:06:09] Well it's an estimate on what we know right now. And we've got we made new discoveries adjacent to the resources. But we haven't truly quantified those yet through through further drilling so that's going to be the next step is to see what those new discoveries hold right as we as we as we follow them along strike and at depth and and Yeah. You never know what you know what they'll be able to potentially add to the resource but I think I think the resource as that we have right now from what we know it's. It it makes sense and it'll be. And I think it's something that you know we can add on and especially you know when you start looking at you know the 2 million and equivalents kind of hopefully on the horizon soon. And you know who knows what else after that. Right. So.

Matt Turner [00:07:03] Real quick about the company structure what's kind of amazing is that there's no big third party involvement in it. So there's no stream or royalty agreement on it. And with a lot of projects you don't you don't see that anymore. It seems like somebody has got their hand in the royalty of someone. So how did you have. How have you managed to do that over the years?

Matt Turner [00:07:20] Well the project or the claims that we picked up we've actually paid a premium and added premium to extinguish any royalty on some of the claims. Other claims we've actually just staked ourselves. So they've just come right into our portfolio. There's other claims that have. About 10 percent or so of the claims have they they would have had a third party royalty on them that we would have had to negotiated with. With that third party. But the biggest thing right now is the claims that cover the resources and the bulk of the other claims on the project are totally unencumbered. Which is huge. Yeah like you say that's rare to find in this day and age.

Matt Turner [00:08:06] The other thing that's hard to find is knowing that you have a resource estimate but you don't have a whole lot of cash. You know you're in a really tough market which we've been in and definitely the last year year and a half kind. Of signs that we're coming out of that. It almost seems you just kind of put things on hold and that's a hard thing to swallow. I understand shareholders are upset because there's a lot of activity there's lack of news but that's something that. You just decided needs to be done. How hard of a decision was it to just say we're basically going to. Not do much and while our partners get through this?

Matt Turner [00:08:48] Extremely hard decision especially the geologists inside me of the exploration geologist where you have all these great targets to keep adding more to that to the project. But when you when you look at our share structure. Between insiders, strategic metals, Tocqueville Asset Management. Who are mining friends and family you know that that if you total all those up here you're getting close to 80 percent of the shares outstanding. And so those guys are coming into to me and saying Be patient Matt. Wait for the market to come back and then hit a hard sell.

Trevor [00:09:31] So it wasn't it wasn't just your decision. You had to back it.

Matt Turner [00:09:34] Listening to shareholders that said you know we're still getting in front of some some some key groups and if a million or two million bucks comes up and it's again with the right group then we'd probably take that. And for the other great thing about Klaza that the exploration costs are so low there there's the lowest in northern Canada. We're looking at about two hundred dollars all in a meter. So you know for every million bucks you get 5000 meters of drilling. And right now our current plan is it's a pretty extensive drill program for again the next time we get out. Whether that's sometime this year or next year but that's that's only two million bucks to give us 10000 meters and again that should answer a lot of questions for us.

Trevor [00:10:22] We've got about a minute left. So I just want to ask you quickly you definitely going to have to finance you've got to raise some money. What's the biggest number you'd be looking at. Would it be that 1 to 2 million would you go higher?

Matt Turner [00:10:32] Yeah I think I think that would probably make the most sense 1 to 2 million right now. The the market cap of the company is about $17 16 17 million Canadian. So you know when you equate that back to the one point six million ounces that gives you about eight bucks and an ounce U.S. in the ground. So for a four for a five gram one point six million ounce deposit that's you know our our peers are trading in typically north of 25 bucks an ounce on the ground. So we don't want to do too much dilution down here is basically what I'm getting at. But again it's you know what we do do it's it's it's going to be with the right people.

Trevor [00:11:16] Well Matt. Best of luck to you. Thanks for welcoming us to the property and having us walk around a little bit. It was really fun. So I appreciate that. That's Matt Turner is the CEO of Rockhaven resources which is traded on the TSX Venture Exchange with the symbol RK.

Trevor [00:11:42] Once again reporting from the Yukon Mining investment conference in Dawson City Yukon with me I have a new guest to the show. That's Matt Geiger from M.J. G capital based in San Francisco. Matt welcome to the show.

Matt Geiger [00:11:56] Great to be here Trevor. Thanks for having me.

Trevor [00:11:57] So people I mean I honestly can't see you but they may recognize the voice. You were you had a nice video presentation from a investment conference about a month or two ago it made some made some traction and so it's nice to actually meet you in person. I did watch that when it first came out. I wanted to ask you. The thing that's that sticks out about you is that you are you're young what 27 years old?

Matt Geiger [00:12:22] That is right.

Trevor [00:12:23] Like the youngest fund manager in the resource market that we know of.

Matt Geiger [00:12:26] Especially for an industry that is this old I would say it it's I feel like there's few and far of us at this age and you know we can relate. In my mind anybody under 50 years old is a spring chicken in this industry. Yeah.

Trevor [00:12:38] Well we've talked about that numerous times is I actually at this conference there's a lot of younger people. Yes. Let's get to it. It is really good to see it's a younger conversation. I think there's some new ideas especially on the approach to investing and just speaking of that topic. We you and I were chatting a little bit on our approach and why we put money into certain stocks and you are definitely valuation driven. So give us a little quick rundown I know you have a lot of due diligence but kind of give us a rundown of things on the valuation side that you really look at when it comes to considering putting money into a resource a junior resource company.

Matt Geiger [00:13:17] Absolutely. Well some quick background on the fund here. It's a full resource focus. We keep a very concentrated portfolio of roughly 20 names at any given time. It depends on the market conditions recently we've been initiating most of our positions through private placements. I think due to the weakness we've seen really since the beginning of 2018 up until just a couple of months ago looks like things may have started picking up in May but it's been a good opportunity to be able to finance companies with pretty attractive terms and get some added upside through their warrants. I think it's a longer discussion in terms of the valuation piece. I really look through different lenses depending on the stage of the company. So in terms of the prospect generators space kind of starting at the earliest stage of the of the industry that's one of my favorite business models mainly because it minimizes dilution which I think is the number one enemy of junior resource investors out there. In terms evaluating prospect generators one pretty easy thing I look at is the companies enterprise value at the moment relative to the amount of money that is going to be put into the ground by larger partners over the course of the next 12 months. And I think if you start comparing prospect generators looking up that ratio you can get a good a good sense for value there. So in the earlier stage of the business that's what I look at. If you're looking up the development names those that have either PEA pre-fees or a feasibility study already announced I'll usually look at the after tax NPV and then discount that based on the stage of the project. Obviously I want to make sure that the assumptions going into the study are realistic. So generally I want to see a discount rate of between 8 to 10 percent used. I really want to see the company using SPOT metal prices. It's a real red flag for me when I see companies in a copper price or a gold price that's 10 to 20 percent above spot. I'm not a big fan of optionality investing and I know there's some investors that have made a lot of money I'm kind of betting on two thousand dollar gold or four dollar copper what have you but for the companies we invest in I want to see the company making money at spot prices. And so again depending on the stage of the company generally for a respectable decent looking economics on at the PEA stage I'll discount the after tax and NPV by whole 90 percent and then look at the companies enterprise value relative to that discounted number. And so for instance if I see a company trading at say 3 or 4 percent of after tax NPV and they're at the PEA stage that to me gets gets gets me excited because I say look that's a decent project should probably be at 10 percent. Again these are very ballpark numbers but if you start seeing extreme disparities that's when you get excited and dig in at the pre-feas level. I generally discount the after tax NPV by 80 percent and then at the feasibility level I'll generally discount the after tax NPV by 70 percent. Again this is very back of the envelope but that's kind of when I first look at a company at this stage in order to determine whether it's something they get excited about. That's what I'll look at if it looks interesting and it looks like there's a big gap between where it should be trading and where it's currently valued at. Then I'll dig deeper see if there's a reason for that and if it is not maybe that's an opportunity. Really quickly I'll I'll touch on the royalty names. We don't have all too many actual producers in the portfolio. So I guess the royalty names are the closest things we have to production and I'll usually just look at a simple price the cash flow multiple. I am a. I am a sucker for the junior royalty names at least the better managed ones. I like the opportunity that surrounds a production growth and the chance of the company increasing their cash flow. Also multiple expansion which will often see because the junior royalty names are generally traded at a price the cash flow multiples that are below 10 whereas if you look at the big boys. I think Franco I haven't checked their price recently but they're probably a 25 x ratio. So if things go right you can have a company that's both growing their cash flow and then also seeing multiple expansion and that's when you can see pretty big gains with the royalty companies. So you know there's there are some other business models I have other valuation techniques but that's kind of you know again I take a different. It depends on the type of company it depends on the business model. And then I kind of have my my approach to evaluate them.

Trevor [00:17:33] So before you had mentioned something about dilution you and I actually had I think two conversations about dilution earlier on on the bus and you know I'm kind of of that mindset where it's it's a hard swallow for me to invest or even keep money into a company that has more than 300 or 400 million shares and you came on really seem to like it. That doesn't mean much difference as long as I know that they're undervalued. And so you know I guess you know we're of two different little mindsets. But I was also coming after off of the week where one company that I had already swallowed deluded even more. And I was out.

Matt Geiger [00:18:13] So I think we're largely on the same page here. I think we're just looking at it from different angles. For me what's more important is the company's valuation because I know you can play with share accounts pretty easily by doing reverse splits. So to me seeing a blown out share structure on its own right isn't a deal breaker. However I think the reason we are on the same page here is I like type shares I like I like companies that have high insider ownership and you know companies where ownership is concentrated amongst a few parties right. Usually when we get involved there's not a big retail presence in the names. And so I think kind of where we are on the same page here is if you look at the companies with lower share accounts generally that is a sign of a tight share structure and a company that's closely held companies that have 400 500 million shares out. Generally not always but generally that is a sign of low management ownership that is a sign of you know shares distributed amongst many hands. And I think that's that's kind of what I what I worry about so I look less up the actual share count and more at how tightly it's held. And again generally the companies with blown out share structures are not tightly held but if I do see a company with four five hundred shares out or for four or five hundred million shares out. But you know management owns double digits and there's a few institutions that own you know substantial chunks as well then that that doesn't bother me at all.

Trevor [00:19:35] So we only have about a minute and a half left. So I want to ask you real quick since we are here in the Yukon and the sun's finally shining after a long day of smoke haze and even rain. What's one thing that's really surprised you most about this trip?

Matt Geiger [00:19:49] Well I'm going to say two okay. The first is the quality of management here and kind of the cohesion at least the group that we're here. They're very supportive kind of across the board. You don't have management teams here slagging each other's projects. I think that they want to see the Yukon succeed as a whole and they and they believe that if if one project succeeds like Vittoria gold or Lux CO that it's going to reap benefits for the for the entire region. Then secondly as you mentioned earlier there is a real young crop of people here which is which is really encouraging to see. This is by far the youngest group site visit that I've been on. It's encouraging to meet people like you. And I think there are two or three other 27 year olds on this trip which is pretty shocking again. Usually if I'm on a group visit like this I mean I'm the only person under 40 if not 50 years so it's good to see kind of some youth in the industry. And I think you know I think that's a sign for good things ahead.

Trevor [00:20:42] Probably a different story next week at this Sprott symposium.

Matt Geiger [00:20:47] I think that's fair to say and I will be at the Sprott symposium I hope to see you there as well. How could people how can people get a hold of you. Yeah just go to the website W WW Dot. MJ G capital dot com there's a contact field there reach out and I will get back to you. Happy to answer any questions about the fund or any picks or questions that you have about juniors out there I always love talking shop.

Trevor [00:21:08] Thanks Matt I appreciate it. Have yourself a nice day. Great to have you. Great to be on back trevor. Mining Stock Daily and its affiliates are not responsible for any loss arising from any investment decision in connection with the material presented here in.