In conversation: If opportunity knocks, you're likely at the right 'macro address'

Elemental Royalties (TSX.V:ELE) board member Peter Williams has played a leadership role in helping to build the company’s royalty portfolio. Peter was one of the founding members of Independence Group Ltd., a diversified mining company now valued at more than $5B. Peter has extensive experience in assessing different mineral systems around the world and determining value at greenfields, brownfields and in-mine exploration stages. He also has a proven track of developing new technologies in the exploration and mining industry, and has a very active profile in the ESG space.  He was the Geoscience Technology Manager for WMC Resources.  In a wide-ranging interview, we talked with Peter on the lack of rigor in the junior royalty space, macro addresses and trends.

You held the original royalty for Wahignion, what later became a key foundational asset of Elemental’s portfolio. However, you were fairly new to the royalty realm and discovered early on there was a real lack of technical rigour to project valuations.

Peter: Wahgnion not only provided the opportunity to partner with Elemental but highlighted a real absence of technical and financial expertise in what I’d call the junior royalty space. I was introduced to Elemental by co-founder Richard Evans, who I worked with at WMC, an Australian mining company later bought out by BHP for $7.3B in 2005. Along with (co-founder and CEO) Fred Bell, they wanted to gauge my interest in selling my royalty for the Wahgnion gold project in Burkina Faso. At that time, my private company was the original land holder of the exploration leases and we had introduced early operator Gryphon Minerals into the prospect in 2005 by way of earn-in joint-venture. Of course, the project is now a high-quality producing mine operated by Endeavour Gold. However, Richard and Fred’s pitch wasn’t the first time we had been approached. The offers I previously received for Wahgnion varied so widely I felt compelled to drill down into how people evaluated the project.

The answers I got back were flimsy. Just from the experiential point of view of approaches made to us as a private company, I was surprised how vague many of them were at how they derived value, and mind you some of the offers were well before mining commenced, and it was arguable that the project would develop into a mine. The methodologies of derivation of value and examining the potential of the exploration leases were almost absent, which was of concern. It presented a real opportunity in this market space to create a royalty company founded on technical and financial rigour, with a focus on producing assets with exploration upside. This is what really sets Elemental Royalties apart and is reflected in both our portfolio’s assets and performance.

You have a long track record in identifying and assessing projects across the mining spectrum. How do you approach project evaluation and what do most miss?

Peter: You need to take a holistic view. The key to evaluation is to be able to understand the full gamut of assets within a lease and to realize what the risks are attached to converting these assets into an optimized cash flow.  You need to analyse across the spectrum of exploration, metallurgy, mining, ground water, environmental and social issues, both in a legacy, present and future sense. It’s all integrated and inter-related. It’s a inter-silo operation, and it is amazing how companies still have problems in managing and optimising information between the professional silos in a company.

The growth of Geo-Met is one initiative which builds the bridge between metallurgy and geology.  The industry needs more bridges, and needs bridge builders, to make projects work efficiently and effectively, delivering mine starts up and sustainable production, with no surprises.

If there is one area where most miss in this chain it’s exploration.  Key questions are not addressed, like: Where are the targets? How does one define and refine these targets converting them to drill programs? What are the risks? Do the present owners have a robust exploration team? What is their planned exploration workflow?  How much have they assigned to exploration?  Do they have command or access to the right technologies? These are some of the essential questions. Exploration, or organic growth, is what really underpins the true value, or return, of a royalty.

If future exploration success is a real driver for the return on royalties, what do you consider when evaluating projects?

My viewpoint is derived largely from my time with WMC Resources.  Initially we look at the macro address on the property, at the large scale of hundreds of kilometres. Crustal scale.  Belt scale.  My perspective is belts, or large geological trends. As an example, consider Wahgnion, which sits on a greenstone belt that we knew holds gold. The prospectivity we derived was from the geological, geophysical and geochemical factors which it shares with other significant multi-million-ounce gold ores systems in West Africa. We knew there was a major structure going through that area up to 300 kilometres in extent. We knew there were artisanal workings along large segments of the structure, over distances of 50 kms.  At our area of interest, we knew there was a large bend in the structure, and within the bend there were numerous intrusions (possible heat engines).  In this area there were artisanal workings over hundreds of square kilometres. We saw the right rocks when we were on the ground, and in particular in and around the intrusions. There were more than one dozen drill-ready targets on the regional land package, which had the potential to become resources and are within trucking distance of Wahgnion’s plant. That’s why our royalty is neither time or price capped and covers 1,000 square kilometres. We believe there is sizeable value to be unlocked that Elemental shareholders will benefit from, over at least a decade.

Elemental has reviewed, on some level, hundreds of projects. What if any trends do you see for mining development?

Peter: There will be more of a shift to developing countries. Exploration and mining is getting harder by the year in developed countries, with more red tape, native title contestations, environmental issues, especially around water and with these, delays.  Efficient ground access is an issue now and getting worse. Delays cause a loss to project cash flow and project net present value, with this meaning that financing these projects can become harder and slower to complete. Delays to project start-ups are delays to royalty cash flows.  So, the move to developing countries will continue and with this comes other associated risks. A lot of the low hanging fruit, that is very shallow ore systems, have been found in many, if not in most, places. So, discoveries are likely to get deeper and fewer. Finding buried orebodies, sees a move towards trying to find the larger and lower grade styles of mineralisation.  These get slower to drill out, occur over larger areas, have implications on water usage and environmental impact.  If they are at a depth that requires underground mining, then is greater technical risk underground, as we have seen. 

Environmental, Social and Governance issues will become increasingly important.  I have touched on environmental issues, but social issues can seriously rerail and delay a project.  The social relationships with landowners and local people begin with the exploration team, and often you find the lasting tone is set by the original explorer (which may not be the end miner), and it may not always be a good legacy for a mining company to inherit.  There must be a focus on building sustainably mutually beneficial “life of mine” and “life after mining” relationships with the local communities.  Personally, I have placed a significant emphasis on training local populations.

Governance is now being forced into place by more demanding legislature, that is directed t front line workers, management and directors.  The standards are getting higher through the efforts of Transparency International, and the independent and International Consortium of Investigative Journalists, to name a few vigilant organisations.  It’s getting harder to hide the trail of corruption, and ignorance is not an excuse.

You are a strong advocate of disruptive technologies in exploration and mining. Of note, you were a co-founder of the notable mining intelligence firm Intierra, now under S&P Global Market Intelligence’s umbrella. Does this passion come into play at Elemental?

Peter: I think the basic theme at Elemental is affiliating with high-quality exploration teams and modern mining methods. You can have great exploration prospectivity, but without the technical expertise, and capital backing, you won’t be able to unlock that value. As well, through technology, we may be able to spur more discovery, more efficiently, which opens the door for more success. A good part of my career has been dedicated to continual improvement in exploration technologies. 

Intierra was my first public attempt at trying to harness the then (Jan, 2000 was the kickoff date!) emerging power of the internet.  Simply we wanted to provide a more efficient and effective link between market news, and geo-spatial information, serving the information up in a map and linked  key financials, information package, in real time for the professional investor.

More privately my focus has been to align the exploration technologies and workflow to the exploration target.

At WMC, we introduced full time geophysicists into underground mines to optimize mine exploration performance. We later took an improved version of some of the technology we developed there into Independence Group, which allowed the company to prolong the mine reserve of the Long Victor nickel mine from two years to nearly two decades. This extension of mine life was critical to the development of what is now a $5B-plus company – and would certainly be a nice earner for any company holding a royalty over such an extended life of mine.

In 2009, we decided to introduce 3d hard rock seismic into the mineral industry, building on work done decades before in WMC and in various Universities.  The result was HiSeis, which has now completed value adding 3d seismic surveys around the world, including Kevitsa in Finland, Nevus Corvo in Portugal and Tropicana Gold in Australia.

Recently, I’ve been involved in developing a new field-based gold assaying technology, that allows exploration teams in the field to reduce the time to determine gold values in soil (and drill samples, etc.) sampling from weeks to within 24 hours using a portable XRF, with results being shared with exploration team and managers using satellite-cloud-based technology. This technology will fast-track discovery timelines and save money. Its greatest impact will be in remote locations located far away from laboratories. That’s the type of science-based and entrepreneurial approach that provides a return on investment, and is aligned with the culture we have here at Elemental.