The Ins and Outs of PEAs (Guest Luke Alexander, Newcore Gold)

Karl Woll: 00:00:00

Hello, and welcome to Rock Talk, where we explore the world of mining through casual conversations with industry experts. I'm Karl Woll, Senior Account Executive at VRIFY Technology, and in this episode, I'm joined by Luke Alexander CEO and President of Newcore Gold. This conversation was originally recorded as a video interview on April 26th, published on YouTube. As are some visuals that were shared on screen during the interview, I do recommend you watch over on our YouTube channel, if you can. And I'll put a link to that in our show notes. That said, if you're listening on audio only, you'll still be able to follow along just fine. In this interview, Luke talks about his career path from investment banking into the mining sector. What excites them about working in mining and some of the challenges involved in working in the industry. We then dig into the importance of Preliminary Economic Assessments. And the key differences in Newcore's recently released 2024 PEA, versus their 2021 PEA. As this is a new podcast, I would love any feedback you might have. If you have any suggestions for improvements to the show, or guests that would be great to have on, I will link to a feedback form in the show notes, or you can go to rocktalkpod.com. And there is a form on the website. And with that, let's jump into this week's conversation with Luke Alexander.

Karl Woll: 00:01:22

Luke, thanks for joining today.

Luke Alexander: 00:01:23

Yeah, thanks a lot for having me, Karl.

Karl Woll: 00:01:25

Yeah, of course. And I guess congratulations are in order. You released the updated PEA just yesterday. Was very well received by the market based on the price movement in your stock and had some really robust economics. So congratulations on that. And will love to dig into the PEA itself a little bit shortly here, but before we jump into the and what changed from the original PEA you put out in 2021, just wanted to start by learning a little bit about you, Luke.

So do you mind giving us your background, how you got into mining and sort of starting early in your career up until this point with Newcore Gold.

Luke Alexander: 00:01:59

Yeah, so I guess my background is I started my career in the investment banking side of the business, did a business degree at university, lived in Toronto for a couple of years, and then got transferred to London to help start up TD's equity trading desk over there, and was in London for about 12 years, moved from TD to National Bank, and then was a senior partner at GMP Securities Europe for a number of years.

And, you know, through my time in London was primarily working with a lot of TSX, ASX, and London listed companies, and the bulk of those companies were coming to London to raise capital to either build, explore, ultimately advance their projects. Through that, I got to learn a lot about the mining sector. Was advising different ASX, TSX, London listed mining companies with projects around the world and a number of those projects were in, in Africa, which is where our Newcore project is, which we'll talk about, I'm sure in a bit more detail and then about four years ago, I moved, moved to Vancouver about six years ago, about four years ago. Got approached to become CEO of of Newcore Gold. So that was when I really moved from the investment banking side of the business more to the well to the corporate side of the business as CEO of of Newcore Gold. So at a high level, that's that's my my background and how I got very entrenched into the mining sector.

Karl Woll: 00:03:26

What are some of the things you like about being on the sort of advancing a project from, from within, like, what are some of the key things that you enjoy or have found maybe surprising over the last sort of six years in that transition.

Luke Alexander: 00:03:38

Yeah, so I think, you know, the mining sector as a whole it's an extremely interesting and exciting sector. I mean, it takes you to all sorts of different parts of the world. And you know, through that I've traveled throughout South America, throughout Africa throughout Canada, throughout Australia.

So, I mean, you get to see a lot of different parts of the world, which is really exciting. And I think ultimately, you know, through the process of taking a project from exploration to construction to production is, you know, a really exciting period, and there's a real reward at the end of at the end of that whole process, whether it's producing a bar of gold or copper dore you know, whatever that end product is, and being there throughout that whole cycle, I think is something that's very, very exciting as well.

Karl Woll: 00:04:28

Yeah. And I guess it requires a bit of patience because it's certainly not an industry where there's a overnight the, the rewards come overnight and I'm sure there's a you know, a lot of hurdles and setbacks and good days and bad days along the ways because it takes in some cases decades, right?

Luke Alexander: 00:04:43

Yeah, if you look at, some of the stats out there 15 to 20 years or 20 plus years from ultimately discovery to production. And, you know, at the end of the day, the mining sector is, is a cyclical business. So it's a very volatile business that, goes through peaks and troughs. So obviously when you've got commodity prices hitting all time highs, it's easy to raise money.

Then you can use that money to explore, develop, and, put projects into production. But, when you see those highs, you also see lows. And when all of a sudden commodity prices crash, then it becomes a very challenging time to ultimately move projects forward. So, you know, the recognition that it is a very cyclical business is something that's obviously important as well.

And depending where you are in that cycle with your project. the timeline to take it into production or to ultimately explore on that project can get stretched out. So that's where you see, those, those discovery to, to production can be, can be really stretched out in a number of cases as well as, permitting and what jurisdiction you're operating in.

That can be something that's real, a real challenge as well. I mean, one of the fortunate things were. that we've got in Ghana is, you know, the permitting timelines are much shorter than what you see in other parts of the world. We've got a very supportive government and country who wants to see projects built because it's hugely beneficial to the economy.

It's good for taxes. It's good for jobs. So all of those things, have them very motivated. Other parts of the world. You know, mining has become a real kind of dirty word and people don't want to be involved in it at all. So that's another big element to it is, you know, where is your project?

Because you can't move your project, you know, what you look at the big tech companies and depending what jurisdiction they like that month or who's going to give them the best tax break. They'll just move their plants, but mining, you basically have to be where the deposits are.

Karl Woll: 00:06:46

Yeah. And then thinking about that 15, 20 year journey and sort of like the rewards that come out of that, I think some of the key rewards are these technical reports are major milestones. And so bringing us to the Preliminary Economic Assessment that you put out this week. Could you give us a quick update on, maybe some of the high level differences between the 2021 PEA, which was released to, to today.

And, and what was the key differences. And again, just for we're early in this Rock Talk series, so for anyone who's hasn't tuned in before, the idea of these chats are, they're meant to be casual, very high level. They conversations without too much jargon or technical speak. So approaching mining from a, a more a broad sort of background.

Luke Alexander: 00:07:30

Yeah. So, so Karl with all that in mind, I'll, do my best to kind of break it down and kind of. Depict things in as simple a way as possible. So, looking at the presentation, I mean, first thing is a publicly listed company. I want to make sure we're highlighting that I will be making some forward looking statements, so encourage everyone to go and read through all of that.

So Newcore Gold, we're listed on the TSX as well as we trade on the OTCQX, so we're a publicly listed company. You know, the management team and the board we're very well aligned with shareholders. We own 22% of the business and we operate in a tier one jurisdiction, and the company's fundamentally underpinned by a PEA.

So, we'll, we'll get into the PEA in a little bit of in a little bit of detail. So PEA. Preliminary economic assessment. So, you know, once we've completed our PEA. And what we do is we ultimately work with independent consultants and the regulators in Canada and the regulators around the world.

Have a framework for how you need to basically present the data and what work needs to be done to be able to have it qualify as a uh, PEA. So in Canada, you've got a 43 101, which is a list of rules and requirements. And so we work with and have been working over the last number of months with independent engineering firms and consultants.

To basically put this PEA together and ultimately within 45 days of us putting out the numbers that we put out on April 25th, we'll have a full 250 to 350 page report that goes into all the different sections that are required within a 43 101. And a lot of detail so that anyone in the public market can go in, can read that technical report in detail, so on and so forth.

And then from a comparison perspective, if everyone adheres to those same standards, then you've got, similar products and you can compare the different projects. So. Again, with the education piece in mind here, I thought, it'd be worth just kind of highlighting some of that.

put out yesterday, we used an: 1850

So, when you input that: 1850

Typically, the way a project is valued is looking at the net present value of that project. So you take all of the cash flow that will be generated for that project over the life of the mine, you discount it back to what the value today is if you look at all of that cash flow that will be generated as well as taking into account how much it costs to build the mine.

million, US at an: 1850

We then also look at, okay, well, you know, what is the internal rate of return for the project? And for our project, we've got a 58% after tax internal rate of return. And, you know, those are both very attractive metrics. And part of the reason we've seen such strong support in the market and the stock has moved up on big volume the last couple of days is because shareholders have looked at this and investors have looked at this and go, wow, you're only trading at 30 million US relative to a project that has an after tax NPV of 371 million. And there's a lot of value in there. So that's part of the reason just in terms of Karl's comment about, you know, strength in the in the market.

I then talked about initial capital, so 106 million dollars of initial CapEx. So again, that's how much it costs for us to build this project, which obviously goes into our financial model. Another key metric that people like to look at is the payback period. So how long will it take to pay back that $106,000,000 dollars of initial capital based on the free cash flow of the project.

So, in our case. Again, at $1,850 gold price, it'll take roughly 1.6 years. So that's a very good payback period. Life of mine production. So our mine in this PEA will produce for roughly nine years and it will produce roughly 120,000 ounces per year over that mine life. And then obviously another key input is how much does it cost you to produce an ounce of gold, like any you know, sector, how much does it cost you to produce a widget? So in our case in our industry, one of the key things that people look at is, what is your all in sustaining cost to produce an ounce of gold? So in our case once we take all of the operating costs into account, so how much does it cost for the different inputs?

we you know, we come up with: 1000

Karl Woll: 00:13:59

So that $1,000 per ounce number that that's the level at which you would be mining unprofitably. Is that a way to summarize it?

Luke Alexander: 00:14:07

No so that, that's what it costs us to produce an ounce of gold, and then you have taxes on top of that. So basically, you know, so your margin ends up being the difference between in this model 1850 and you've got to add taxes to the to the all in sustaining cost. So it's basically the difference between those two as well as taxes added on top of that.

So it's your margin.

Karl Woll: 00:14:36

Okay.

Luke Alexander: 00:14:37

But what it's the amount of cost you to produce a widget.

Karl Woll: 00:14:41

Gotcha. And then looking at that NPV that 371 million in this current Preliminary economic Assessment. Obviously, this reports sort of a snapshot in time. And I imagine there's, there's like potential to keep drilling and expanding your known resources. The idea that that number keeps growing and sort of how does that sort of look for Newcore?

Luke Alexander: 00:15:05

Yeah, so, so for us specifically, I mean, what we've outlined in this economic study is, is an extremely robust project that justifies going to a PFS, which is another study and then an FS, a full feasibility study and the different studies, there's increasing amounts of work and confidence within those different projects in terms of engineering work, exploration work, all those things.

So for us, you know, we're at a stage. We're taking it to a PFS makes a lot of makes a lot of sense. In terms of your question about exploration, maybe, 1 of the best ways I can kind of, illustrate that is going into going into our project. So what we're looking at here, is our overall project.

So what we've got outlined here in yellow is the borders of our project. Then within our project, we've got a number of a number of deposits. So these are the various pits that currently constrain our resource today. And, what we've got is the ability to continue to, explore a long strike at a number of these different deposits. So that's one area of growth beyond what we've outlined today. Another area of growth is the opportunity at depth. So, maybe the way I'll illustrate that is what we're looking at here is a long section. So we're looking at our project and looking at the deposits from the side view.

And we're then comparing it to. To the Turano mine, which sits 40 kilometers to the north of us. And so very similar in terms of geology, but it's a much more mature mine so Turano today has a historical endowment of over 5 million ounces. They're currently mining at roughly 800 metres below surface.

So we've really just scratched the surface. The average vertical depth of the pits on our project is only down to 80 metres. So lots of opportunity for us to start drilling deeper, and we have started to do a little bit of that drilling. We put out a underground resource as part of our update last year, and I think a great way to, illustrate that is going into the 3D model.

So again, what we're looking at is we're looking at this Nyam deposit on our project from a long view perspective. What you can see here, here are the open pits that ultimately feed the PEA that we just put out. When we then kind of take off some of the lower grade material and now start to focus in on some of the higher grade material that sits below the pits that I just outlined here, you can start to see, you know, 5. 6 grams over 8 metres. 5.8 grams over 7 meters, 1.7 grams over 20 meters. So these are higher grade results that we would look to ultimately put into production using an underground or with an underground mine. So underground mining is more expensive, so you need to have higher grades. So you can start to see that we think we've identified one of these high grade chutes that ultimately will plunge at depth.

Karl Woll: 00:18:41

And what would the economics of that underground mining, would that be encapsulated in the PEA or is that like a future scenario?

Luke Alexander: 00:18:48

Yeah, that's all, that's all way out in the future. So all the stuff that's encapsulated in the PEA is all the kind of near surface you know, material. But for us, you know, if you look at the size of our our project, you know, we've identified a lot of targets across the overall project to go after, as well as, as I was showing you at the start there, you know, there's lots of opportunity for us to continue to chase these existing deposits.

By just stepping out a long strike to the north and to the south.

Karl Woll: 00:19:23

And then as far as the sort of other changes to the, the PEA, the site mine site layout or anything change in perspective of uh, the layout itself?

Luke Alexander: 00:19:32

Yeah, so we've got two predominant deposits on our project, and maybe I can just walk you through that. So what we're looking at here is, you Enchi Project. One of the things we really benefit from at Enchi is we've got good infrastructure, so we've got a paved road and power line that goes right through our project to the town of Enchi.

Enchi's got about 15,000 people. So it's got all the support services we could want. It's got a, you know, high schools, it's got a university campus, it's got hospital. You know, all of our employees can live here in the town of Enchi. So, you know, reason that's important is we're not having to build camps in the middle of nowhere that costs us 50 or a hundred million dollars.

Everyone can live a very comfortable life here in the town of Enchi. But it also, importantly, sits about 15 kilometres away from where the mine will ultimately sit. So, no issues in terms of, disturbance for the local um, community. Sitting about five kilometers outside of town. I think this is a good example of the infrastructure.

So, you know, we've recently doubled the size of the core shack and core shack is where all of the drill holes that we have, we keep all of that material sitting here at the core shack and I can actually take you in. And so again, back to having my education hat on. So each of these little trays that you can see here, you know that every single time we drill a hole, we will take sections.

Every section that hole will then put them in the in these core trays so that our geologists can then go in and analyze all of that. We then cut those cores in half, and we send half of that material off to the assay lab. So when people talk about one grams per ton or, you know, five grams per ton over X meters, this is the process of figuring all of that out.

So,

Karl Woll: 00:21:31

Do you cut them in half in case? I don't know if something happens to the other half and they get lost in transit or something that you still have like half the sample?

Luke Alexander: 00:21:37

Well, you, you also want to keep that other half because visually, you know, the geologist can go in and look at, look, you can line it all the way up. So you can look at, at these. You know, line these core boxes all the way up and then you can look at exactly what the mineralization looks like and obviously make certain um, uh, determinations as to whether you're in the shear outside of the shear and and all of that.

So you want to keep that so that um, you've always got that information.

Cool. Well, thanks for the update, Luke. And again, congrats on to you and everyone at the Newcore team on the release of the PEA. Really exciting week for you guys and great to see the reaction from the market. So congratulations on that. Appreciate your, your time and the walkthrough on the updates and some education here and fielding some of my uh, Um, is there anything else that you wanted to just leave us on or, or any other sort of final thoughts in terms of that we, that we didn't cover?

No, I think, I think that covers a lot of it. You know, anyone who is interested in the, in the mining sector, I mean, the other thing I would point out is like the huge positive impact that the mining sector has on, on communities. So that's another big, impact. I mean, the amount of work that we do in and around the communities that we're involved in. And the impact that has is is another very rewarding thing that you don't get from a lot of other you know, industries and sectors and then it also, you know, anyone who's interested there's lots of obviously information out there and I'd encourage you to follow, Newcore Gold on social media.

We put out lots of interesting content, so on and so forth and, you know, feel free to go and, you know, poke around on our website. All these presentations, interactive presentations are sitting there. And if there's any questions you know, feel free to reach out and, and my attitude is, is never a dumb question, Karl.

So if, if there was, I would have asked too many of them over my over my lifetime and over my career, but that's the best way to learn is asking those questions.

Karl Woll: 00:23:33

Okay. Appreciate that Luke. Thanks again for your time and congrats again.

Luke Alexander: 00:23:36

All right, cheers. Thanks a lot, Karl.

Karl Woll: 00:23:37

Thanks, Luke.

Monica: 00:23:39

The information presented should not be considered investment advice and is provided for educational purposes only. Please consult a qualified financial advisor before making any investment decisions.

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