Flying Under the Radar: Alex Passmore, CEO, NMG — QAV AU #932

QAV 932 Alex Pass­more NMG

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Cameron: Today we are very lucky to have a guest on the show, Mr. Alex Pass­more. is the chief exec­u­tive offi­cer of NMG, who we talked about, uh, ooh, a cou­ple of weeks ago, uh, on the show, I think. New Murchi­son Gold. uh, inter­est­ing­ly, cou­ple of inter­est­ing things, n- this week on our. We put togeth­er a buy list every week, Alex, and it usu­al­ly has 20, 30 stocks for our mem­bers. we have a, we have a thing that we insti­tut­ed, uh, a few weeks, or a few, sor­ry, a cou­ple of years ago, which was a black­out dur­ing report­ing sea­son, because we don’t want any sur­pris­es. And but then your last r- sort of offi­cial results that we could see were in March, so this week the only stock that we could add to our port­fo­lios was NMG, because it was the only one that, uh, was, that we weren’t wait­ing on a report com­ing out from.

But then I noticed you’ve changed your finan­cial year, so we’re [00:01:00] gonna have to ask you about that a lit­tle bit lat­er on.

Alex Pass­more: Yes, of course

Cameron: The oth­er thing that, um, I know when I did my, uh, bit of research on you is that you hold a Bach­e­lor of Sci­ence with first class hon­ors in geol­o­gy, and you worked as a stock­bro­ker for many years before tak­ing the posi­tion at NMG.

So the first ques­tion I had for you, Alex, is if you were still work­ing as a stock­bro­ker, how would you rate NMG as an invest­ment?

Alex Pass­more: Well, thanks for hav­ing me on, Cameron and Tony. Um, and, uh, thank you for that intro. Uh, yeah, I, I would, uh. I– look, I mean, in, in the gold space, uh, I think NMG stands out. Uh, so of cour- you know, I may be biased, but of

Cameron: You may be

Alex Pass­more: uh, I may be. But, uh, but of course, uh, you know, I think, uh, deliv­er­ing the, the sort of cash flows that we’re deliv­er­ing and, and ramp­ing up an open pi- open pit, uh, gold mine into pro­duc­tion, uh, you know, over sev­er­al months to, you know, to the lev­els that, that we’re, um, that we’re [00:02:00] see­ing at NMG with its, you know, pr- pro­duc­ing around six­ty thou­sand ounces per annum run rate, uh, you know, it’s, makes it stand out, you know.

Uh, and so, uh, th-they’re all the things that I’ll be high­light­ing to, to my clients if I was, if I was still a, a min­ing ana­lyst

Cameron: would be a buy rec­om­men­da­tion. Not that we c- we can’t give any finan­cial advice on this pod­cast, but if, if you were a, a stock­bro­ker, it would be a buy. Well, lis­ten, I’ve got one ques­tion and then I’ll throw over to Tony, Alex. So as you know, we’re val­ue investors. We look for under­val­ued stocks, gen­er­al­ly stocks that are gen­er­at­ing cash that we can buy at a dis­count to their intrin­sic val­ue. And NMG, as I said, is, is on our lists, quite high up on our list too. Uh, why do you think that would be? Why is it show­ing up as a val­ue invest­ment right now?

Alex Pass­more: So there, there’s a cou­ple of rea­sons why I’d say, uh, Cam, is the, the first is, um, we, you know, we are gen­er­at­ing strong prof­its rel­a­tive to our, our, our mar­ket cap. Uh, [00:03:00] so, you know, you’re going to see, uh, uh, a low PE mul­ti­ple and, and a, a low EV to EBITDA type mul­ti­ple. Uh, and, and the rea­son for that is, you know, the gold price, uh, has been, you know, very strong have been very strong. Uh, we’ve also brought the project into pro­duc­tion very quick­ly. So I think that’s prob­a­bly, um, you know, we- we’re yet to see, um, you know, a, a strong re-rat­ing in NMG, you know, to, to align with its strong cash flows. Uh, and then I think the, um, you know, a- as with all min­ing com­pa­nies, unlike the indus­tri­al com­pa­ny, uh, you, you need to wor­ry about mine life.

So that is the, the length of those future cash flows, the, the life­time of those future cash flows. And, um, one, one thing that, um, NMG, uh, you know, when. on a comp basis to its peers, um, that we need to, you know, that, that we always look at and, and, and we are work­ing on is the, the rel­a­tive­ly short mine life or the rel­a­tive­ly short resource life. So, you know, we’re very well aware [00:04:00] that, you know, the, the, the, the. we’re enjoy­ing strong cash flows now. Uh, and we’re high­ly con­fi­dent that, you know, we’ll enjoy strong cash flows in, you know, o- over, o- over many years. Uh, but we need to demon­strate to the mar­ket that the mine life is, um, is there. And so that’s what we’re work­ing on, um, behind the scenes, uh, at the moment

Cameron: Why do you think the mar­ket though does­n’t give you the sort of props that our is giv­ing you right now? Why is it show­ing up as w- under­val­ued? Why isn’t it fair­ly val­ued by the mar­ket­place?

Alex Pass­more: uh, I think in the s- in the small­er end of the mar­ket, so that is, you know, out­side of the top 200, um, you know, there, there are less eyes on, on, on stocks. So I think that, um, in the top 200 there are plen­ty of ana­lysts and, um, a‑a-and plen­ty of stock­bro­kers that, that look for that, you, you know, that are, that are look­ing at earn­ings ver­sus mar­ket cap ver­sus, you know, um, or, you know, or, or the oth­er cash flow met­rics. Um, so I think there’s that. I think there’s, um, [00:05:00] also, uh, inclu­sion in ETFs, uh, and index track­ing funds. You know, I think that becomes very impor­tant when you’re, when you’re in the 300 or the 200. Uh, and so we’re just sit­ting out­side the 300 moment. Um, we’d be a fair­ly good chance of going into the 300 actu­al­ly, which, um, which is a, you know, usu­al­ly, um, a good time to buy because, uh, because you’ll get a weight of mon­ey that, that come in, uh, that, you know, c- comes into the stocks that, that, that get lift­ed into those index­es. Um, the, the, the, the reverse can be true as well. You don’t want to fall out of an index. Um, but, uh, you, you can enjoy going into an index. So, you know, a long answer to, to your ques­tion, but, you know, I think that we’re under­val­ued because we’re out­side the index­es. We’re, you know, we’re, we’re small enough to, to not, you know, to be fly­ing under the radar. and, uh, you know, and we’ve only just start­ed, you know, pro­duc­ing and we’re, and we’re d- and we’re show­ing very strong earn­ings, but it’s ear­ly days, so, um, peo­ple are yet to notice.

Cameron: Well, best of luck get­ting into the index. [00:06:00] That would be good for, uh, all of, all of us. I’ll throw it over, throw it over to you, TK

Tony Kynas­ton: Yeah, so, uh, thanks for com­ing on, Alex. Uh, I, I guess you’ve just rein­forced my view that most stock­bro­kers have a buy rec­om­men­da­tion on stocks, so, um, no, no dis­re­spect to NMG

Alex Pass­more: no, thank you, Tony. Um, no, that’s, that’s true. You know, if– I gu- I guess peo­ple, um, I, I guess a sell rat­ing does­n’t real­ly, uh, you know, it, it, it’s, um. With, with broking, you know, o- once you’ve got your clients out of a stock, uh, you’ve got­ta move on to some­thing else, so nat­u­ral­ly you’re gonna have more buy rat­ings than sell rat­ings.

Tony Kynas­ton: Yeah, and you won’t get busi­ness from a com­pa­ny you have a sell rat­ing on too if you’re a bro­ker.

Alex Pass­more: there’s that too.

Tony Kynas­ton: Yeah. Yeah, no, very good.

Alex Pass­more: Mm.

Tony Kynas­ton: so, so do you think it’s real­ly just around who­ev­er is ana­lyz­ing NMG, they’ve got a dis­count­ed cash flow that only goes out a cou­ple of years? That’s the rea­son why the, the val­ue is down.

Is, is it, uh-

Alex Pass­more: Well, the, so, so the peo­ple that do rese-search us, [00:07:00] so, so we’re cov­ered by Arg­onaut, uh, we’re cov­ered by Tay­lor Col­li­son, we’re cov­ered by Evo­lu­tion Cap­i­tal. Um, uh, you know, and there are oth­ers that are look­ing to, to start, uh, cov­er­age on us. Uh, their, their dis­count­ed cash flow val­u­a­tions, uh, have us at val­u­a­tions well above the cur­rent price. So the peo­ple that do, uh, under­stand us, you know, can see that there, you know, that there is, uh, plen­ty of val­ue there. Um, so I think it real­ly comes down to the peo­ple that don’t, y‑you know, that, that are look­ing at the gold sec­tor, you know, have to screen a lot of stocks very quick­ly. Um, you know, they might say, “Oh, well, too small, you know, I’ll, I’ll wait for a bit more track record. Um, you know, I wan­na see exten­sions to prospec­tive mine life.” But the peo­ple that under­stand geol­o­gy and under­stand the, you know, where we are at, um, you know, are pre­pared to, um, you know, are pre­pared to make a, make a fore­cast on, you know, what our mine life and, and what our earn­ings are like­ly to be

Tony Kynas­ton: It was always, [00:08:00] I guess, drummed into me read­ing research about gold min­ing com­pa­nies to look at the AISC and

Alex Pass­more: the AISC, the all-in sus­tain­ing costs.

Tony Kynas­ton: Thank you. Sor­ry, AISC, you’re right. Yes.

Alex Pass­more: Yeah.

Tony Kynas­ton: and that’s– Y‑you’re in the high­er quin­tiles for that, but there’s a rea­son for that. Could you just maybe take us through

Alex Pass­more: Yeah

sure. So,

Tony Kynas­ton: that?

Alex Pass­more: so we, uh, we, uh, mine, uh, gold ore at Crown Prince, at the Crown Prince gold oper­a­tion near Meekathar­ra, about, uh, 30 kilo­me­ters to, uh, 20 kilo­me­ters to the north of Meekathar­ra. uh, we then crush that ore, uh, uh, down to the, you know, a, a cer­tain size that, that gets us a, a good, uh, sam­ple and, um, it’s, so it’s, it’s called the pri­ma­ry crush. Uh, we then put that on trucks and, and sell it to, uh, one of the majors in the belt, West Gold Resources, WGX is their code. Uh, and so for, for pro­cess­ing our ore, WGX charges a mar­gin, and that mar­gin at, at, at is [00:09:00] 17% of the gold price. So, so, uh, before we, before we even start, you know, there’ll be 17% of the gold price times our pro­duc­tion in our costs.

So that, at today’s val­ue, the, uh, gold price is about $1,000 an ounce. Uh, so, you know, that, that straight away, um, you know, is, is reflect­ed in our all-in sus­tain­ing costs or AISC. Uh, and then we’ve got min­ing, crush­ing, uh, waste removal, haulage, uh, in, in there as well. Uh, and then also we reim­burse West Gold for their direct costs, their, their milling costs.

So, so the way that West Gold make mon­ey out of the arrange­ment is they get that 17% of the, of the val­ue of the gold, you know, essen­tial­ly risk-free and for free. Um, so that’s why, that’s why they would do the deal, uh, or, or process our ore. And for us, um, you know, it, it has meant that we’ve got a very quick, um, uh, ramp-up into full pro­duc­tion, going to an already estab­lished mill with already proven, um, pro­cess­ing abil­i­ty and, and [00:10:00] capac­i­ty. Um, and, uh, and so we, you know, we pay that away to, to. because we haven’t had to spend the cap­i­tal to build a mill

Tony Kynas­ton: Yeah, and that’s, that’s an impor­tant point, isn’t it? You haven’t had to invest CapEx to process that gold. So the AISC is a lit­tle bit dif­fer­ent for your com­pa­ny, I guess.

Alex Pass­more: It

Tony Kynas­ton: and it ris­es and falls with the gold price because you’ve got a sort of fixed roy­al­ty arrange­ment with West Gold. So it, you know, if you look at things from just the where does a– where does, where s- where does, um, New Murchi­son sit, uh, on the cost curve, you’re pret­ty high up, but real­ly it’s not a bad sit­u­a­tion to be in, is it?

Alex Pass­more: Yeah, no, it’s a, it’s a very good situ- So we, you know, as the gold, if the gold price retreats, you know, our costs retreat, and if the gold price goes up, yes, we’ll be pay­ing more. But, um, but, you know, it ratch­ets up and up and down, uh, on that basis of that sev­en­teen per­cent. So, um, that, that’s right. The, the, you know, there’s just, uh, there’s a thou­sand dol­lars an ounce or, or there­abouts that we, you know, can’t real­ly con­trol at the moment.

[00:11:00] But the costs that we can con­trol, we think we do a good job at

Tony Kynas­ton: Yeah. And, um, the ben­e­fit of that arrange­ment too is, of course, you’ve got a nice tidy sum sit­ting on your bal­ance sheet, um, and no debt. So, uh, maybe explain how much that is and what your plans are for it

Alex Pass­more: Sure. So, uh, at the end of June, we had two hun­dred and two mil­lion, uh, in the bank, and that was gen­er­at­ed over ten months of, uh, pro­duc­tion. Uh, so we, um, got the mine start­ed in, in. It was actu­al­ly start­ed dig­ging, uh, or, you know, uh, in around, uh, June, late June, ear­ly July, uh, last year. Uh, and sold the first ore to West­gold in Sep­tem­ber. And I think the CapEx, um, for, for set­ting up the mine was about sev­en mil­lion dol­lars, and there was a work­ing cap­i­tal require­ment on top of that. But I think the pay­back was about two weeks. and then we, then we, and then we, we went on to gen­er­ate, um, you know, sub­stan­tial, uh, cash, um, you know, there­after.

So, so that we’ve. You know, we had fif­teen mil­lion in [00:12:00] the bank at the time at the mine start. Uh, and, and today, you know, a year lat­er, we have two hun­dred and two mil­lion, in the bank. So, um, so, you know, we’ve enjoyed a good gold price. We’ve enjoyed a very, very, um, seam­less ramp up. Uh, and, and, you know, that is to do.

A lot of that has to do with the, um, you know, with not hav­ing to take, um, a risk on the, on the pro­cess­ing plant, which has been good. Um, so the plans with our, uh, with our cash are to, um, sen­si­bly look at div­i­dends once we’ve, um, you know, once we’ve accrued enough frank­ing cred­its, which we’ll be doing lat­er on, uh, this year. Uh, so we, you know, we, we, we acknowl­edge that, um, you know, we-we’re the cus­to­di­ans of our share­hold­ers’ cap­i­tal. So, um, we you know, a div­i­dend yield in the order of, say, eight per­cent would be a sen­si­ble way to, you know, to say to our share­hold­ers, “Well, you know, let us rein­vest your cash into explo­ration, dis­cov­ery and growth, and, and hope­ful­ly make you, um, you know, uh, a, a very, [00:13:00] very, very strong return. But in the mean­time, let us pay you, you know, cir­ca eight to ten per­cent yield while you wait.” and, uh, and so, you know, peo­ple gen­er­al­ly don’t invest in, uh, in, in growth stocks and gold stocks for a div­i­dend. But we’re, um, you know, we’re, we’re. we think that’s a, a good approach to, to, um, to, to return, return, um, make.

give a return to share­hold­ers while, while they wait for us to, to, to grow, uh, their asset base. Then the oth­er thing is, you know, look, if, if we did­n’t have any­thing bet­ter to do with the, with the funds and we, we could­n’t see any, um, good invest­ments, uh, of course, we would be return­ing the funds to share­hold­ers either via a, a share buy­back or, um, or, or a div­i­dend or a cap­i­tal return.

So, um, you know, we-we’ve got plen­ty of, um, plen­ty of peo­ple in the top twen­ty who would like to see, you know, um, any of those things hap­pen. So, um, you know, we’re, we’re not sit­ting on the cash, um, for, for no rea­son and, and cer­tain­ly, um, not wast­ing it

Tony Kynas­ton: Now it’s [00:14:00] buil- it’s build­ing up quite quick­ly. I mean, you said it’s, um, two hun­dred mil­lion now after a year, but it’s real­ly only about how long since you start­ed pro­cess­ing the ore?

Alex Pass­more: Yeah. So it’s, it’s about 10 months.

Tony Kynas­ton: Right. Okay. So yeah, you’d expect a run rate of high­er than two hun­dred mil­lion dol­lars a year then going for­ward. But, um, y- you’ve amassed this amount of cash.

You sound like you’re gonna give some back in terms of a div­i­dend, but does that– is one of the pos­si­bil­i­ties that you might start to invest in your own pro­cess­ing plant and move away from Blue­bird?

Alex Pass­more: So the, um, that, that is a poten­tial there. Um, you know, we- it’s one of the many options that we have in front of us. so just in our vicin­i­ty near Meekathar­ra, we have, uh, we have the Blue­bird pro­cess­ing plant, which is, which is sort of the biggest and, and most log­i­cal pro­cess­ing solu­tion for us. We also have West­gold as a, as a big share­hold­er of us.

So, you know, there’s a very strong rela­tion­ship there. Uh, we’ve then got Cat­a­lyst, uh, which is around 150 kilo­me­ters, uh, up the road, [00:15:00] um, that have milling capac­i­ty. Uh, and, and there. and there’s also Ramelius and oth­ers, uh, to the south of us that have milling capac­i­ty. So, um, well, I should say that, you know, I, I don’t want to speak for them, but I would assume that for high-grade ore a, a deal could be done, you know, should it have to be done. Or we could, or we could build our own mill.

Tony Kynas­ton: Per­fect

Alex Pass­more: and so, and so all of those options are sort of, you know, remain in front of us. But we’re very hap­py with the West­gold ar- arrange­ment

Tony Kynas­ton: So the ques­tion is, does Meekathar­ra need anoth­er mill real­ly?

Alex Pass­more: that’s right. When– And when you look at the map, you know, you, you, you’ve got a lot of, um, you know, there, there is a fair bit of pro­cess­ing capac­i­ty, uh, around us. That, that said, um, know, mills, uh, so at the, you know, the way that we see it is, is that, that, that thou­sand dol­lars an ounce, say, cost that we pay West­gold, um, to, to build our mill that would be, you know, suit­able for our size ore body, you know, might be about, about a mil­lion ton per hour, a mil­lion, uh, ton per hour through­put. So those. That, that sort of gold [00:16:00] mill would be about a hu- you know, a hun­dred and fifty mil­lion in cap­i­tal to build. Um, you know, you might finance it half debt, half equi­ty. So the equi­ty ask would prob­a­bly be sev­en­ty-five mil­lion or there­abouts. now, if, if we’re pay­ing a thou­sand dol­lars an ounce to, to process through the West­gold mill, well, you would say, well, a hun­dred and fifty thou­sand ounces of pro­cess­ing and, and, and you’ve, you’ve, you’ve paid off the hun­dred and fifty mil­lion. But, you know, no one goes into this busi­ness just to, just to end up flat or square. So, you know, w- the way we see it is that, um, you know, if, if we had absolute cer­tain­ty on four hun­dred and fifty thou­sand ounces, say, of, of pro­duc­tion, um, well, then you would start look­ing at build­ing your own mill because, um, you know, that, that would be, you know, three X your, you know, your, your CapEx if you like. Um, so even­tu­al­ly, um, you know, once we build up the resource inven­to­ry, it becomes a very sen­si­ble option to stop, you know, to, to, to slow down the, the, um, you know, the pro­cess­ing arrange­ment that we have because, because, [00:17:00] uh, you’re, you know, you’re throw­ing away mon­ey at that point. So, you know, we’re work­ing on.

We’re work- so that’s the part that we’re work­ing on is, is, is get­ting mine plans firmed up enough that, you know, we can see, um, four hun­dred and fifty thou­sand ounces plus in pro­duc­tion to allow us to make those sorts of deci­sions.

Tony Kynas­ton: We’ll, we’ll pin that num­ber and come back and talk to you when you’ve got the 450,000 ounces.

Alex Pass­more: Please.

Tony Kynas­ton: Um, but that’s an inter­est­ing sort of roadmap you’ve got there because I know you do have plans to, to, to get to that kind of num­ber and I guess the f- the, the inter­est­ing one I, I saw when I researched the com­pa­ny was the poten­tial­ly going to the bot­tom of your open pit and then down.

So maybe just explain what your plans are for that.

Alex Pass­more: Yeah, cer­tain­ly. So the, the, the cur­rent open pit extends to about, um, uh, forty-five or fifty meters below sur­face, um, you know, a‑as we speak. Uh, that, that open pit goes to a hun­dred and forty meters, uh, below, uh, ground sur­face. Uh, and then, and then there’s anoth­er, [00:18:00] uh, sec­ond pit that we’ve just start­ed called Cloud Kick­er, uh, which goes to about a hun­dred meters below sur­face.

Now, we think those two pits join up in an under­ground sense, so that is there’s a high-grade, um, uh, ore body that, that go– that runs between them. They’re at. So it’s about a, a‑about a thou­sand meters of, uh, of a, a gold-bear­ing struc­ture that runs between them. It does­n’t quite join up, you know, at, at, at sur­face in a, in a strong sense or, or, or, or a way that you would make it one big pit, um, because the strip ratio, that is the waste-to-ore ratio, would be too high. But from an under­ground point of view, um, it makes sense to, to join them up. So, so that’s where we see a lot of the future is, is look­ing at the two, uh, at the ore body that sits below those two pits a‑and how it joins up togeth­er and, and, and what an under­ground mine might look like. um, you know, all, all, all of that would indi­cate that there’s, you know, four, five years pret­ty eas­i­ly, uh, ahead of us.

Tony Kynas­ton: It’s fair­ly unusu­al. I haven’t heard of an [00:19:00] open pit becom­ing an under­ground mine. It’s, uh– Is that just because of the geol­o­gy in the area?

Alex Pass­more: So, so a lot do. Well, no, a lot, a lot do. So, so you– So, so there’s an eco­nom­ics cut over So, so with a‑any open pit, whether it be, you know, gold, nick­el, iron ore, cop­per, um, you know, it, it, it real­ly is a trade-off between how many tons of waste you need to move ver­sus how many tons of ore that you’re, you’re pro­cess­ing or, you know, what– And the ore is your rev­enue, the waste is, is, is your cost. and then at some point, it, you, you end up, um, being bet­ter off, uh, hav­ing a high­er min­ing cost because you’re min­ing in, in an under­ground mine, so that is per ton of ore. Your costs are, are a lot you’re, you’re hav­ing to put in ground sup­port and you’re using spe­cial­ized equip­ment that, that, uh, that mines ore dri­ves and then takes out, you know, stopes. But you don’t mine much waste. So the ore, the, the per ton of ore cost, um, you know, might, you know, might go up [00:20:00] by, you know, a he- well, you know, a hell of a lot, like te- you know, ten times. But the, the, um, the, the– because you’re not mov­ing any waste, that’s, you know, that, that’s a coun­ter­bal­ance. So at s- at, at a cer­tain depth in, in most ore bod­ies, you’ll cut over from open pit to under­ground because the, because the waste num­ber becomes too high.

Tony Kynas­ton: Okay, that’s inter­est­ing. Um, I, I did won­der whether it was just a pecu­liar­i­ty of the area. So could, can you maybe step back a bit and talk about the area? Because Meekathar­ra has been a gold area for a very long time, but some­thing hap­pened in the last sort of lit­tle while whi-which allowed you to sort of sew up some ten­e­ments, um, and make a big sort of patch­work quilt out of all the lit­tle ones.

But also, I think there must have been some kind of bet­ter­ment in the, in the process of find­ing ore because it looks like. Well, maybe you could explain the col­lu­vial sand that was on top of what you found. Yeah

Alex Pass­more: thank, thanks, thanks, TK. Yeah, so that’s right. So a cou­ple of things. So the, [00:21:00] the, the Murchi­son area, uh, so, so if we, if we step right back and look at sort of, you know, the, the, the Yil­garn Cra­ton, which is an area in West­ern Aus­tralia, um, that, that, that, you know, uh, is one of the more pro­lif­ic spots to look for, for gold min­er­al­iza­tion. Um, in fact, one of the bet­ter places in the world to look for gold min­er­al­iza­tion. Um, th- there’s, there’s a cou­ple of main areas and belts, green­stone belts they’re called, the ty- the type of rock that, that com­mon­ly, you know, that can host gold. Uh, so the Kal­go­or­lie area is obvi­ous­ly, you know, well-known, and so North­ern Star and Gen­e­sis and oth­ers real­ly dom­i­nate that Kal­go­or­lie Leono­ra Laver­ton Belt. and then, and, and Bolt and oth­ers. Uh, and then, and Reg­is as well. Sor­ry, for­get­ting, for­get­ting a few of my favorite gold names. Uh, then, uh, then, um, com­ing to the, the west, you’ve got the Murchi­son Gold Belt, which is, um, the big broth­ers in that belt are Ramelius, West­gold, um, you know, Cat­a­lyst is a, is a, is a grow­ing com­pa­ny to the north of us.

So they- you know, [00:22:00] they- they- they’re the, they’re two of the major gold belts in, in the Yil­garn. Meekathar­ra sits at the north­ern end of the Murchi­son Belt. Uh, now Meekathar­ra was, you know, has seen prospec­tors and, and, and var­i­ous small mines there, you know, gold mines there since, uh, since, well, since the, the ear­ly 1900s actu­al­ly.

So, um, and there’s been. You can see the dif­fer­ent phas­es of gold rush that have been through the area, and it was, it was the same as, uh, Kal­go­or­lie. So after the Vic­to­ri­an gold rush, the Bendi­go Bal­larat gold rush­es, uh, there, there was a lot of activ­i­ty over in West­ern Aus­tralia and all, all around that sort of ear­ly 1900s. Then the two world wars, so the par­tic­u­lar­ly World War I, you know, took a lot of work- the work­force away. Um, they all, you know, they all, um, you know, enlist­ed and, and, and went over­seas to fight wars and, and the gold price cer­tain­ly was­n’t what, was­n’t what it was today. So, you know, you, you can see, um, a strong his­to­ry of gold min­ing and, and, and prospect­ing i- in the area.

So then fast-for­ward through to the [00:23:00] 1980s, there was, there was a, um, a mini gold boom then Um, the Meekathar­ra area was, uh, was, was, um, from, from those gold– from the ear­ly gold rush days. And those 1980s com­pa­nies used a lot of the old mines to, to vec­tor in on where a good ore body might be. Uh, and then, uh, you know, a‑and, and then the indus­try sort of con­tin­ued. The gold, the gold price was fair­ly flat all through the, you know, the two. the ear­ly 2000s, the ’90s and the, and the 2000s. And we saw, you know, the iron ore, iron ore price take off and the emer­gence of Chi­na. So that real­ly pushed the cost, the cost part of the indus­try, um, uh, up, you know, as the iron ore, and iron ore was boom­ing, cop­per was boom­ing, coal was boom­ing, nick­el was boom­ing.

So the gold indus­try strug­gled because, because the gold price was­n’t going up, yet the. all the costs are so sad ’cause a, a, a min­ing fleet is a min­ing fleet. It’s, you know, it, it does­n’t mat­ter which com­mod­i­ty you’re, you’re real­ly min­ing. It, it, you know, the, the, the per [00:24:00] ton of, um, haulage cost or min­ing cost is, is rough­ly the same. So the g- the gold, um, the gold explo­ration and the gold min­ing in this area was pret­ty sub­dued actu­al­ly in, in the 2000s. And then, uh, and then, um, at that time, you know, there were com­pa­nies like the pre­de­ces­sor of NMG that were piec­ing togeth­er the patch­work of ground, um, as you say, TK, to, to amass a, a, you know, a, a big land posi­tion. so that was hap­pen­ing, you know, in the late 2000s and, and, and ear­ly twen­ty tens, um, such that we, we emerged with, you know, with a big ground posi­tion. That was in a com­pa­ny called Thun­de­lara, which then became Ora, which became NMG. So we had this ground posi­tion, but there was­n’t nec­es­sar­i­ly a, a very, you know, a, a, a big deposit or, or, or a, you know, a, a, deposit that we could real­ly get our teeth stuck into, um, ear­ly on.

So then that, um, that ca- that only came about in the last, uh, cou­ple of years. was as the, as the gold mar­ket improved, um, the, the [00:25:00] equi­ty mar­ket obvi­ous­ly opened up for, for fund­ing gold explo­ration. Uh, and so we were able to, um, raise, raise the mon­ey into Ora, it was called then, Ora Gold. Um, and we.

and then, uh, and then, you know, take a bit more risk, um, in, in drilling, and we, and we dis­cov­ered the Crown Prince ore body. And that was, that was, uh, sit­ting beneath a fair­ly, uh, bar­ren cov­er, as you s- as you quite right­ly say. So it was hid­den from the, the prospec­tors, um, you know, up back from the 1900s. So in, it’s in close prox­im­i­ty to one of these old mines, but, but, um, but was, was under­cov­er and hid­den from them.

So, so we were very for­tu­nate to, to, to sort of be look­ing around an old mine, but then about three hun­dred meters away dis­cov­ered this ore body that looks like it could be, you know, um, a, a very, very high grade and sub­stan­tial ore body

Tony Kynas­ton: Y- you’ve men­tioned a num­ber of iter­a­tions for the com­pa­ny. What, what was the rea­son for that, the, the name changes? Uh, was it, was [00:26:00] it a, a piv­ot or was it change of own­er­ship or, or what?

Alex Pass­more: S- s- so, so this, this can cir­cle us back to our, um, to, to our change in finan­cial year end, uh, ques­tion. So Thun­de­lara was, um, was orig­i­nal­ly a Cana­di­an-list­ed com­pa­ny that, um, was brought to the ASX 37 years ago as an explo­ration shell. Um, so, uh, that’s why it had a Sep­tem­ber year end because it’s a Cana­di­an year end, uh, finan­cial, fis­cal year, finan­cial year end. Um, and, uh, a- and, and has been an explo­ration, you know, shell for– or an explo­ration com­pa­ny, you know, rely­ing on, um, you know, rounds of fund­ing and, and, and then, uh, you know, and then var­i­ous and, you know, it was, it was, it was a cop­per com­pa­ny, cop­per explo­ration com­pa­ny for a while. It was a ura­ni­um explo­ration com­pa­ny for a while.

So, you know, oper­at­ing, oper­at­ing at the small­er end of the mar­ket, um, you know, uh, with a, with a high amount of, uh, risk, um, but, you [00:27:00] know, hop­ing to, hop­ing to deliv­er a reward

Tony Kynas­ton: So, so it’s the old, old adage of kick­ing enough rocks and then you find, uh, find gold, huh? Yeah.

Alex Pass­more: so I, I, um, I was­n’t around in, in, in those days. I was still, I was still a, a min­ing ana­lyst actu­al­ly, and I remem­ber, uh, Phil Crabb, who was one of the founders of, of Thun­de­lara, um, you know, I remem­ber Thun­de­lara going through its var­i­ous, you know, cop­per stages and ura­ni­um stages as I, as I was sit­ting, sit­ting in a broking office. Um, you know, and you’ve just got to keep on. You know, I guess there is a cer­tain amount of you, you go where the mar­ket wants you to go, um, you know, when you’re rely­ing on, on risk cap­i­tal.

So if there’s a, you know, if there’s a bit of a ura­ni­um boom pre-Fukushi­ma, um, you know, I remem­ber Thun­de­lara was explor­ing for ura­ni­um in, in the North­ern Ter­ri­to­ry and then, uh, and then it had some ground near, um, near DeGrus­sa Cop­per, Sand­fire’s DeGrus­sa project called Red Bore, and then, and it was, and it was explor­ing for cop­per for a while.

So, um, you know, that, that’s, uh, you know, that, that, that was the path­way of the com­pa­ny. And then I joined, uh, as Phil was [00:28:00] retir­ing at the ripe old age of 82. Uh, Phil had, uh, Phil had, um, uh, decid­ed to, to step away. So I joined, um, uh, at, it was Ora Gold then. It had been renamed from Thun­de­lara. Uh, and, uh, it, it.

look, it, it was, it was starved of cap­i­tal, there’s no doubt. You know, it sort of ran out of puff a bit. So, um, so, you know, we, we were. I then went about rais­ing mon­ey, recap­ping the com­pa­ny, and, and, uh, and we had some good geol­o­gy in front of us, and then we test­ed a few the­o­ries and found Crown Prince. So, um, you know, or extend­ed Crown Prince.

So, uh, you know, I think we, we, we just ne- at the time of arrival, um, they, they. Ora had just hit, with two holes, it had hit sort of one end of the min­er­al­iza­tion did­n’t real­ly know which way it went or, or, or, or what they were deal­ing with. And so, uh, I was then able to take that, that, you know, ini­tial drilling, um, go and, uh, go and, um, explain that to, to, you know, var­i­ous par­tic­i­pants in the mar­ket and say, “Well, you know, it could be this, [00:29:00] we’re think­ing. Um, can you please, um, invest in us to let us test the the­o­ry?” And thank­ful­ly it came off. Um, you know, and, and sort of here we are

Tony Kynas­ton: Was one of those peo­ple you explained it to the board of West­gold because they have a share­hold­ing in your busi­ness and you’re i‑interlaced with them with your pro­cess­ing. How does that work?

Alex Pass­more: So they were there very, very ear­ly on, but after we’d– after we had, you know, sort of estab­lished that there was a good ore body there, it was open pitable from sur­face, high grade, you know, a, a new dis­cov­ery, albeit in an old­er min­ing area, um, you know, that, that, you know, West­gold came in about a year after the dis­cov­ery, know, as we start­ed talk­ing about pro­cess­ing, you know, path­ways

Tony Kynas­ton: I guess there’s the phys­i­cal oper­a­tion you’re doing and the phys­i­cal geol­o­gy, but there’s also this kind of over­lay of M&A, um, that’s always kind of in that area as well. As you said before, there’s a lot of play­ers. Um, West­gold has a share­hold­ing with you. You use some of their resources. What, [00:30:00] what sort of thoughts do you have on where this com­pa­ny might go in terms of any sort of, uh, merg­ers or acqui­si­tions or takeovers that might take place?

Alex Pass­more: So, uh, I tell you, look, it’s, it, a pure spec­u­la­tion and

Tony Kynas­ton: Yeah

Alex Pass­more: But, but, um, look, I think if we dis­cov­er some­thing, you know, that’s, that’s a resource of, you know, more than a mil­lion ounces and it’s, and it looks good, I think we get tak­en over.

Tony Kynas­ton: Mhm.

Alex Pass­more: I think if, um, you know, I, I think Crown Prince will keep on grow­ing and, and our cash flow will remain strong, so that might oppor­tu­ni­ty to take some­one else over who might not have a cash flow, um, you know, y- yet, and, and, and might make, you know, as it might make sen­si­ble, you know, be, be a sen­si­ble growth path for, for us.

So, um, you know, we, we look at it both ways. Um, but, you know, there are, there, there are, there are very small explor­ers in the area who, you know, who are still strug­gling to get cap­i­tal, and some of those, you know, explor­ers might, [00:31:00] might, uh, might, be sen­si­ble for us to sort of, you know, uh, their, their path­way, if you like.

So you, you know, you can inject, um, cap­i­tal rela­tion­ships, knowhow and, and get them from being, um, you know, get them from being a small project in, into pro­duc­tion. And then there’s also, um, you know, and then there’s also the reverse, where some­one might find our assets quite use­ful.

Tony Kynas­ton: Yeah. Yeah, they’re very good. Um, what– Do you take a view on the gold price? Do you hedge or do you just hap­pi­ly float along up and down?

Alex Pass­more: yeah, so we don’t hedge main­ly because, um, uh, we. Well, we, we, we don’t, we don’t hedge because we’ve got a high enough mar­gin to, to have, to have pro­tec­tion. So we can adjust our cut-off grade, uh,

Tony Kynas­ton: Mm-hmm.

Alex Pass­more: also that mar­gin that we pay West­gold that, you know, as we were say­ing before can, you know, comes down as well with the gold price.

So we don’t real­ly need to hedge. The oth­er thing is we don’t have, um, you know, a lot of debt that we need to pro­tect. So, so hedg­ing, hedg­ing is, um, w‑when, [00:32:00] when you make a big cap­i­tal invest­ment, um, and you need to pro­tect it, you know, you, you, you’ve made it based on a cer­tain com­mod­i­ty price, and if that com­mod­i­ty price was to then go on half or some­thing like that, you would, you– the whole com­pa­ny would, you know, go out the

Tony Kynas­ton: Yeah

Alex Pass­more: That is when it makes sense to hedge, when you’re pro­tect­ing, um, a cap­i­tal invest­ment. And, and as you pay that cap­i­tal off over time, your hedg­ing will roll off. Um, I have also seen, you know, through­out my career many t- many times where, where costs go up to meet hedge price. So every­one spec­u­lates on the, on the com­mod­i­ty price say­ing, “Oh, well, um, you know, it’s a good price.

We’ll, we’ll lock some of that in.” But, you know, fast-for­ward a cou­ple of years and, and, and the oper­at­ing costs of the indus­try go up to meet, to meet the com­mod­i­ty price and then, then, then the hedg­ing is not, is not sort of serv­ing, serv­ing you well.

Tony Kynas­ton: Yeah

Alex Pass­more: you know, so we-we’re, we’re, we’re against hedg­ing unless it real­ly is pro­tect­ing a cap­i­tal out­lay

Tony Kynas­ton: Which I think is a good, a good place to be real­ly, isn’t it? You’ve got a float­ing mar­gin there, which is nice. Um, and you’re not [00:33:00] exposed if it, if the mar- if the gold price drops too much, you’ll still make some­thing. So that’s not a bad place to be. Hav­ing said all that, what is your view on the gold price going for­ward?

Alex Pass­more: So, uh, um, it’s, it’s a very, very inter­est­ing ques­tion.

Tony Kynas­ton: Yeah

Alex Pass­more: think, um, if you look long term, the gold price, uh, is very close­ly relat­ed to the US dol­lar gold price, is very close­ly relat­ed to, um, the M3 mon­ey sup­ply. So that is the, the amount of US dol­lars in cir­cu­la­tion. So the more, the more QE, the more, the more mon­ey print­ing the US does, the, um, the, the bet­ter it is for US dol­lar gold because, you know, it rough­ly keeps its val­ue and, and sud­den­ly there’s more dol­lars in cir­cu­la­tion. Um, you know, so there­fore the gold price goes up, the, the dol­lars per ounce. Now, obvi­ous­ly our costs are in Aussie dol­lars and, and it real­ly our rev­enue’s in Aussie dol­lars gold price as well. So then you’ve got to wor­ry about what the exchange rate’s doing. And the exchange rate between the US and the Aussie is real­ly dri­ven by inter­est rate dif­fer­en­tials.

So, [00:34:00] um, you know, as long as you think that the Aussie will be, you know, around, know, sev­en­ty-ish cents, you know, that, that, that, that we’re in pret­ty much in lock­step in, in an inter­est rate dif­fer­en­tial sense with the US, um, I think that, you know, the gold price goes high­er from here in US dol­lar terms, um, you know, because of, because of, you know, ongo­ing increas­es to the, to the mon­ey sup­ply

Tony Kynas­ton: Sor­ry, just take me through that. How does print­ing more mon­ey affect the gold price?

Alex Pass­more: So the, the pri- I. So the, the, the, the price of gold. So, so gold is, is seen as a store of wealth.

Tony Kynas­ton: Mm-hmm.

Alex Pass­more: uh, it, it’s a cur­ren­cy that does­n’t real­ly yield any­thing. It’s, it’s, it’s well accept­ed, uh, uh, across the world by, um, reserve banks, um, ma- you know, major insti­tu­tions. Um, you know, it, it, it is, it is a cur­ren­cy that does­n’t have a cen­tral bank that con­trols how much of it is in cir­cu­la­tion. you know, there is a lot of gold in the [00:35:00] world because it does­n’t get con­sumed. Um, you know, it gets con­sumed for jew­el­ry, it gets con­sumed for elec­tron­ics, but it, you know, does­n’t have a, a use like, say, you know, burn­ing oil or burn­ing coal. so, you know, that, that’s some­thing where, you know, say a War­ren Buf­fett approach might, might, you know, pause for thought for a sec­ond say­ing, “Well, hang on. It’s a, it’s a com­mod­i­ty that, that, that. It’s a co- it’s a com­mod­i­ty that does­n’t get used. That, that must be bad.” Uh, but it does actu­al­ly get used, you know, a bit, uh, in j- in jew­el- jew­el­ry and so forth. Um, but it real­ly is a cur­ren­cy. So it’s been a store of wealth for thou­sands of years. Um, humans like shiny stuff and shiny things, uh, and that’s just, you know.

It’s, it’s the same, uh, same log­ic that, you know, why is the US dol­lar the store of wealth? Or why is the Swiss franc or why is the euro a store of wealth? But it, but in. It, it, it real­ly is a store of wealth be– uh, a store of wealth, sor­ry, store of wealth because it is trad­able. It’s fun­gi­ble. You can, you can buy, you can, you can buy [00:36:00] stuff with it. So giv­en that you can buy stuff with gold, you can turn it into any cur­ren­cy in the world, it’s basi­cal­ly a cur­ren­cy. Um, so that makes it a good store of wealth. The prob­lem is it does­n’t yield an inter­est rate because it’s not like a bond. So, uh, so that is. that’s the con­nec­tion between, um, between the, the US dol­lars in cir­cu­la­tion and the gold price.

So if the gold price is a store of wealth and there are more of the denom­i­na­tor in, in, in cir­cu­la­tion, it will, it will go up in, in, you know, in dol­lars per ounce

Tony Kynas­ton: Oh, so basi­cal­ly if, if, uh, an ounce of gold was worth a dol­lar today, US dol­lar today, and they print­ed more US dol­lars so the, the dol­lar you’re hold­ing onto is worth 90 cents, the gold is still worth a dol­lar yes­ter­day, so it’s a dol­lar 10 today.

Alex Pass­more: Cor­rect.

Tony Kynas­ton: Yep.

Alex Pass­more: That, that’s right. Okay. So yeah, I mean, I know that my expla­na­tion was a bit long-wind­ed, but that’s exact­ly, that’s exact­ly the log­ic. Yes.

Tony Kynas­ton: No, that’s fine. Yep.

Alex Pass­more: yeah

Tony Kynas­ton: That’s good. And, and, um, yeah, you got­ta say where things are going that, uh, there’s gonna [00:37:00] be at some stage some more print­ing of mon­ey some­where any­way

Alex Pass­more: I think that’s right. Well, uh, and, uh, you know, the, the, uh, for the last 20 years, if you pull up, uh, um, the, like I say, the M3 mon­ey sup­ply from the US Fed, you’ll see that, um, that the amount of US dol­lars in cir­cu­la­tion has gone up by about, about three and a half times, I believe. So there’s, there’s three and a half times more US dol­lars today than there was 20 years ago.

So, and, and then, and then lo and behold, the gold price has gone up by, by about three and a half times in US dol­lar terms. So, you know, that, that’s about where it should be

Tony Kynas­ton: Maybe Don­ald Trump’s actu­al­ly quite wise lin­ing the White House with gold.

Alex Pass­more: My bad. Yeah

Tony Kynas­ton: Um, okay. Well, com­ing back to your, uh, change in finan­cial year sit­u­a­tion, just ex- walk me through what we get in August com­pared to what we’ve already got from March, please.

Alex Pass­more: Yeah, sure. So March was a half year­ly.

Tony Kynas­ton: Mm-hmm

Alex Pass­more: Um, and, uh, and, [00:38:00] uh, so that we will then, we’ll then add anoth­er three, um, we’ll then add anoth­er three months to, um, that and, and, and, and con­vert to a June year end

Tony Kynas­ton: Uh, do we get an annu­al report in August? Yeah

Alex Pass­more: So sor­ry, In, in, in, so we, we are con­vert­ing to a June year-end. Sor­ry, that’s, that, that’s, um, yeah, it’ll be an annu­al report

Tony Kynas­ton: Yeah, right.

Alex Pass­more: June, year-end. Yes. Yes. Yes

Tony Kynas­ton: Yeah, okay. Even though it only con­tains nine months or will it actu­al­ly con­tain 12?

Alex Pass­more: No, we can turn 12.

Tony Kynas­ton: 12, okay. Yep.

Alex Pass­more: yep,

Tony Kynas­ton: Yep, okay.

Alex Pass­more: yep. Yep. Yep. Yep

Tony Kynas­ton: Very good. Um, I guess from our point of view, as Cameron said, you, you’re rank­ing very high on our buy list. The QAV score I think is about 0.28 or 0.3, and that’s three times our cut­off. Um, I think your PE ratio is some­thing like four times, so, um, and you’re debt-free and you’ve got lots of cash.

So it’s hard not to like New Murchi­son Gold at the moment. But, you know, do your own research to our lis­ten­ers, but, um, worth a look, I think

Cameron: [00:39:00] I’ve got one final ques­tion before we let you go, if that’s okay, Alex. One of, one of the things that we l- like, uh, and, and score high­ly is founder own­er­ship, uh, you know, a high per­cent­age of own­er­ship. We’re nor­mal­ly look­ing for over 10%. one of the sur­pris­ing things for me when I did our analy­sis on NMG was I could­n’t find a lot of, uh, uh, founder own­er­ship, even though the com­pa­ny’s rel­a­tive­ly young. Uh, I noticed the, the Crabb fam­i­ly still has some own­er­ship, but it’s n- I think it’s, like, cou­ple of, cou­ple of per­cents, not 10. w- why don’t we see more Crabb fam­i­ly own­er­ship, uh, on the books or insid­er own­er­ship?

Alex Pass­more: So there’s a cou­ple of things, Cameron. So it’s, so it’s not that young, you know, so it’s, it’s NMG as a name is, is young. Um, but the com­pa­ny has been around for thir­ty-sev­en years and because it’s had to, um, raise mon­ey over, over, um, many, many years with­out a cash flow, you know, being an explor­er, [00:40:00] the founders get dilut­ed, um, over time.

So that, that, that’s the main rea­son. But the, the man­age­ment team, so, you know, I, I’ve got just under in terms of, um, uh, shares that I’ve bought on mar­ket. There’s also some per­for­mance shares. Um, you know, every­one that’s impor­tant in the com­pa­ny that’s run­ning it from an exec­u­tive team is incen­tivized but not, you know, not, I would­n’t say, um, out of mar­ket incen­tivized, but, uh, you know, it’s a very impor­tant, um, part of their life that it goes well. Uh, and, um, you know, and, and the Crabb fam­i­ly, you know, are, are still, you know, there sub­stan­tial­ly as, as, as, you know, as ear­ly, ear­ly founders as well

Cameron: Inter­est­ing. That, that’s not real­ly show­ing up in Stock Doc­tor’s list of exec­u­tive own­er­ship, so maybe they don’t, uh, have access to the full pic­ture

Alex Pass­more: Yeah. Well, um, you’ll. So you’ll see in our annu­al, uh, go, go look­ing for, um, you know, j‑just go look­ing for KMP Hold­ings. Um, and, uh, go, go back [00:41:00] hunt­ing for, um, for, you know, the var­i­ous per­for­mance certs and per­for­mance rights at AGMs as well.

Cameron: Right. Okay, ter­rif­ic. Thanks. Well, that’s, uh, that’s it. We’ll let you get on with your day, Alex. Thank you so much for com­ing on and, uh, walk­ing us through that. Uh, con­grat­u­la­tions on the suc­cess of the busi­ness. Hope it does well. Fin­gers crossed, uh, that you make it into an ETF. That’ll be good for all of us. And, uh, we’d love to have you back on, let’s say, in a year or so and get an update on how things are going

Alex Pass­more: Thank you, Cameron, and thank you, Tony, for your time.

Tony Kynas­ton: Thanks, Alex

Cameron: Take care