Doug Casey’s Next Big Score

Guest Post by Doug Casey

Editor’s Note: Resource expert and financier, Marin Katusa is Doug Casey’s longtime friend. He’s known for finding the most lucrative investment opportunities in the world. In fact, Doug invests his own resource money with him. 

Below is a private conversation between Doug and Marin about their next big score.

We urge you to read what they have to say—including all the details on how you can get in on the action.

——————————————————————————————————————

Doug Casey: Sometimes, I hate to call you because I feel like I might be impinging upon time you’re using for some big deal.

Marin Katusa: Well, this is the one. This was the perfect mix of being an alligator, willing to do things that other people weren’t during a pandemic, knowing the history.

Luckily, I was very well-read on the history of the Guggenheim’s and Kennecott, and the puzzle of being involved with Copper Mountain and understanding how smelters work. It really was the Royal Flush, Doug, having each card and understanding what that card does.

Doug Casey: It’s amazing to me that they would miss such incredibly rich ore.

Marin Katusa: I couldn’t understand that either, but it makes sense if you look back at history. Because Kennecott, which was the largest copper miner in the world, it’s Rio Tinto today, their whole business model depended on making their largest mine a success, and everything else around it was second fiddle.

And at the time, the whole empire of the Guggenheim’s (one of the richest families in the world at the time) relied on this one project. It was the first major bulk tonnage mine in the world.

Now, fast forward many decades, it’s not like you just take this crushed rock and put it into the smelter; you have to mix it to get the optimal recovery from the smelter with something called flux because it maintains the temperature in the smelter. But you want that quartz, which is flux, not to have other “nasties” like mercury or fluorine or any non-valuable metal that will screw up the smelting process and reduce copper and gold recovery because of the temperature change in the smelter. That’s all it is. You want it to be as simple as water, just to push it through. That’s what flux is.

It was about 98.5% to 99% pure quartz flux. And they never assayed it for copper or silver, the flux, because they didn’t care. What was the priority of the whole project? Make sure you get as much flux to the mother ship. And this was the ideal flux to blend with their concentrate from their largest mine. When you’re underground, which you’re going to come with me, I’ve already been underground. You will see the flux and see why they missed the ultra-high grade gold.

And remember, Doug, this is from the 1940s, ’50s, ’60s; there wasn’t the woke environment where you’re asking people, how do you feel before they go to work? Can you go to work today?

Back then was, if you were an underground miner, you were a tough and ready worker happy to have a paying job and didn’t ask questions. And if you didn’t want to be tough and have a high output, 50 guys were waiting in line for your job. It wasn’t like today. It was a very different environment. You didn’t question anything. You didn’t have your own ideas. You were just labor in an underground mine.

The manager said, just produce the white rock—we only want flux. If there’s red rock, stay away from it because we’re not going to get paid for that, and we’re going to get fired. If it’s green, stay the hell away from that because that’s not white.

And here is the thing about technology, Doug. These underground geologists and miners from 1940 to the 1970s didn’t have the benefit like me when I went underground with a $50,000 XRF laser gun that, when I click the trigger, will tell me with a high degree of accuracy what the composition of the rock is of gold, silver, copper and all the metals.

I was the first in the world outside of the insiders, working in this private operating company to go underground and see the rock. And when I saw what I saw, I thought to myself, “I’ve got to get this.”

Doug Casey:  I recall that it’s got some small production. Who’s running the mine right now? What’s that all about?

Marin Katusa: Correct.

So, in the ’90s, the company went bankrupt. And when Kennecott did its whole restructuring and eventually merged into the mother ship of Rio Tinto (the world’s second-largest mining company). And this district just stopped producing and shut down.

Then a real estate group got the holdings through bankruptcy. They joint ventured it to a really good group, both private. They were trying to figure out what to do. They did some more exploration. And then one of the geologists had an idea: “well, let’s go back into a specific region of the flux development and do some crosscuts.”

That’s when they found their first high-grade gold structure, by essentially some very good geological work and a lot of luck. And that was within 20 feet of the main zone of where the flux was coming from for the largest copper mine in the world for decades.

The infrastructure is in place, and the small private group operates this small shaft. Remember, they funded it themselves, this little private company, So by only doing 35 tonnes a day, they’re doing something like 25,000 ounces of gold because it’s so high grade.

The new guys are going to do a drift, upgrade the mine and mill, and plan on doing 500 tonnes a day. Still, this is a very small mine compared to the mines that you and I have financed into production like the Equinox mines. But in a world with high inflation costs, I am quite happy with the ultra-high grade that can get to 150,000 to 200,000 ounces a year of production from 500 tonnes a day operation. It’s the highest grade operating mine in the world for gold.

Doug Casey: Do you think they’ll be able to increase production substantially?

Marin Katusa: Easily, with some new capital expenses, hence why I am funding the company. Doug, with the capital in the company now, you’re looking at over 100,000 ounces of gold production within 24 months. But the goal is to take it north of 200,000 ounces.

Now that doesn’t seem like a world-class production, but you’re talking about tonnage and your costs, and it’s all about margins. You don’t need to put up $500 million to produce 250,000 ounces of gold here because the grades are so high. Today, it would cost USD $1 billion to build a mine that can produce 250,000 ounces annually. I believe we will get to 200,000 ounces for less than $200 million. I am the largest investor in this financing.

More importantly, you think about just the existing infrastructure in place that Kennecott put in over the decades, power lines, buildings, roads, shafts, drifts, tunnels; there’s over $400 million already sunk into this district. It’s produced over 300 million ounces of silver and 2.9 million ounces of gold.

And here’s the craziest part of this. Doug, you know how cheap I am, and I look for value. There’s a preliminary economic assessment (PEA) of an existing deposit where the net present value (NPV) is worth $160M at no cost in our valuation. We also get both the big copper porphyry target and 14,000 acres of a district with 23 past producing mines for free. The existing gold deposit is worth more than the acquisition price of the company.

Now to go back to why the old-timers never caught wind of the ultra-high grade nature of the deposit. And when I say high grade, it is literally the world’s highest-grade operating gold mine in the world.

I couldn’t believe it when I went underground and looked at the gold in the mine on the hanging walls. It’s literally a green-looking rock. Very few geologists have ever seen such a thing, and unless you assayed for the gold, your eye would never pick up its gold.

I’ve shown the photos of the underground workings to the best geologists, all the Hall of Famers, and not a single one picked out what it was. It’s rare.

And because the underground miners were focused on white, there is no “traditional” gold in the rocks. It’s telluride gold looks green with some rusty red parts and barite.

To put things into perspective, there is a section of this high-grade vein that the company will produce that runs 102 ounces per tonne. That rock is worth over $180,000 per tonne.

To me, this is not just a super high-grade operating gold mine.

We get the existing base metal deposits, which were past producers and currently have a NAV of over $160 million, for free.

An incredible copper porphyry target under the gold zone for free.

100% ownership of 14,000 acres of a full-out mining district with 23 past producing gold mines, over 300 million ounces of historical silver production, and 2.9 million ounces of gold production. For free. Talk to any geologist worth his weight in salt; they will know that something is feeding this incredible structure. You just don’t get these types of deposits without something there; all the indicators are there.

Our own internal gold resource at a 50% discount to NAV. And yet, if we are correct—the known resource of gold pays for the whole acquisition within 30 months from cash flow from the operating gold mine.

There are so many ways to get more value out of it than how it operates today. And the guys on site are great. Don’t get me wrong. But with more cash and the guys we’re bringing in have built the biggest operating gold mine in Canada. These guys are winners, and we get a chance to invest at the same time at the same price.

Again, Doug, my whole thesis is, to go to politically stable jurisdictions where you have massive infrastructure already in place, where you’re bringing modern technology that’s proven to enhance the economics of the project. It really is that simple.

This is an incredibly prospective mine, and we are getting it for a significant discount to its net asset value. That’s Warren Buffet value.

For less than $10 million of drilling, we could pull another Solaris.

We did this, Doug, with Solaris in the Katusa Research office. Remember that site visit when you and I went with Bob Dickinson, Ron Thiessen, and David Lowell? Talk about legends and Hall of Famers. And that was when David Lowell, who’s the greatest copper geologist of all time, sat beside me on the flight and pitched me on doing a deal together. I said, “I don’t want to do any more deals.”

He said I reminded him of his old partner from the 1960s, which was the birth of what became JDL Gold Corp. And we then went and took over the Aurizona gold mine in Brazil, which became Trek Mining. And then I brought Ross Beaty in, and that was the birth of Equinox. But it all started with David Lowell.

And remember, we kept those copper assets and our subscribers got a free dividend that went from 25 cents value dividend for tax purposes to today, north of $13 a share. That’s how you make these huge scores in the businesses with these kickers for free. Having a kick at the can of a world-class porphyry copper deposit at no cost is a great way to make a fortune in this business, like we did with Solaris.

Doug Casey: What could go wrong with this, Marin?

Marin Katusa: Well, mining is always tough.

Let’s say, even though I’ve walked underground, and I’ve been there, I think the rock is stable, and it’s been producing for on and off 100 years. There’s always the risk of the walls, a mine collapse.

Another risk is that the gold price could drop 50%. But this gold mine, in my opinion, will be economic under $800, $900 an ounce. So sure, I guess gold falling 50% would be drastic, and it could happen (I doubt it, but it could), but then at that point, very few deposits are economic that’s producing in the world today anyways.

What else could be a risk? We don’t have the political risks of an emerging nation. This is a very pro-mining place with a long history of mining.

Doug Casey: I’ve always liked the fact that you put large amounts of your own money into these deals and do it at the same price as everybody else does. That’s really unusual in this business. Another reason I always do your deals is that they’re typically structured in a very investor-friendly way. A lot of deals only have half warrants, good for two years at most. This has a detachable five-year full warrant. Am I correct?

Marin Katusa: Correct. It’s listed and trading. It’s how you get paid twice if the deal works out—which is not a guarantee, but this is priced right.

And here’s the best part, someone might be saying, well, why the hell would a company go with Marin than some big bank? And here’s why Doug. Me and you and the investors out there, we raise more money to put into our own deals than any bank in mining.

And the best part is, why would the company do it? What are the finder fees that we take? Zero.

I take no compensation from these companies, but what I want are the best possible terms for me and all of my co-investors at the same time at the same price.

In addition, I did the site visit over six months ago. I spent many months with my team doing the research and committed my money before any other analyst even went to the site.

Doug Casey: I know for a fact that, as have I, you’ve personally eyeballed scores, hundreds of mines. Over the last 15 years, we’ve seen a whole bunch of them together, all over the world. I respect the fact you’ve got a ton of street smarts. Maybe that’s because you grew up in a rough part of town. But you combine that with lots of technical expertise stemming from the fact that you’ve always been a math nerd with a strong interest in science.

When you put all the pieces together, how do you assess the value of this company? What do you think this deal should ultimately be worth? It impresses me as one of the best deals you’ve ever put together. That’s why I’m putting over $1 million in it.

Marin Katusa: The reason I’m doing this is because I believe it’s a four to five bagger from our financing price in a conservative market at current gold grades. I don’t need $2,500 gold. I don’t need $2,000 gold. Those gold prices are great and will add more mojo to the share price, but we don’t need higher gold prices for our share price to go up.

Now to put this into context, my wife and I, as you know, my wife’s an MBA and a geologist. She’s independently put over $1 million into this herself. I should disclose that because my family and I are the second-largest shareholders of this company, my wife joined the board to protect the interests of her own investment. And also of everyone there who invested at the same time and price as us. She is an independent board member, which means she does not work for the company nor works with the management. So I’m really going heavy on this because I believe in the potential.

Doug Casey: This deal makes all the sense in the world. And I think your timing is fantastic from the investor’s point of view because right now, nobody’s interested in gold mining stocks. They’re about as cheap as they’ve ever been relative to the price of gold.

In addition, there’s every reason to believe that gold is going higher.

I suspect it’s going to be one of the best deals that I’ve ever been involved in. You only need one deal like this a year. You actually only need one deal like this every decade.

-----------------------------------------------------
It is my sincere desire to provide readers of this site with the best unbiased information available, and a forum where it can be discussed openly, as our Founders intended. But it is not easy nor inexpensive to do so, especially when those who wish to prevent us from making the truth known, attack us without mercy on all fronts on a daily basis. So each time you visit the site, I would ask that you consider the value that you receive and have received from The Burning Platform and the community of which you are a vital part. I can't do it all alone, and I need your help and support to keep it alive. Please consider contributing an amount commensurate to the value that you receive from this site and community, or even by becoming a sustaining supporter through periodic contributions. [Burning Platform LLC - PO Box 1520 Kulpsville, PA 19443] or Paypal

-----------------------------------------------------
To donate via Stripe, click here.
-----------------------------------------------------
Use promo code ILMF2, and save up to 66% on all MyPillow purchases. (The Burning Platform benefits when you use this promo code.)

Click to visit the TBP Store for Great TBP Merchandise