Jeff Pontius Says Mid-Tiers Will Drive Next Wave of Gold M&A

Key Concepts

• Corvis Resources Acquisition: The sale of Corvis Resources to Anglogold Ashanti for CAD $570 million in 2022.
• North Bullfrog Project: A key asset of Corvis Resources, now part of Anglogold Ashanti's Arthur project, described as a multi-million ounce open-pit heap-leach project.
• Formile Project: A significant project in Nevada, previously discovered and explored for nearly 10 years, with a recent Preliminary Assessment (PA) announced by Barrick.
• CEO Transitions: Recent leadership changes at major gold companies Barrick (Mark Bristo) and Newmont (Tom Palmer replaced by Natasha Vilhan).
• Nevada Gold Mines Joint Venture: A joint venture between Barrick and Newmont in Nevada, where the Formile project's future integration is a key consideration.
• Royalty Transactions: High-value secondary market transactions for royalties on projects like Anglogold Ashanti's Arthur, indicating strong asset valuation.
• Junior Explorer Funding: The significant capital being raised by junior exploration companies for exploration and development.
• US Government Investment in Mining: The US Department of Energy's stake in Lithium Americas and MP Materials, highlighting the strategic importance of mineral production.
• Strategic Investments: Major companies making strategic stakes in junior explorers, such as Rio2's investment in Royal Road Minerals.
• Precious Metal Bull Market Cycle: Discussion on the current stage of the precious metal bull market, with the consensus leaning towards early to mid-cycle.

Summary of Discussion with Jeff Pontius

This discussion features Jeff Pontius, an exploration geologist with a successful track record in advancing mineral deposits leading to M&A transactions, most notably as President and CEO of Corvis Resources, which was acquired by Anglogold Ashanti for CAD $570 million in 2022.

Post-Corvis Activities and Future Outlook

Since the sale of Corvis, Jeff Pontius has been involved in advisory work, assisting the Colorado School of Mines on projects, and taking time for personal travel. He notes a resurgence in the mining sector and expresses interest in future involvement, particularly in his preferred area of Nevada. While not definitively stating a CEO role, he indicates a potential return to providing guidance and hands-on exploration assistance, emphasizing his enjoyment of "chasing discoveries on the ground."

Anglogold Ashanti's Arthur Project (Formerly Corvis Assets)

Pontius views Anglogold Ashanti's development of the former Corvis assets, now part of the Arthur project, as "crackerjack." He highlights the original discovery holes in the Linda Strip area (southern Merlin) and describes it as a "very large oxide open pit, round mountain type discovery." He is particularly impressed by the "high-grade nature of some of the upper part of that ore body" and believes it will be a "cornerstone asset for Anglo for 20 or 30 years." He commends Anglogold Ashanti for their progress in advancing the project, managing local relations, and pushing permitting forward. He specifically mentions the North Bullfrog project, a "couple million ounce open pit heap leach project," as a key component of Anglogold's strategy.

Royalty Market Activity

Pontius finds the recent royalty transactions, such as Triple Flag's and Franco-Nevada's significant acquisitions, impressive. He notes that the prices achieved were "beyond what Anglo felt probably that justified the acquisition," suggesting a premium in this secondary market. However, he believes these transactions are still "very good transactions for those royalty companies" given the asset's size and exploration potential.

CEO Transitions at Barrick and Newmont

The conversation shifts to the recent CEO transitions at Barrick (Mark Bristo) and Newmont (Tom Palmer replaced by Natasha Vilhan). Pontius, also a geologist, expresses high regard for Mark Bristo's geological acumen and his successful transition to corporate leadership. He describes the transition at Newmont as "orderly," with Tom Palmer leaving the company in a strong position. He characterizes Bristo's departure from Barrick as potentially a shift in strategy, possibly due to challenges with "African assets" which he describes as "more risk" and having "some issues." He anticipates Bristo will likely pursue other impressive ventures in the future.

The Formile Project and the Nevada Gold Mines JV

Regarding Barrick's Formile project in Nevada, Pontius calls it "incredibly impressive" and has followed it since its discovery nearly 10 years ago. He discusses the strategic decision Newmont faces regarding the Formile project's potential integration into the Nevada Gold Mines joint venture. He believes Formile is a "cornerstone asset in the Carlin trend" and a "long-life asset with great value." His recommendation is for Formile to be incorporated into the Nevada JV, with Newmont likely accepting the current market valuation, especially if gold prices continue to rise. He sees this as a "good trade" that would maintain the Nevada JV as a "major cash cow" for Newmont.

Bristo's Strategy and M&A

Pontius reflects on Mark Bristo's strategy of "finding ounces over buying them," acknowledging that this approach can be slower than market expectations, especially during commodity price upswings. He notes that Barrick has actively looked at acquisitions during Bristo's tenure, including Corvis. He favors a "balanced approach" where majors maintain fingers in junior investments (like Anglogold's with Corvis) while also pursuing their own greenfield exploration programs, which he feels is "too little of" in major companies currently. He believes Barrick has a good greenfield program and that time will tell if their overall strategy is the right one.

The Growing Need for M&A and Junior Funding

Pontius anticipates an increase in M&A transactions, driven by the need for majors and mid-tiers to replenish and grow their pipelines. However, he points out a scarcity of "quality assets" that majors seek, defining these as projects with "5 and 10 million ounce potential" and "10, 20-year assets." He stresses the need for more "greenfield exploration to make more discoveries." He suggests that mid-tier companies might be the primary drivers of M&A in the next two to three years, but this depends on majors finding sufficiently high-quality assets.

He acknowledges the "massive amounts of money" being raised by juniors, citing examples like Njex Minerals ($175 million), Highlander Silver ($86 million), and others. While he sees a "component of frothiness" and some "exuberant" transactions, he also views it as a "catch-up trade" compared to the 2007-2011 boom. He believes junior stock prices are "pretty highly priced" but expects this to settle. He emphasizes that significant capital is required for discoveries, referencing Corvis's $70 million expenditure. He notes that raising capital in larger increments (e.g., $10-20 million at a time) is more efficient and less dilutive for investors.

Investor Discrimination and US Market Involvement

Pontius agrees that the current financing window is "very specific and very focused," unlike the broader market of 2017-2018. He believes investors are "smarter this time around" and are being "much more discriminative," requiring "big, high-quality assets" to drive fundraising. He observes the increasing involvement of American investors, starting with hedge funds and expanding to broader investment groups, which he sees as a positive sign for a "good run" in the market for quality assets. He also highlights the trend of quality gold explorers pursuing secondary listings on major US exchanges (like the NYSE American) to attract US investors, noting its critical importance for companies like Corvis.

US Government Stake in Mineral Developers

The discussion touches upon the US Department of Energy taking a 5% stake in Lithium Americas and its joint venture for the Thacker Pass lithium project, enabling access to a significant loan. Pontius views this as "tremendous" for projects requiring "a tremendous amount of capital" to reach commercial production, citing MP Materials as another example. However, as an investor, he expresses reservations about the government as a shareholder compared to "a quality fund or a mining group that understands our business a little better." He suggests that securing future funding from the US government might not be as straightforward as from private resource investors.

Rio2's Strategic Investment in Royal Road Minerals

Pontius considers Rio2's 15% stake in Royal Road Minerals, acquired from Agnico Eagle Mines, a "smart transaction." He praises the management of Royal Road, Tim Coughlin and John Hill, as "great explorers" and "quality guys." While acknowledging the inherent risk in exploration, he believes Rio2 acquired the shares at a "very favorable price" and is in a "very strong position" with capable management.

Current Stage of the Precious Metal Bull Market

Pontius believes the recent rebound in exploration companies and juniors receiving bids indicates that the "boom is starting to take hold and begin to move up." He places the current cycle in the "early phases," comparing it to the early third of the 2007-2011/2012 period. He sees a "strong commodity price" with "good solid footing" and anticipates "two to three more years of pretty strong move in the commodity price." He expects copper to catch up, the gold-silver ratio to move towards 75:1, and quality juniors to continue advancing, leading to significant M&A deals over the next two to three years. He agrees with the sentiment that the market has potentially "two or three years left to run."