Interview With The CEO: Apogee Silver Ltd. (APE.V) - Neil T. Ringdahl
December 19, 2011 - The Wall Street Transcript has just published Gold and Precious Metals Report offering a timely review of the sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Neil T. Ringdahl is the CEO of Apogee Silver Ltd. He is a qualified Mining Engineer who has held senior management positions with a number of companies, including Anglo Platinum, Golden Star Resources Ltd. and Peruvian base metals producer Volcan Compa-ia Minera. Most recently, Mr. Ringdahl was the Country Manager for Ancash Mining (recently acquired by Korea Zinc). He has led a number of mining and project teams on various exploration and development projects in South America and Africa. Mr. Ringdahl spent five years as a Consultant specializing in strategic and tactical mine planning on various diamond, and precious and base metals mines around the world. He is fluent in Spanish. Mr. Ringdahl acquired his B.Sc. Engineering Honours (Mining) from the University of the Witwatersrand, in Johannesburg, South Africa.
TWST: What is Apogee Silver?
Mr. Ringdahl: Apogee Silver (APE.V) is a Canadian junior mining company listed on the Toronto Venture Exchange under the symbol APE, silver focused, with world-class assets in Chile and Bolivia in South America. We have three resources, the Pulacayo and Paca resources right next to each other in southern Bolivia, together containing 29 million ounces of silver in indicated category, and additionally 53 million ounces in the inferred category; and then the Cachinal deposit in Chile, which also has 21 million ounces, inferred. In all cases, we are talking about NI 43-101 resources. We have been an exploration company for the past few years, but earlier this year, the decision was taken to take the company forward into near-term production.
TWST: What does the neighborhood look like in the Pulacayo-Paca property as far as other businesses there?
Mr. Ringdahl: In Bolivia, there are a number of foreign-owned companies. There is the Japanese company, Sumitomo, which owns the San Cristobal Mine, which is a $1.3 billion investment. Then you have Coeur, which is a large silver producer with San Bartolome as one of their main producing assets - also just up the road from us actually. That's a silver mine that produces around about 7 million ounces. There number of others, but Pulacayo itself used to be the second-largest silver mine in Bolivia. For over 75 years it produced around 8 million or 9 million ounces a year of silver before they were nationalized in the early 1950s. It closed a few years later due to lack of infrastructure funding. We've come back in there and done some drilling to find a significant resource still to be exploited in the near term.
TWST: What is Apogee's timeline as you move closer toward production? What are some of the key events along the timeline on which investors should be focused?
Mr. Ringdahl: We've just completed a fairly large drilling program at Pulacayo, and we increased our resources 133% in October to 29 million ounces of silver in the indicated category; inferred resources up to 26 million ounces with further upside still to come. We are continuing with our exploration program, but the main milestone now is to get our pilot plant and mine into production. We are starting with the construction of a 400-ton-per-day concentrator in the new year, with the view to have it up and running by the end of next year. And at the same time, we will be completing a feasibility study for a much larger mine, which is the next step. But what's really exciting is the grades that we are intersecting with our trial mining program, which also just begun. The higher-than-expected grades that we've intersected means that our 400-ton-per-day pilot plant will potentially be able to generate significant revenues at an early stage. So that's very exciting.
TWST: Do you have a base or ceiling on the silver price that keeps the Pulacayo property and other projects economic as far as your anticipated cost of production?
Mr. Ringdahl: We are expecting a production cost of about $15 per ounce, which is obviously a lot lower than what the price is at the moment. Most people I meet seem to be bullish about the silver price, so although the project is sensitive to the silver price, the downside risk is not a big concern. And given where the silver price is right now, that obviously means that we are going to have very profitable mine.
TWST: What's your relationship like with the Bolivian government? Is it a stable political situation?
Mr. Ringdahl: Bolivia has, first of all, a long and prolific mining history. And the government is looking for partners to contribute with capital, technology and human resources to begin new development for the mining sector. The GDP contribution of mining in Bolivia has certainly increased dramatically since 2005. It's over 10% now, and I haven't seen the official figures, but it's certainly a lot higher than it used to be back in 2009, which was around 10%. The other point that's important to know is that the nationalization process of the mines really took place in the 1950s already for most of the Bolivian mines. So foreign-owned mining companies generally coming in now need to go into a partnership with the Bolivian government. On a lease basis, we will pay a 4% royalty for 100% control of the assets, and that 4% is split between Comibol, the state-owned mining company, and the informal mining sector or mining cooperative. The cooperatives form part of the community, and they historically have right to these properties, so they receive 1.5% and Comibol gets 2.5%. This actually gives us quite an advantage because in my experience, starting a new mining operation is often fraught with challenges from the communities affected demanding a piece of the pie, and in this case they are royalty partners. So on the contrary to what I have experienced elsewhere, the local population at Pulacayo are very supportive. They are proud to see it being restored to the former glory it enjoyed some years ago. But more importantly, they directly see the benefits in the form of royalty from the company as they go. Plus, we've gone a little bit further. In these mines, in these parts of the world, we believe it's really important to go the extra mile with the community. So instead of utilizing an experienced contractor foreign to the area, we employed good trainers and local people from the community and are training them as new employees in the mine. It started fairly slowly because they are learning something new, but I think it's going to pay big dividends later on because the communities around us are buying to the operation because they see benefits. This makes it easier for the government to support, and consequently our permitting processes are easier than I have experienced elsewhere.
TWST: What are some industrywide trends affecting Apogee?
Mr. Ringdahl: Certainly, the silver price has being very exciting to follow in the last couple of years, and I think that's probably going to be the biggest factor going forward. I mean, obviously the project is linked to the silver price, but if you speak to the experts, they seem to think the silver price is likely to go up. I'm a Mining Engineer, so I tend to take a conservative view for the long-term silver price, but just looking at where it is right now, we are very pleased with that. I guess another challenge to mining in Bolivia is that it's a landlocked country, so you've got to import your equipment twice to get it into the country, like our crusher and mill. So that certainly makes it a little bit more challenging. Bolivia has been overlooked in years past as an investment destination, and I think that the perception is also changing. Having spent a few years now working in South America, I believe Bolivia is going to be the next Colombia in terms of development and when the investment community begins to pick up on the opportunities here. There are new mining laws coming out next year, there is an investment environment now that's increasingly supportive of foreign-owned mining companies coming in. Recently, the U.S. government signed a memorandum of understanding with the Bolivian government, and the improved relationship is good news for everyone.
TWST: What are Apogee's priorities for the next 12 to 24 months? What would make that time frame a success?
Mr. Ringdahl: Our key priority is to get our mine and pilot plant up and profitably running towards the end of 2012. From there we want to grow our pilot production to reach one million ounces per year and expand from there. Supported by the revenues generated by the pilot plant, our medium-term goal is complete the feasibility work for a second larger plant, to be constructed in 2013 and 2014 to have a large multimillion-ounce-per-year producer in operation during 2015. And so we have a fairly well-mapped-out road, if you like, for the company to become a large silver producer. There are not very many silver companies out there, so we're expecting to receive a lot of investor interest as we hit our milestones.
TWST: What has been the recent history for funding and financing?
Mr. Ringdahl: We don't have any debt. We've got around about $15 million in cash, which we are using for pilot plant and mine construction. The money was raised back in April and May this year in a $25 million - in a bought deal at $0.28, and we were also looking at a number of debt facilities, which we decided we would put on the back burner until more appropriate time. But there is a lot of investment interest in our company. We are also looking at opportunities within Bolivia as well to deleverage some of the perceived sovereign risk; for example, a debt facility taken out with the Bolivian pension funds, I think, would be something that investors find encouraging.
TWST: What are the criteria for M&A from your perspective?
Mr. Ringdahl: We remain open to opportunities. Our main focus, however, is getting the company into production right now. Once we are in production, we can take a closer look at that. We have significant resources we could develop without going into M&A; for example in Chile, in our Cachinal project. There's a 21-million-ounce silver resource there with excellent exploration and development upside. Pulacayo itself is a fantastic resource that is still very prospective too. We know that an old historical mine went down about 1,000 meters below surface. We have drilled only down a depth of 500 meters, so our 55-million-ounce geological model could still grow significantly with more drilling. It's also open on strike in both directions. So the resource will grow, and the mine is likely to run for a very long time, too.
TWST: Introduce us to two or three key individuals in your top-level management team, including yourself.
Mr. Ringdahl: I'm a South African Mining Engineer. I've got 17 years' experience in building mines. I've been involved with expansions in the platinum industry in South Africa, the gold industry in West Africa and then another two companies in Peru, more recently. And I was appointed as CEO of the company in June this year to take the company forward into production. We've got a very strong board for a junior company. We're also part of the Forbes and Manhattan Group of Companies, which is a merchant bank based out of Toronto, headed up by Mr. Stan Bharti, who is also on our board. Forbes and Manhattan have been instrumental in the creation of over 30 listed companies, predominantly in the mining industry, mostly on the Toronto Exchange, but also around the world. Apogee's Chairman is G. Scott Paterson, who is very well connected, has provided a lot of marketing support. And then most importantly, I would say, are the operational team on the ground in Bolivia. We have spent a lot of effort building a multi-national team to execute on the project. The company values its people because it is critical to have good people with experience in each area of expertise to develop the mine successfully and minimize execution risk.
TWST: What historically has been the shareholder base with Apogee, and has that base undergone any changes?
Mr. Ringdahl: Our biggest shareholder is Sprott, which owns just over 18% of the company. Coeur has recently increased their stake to bring it to 9%, and has mentioned that Apogee is a strategic investment. So that's another endorsement, especially considering that they already have another operation in Bolivia. Funds Pinetree Capital, Aberdeen International, the China Mining United Fund have also all taken large stakes as well. We also see quite a bit of retail trading, and our stock is reasonably liquid as a result.
TWST: In your discussions with the investment community, do you encounter any misperceptions?
Mr. Ringdahl: I think it's been a case of getting the story out there. I think we are probably still not that well known yet, and we are working hard to change that. I think one common misconception is that Bolivia is not a good place to invest. I've already mentioned some of the reasons why I do not believe this to be the case. What I can say is that Bolivia is a poor but peaceful country with good people, eager for a brighter future. They look at Brazil next door, Chile and Peru, and I believe the appetite for a better quality of life is growing fast. This is why I believe it will be the next Colombia story of South America.
TWST: What are some of the key metrics or events that investors should focus on as they weigh their expectations for Apogee against your performance?
Mr. Ringdahl: I believe Apogee is significantly undervalued at the moment, and I'd like to draw your attention to our corporate presentation on our Web site in this regard for more detailed information. But to summarize, if one looks at enterprise value per ounce resource as a measure, our newly reported resources bring this value down to C$0.39 per ounce, against an average of C$4.30 among 16 other silver explorers and producers. Certainly a portion of that might be attributed towards the perceived sovereign risk, but a 92% discount is significant. We see a similar discount when comparing the projected NPV multiple or cash flow multiples, using the results from independent technical on the viability of our operation done in 2010. Since then our resource has grown tremendously. We like to compare ourselves to Fortuna Silver, which has a similar-sized resource to ours and followed the same development plan. It is a silver producer with a market cap of over close to $1 billion that also began as a small 500-ton-per-day mining operation. Since then it has grown over the last few years to over 1,200 tons per day across two operations in two countries. They are now aiming for 4 million ounces production this year. So I think it's just a matter of ourselves getting into production, and we are well onto that path, already having produced our first ore in October this year.
TWST: What key points should compel investors to not only include Apogee as a part of their current portfolio but also as a part of their longer-term investment strategies?
Mr. Ringdahl: Basically, very simply, we are undervalued - significantly undervalued just as a resource company. We are even more undervalued as a producer. We have cash to develop the company. We have a clear plan to bring the mine into production and grow from there. So investors can look forward to plenty of good news in the coming months as we execute.
TWST: Is there anything you would like to add?
Mr. Ringdahl: The next step is to grow our small operation into a large mine. As I mentioned, we believe that within a few years Apogee has the potential to become a 7-million-ounce-per-year producer.
TWST: Thank you. (KL)
Neil T. RingdahlCEOApogee Silver Ltd.65 Queen Street WestSuite 815Toronto, ON M5H 2M5Canada(416) 309-2694(416) 861-8165 - FAXwww.apogeesilver.com
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