THE WALL STREET TRANSCRIPT

SECTOR – PRECIOUS METALS

COMPANY INTERVIEW — SAN ANTON RESOURCES CORP.

TWST: Can you provide an historical sketch of San Anton Resource Corp?
Mr. Cook: I’d like to first step back and take a second to tell you about myself. I’m a mining engineer. I’ve been in the junior, or entrepreneurial, end of the mining business for the last 15 years. I am the CEO of San Anton Resource Corporation, and I also sit on the Board of several other small mining companies. San Anton has been in existence for a relatively short time. The Company’s principal asset is a 64% interest in the San Anton property which hosts the Cerro del Gallo gold-silver-copper deposit, located in the state of Guanajuato in central Mexico. Goldcorp holds the remaining 36% interest in the San Anton property.
San Anton Resource was spun off from Kings Minerals, an ASX listed company. Kings Minerals did some exploration work on the Cerro del Gallo deposit, earning a 51% interest in the project in December 2005. In order to take advantage of the better market conditions in North America—particularly the opportunity to raise equity capital via a listing on the Toronto Stock Exchange (TSX), Kings Minerals transferred its interest in the project to San Anton Resource Corporation which became listed on the TSX in December 2006 and completed a C$17.25 million financing placed largely with institutional investors. So, we can say that San Anton is a relatively new company.
At the time of the placement, market conditions were very good. The IPO sold at C$0.80 a share and the share price rose steadily for about the following 6 months. However, since October 2008, the equity markets began to pull back, and share prices across the mining sector have been on a bit of a slide since then.
The funds raised during the IPO significantly expanded the resources for the development of the Cerro de Gallo deposit, bringing us to the present phase. More specifically, the funds raised from the initial placement were used to advance the San Anton project on three fronts: expansion drilling at Cerro del Gallo; preliminary metallurgy and engineering work to define preliminary pit outlines; and initial exploration of other targets elsewhere in the San Anton Property.
TWST: Was there a spin-off or other form of restructuring of San Anton Resource from Kings Minerals?
Mr. Cook: Yes, the restructuring was intended to allow both companies to exist in their own right. Kings Minerals is an Australian Stock Exchange listed company. San Anton is listed on the Toronto Stock Exchange. Kings Minerals still owns 71% of San Anton. The remaining 29% of San Anton’s equity is owned by the investing public. Several hedge funds and resource funds invested in the IPO, but I believe most of those funds, if not all of them, disposed of their interest in the company during the market decline.
As I mentioned before, the San Anton project is a joint venture with Goldcorp. The joint venture provides, among other things, that San Anton, as the majority shareholder, is entitled to oversee the day-to-day management of the Project. San Anton initially held a 51% stake in the project with the balance owned by Goldcorp (49%). However, since November 2007, Goldcorp has chosen not to participate in funding operations. As a result, its participating interest in the project is being diluted by expenditures made by San Anton Resource Corp. Goldcorp’s current participating interest in the project is 36%.
TWST: How many shares did you issue in the 2007 IPO?
Mr. Cook: San Anton currently has 105 million shares outstanding. The fully diluted amount is 121 million shares. But the bulk of the warrants and options are way underwater. I doubt they will be exercised. The IPO was completed at C$0.80 a share. Each share came with half a warrant. A full warrant gave the shareholder the right to purchase the stock at C$1.20 a share. The warrants came due in December of last year; but they were not exercised, as the stock was trading at only about C$0.15 a share. So, the effective fully diluted number of shares outstanding is 105 million.
TWST: Why did the company’s stock price decline so sharply?
Mr. Cook: Nothing in the underlying value of the company has changed. The stock price decline has been the result of the general malaise in the market for junior commodity stocks. These stocks were under severe pressure through much of 2008. In the face of a rising gold price, which we’ve had, shares of mining companies tend to react later. The large gold mining companies have reacted positively to the increase in the gold price. And, to a certain extent, a small company like San Anton has come off the bottom. In the depths of last November, its share price had dropped as low as C$0.03; it has since recovered a bit to about C$0.20. In percentage terms, that’s a significant increase—especially considering the company’s exposure to copper. Whereas the gold price has risen, the price of copper has deteriorated from over US$3 a pound to US$2 a pound.
TWST: Can you tell us about San Anton’s principal activities and current stage of development?
Mr. Cook: The principal activity is the exploration and development of the San Anton property in Mexico. The project is located in a very historical mining area in the State of Guanajuato where gold and silver mining has been carried out since before the Spanish conquest. It still has some of the richest-producing silver mines in the world. There is still evidence of old small scale mining in the San Anton project area.
Within the San Anton property, we’ve identified a very large resource – the Cerro del Gallo deposit. Even though it is somewhat low-grade, we also see it as high-grade in the sense that most of the resources (81%) are already classified in the “measured” and “indicated” categories. Within the overall resource, over 450 million tonnes are measured and indicated resource; and the gold grade (not to be confused with the gold equivalent grade) is 0.27 grams per tonne
The resource is divided into three geological domains. The most significant is a gold domain. It’s in the center of the area and very close to surface. It contains over 200 million tonnes at about half a gram of gold per tonne. The other principal zone is the copper domain. And there also is a smaller, intrusive domain. Our website [http://www.sanantonresourcecorp.com/en/] illustrates how the copper and gold domains are delineated from each other.
We have started preliminary work in the gold zone which could be developed as a potential open pit with more than 100 million tones, at about half a gram of gold per tonne. And within this potential pit, there is another 50 million tonnes, at about three-quarters of a gram of gold per tonne.
We are currently working on delineating smaller, high-grade zones within the gold domain. We plan to develop the mine in phases, rather than try to develop an enormous mine at an enormous capital expenditure. The first phase is to develop a smaller mine for higher grade gold. We can do this for a relatively low capital cost. It’s also a manageable project for a small company like San Anton. This initial phase will allow us to generate cash flow and enable us to develop something bigger in the future.
TWST: What is the intrusive zone?
Mr. Cook: The intrusive zone is a geologically intrusive, massive rock that extends up in to the copper and gold zones. The gold and the copper zones are like two donuts around the rock. There is metal in the intrusive zone, but the grade is not as high as in the other domains. And it’s much smaller than the other zones.
All three zones are very close to surface. So from a practical point of view, they could be mined with very little waste. In fact, the smaller higher grade gold zone that we currently are focused on developing will require hardly any waste mining whatsoever. As we do the initial work of defining the best economic method to exploit the higher grade gold mineralization, we are also conducting a feasibility study and making plans to go into production.
Mexico, and particularly the State of Guanajuato, is a very mining friendly jurisdiction. The rules and regulations are very straightforward and similar to Canadian and U.S. mining regulations. We know how the system works and what has to be done to obtain a permit. We believe it will be relatively easily obtained—as long as we do our work properly, of course. Our deposit is located in area where the land is individually owned by people who are interested in selling it to San Anton. Plans to expand land ownership are underway to assist with the advancement of the site plan.
TWST: What about the copper domain?
Mr. Cook: The copper in the ground in the copper zone is in a form that is relatively easy to concentrate. So, based on the metallurgical tests we’ve done, we expect it to be relatively easy to turn it in to a saleable copper concentrate. This way, the copper would be recoverable along with gold in the form of saleable concentrate, with values that will be payable by a smelter. So while we are concentrating at the moment on developing the gold zone, the copper zone also has a role in our long-term plans for the development of the project.
TWST: What are your plans for achieving your objectives?
Mr. Cook: Our current work plan is to complete the technical and feasibility studies, which will show how we will start with a relatively small gold producing mine that we can expand to produce more gold and eventually gold and copper.
TWST: Do you also plan to build processing facilities?
Mr. Cook: Yes. To be able to produce gold and copper from the ore we extract from the ground, it will require us to plan and construct a treatment, or processing, plant. This is part of the initial phase. The first step is to build the processing facility; we will then mine the material and produce gold in the processing facility. We are currently working on the feasibility analysis and the planning for this operation.
TWST: How far along are you in the planning stage? Do you have a clear picture of what it will cost you to build this facility?
Mr. Cook: We have a clear picture of what we want to do. We do not as yet have a clear picture of how much it will cost us. We are working on this.
TWST: So you’re in a very early stage.
Mr. Cook: No. I wouldn’t say that. I would say we were in an early stage if we were doing exploration. We’re sort of in the middle of the process because we’ve completed the exploration phase. We have well-defined resources.
TWST: Do you have any sense of when you’ll have your facility up and running?
Mr. Cook: We expect it will take two years to complete the permitting and planning work. It will take another year to build the processing facility. We expect to be producing metals in three years’ time.
"Within the deposit we have an estimated 4.5 million ounces of gold, over 200 million ounces of silver, 1.4 billion pounds of copper."
WST: What production quantities are you looking at?
Mr. Cook: Initially, we expect to produce between 50,000 and 100,000 ounces of gold a year. As the size of the operation grows and we extend the mining to the other domains within the deposit, we plan to boost our annual production up to 200,000 ounces of gold and some copper. The potential copper quantities are still being defined.
TWST: Have you set milestones for gauging your progress in achieving your strategic goals?
Mr. Cook: The most immediate milestones are completion of the technical studies, the feasibility study, and the background work plans for the environmental and regulatory authorities.
The next milestone will be the completion of an expanded feasibility study that we can present to financial institutions. The third milestone will be obtaining the mining permits for construction and development of the project.
The final milestone is the successful attainment of the financing required in the construction phase. After this, the rest is fairly simple. It’s a matter of constructing the facility and going into production.
TWST: Can you tell us more about the focus of the feasibility study?
Mr. Cook: We are analyzing an open pit mine from which we will extract gold ore and, eventually, copper ore. We will then take the ore to a treatment facility, which will produce gold in the form of dore bars, an impure form of gold, and copper in the form of copper concentrates. The study will also look at smaller operational components, such as ancillary workshops, small administrative offices, disposal sites for waste rocks, etcetera.
By the time we start work on the expanded feasibility study, we would have already completed a large portion of the engineering work and the basic feasibility analysis. Based on the preliminary work done so far, we already have a good idea of the cost involved in executing our plan and what the projected revenues look like. The purpose of the more formal feasibility study that I have been speaking about is to demonstrate precisely our business plan. At the end of the day, the feasibility study will enable us to obtain financing.
TWST: What type of financing are you looking to obtain?
Mr. Cook: I think we will be very flexible in how we finance our operations.
TWST: Will you raise additional equity?
Mr. Cook: Yes. We might look to raise more equity capital. There also may be other types of financing available to us. There are banks that are always interested in lending for mining operations. And there are other sources of financing for copper. For example, people who are looking for uptake in the form of copper concentrates may be interested in providing project financing.
TWST: So a key milestone is obtaining the financing to continue to move forward?
Mr. Cook: Absolutely, yes.
TWST: How large are your copper assets relative to your gold assets?
Mr. Cook: Based on current market prices, our copper assets are smaller than our gold assets, but by a very small amount. We own a very substantial source of copper in the world. However, we currently are much more focused on the gold side of the equation.
TWST: What challenges do you face? You’ve mentioned that one is obtaining financing.
Mr. Cook: Yes. There is the immediate challenge of obtaining sufficient financing to do the work to reach the first and second milestones that I mentioned earlier. That is the technical studies, the feasibility studies, and the bankable feasibility studies. We also require funds to be able to attain the third milestone, which is obtaining the necessary mining permits. All of this is relatively inexpensive, but it still requires financing.
The biggest challenge, of course, will be to obtain the financing that will allow us to move in to the construction phase. In some ways, however, this could become easier because by the time we get to the point where we are trying to raise funds for the construction phase, we will have a very well-defined [business] plan and very well-defined financial objectives. Therefore, as long as the financial institution agrees with our projections for metal prices and the world’s financial markets are stable, it could be relatively easy to raise the money.
TWST: The permit is to build your processing facility?
Mr. Cook: Yes. We must obtain permits from the Ministry of the Environment in Mexico to excavate the mine, to build the processing/production facility, and to dispose of waste. But right now we are doing the basic groundwork, which involves measuring and monitoring conditions, such as air, water, and soil quality, in the area we plan to mine. It’s important that we know and document in scientific terms the conditions that exist before we start mining. This will enable us to predict the effect we will have on the existing conditions and what we will need to do to ensure that we preserve the environment during and after the mining process.
TWST: What is your outlook for gold and copper prices?
Mr. Cook: Our outlook for gold is that it’s going to continue to maintain reasonable levels-maybe not its current level, but, still reasonably high. For planning purposes, we are using a gold price of US$800 an ounce. For copper, we are using a price of US$2 per pound, which is, more or less, the current price. And for silver, our plan is using a price of US$13 an ounce.
TWST: Are you also going to be mining silver?
Mr. Cook: Yes. There is silver in the deposit.
"We will start with a relatively small gold producing mine that can be expanded to produce more gold and eventually copper."
TWST: So the silver is less than the gold?
Mr. Cook: In terms of the absolute quantities, there is more silver. But on a valuation basis, the gold is worth a lot more.
TWST: What are the projected volumes for silver, copper and gold?
Mr. Cook: Within the deposit we have an estimated 4.5 million ounces of gold, over 200 million ounces of silver, and 1.4 billion pounds of copper.
TWST: So, you do not expect gold to go through the roof?
Mr. Cook: We may be expecting that, but we are not going to plan for it. I don’t think it would be prudent to build our strategic plan around the potential for gold to go through the roof. Although, personally, I do think that gold is going to go significantly higher.
I think the world’s financial situation is still in a rather perilous state. People increasingly will feel that there is more substance to gold compared with other forms of wealth, whether it is the US dollar, the Euro, or another currency. People will want to invest more in gold in the future purely to protect their wealth. I think that the things we are doing to get out of the current financial state presents a significant danger of inflation that will cause the price of gold, in US dollar terms, to increase. So, in other words, investors seeking protection against inflation and the general uncertainty in the financial market, will lead to a much high gold price.
TWST: And what about copper?
Mr. Cook: A lot people are more bullish about copper than I am. They believe that the world economy will continue to expand, that the markets-particularly in China and India—are going to demand copper and other base metals, and that this demand will drive up prices of base metals. But I don’t necessarily agree with this. I think the world economy is going to slow down. This may be good for gold; but it’s not so good for copper or nickel.
TWST: What about silver?
Mr. Cook: I think silver will largely move with gold, because it’s a precious metal and it’s been used as a currency metal for thousands of years.
TWST: Thank you for speaking with us. (LKS)
JOHN COOK, CEO
San Anton Resources Corporation
416-987-0856
416.363.4567 – FAX
e-mail: [email protected]
www.sanantonresourcecorp.com/en/