Categories: Precious Metals
Topics: General Precious Metals

Canasil Resources (TSX-V: CLZ) CEO Bahman Yamini on the Canasil Portfolio of Projects, Prudent Share Structure Management, & the Power of Discovery Drilling

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the President and CEO of Canasil Resources (TSX-V: CLZ)(OTC: CNSUF), Mr. Bahman Yamini. Bahman, how are you?

Bahman Yamini: Thank you very much, Gerardo. Good to have you online. Thank you.

Gerardo Del Real: Thank you for your time. You and I go back, I want to say, maybe nearly a decade now. We all know that we are coming out of what most people have described – and certainly was the case for me – the most brutal bear market in the resource space. And we're transitioning into what looks like the polar opposite of that. It looks like we're going to have what I think is going to be a historic precious metals bull market. I think we're in the early stages of that. 

Canasil Resources is a company, of course, that I'm very familiar with. So I wanted to introduce listeners and readers to the company because I think in this precious metals environment, Canasil presents a pretty compelling speculation. Before we talk about the company, before we talk about the projects, can we talk a bit about your background?

Bahman Yamini: Yes of course, Gerardo. I've been with Canasil now for several years, for at least 15 years now. My own background is in production management and engineering and business development. I'm not a geologist, but I have been around geologists long enough to have an understanding of the technical aspects of our business. I'm very much fascinated by all the new technologies, the satellite imaging, the geophysics, everything that goes into our early-stage exploration activities to define targets. 

Of course we have a tremendous team of geological talent on board with Canasil, including our board, our advisors. All of them are highly recognized figures, have had major successes with discoveries. So we are very, very fortunate to have this team in place. We have excellent guidance on the board level in terms of our technical consultants. 

I'm pleased to mention our full-time operating team in Durango, which we've made a point of in Canasil as opposed to sending in a part-time geological staff to work on the projects. So right from day one, we've maintained the same geological team based in Durango, a local team. They're excellent and they do a really excellent job of acquiring and advancing our projects.

Gerardo Del Real: Let's talk about those projects. You have high-grade silver and gold projects throughout Mexico, specifically in Durango and Zacatecas. Zacatecas, of course, is where my parents live. I spent a part of my childhood there a few years and, for all sakes and purposes, is home. And Durango, of course, being the neighboring state. 

Can we talk about the projects? Later in the conversation, Bahman, I want to talk about how you were able to manage the share structure during the bear market because you have one of the stronger ones for companies that didn't do rollbacks, didn't restructure. You were able to maintain that pretty, pretty solid and you should be commended for that, but we'll get into that a bit later. Let's talk about the projects.

Bahman Yamini: Absolutely. Well, Zacatecas and Durango are beautiful parts of Mexico, great states in Northern Mexico. We are extremely focused in our activities. They're all entirely located in those two states. The guiding principle in terms of acquiring the projects has been they have to be within a couple of hours driving distance of our office, which is located in Durango. So our staff have easy access to the projects and we can manage them very cost effectively. We are hands on and we have very close relations with the local communities we work with.

Now, we have looked for these projects, selected them. We must have looked at 50, 60 more projects to acquire the 6 or 7 projects that we are advancing now. They've all been selected taking into account location, access, supply of water, supply of electricity, local workforce, no restrictions to potential future mining activity. We've really crossed the T's, dotted all the I's of the possibilities that if we discover a major deposit, it could go ahead to become a mine and it can be sold at a premium.

So a lot of thinking has gone into these projects in advance and they are focused. They're high-grade and large mineral systems. We like to see high-grade silver and gold because that usually means low-cost production eventually. They all have a combination of copper, lead and zinc byproduct credits, which again reduces the eventual mining costs. Just to note, we are not there, we're an exploration company. We don't intend to be a mining company. 

Our mandate is to develop exploration projects, discover deposits and then sell them to mining companies. And in that regard, one of the key aspects of the projects is that they are on a major trend running through Durango and Zacatecas space, which is known as the major Mexican silver trend.

This is where the world's highest grade and largest silver mines are found. Right on that trend. Our projects are close to some of these mines. You've mentioned classic mines such as Fresnillo's Fresnillo mine, Pan American Silver's La Colorada mine, MAG Silver's Juancipio deposit, SSR Mining's Pitarrilla deposit and every other silver and gold mining company of note, Endeavor Silver, Great Panther, First Majestic. All of these companies have operations along that trend. So if we do manage to make a discovery, a major discovery, a deposit, then we have nearby mining companies who would be clients to buy those at a premium.

Gerardo Del Real: Let's talk about the two projects that you're most focused on right now. And that's La Esperanza and Nora. One in Durango and one in Zacatecas. Can we start with La Esperanza because this isn't a brand-new greenfields-type project. This is a pretty advanced project that you have a very, very deep understanding of, correct?

Bahman Yamini: Absolutely. There's been a tremendous amount of work done on La Esperanza. It's a very large area. It's about 15,000 hectares, about 150 square kilometers. It's about 30 kilometers from northwest to southeast and around 5 or 6 kilometers across. So it's really truly a very large area. It hosts five major high-grade vein systems which outcrop, which we've identified. There's been all the basic geological work in terms of geological mapping, surface sampling, satellite imaging, airborne surveys. All of this has been done. We found and identified and sampled the main veins. 

In terms of the main La Esperanza vein, which is in the southeast of the project and we traced the alteration for over 5 kilometers. So it's truly a potentially large system. We have around 10,000 meters of drilling and 40 drill holes into that vein. And we have identified a mineralized envelope with high-grade silver, gold, lead, and zinc over about 400 meters strike and about 300 meters depth. And we've identified the two main high-grade ore shoots trending northwest and southeast.

So the future drilling will be very much directed and focused right under those high-grade ore shoots. Now to note in particular, I mentioned Pan American Silver's La Colorada mine, which is 35 kilometers east of La Esperanza, very similar geology. And we note that the average grade that we see from the vein and this nice wide vein intercepts that we have compares very closely to the earlier drilling of La Colorada, closer to the surface at the same level as we are drilling. So that's around 300 to 400 grams in silver average, we're getting high gold, we're getting 5, 6 grams gold in places, which is absent at La Colorada, but the 2% to 3% lead and zinc is exactly the same.

What the experience has been at La Colorada is that the 2% to 3% lead and zinc pays for the mining costs. And that's why they end up with only $2.50 US cash costs per ounce of silver. So it's a truly minimum cost for silver production in these high-grade systems. So that increases the potential value tremendously if you have a major discovery. 

So we'll be drilling the La Esperanza vein, that's the plan. And also we'll be starting to test some of the veins in the northwest, like the Los Alamitos vein. Again, we have very high-grade silver, gold, and base metal surface samples which we have identified that we would be drilling below.

Gerardo Del Real: And you're funded for that initial drilling, correct?

Bahman Yamini: We are funded to start drilling. As always you have to raise more funds to have a larger drill program, particularly of the type that we anticipate at La Esparanza. But we are funded. We have around three-quarters of a million in working capital now, which is sufficient to cover our operating expenses and the start of drilling. And we believe with the interest that's in the market, we'll be able to add to that and continue drilling. 

So truly La Esparanza is a project where you could have one, two or three drills on there and drill nonstop and keep going, because now we've identified where we are and we're just drilling to expand the envelope. It should be noted that this stage of drilling where you're doing this early-stage discovery drilling is the highest value generation potential in the lifecycle of an exploration project.

Gerardo Del Real: Absolutely.

Bahman Yamini: Yeah. You go along doing all your early work and your airborne surveys and satellite surveys and sampling and you're just flat and going. Then you start drilling and if you have good success, you start getting a bounce, and then you get the discovery drilling where you're continuing to build up resources. That's where you get the huge lift and the big generation in value on the project. And that's where we are. In combination of that with a bull market in terms of the resource market and increasing silver and gold prices, that really gives you tremendous leverage for increased share price under these market conditions.

Gerardo Del Real: I've been waiting for years to be back at this stage of the cycle, right? And just some context for those that are listening, that may be new to Canasil. The last time that you were busy and active in drilling and you made a discovery at the Sandra-Escobar project, which eventually ended up with some metallurgical issues that now Pan American and Orex is partnering in, and I believe Canasil still has a royalty on. 

But I say all that to say the last time that you drilled – and you were busy four years ago – the initial discovery I think took you to near $1.00 if I'm not mistaken. And yet here we are today, four years later – and we'll talk share structure in a bit – but you're trading at $0.09 with the market cap just above, what, $10 million Canadian. Is that correct?

Bahman Yamini: Exactly. That's exactly right. That shows you the power of that discovery drilling. In 2016 and the bull market, our partners Orex were drilling on our Sandra-Escobar project and the positive results there took us from $0.05 a share in December 2015 to $0.75 a share in July of 2016. Now, of course the markets dropped off. There were also some metallurgical questions, so things dropped off there. But if you look at the last three bull cycles, precious metals cycles, that's 2005 to 2007 before the 2008 crash, 2010 to 2011 before the Fukushima accident, and the bear market of 2011, 2015, and then 2016. In all three cases, Canasil's share price based on discovery drilling in all three instances went up to between $0.50 to $0.90 a share. That's what we hope to replicate this time around by drilling and discovery drilling in a precious metals cycle.

Gerardo Del Real: Excellent. Now with La Esperanza, it's a more advanced property. You have over 10,000 meters of drilling. You understand the geology and those veins very well. I frankly expect high-grade gold and silver numbers from the first couple of holes in that program. 

But then you have Nora, right? Nora is in Northern Durango which neighbors Zacatecas State. And this is potentially a new discovery. Nora has not been drilled before. Why is it at the top or near the top of the priority list for Canasil, given the advanced nature of some of your other projects and the interest, frankly, that those have generated amongst majors and mid-tiers, which I know have been calling and asking about potentially coming in and helping advance the projects. Why Nora, and what can we expect as far as testing that target? Because that excites me.

Bahman Yamini: Absolutely. It's an excellent project. The location is excellent. Right on that trend, coming down on a trend of major mines and deposits, it's sitting about 50 kilometers west of SSR Mining's Pitarrilla deposit, which is a 500-million ounce silver deposit. 

We have exceptional high-grade silver, gold, copper, lead and zinc samples from the main veins. There are two main veins that we identified. It's always good to have these multiple veins, not just a single vein. They're about 500 meters apart. The main Candy vein, it outcrops for about 900 meters. We trace it for 3 kilometers. Again, a very strong system. We have over a thousand surface samples surrounding the veins. They all come back with anomalous background silver values in soils. That usually tells you that you're sitting on top of something very large when you get this kind of extensive signature in addition to the veins.

Now, the real interest in drilling that is given that it's early-stage discovery drilling, it's the first drilling that's going to be done on that project, you can get more drill holes in with a smaller start-up program. So we will be drilling 150 meters to 200 meters below surface, below the very high-grade surface samples, which I've mentioned go up to 600 grams silver, 12 grams gold, and also below some old artisanal workings that we have identified, which based on the dumps that we see that material came out from those workings, they carry very high-grade material. 

So it's really quite exciting to test the project that hasn't been drill tested before, that has potential for hosting a major deposit. Of course it's all trial and error in terms of we've done a lot of geological work to qualify targets, but we certainly expect to get some good results from that as we have done on other projects and then that will lead to more drilling and opening up really what could be a major project in an extremely good location in north Durango.

Gerardo Del Real: I want to be clear for everyone again that's new to Canasil. You have, what is it? 10 projects in the portfolio? Correct, Bahman?

Bahman Yamini: That's right. We have 7 in Mexico and we have 4 in BC in Canada, which are more gold-copper porphyry-style targets. Right now we're focusing on these high-grade silver-gold vein-type targets in Mexico, because that's where there have been a couple of cases where there's been huge value added and generated from these high-grade silver-gold epithermal-type systems, both in Mexico and also some that have been drilled in Canada. So we see a lot of opportunity in drilling these targets.

Gerardo Del Real: So 11 projects, but these two are the focus, the immediate focus as far as exploration goes. Yes?

Bahman Yamini: Exactly.

Gerardo Del Real: Wonderful. Let's get to the share structure because this has been one of the most impressive attributes of Canasil. I'm notorious for digging into share structures and frankly calling companies out that dilute, rollback, restructure, dilute, rollback, restructure, vend in recycled projects and do it all over again, right? And to your credit, Bahman, that's not something Canasil has done. And I also know the management team, including yourself, has significant skin in the game. Can we talk about the share structure and what that looks like?

Bahman Yamini: Exactly. We have 109 million shares issued and outstanding right now. That is shares that have accumulated throughout the company's history as we progressed. It has never been rolled back. It has never been restructured. Every share is an original share that was issued. Part of the reason for that is that one, we have a very loyal shareholder base and we're very respectful of their investments. Secondly, the management team, including myself have significant shareholding in the company. We have, combined among the officers and the directors, around 15 million shares, which is, again, very rare to that extent. Our interests are highly aligned with shareholders. So we're extremely protective of shareholder value.

Unfortunately, that means during the downturns you have to slow down, in order to avoid dilution, you have to slow down, maintain the projects, maintain the assets. It doesn't allow you to do a lot of active exploration. It slows down the pace of progress, but on the other hand it protects the projects and it protects the shareholders and give them another chance to fight another day, to increase that share price and get the value that they've been waiting for.

Now, when you look at the fact that we have around 4 major projects on which at least $3 to $6 million has been spent, so that's about over $20 million, $25 million spent on the projects, that's over $0.20, $0.21 per share of Canasil, is just what's being invested in the projects. And the average price of a share we have ever issued in Canasil, the average is $0.20. So you compare that with our current $0.09 share price, you see how undervalued it is. If you compare it with any other company that would maybe have one or two projects and would have 30 or 40 million shares out that would claim a very tight share structure. What we have between 20 to 25 million shares per major project.

So it's a very, very strong share structure, and it's been hard to maintain that. It's been hard to avoid the temptation to issue shares at low prices, but we've never done it. We've managed to hold our ground, protect our shareholders and protect the company's assets. Hopefully that will give us now a chance, as we've seen in last cycles, to have that increase and get the value back up.

Gerardo Del Real: You mentioned the various projects outside of the two that will see the attention of the drill bit here soon. Are you open to joint venturing some of those other projects? I know you've had interest. I know that companies are on the hunt for quality projects. And again, to your credit, you were able to maintain a portfolio of high-quality exploration prospects, right?

Bahman Yamini: Absolutely. Our philosophy is anything that creates value for shareholders, that's a go. So we think right now in a precious metals bull market, drilling projects gives you the highest leverage, but also optioning projects can equally generate value. So we have other projects that could be open for that. 

And then we also have our BC projects which will get more value when copper prices pick up, which we believe they will. They are both copper and gold. Gold is already started and copper will also follow. So I think there's a lot of value creation opportunities on the other projects as well. So combining these to leverage your value creation opportunities is always a good idea.

Gerardo Del Real: The market is clearly rewarding exploration success, especially in the precious metals space. When can we expect to see a drill turning on either Nora or La Esperanza?

Bahman Yamini: We're hoping to get that going as soon as possible, of course we've been under this COVID-19 lockdown in Mexico. We're working very hard. Things are starting up as of the beginning of June, June 1st. Today is the day where a lot of these activities are starting up. We've made all the preparations in Mexico to be able to start as soon as possible. I can't unfortunately gives you a fixed date, but it won't be delayed. We're putting everything in place to get going. We already had the drill contract signed for Nora in the middle of March before everything was locked down. So everything is prepared and in place to go. And it won't be long before we'll see a drill turning.

Gerardo Del Real: Bahman, I've taken nearly half an hour of your time. I want to thank you for that time and thank you for that thorough introduction and update on the properties. I'm excited for you to get back in the field, get the rigs turning and see what you come up with. There's that old saying that history doesn't repeat itself, but it does rhyme. And if it rhymes anywhere close to what it did in the last cycle with Sandra-Escobar, I think we're in for a heck of a ride. Anything else that you'd like to add?

Bahman Yamini: Perfect. No, it's a pleasure. Thank you very much for your interest. I think we've covered a lot of ground and we'll just have to get to work and put it all in play.

Gerardo Del Real: Well, I'm looking forward to having you back on as we get closer to the drills turning. Thank you again.

Bahman Yamini: With pleasure. Thanks very much, Gerardo. Thank you. Appreciate it.