Hannan Metals (TSX-V: HAN) CEO Michael Hudson on Partnership with JOGMEC at the San Martin Copper-Silver Project in Peru
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the chairman and CEO of Hannan Metals, Mr. Michael Hudson. Mike, congratulations are in order. How are you doing this morning?
Michael Hudson: Well, pretty happy Gerardo, of course, these things don't happen very often in life. And I can sit here after a number of months of negotiations to say, 'Well, we've done it. Now let's get on with it."
Gerardo Del Real: Let's talk about exactly what you did. You just announced an agreement with JOGMEC for up to 75% interest in the San Martin project by spending up to US$35 million, that's US, to deliver the joint venture to a feasibility study. A lot of details that I want to get into but before we get into it, again, as I mentioned, congratulations, and please provide us some context because I love the way the deal is structured. It incentivizes what we knew this project needed, right. It needed aggressive spending and it needed a partner that has the credibility and longevity to see this project through. Can you provide some context there Mike?
Michael Hudson: Well, first of all, we know about the project but it's a huge project, right? We've got over 600 square kilometers of ground extending over 120 kilometers. We've got indications of copper forming at various horizons in sediment-hosted copper and silver. And it's early days. And every day we go out into the field and we're back in the field again now. It's exciting stuff because we're making new discoveries all the time but, of course, funding big scale projects generally requires deep pockets over the long term. Exploration is not a short term business. And we've had a lot of interest for this project and JOGMEC are the ones that have chosen to partner with us. And we're very happy to welcome them as a partner now.
Who are JOGMEC?
Basically, it's the Japanese government. JOGMEC stands for Japan Oil Gas and Metals National Corporation. And it's the government's arm that invests in earlier stage projects to secure metals for Japanese industry. So their aim basically is to find mines that they can then pass to some of the big conglomerates that exist in Japan. And there's a handful of those. So there's no better partner. They are long-term, they are patient. They understand the technical aspects of how to develop a project.
And then the deal that you've mentioned is US$35 million. The timing is locked in there, in some cases, others it's just set by minimum expenditures. But the first key step is in the next four years, JOGMEC has to spend US$8 million to earn 51% ownership.
So they don't have any ownership in the first four years. We'll be managing. If they get to that point, then they'll own 51% and then they can spend, at their election, another US$12 million to earn an additional 16%, which would take them to 67%. They can get there a little faster if they get to a PFS, a prefeasibility study. And that would be combined US$20 million. And then the next stage up to get the 75% is another US$15 million. So to go from 67% to 75%, they have to spend another US$15 million or achieve feasibility.
So it's a big deal. It's a very big deal and it's the right partner. And it's very exciting. We've got full exposure for shareholders in this project still but without shareholders having to spend $1 going forward.
Gerardo Del Real: I noticed that the minimum commitment to fund US$1 million goes back to April the first of this year. Can you speak to that a bit? Obviously this is a deal that was negotiated for many, many months. And so it's interesting to me that that part is retroactive.
Michael Hudson: Yeah. It's a small part of the deal but basically we've been going at a relatively small level, of course, during this pandemic. We went back into the field at the start of November but we've been acquiring data. We've had some experts come in and advise us, we've done all that remote study work through satellite information and got the project in a much better position. And we've staked some more ground and done a few things like that. So, the minimum expenditure in year one is US$1 million. And that year one starts back on April 1st, this year. So that's retroactive to take into account some of that work.
Gerardo Del Real: Let's talk about the initial exploration, which of course, as you mentioned, goes back to April 1st. I understand it'll include, continue to include, I should say, the collection of geological, geophysical and geochemical data sets in the JV project areas as outlined in the release. The release also mentions that the first phase of exploration is expected to conclude in March 2021. We have a situation where copper is flirting with the US$3.40 a pound level. I have to believe that March comes quick, right? What happens afterwards?
Michael Hudson: Well, it just continues. It's the financial year of Japanese companies. So it's set around that date and we will continue onwards, but it was just a minimum spend in the first year that was set in the agreement to indicate good faith. So it will be a seamless continuation of exploration with all those different methods that you've just outlined. Basically reconnaissance, geology, and mapping and stream sediment data to collect over the bigger area. And then we'll be trialing some geo-physical techniques and perhaps some LIDAR, some laser imaging, to get through the forest canopy. So it really will be seamless from the practical on the ground sense, but that was how the deal was formed with that end of financial year in mind for JOGMEC.
Gerardo Del Real: You and the team have been extremely cautious, and responsibly so, given the backdrop with COVID. You've been extremely cautious in your approach with the community and local stakeholders. When do you anticipate being able to put a drill bit to some of these targets? Because obviously the prelim results are phenomenal.
Michael Hudson: Yeah. It will take time, and obviously we've lost time with the lockdown this year. But we will start the permitting towards drilling in the new year probably. We've got to do a little bit more geological work to narrow down some of those areas, but we know the areas for first stage drilling. To answer that scale question, we've found this over a hundred plus kilometers and we can start to narrow down and be predictive at the sort of kilometer scale. But then we've got to try and determine continuity of grade at the hundred meter scale, if you like, and that's what drilling will really help do. That will take until probably the end of next year or the third quarter probably is the best guess at the moment. But that preliminary work is budgeted and scheduled to start in the new year. In fact, it's really starting now because we were dealing with and talking with local communities and educating them as to what we would like to do and we'll start the process in collecting archeological information, environmental information and all the different studies that you have to do to start drilling in Peru these days.
Gerardo Del Real: I couldn't help but notice that the release mentions that the San Martin project covers only 600 — and I say only, somewhat flippantly, right. Only 656 square kilometers of Hannan's 940-square-kilometer Peruvian holdings. I also noticed you were keen to mention that you will continue to progress exploration on your remaining Peruvian projects. Can we talk about those because those projects are not inconsequential, given some of the prelim results that you've had?
Michael Hudson: Yeah, well, we really haven't talked about too much other than just in the management discussion and analysis quarterly reports we put out about our ground holding. And really there's more information to come. But I've been of the belief that, for many years, that the best thing you can do when you pay a geologist is pay them to look out the window and think. And that doesn't happen much in our business anymore or in our lives in general because we're running around so much. So I'm sure this whole lockdown of this year, and that will lead into next year, will lead to many discoveries in the industry where people have been able to sit down and think and pay their geologist to think. And that's what we've been doing alongside advancing some of the work in San Martin. We've been purchasing databases. We've been compiling lots of data from the earlier oil explorers that has recently been made available to people like ourselves. So we've staked a lot of ground on that basis. And that's really stage two, both for sediment hosted copper, silver, and for higher level alkaline porphyry targets, copper-gold targets. So you'll see a lot more coming. So we're not just exploring with JOGMEC, we're exploring in our own rights still and we'll continue to do so.
Gerardo Del Real: Mike, zinc was a bad word up until about a month or so ago when it got on a tear and here we are now at US$1.25 a pound. I have to mention Kilbricken, right. And I have to mention Ireland because that is still a very, very prospective project under Hannan's ownership. Can we talk about Kilbricken, is there an opportunity possibly there moving forward?
Michael Hudson: Well, we still hold Kilbricken 100%. And we're looking across on the other side of the world as to what should be done there. It's really a project that has huge opportunity but nobody cared for zinc for many years and maybe they do, yet again. Zinc is pretty fickle but we will explore that or find a partner, but they're the two options. And that decision really hasn't been made yet. The truth is we've been focusing on Peru this year.
Gerardo Del Real: Well, you've done a great job. I'm a happy shareholder, as I imagine all shareholders are today. Congratulations. Is there anything else that you'd like to add, Mike?
Michael Hudson: No, I think we've got quite a complex deal, a big deal, Gerardo, nailed down. And we just look forward to making further discoveries and there's no better way to do it than with a great partner like JOGMEC.
Gerardo Del Real: Agreed, congrats again, Mike. Thank you.
Michael Hudson: Thanks Gerardo.