Gold Mountain Mining Corp. (TSX: GMTN; OTC: GMTNF)

Gold Mountain Mining Corp is quickly proving to be well on its path of becoming a gold producer in Canada. I have to be honest here, when I first spoke to Kevin Smith, GMTN’s CEO, I was a little skeptical … ok, a lot.

Gold Mountain Mining reached out to me in early 2021, with the question to come on to the CEO BBQ, my wannabe CEO interview show on YouTube. Little did they know, the CEO BBQ is not an advertising platform. It’s a place where CEO’s come to get their true identity and intentions exposed.

As always, I said I’d accept only under the conditions that I get to ask my own questions, the questions don’t get shared beforehand and the company has no influence on what I include or don’t include in the final edit. I sent my conditions over to the company and they got back to me after a while, saying that they will “pass for now”.

A while after that, the marketing company that’s running Gold Mountain Mining’s marketing campaign contacted me again, asking if I wanted to do an interview. I sent back my conditions (again), and asked if they were sure there isn’t some misunderstanding given that they already declined those conditions previously.

This made me quite suspicious and I went to look more into the company’s marketing efforts and I’m not a fan of them so far. The marketing is rather aggressive and most of the YouTubers covering it sound to me like a broken record. There is little talks about the risks or covering the negatives, which every company has. Not knowing or not willing to talk about the risks of your company is a big red flag for me. So, this is how the interview came to be, which means I had some uneasy questions to ask, and so I did, in the interview, which I’d suggest you watch here.

During the interview, and thereafter, I remained skeptical because I found out their CEO had never touched a mining company before, he is very young, he was spending (what I thought was) too much on marketing, and had no clear 10-year plan that made sense to me. So, when the company suggested we work together more often and go into a partnership, I declined because of my suspicious of this not being a real company.

However, I was wrong. The company has achieved quite a lot since I spoke to them in April 2021, and the supply of news has been great. So, considering the stock is now trading at around the levels that it did back when I first spoke to Kevin, I find it an interesting point in the life of this company to start keeping up with it and reporting on it.

As an inexperienced natural resource investor and reporter, when I want to look into a mining company, I stick to a research framework (that I am still working on), called “The 6 P’s”.

I will discuss those 6 P’s below, one by one.

1. Ticker symbols:
– Canada: GMTN
– USA: GMTNF
– Germany: 5XFA

2. Market cap:
$80M CAD

3. Shares:
– Outstanding: 70M
– Fully diluted: 85MM

4. Warrants: 9M (10% of FD shares)

5. Options: 5M (6% of FD shares)

6. Cash: 9.8M CAD

7. Debt: 8.6M CAD

8. Project:
Elk Gold Project in the Merritt area of BC, Canada. Past-producing mine. Mining permitted since October 2021. Highway-accecible. Loads of data available, from 135K meters of historic drilling. 806K oz AuEq measured & indicated. 262K oz AuEq inferred. Planned production: 65K p.a. for 4 years. Post-tax NPV $231M. $9M CAD start-up CAPEX needed. Low AISC. More ground to be explored – 21,187 hectare land package. 2% NSR royalty held by Star Royalties Ltd. Promissory note to Equinox repayable in three annual instalments of $3,000,000. Total remaining amount may be adjusted, if the Company pays $5,500,000 prior to May 16, 2022 – that will represent full and final payment. Relatively sensitive to gold prices: 20% move in NPV for every 10% increase in the gold price. Biggest risk: Indigenous relations.

9. Time until full-scale production: 1 year claimed, 2 years likely.

10. Ownership of the company:
– Insiders: 25% (of which CEO owns about 2%)

11. Team strength:
Financing, Technical

12. Team weakness:
unknown

13. CEO’s pay:
unknown (by me)

14. Upcoming catalysts:
– Sell ore to New Gold for the first time = first revenue
– First commercial production (by Q4 2022, allegedly)
– Add to the measured & indicated category

15. Short-term goals:
– start producing

16. Medium-term goals:
– 65K oz annual production

17. Long-term goals:
– 100K oz annual production

19. CEO:
Kevin Smith. Industry first-timer. Made his money in commercial real estate. Quick learner, it appears.

20. 3 main risks:
– Indigenous relationships
– dilution
– environmental regulations

– Market Cap: $80M 
– Cash & Cash Equivalents: $9.8M (as of Sept. 30, 2021)
– Debt: $8.6M (as of Sept. 30, 2021)
– Enterprise Value: $61.6M
– Quick ratio: 1.13
– Operating expenses: $2.4M (Q3 2021)
– Operating runway: 4 quarters (12 months) (assuming quarters like q3)
– Insider ownership: 25%
– Number of shares outstanding: 70M
– Options: 5M
– Warrants: 9M
– FD shares: 85M
– O&W % of FD shares: 16% (not nothing)
– Dilution:

On February 9th, 2021, a total of 49,134,277 Shares were issued and outstanding, that number has grown over 50% during 2021, to now over 70,000,000 issued and outstanding shares. This represents severe share dilution and I am not expecting the future to be much different. However, once in production, I would expect the company to slow down the dilution, and thus, over time, clear out the options & warrants and start financing further exploration and development mainly on cash flow.

Gold Mountain’s project is located approximately 57 km from Merritt, BC, Canada.

British Columbia is known for its rather large coal mines. An example could be Teck’s Elkview where proven and probable reserves are projected to support coal mining for another 30 years.

According to 2019 numbers, the mining industry in BC is worth over $5.6 billion. 

So, in a few words; mining is big in British Columbia, Canada. Therefore, British Columbia appears to have decent labour forces, decent infrastructure and (not therefore, but still a fact) decent weather for mining and exploration operations.

Now let’s look at some statistics on the political situation and the mineral reserves of BC, from the 2020 Fraser Institute Annual Survey of Mining Companies.

2.1: The 2020 Fraser Institute Annual Survey of Mining Companies:

According to the 2020 Fraser Institute Annual Survey of Mining Companies, Canada is the second most attractive region in the world for investment, after Australia.

British Columbia is not in the top, nor the bottom 10 mining jurisdictions in the world, though, according to the same survey. However, it is definitely in the top quartile. Specifically, BC ranks 17th on the Investment Attractiveness index, scoring a total of 77.94, just a little bit higher than 2019, and a little bit lower than 2018.

With this score, British Columbia appears a better jurisdiction than Alberta, Ontario and even Yukon.

The IAI combines both the PPI (Policy Perception Index) and the BPMPI (Best Practice Mineral Potential Index), to measure the attractiveness of a mining jurisdiction.

Separately, the PPI for British Columbia in 2020 was 75.36, which falls in line with Yukon, Colorado, Washington, Victoria (Australia), Russia, Spain, and others.

According to the Fraser Institute of Mining, The Policy Perception Index, or PPI, provides an assessment of the attractiveness of mining policies in a given jurisdiction, and can serve as a report card to governments on how attractive their policies are from the point of view of an exploration manager. Still, it is a survey of people. People are biased. You can never rely 100% on one survey.

The BPMPI for British Columbia in 2020 was 79.66, which put BC almost in the top 10, at number 11, right behind jurisdictions like Arizona Nevada, Saskatchewan, Alaska, Quebec and others.

The BPMPI is an index that focuses solely on a jurisdiction’s mineral potential, without any regards for the political situation.

I do want to mention that it is said in that survey that, focusing on policy alone (and not overall investment attractiveness), British Columbia’s PPI score increased by almost 4 points in 2020. However, British Columbia’s relative rank declined in 2020, coming in at an overall ranking of 41st (out of 77) after ranking 36th (out of 76) in 2019. 2020’s respondents expressed increased concern over the uncertainty around protected areas and decreased concern over its legal system.

More specifically, the survey said, “the two policy factors that continue to significantly hamper British Columbia’s mining competitiveness are uncertainty concerning disputed land claims and protected areas. In addition, 69 percent of respondents for British Columbia were deterred by the uncertainty concerning environmental regulations. Investor concerns related to disputed land claims and protected areas likely reflect the ongoing tensions in the province over land title issues”.

One of the participants in this survey, who is allegedly the president of an exploration company based in BC said that “the lack of qualified staff in BC’s permitting offices is a strong deterrent for exploration investment”, while another company president said that “the release of updated geological mapping is a strong encouragement for investment in the province”.

In conclusion, according to the 2020 Fraser Institute Annual Survey of Mining Companies, Canada is the best place to be for investments in the mining space, after Australia, and British Columbia specifically is a very attractive mining jurisdiction, with rich and expanding mineral potential, and OK (but could be better) mining policies. However, protected area claims & environmental claims should be followed up with closely.

Gold Mountain’s main focus is the Elk Gold Project. They bought this project from Equinox in 2019. This is a past producing and newly-permitted mine. GMTN recently received its “M-199 Mining Permit” which allows them to mine up to 70,000 tonnes of ore per year. They already had the exploration permit (M-4-387).

The claims and leases comprising the Elk Gold Project cover over 21,000 hectares.

Their main goal with this project is to get to a point where they can sell ore directly to a company that owns a mill (New Gold), then get to gold production as soon as possible (they claim Q4 2022, but I’m not hopeful), and then use the cash flow that production would generate them to further explore for gold and grow their operations.

In its recent PEA, GMTN speaks of a multi-phase production plan.

The mine is scheduled to release 70,000 tonnes per year of plant feed for years 1 to 3. In Year 4, the mine is planned to expand to 324,000 tonnes of plant feed per year.

Phase 1 – 19,000 oz AU production by Q4 2021, which, they hope, will fund ramp up to Phase 2.
Phase 2 – 65,000 oz AU by 2025.

The pre and post tax net present value (“NPV”) (5% discount) are $395M and $231M, respectively.

Concurrently with developing the mine, Gold Mountain plans to continue drilling the known mineralised zones, while continuing to explore other areas.

The Elk Gold Project is located approximately 325km northeast of Vancouver and 55km west of Okanagan Lake, midway between the cities of Merritt and West Kelowna.
This project consists of 26 contiguous mineral claims covering 16,121 ha and two mining leases covering 496 ha. The mining leases expire on September 14, 2022 and November 17, 2022 and all mineral claims expire on December 31, 2021. The claims may be maintained beyond their current expiry date by continuing to conduct work on the property at the rate of $331,321 per annum or by cash payment in lieu at double that rate. This should definitely not be a problem if the company follows their plan for action.

There is a 2% NSR royalty on this project, currently held by “Star Royalties”. Although I am not a fan of projects with royalty claims on them, it’s nearly impossible to find a project worth looking into nowadays, that is not burdened by royalties. If you do find one, why did you find it before some rich guy/gal bought the royalty on it? Teach me!

On top of the 2% NSR royalty, there is an SPA (Share Pledge Agreement) on this project. I don’t like this, but it could be gone soon.
Long story short, if the GMTN defaults on the payment of the Equinox promissory note (which they didn’t sign, but the previous owner did), then Equinox may take possession of the Elk Mining shares, which is a huge pain. The Equinox promissory note is repayable in three annual instalments of $3,000,000 with the first payment having been made on May 17, 2021. The total remaining amount due under the Equinox promissory note may be adjusted such that if the Company pays $5,500,000 prior to May 16, 2022, that will represent full and final payment. This would be my preferred option, because although it would represent a larger dilution to shareholders, it would also get rid of the risk of losing the entire project for less than $6M (less than 10% of the market cap).

We’re still waiting for an updated technical report on this project, which I hope will come in Q1 2022, but here’s what we know so far:
This doesn’t look too good, nor too bad either. It is important to note, though, that the resource estimate includes resources in three separate zones on the Elk Gold Project: i) the Siwash North, which comprises the majority of the estimate, ii) the Lake Zone and iii) the South Zone. For reference, see below.

For a somewhat more complete view, here’s the summary of the PEA:

Although the project is somewhat sensitive to the gold price, as are all projects, this one is not especially sensitive. So, I do not expect this to be the most-volatile stock when the gold price starts going higher. Although, at the current valuations, even only catching up to NPV would represent a great increase in per-share price.

For example, at $2,200/oz AU, the company’s market cap would have to increase nearly 5 times from the current levels to reach its post-tax NPV.

Development and construction activities already started at the Elk Gold Project in July 2021.

In November 2021, Gold Mountain mined its first mineralised material. Mined mineralised material is being stockpiled on the Elk Gold Project’s ore stockpile pad in preparation for crushing, sampling and assaying prior to being delivered to New Afton, approx. 130 kms down the road.

There is an Ore Purchase Agreement (OPA) in place. Under the original terms of the OPA, GMTN was supposed to deliver 70,000 tonnes of ore per year, for three years, starting on the day of the first delivery. However, in 2021, Gold Mountain and New Gold signs a LOI to increase the delivery of ore by 5 *times*, to 350,000 tonnes per year, starting in the fourth year (so, after they’ve delivered the 70K for 3 years). Of course, both companies are still to receive the needed regulatory approvals to actually go through with this.

As to further exploration and drilling, after a successful phase 2 drill program in 2021, the company is now in the phase 3 program. Currently, the program is forecasted to include 2 drill rigs performing 10,000 total meters and will also feature 5,000 meters of historical core relogging. This could make for follow-worthy news in 2022, but going off the numbers we saw in 2021, this could also make for severe dilution and news that you’d probably don’t want to see.

The largest risks for this project, as it would be for many other projects in BC, could be the relationship with the indigenous peoples, and the environmental challenges. You can read a little bit more about that at the “place” segment of this write-up, or you can read a lot more about it in the 2020 Fraser survey.

Other than that, the project is not large, but this should not be a problem, given the OPA that Gold Mountain has signed.

As I mentioned at the beginning of this article, I was not sold on this company the first time I heard about it, and was even less sold on it after the first time I spoke to their CEO. It appeared to me, at that time, that there was no real technical expertise leading this company, and that the CEO was there to dilute and make money on his options package. I was wrong, as it has been proven by the results in 2021.

Although the CEO doesn’t have the direct experience he might need to bring this to a successful finish line, he does appear to have a very strong strategy surrounded by experienced COO, president, and strategist.

I hope to interview each one of the five key people for this company in 2022, and share my conversation with them below.

4.1. The CEO:

Kevin Smith is an industry first-timer. He has no prior experience in the task at hand. He came to the gold space from the real estate market and owns, to my own estimations, about 2% of the company.

4.2. The CFO:

Braydon Hobbs is an industry first-timer. He has no prior experience in the exact task at hand, but he does have 7 years of experience in accounting.

4.3. The COO:

Grant Carlson does bring experience to the table. He is a mining engineer with over 15 years of experience, among which a position as a mining consultant at Taseko Mines Ltd (copper).

4.4. The COO’s COO

Ronald Woo, president of Gold Mountain brings over 20 years of experience to the table, and is known in the industry for his previous roles as; COO for Rover Metals, Project Manager for Ledcor; Technical Services Manager for Western Coal Corp, and Senior Mine Engineer for Hunter Dickinson.

4.5. Corporate Strategy:

Alexander Bayer is a lawyer with over 15 years of experience in capital markets. He’s dealt with all type of mining companies across the spectrum of development.

I think it has become clear in this article so far, but just to briefly sum it up:

Gold Mountain Mining wants to begin ore production by Q4 of 2022, then sell the ore to a company 130kms down the road, and use the cash flow from that ore to do further exploration in Canada.

In its recent PEA, GMTN speaks of a multi-phase production plan.

Phase 1 – 19,000 oz AU production by Q4 2021.
Phase 2 – 65,000 oz AU production by 2025.

The mine is scheduled to release 70,000 tonnes per year of plant feed for years 1 to 3, and they have an Ore Purchase Agreement (OPA) with NewGold to buy that production, run it through their mill and pay them (every month), based on the contents of gold & silver in that ore.

In Year 4, the mine is planned to expand to 324,000 tonnes of plant feed per year. GMTN & NewGold signed an LOI to up the delivery of ore from 70,000 tonnes per annum, to 350,000 tonnes per annum after the first 3-year period.

The 3 main risks for Gold Mountain Mining are related to their jurisdiction, and their financial situation.

6.1. Dilution:

Dilution is inevitable with small market cap companies. In the company’s prospectus, they also mention that they’d like to start paying an annual salary to the CEO and other executives after a certain market cap is reached and after production has started. To get there, and from there, this would require a lot of working capital. They hope to minimise the risk of dilution by producing ore as quickly as possible, and given that they have the OPA with NewGold, this might work, but dilution still stays at the top of my list of risks.

6.2. Environmental regulations:

As mentioned at point number 2, 69% of the surveyed people during the 2020 Fraser Mining Survey, said that environmental regulations in BC can change quickly and represent a danger to exploration, or even production companies. This should be watched closely, together with the entire Canadian political situation, which, according to friends of mine, is starting to turn a little bit into California.

6.3. Indigenous peoples relationships:

Although Gold Mountain has proactively reported on its relations with the indigenous people of British Columbia, this should not be lost out of sight nor ignored, in my opinion. Things could go smoothly up until production, or even go smoothly during the first three years of production and suddenly change after year three. They could. I’m not saying they will. I’m just saying pay attention to it.