Kodiak Copper Corp. (KDK) Earnings Call Transcript

Good afternoon, everyone. I'm Knox Henderson, Investor Relations for Kodiak Copper, here on September 3. And with me today is the President and CEO of Kodiak Copper, Claudia Tornquist. Hello, Claudia, how are you today?

Good. Thank you. Hello. Hello, everybody.

Thank you. And also joining us is the Chairman and Founder of Kodiak Copper, Chris Taylor. Hey, Chris.

Hey, Knox. How are you doing today? I imagine probably not very busy though, a little bit of a quiet day for you?

No, no. I'm just phoning and e-mailing and multitasking. That's what I do best, right? So it's a very exciting day. I think everybody on this call knows what's going on. But I think we want to drill a little deeper, pardon the pun, into what's going on. So to get started here, before we get going, we will be making some forward-looking statements. Everybody is advised to exercise caution, seek the advice of an adviser. This is not a solicitation to buy or sell securities, perform your own due diligence. So that being said, I'm going to pass the baton over to Claudia, so she could share the great news.

Thank you, Knox. Thank you, everybody, for listening in. As Knox said, it's a very exciting day for Kodiak today. The first results from our summer program, drill program, and we couldn't have wished for better results. We're thrilled. The results are a real game-changer for our MPD project. And they are only the start, lots more drilling going on and lots more result to come. Before diving deeper into it, I would like to say a couple of thank yous to our technical team: first and foremost, Jeff Ward, our VP, Exploration; and Andy Berry, our VP, Operations; and then also [ Cam Barker ], Mark [indiscernible] and [ Kurt Benson ]. Thank you very much, guys, for the great work. And I'd also like to say a thank you to Chris Taylor, who I know doesn't like praise. But he's the one who spotted this project in the first time and saw its potential. And his expertise and knowledge about porphyries are invaluable to us. So thank you, Chris.

You're welcome, Claudia.

I'd like to echo that statement, Claudia, because the guys are up there drilling 24/7, 7 days a week. And here, we are in our ivory tower, and they're doing all the work. So thanks to Jeff and Andy, it's just a fantastic job that they've been doing.

Yes, I couldn't agree more. So without much further ado, I'll start with just a little recap of what the MPD project is, where it is. You see here on the map where we're located. The little inset at the bottom shows where we are in B.C., southern central B.C., we're near Princeton, 3 hours drive from Vancouver, very accessible. It's a producing, very established mining region, where MPD is located. A couple of big mines in the neighborhood. Copper Mountain is 30 kilometers to our south and very much of a geological analog to MPD. There's also Highland Valley, another big copper mine, and New Afton, a big gold mine to our north. So it's a very established mining region, which for us is great. Everything you need for an exploration program is right there at our fingertips, and it makes our exploration very easy and cost-effective. What I'd also like to mention is how accessible the MPD project is. It's literally right off the highway. You turn off the highway, less than a kilometer, you're on the project. We have water. We have electricity. We have everything you need, which makes the hurdle for this project to eventually become economic, just so much lower than it would be for a remote project. So that's why we like MPD. Here, on the next slide, there are a couple of the historic results. The project has been drilled for almost 50 years on and off by various companies at various points in time. I won't bore you with the details here. But the one important point to take away is all of the historic drilling, almost all of it, has been very shallow. Most of it is less than 200 meters as you typically would do drilling for porphyries 20, 30, 40 years ago. And that's where we saw the opportunity. I remember when Chris went to the project when we considered acquiring it. And he came back to the office, and his words were, "We have to drill deeper here. That's where the opportunity is." And that's what we did in our maiden drill program last year in fall. And you might well remember at the time, we drilled a nice discovery hole. You see it here on the slide. It is now called the Gate Zone. It was a hole 800 meters long, mineralized top to bottom. And you see here the overall intercept we got, 763 meters of 0.28% copper equivalent. And very importantly, there were some much higher-grade zones in there. You see those on the left, 210 meters of 0.52% copper equivalent or 102 meters of 0.68% copper equivalent, so nice higher-grade zones, which were, of course, very encouraging. And it's these higher-grade zones that we are now targeting, have been targeting, are still targeting in our summer drill program. Just to put our results into perspective, the grades that are mined next door at Copper Mountain, their reserve grade is 0.24% copper. So that compares very favorable, our discovery hole, compares very favorable to that and is, of course, very encouraging because of, in particular, these higher-grade zones that we saw. This map shows -- gives a bit of an overview of our drill program this summer. We started in July. We had initially planned to drill 4,000 meters. We have already decided to extend that and drill more. You can see in pink here, a large copper-in-soil anomaly that is on top of our Gate Zone. It's 300 meters wide times 1 kilometer long, approximately, so a very large anomaly. And here in the middle, I'll try and make a dot here, that's where we drilled last year our discovery hole. And this year, we are 190 meters to the east of the original setup and have drilled 1 set of 3 holes, all between 700 and 800 meters, around to the west. And then we stepped out 75 meters to the south, I'm trying to make a dot here, and are in the process of drilling another 3 holes, another set of 3 holes, currently working on hole 6, and hole 4 and 5 are finished already. We sent the hole #1 from our first setup to the lab a couple of weeks ago. And then when we drilled hole 4, we could see that the core was really great and much better than what we saw in the first setup, so we rushed that core through the lab. And so now today's results are hole 1 and then part of hole 4. We essentially took the best core. And that section went in a rush order through the lab. So that's the 2 results we have already, more to come. And as I said, we have extended the drill program already. And it would have -- the original of 4,000 meters would have brought us to mid-September. And we will keep drilling and have plans for more. And at this point, I'll hand over to Chris, who will talk a bit more about what we drilled and the results we reported today.

Thanks, Claudia. Great job walking through some of the slides. This one was a really -- it's been an interesting day for me. It's been an interesting few weeks as we've watched these drill holes be completed. And it's very gratifying in a way. If people don't know me, Chris Taylor, I'm the President and CEO of Great Bear Resources, which is a sister company to Kodiak Copper, frankly put both of these deals together and brought them over to the discovery group here in this office. And this is a project that we got involved with because in many ways, it's very similar to the early days on Great Bear's Dixie project in the Red Lake area of Ontario. And what was really important, as Claudia was mentioning, is that there was a lot of work on this property. And over the course of more than 50 years, all these little drill holes had scraped the surface. And what we saw though -- I remember doing the initial walk around on the project, I had a prospector, a couple prospectors and the project vendor walking me around and showing me malachite, it's basically copper oxide, copper oxide, here, there and everywhere. And it was across kilometers. And with all the drilling that had been done, it was really clear though, looking at the rock, that you are in this outer sort of propylitic envelope of a porphyry system. Why is that important? Well, really, they just had not drilled down historically into the heart of the system. And that means they hadn't drilled deep enough, but they also hadn't put the drill holes in the right places. So in this case, what we have is a big copper-in-soil anomaly. It's over a kilometer long. It had shallow holes into it. All of them had copper. Just like at the Great Bear situation, all of the original drill holes had gold. But here, we had copper over a big area. And it was clear that it was part of a big porphyry system. So going into the results that we have today. As you can see, we have drilled down into this system. And even the discovery holes that we did last year at the Gate Zone, and I'll actually show you some pictures of this stuff coming up here. But you could tell that it was getting into being in the right type of rocks to host sort of a major copper-gold porphyry zone, but it wasn't quite in there yet. So what we did by stepping out 75 meters to the south, we were stepping into the direction where the alteration looked like it was going to have the capacity to hold that better copper mineralization. And this is what we saw when we were looking at the core. I mean these numbers are frankly quite phenomenal. Like in my career, I've been privileged to work at a number of copper-gold porphyries. One of those was the Red Chris Project up in northern B.C. And this was just purchased recently. I believe the purchase ticket price was somewhere around like $800 million or something in that range. And I remember, drilling this kilometer-deep hole of 1% copper and that was sitting right beside a very sort of normal, sort of conventional 0.3% B.C. sort of alkalic-type porphyry. And that was what was known before these deeper drill holes were completed at Red Chris. And what we just drilled here at MPD reminds me of that juxtaposition of that sort of 0.3% copper, 0.4% copper sitting right beside, in our case, this now new area of the Gate Zone, which was much higher-grade. So as you can see, 282 meters of 0.7% copper, about 0.5 gram per tonne gold, 2.5 grams of silver and a copper equivalency of over 1.16%. And this is really -- it's really incredible for this area. And Claudia, I've heard her give other presentations, the neighboring deposits are sort of in the 0.2%, 0.25% copper range typically. These numbers are 3x better than that or 4x better than that. It's amazing that this is only a few holes into the project and this is where it's already gotten. And when we were looking at it, I mean, one of the things that really stood out was the gold endowment off of this. When we got into the high-temperature, high-grade copper-gold, if you look at the bottom of the table, up on the screen in front of you, you can see there was almost 50 meters of 1.4% copper and in the middle of that, almost 1.5 grams per tonne gold. When you see gold values like this, if we had not had any copper in this hole at all and we were just assaying for gold, we already would have been really happy. But what we're seeing here is exceptionally high-grade copper intervals, especially for this region, especially for British Columbia, and we're seeing gold values that are exceptional as well. And also the ratio of these numbers is important because as a porphyry geologist looking at these things, when you see an approximately equal amount of gold in grams per tonne to copper in percent, you know that you're close to the center of one of these porphyry systems. And what that means is like you're getting towards the heart of the main targets that you want to look for during exploration. So exceptional results that we've put out today. And really, as we move into this zone, we don't yet know how big it is. But we know, as we mentioned in the news release, we've already put more holes into it. And you're looking at some very exceptional mineralization. So what does that look like in drill core? Well, you're looking at 2 pictures of it up on the screen in front of you, I'll show you a little bit more later on. But the pink rock here, strong potassic feldspar alteration, you see semi-massive sulfide. This is mostly chalcopyrite that you're looking at here. On the other image in front of you, on the right, you can see silicification, almost like quartz veining. It's the silica flooding and veining of the porphyry. And you can see the very significant amount of chalcopyrite that came along with that as well. It really does remind me of some of the stuff that we've seen at Red Chris, when I was working there with Imperial Metals more than 10 years ago. And then when you're looking at the image of core up on the screen in front of you now, this is from a hole -- the fifth hole of the 2020 drill season. And this is still waiting. We're still waiting for assays to come back from this. But as you can see, we've drilled some really nice-looking stuff. And one of the things that we noticed when we were talking about all the results that we've had with Great Bear -- and Great Bear, it's well known in the industry now, it's a major, major gold discovery just in the Red Lake district of Ontario, goes right to surface, big target. I mean we realized when we put out the numbers, sometimes it's good to show people exactly how the metal is distributed. In Great Bear's case, it's gold. Here, with Kodiak, we're looking at the copper, gold and silver distribution in the middle of that zone. So this was the interval that was about 45 meters of about almost 1.5% copper. Or I think -- what was the copper equivalency? I think it was about 2.7% copper equivalent.

Yes.

Somewhere in that range. So -- but you can see here, every interval is strongly mineralized. Like from the top to the bottom of the table, 1% copper with just over 0.5 gram gold. Reading down through here, the highest value is just 2.6% copper. And you can see the highest gold value is just over 3 grams per tonne. But this is not a grade that's been smeared over the interval. It's not one piece of core that you're extrapolating over the rest. You can see how the grade is distributed within that interval. And of course, if we extended this beyond, it would be a huge table. But you could see the grade distribution along that whole wider interval of 280 meters of, I guess, just over 1% copper equivalent or 0.7% copper. I mean absolutely exceptional continuity and absolutely exceptional size. So with that, I just wanted to walk through a few additional slides that I put together, which I think you guys would probably get a real kick out of because it's some pictures of core and just a few thoughts about what we've hit here. So I'm just going to share...

Yes. While you're doing that, Chris, I'd like to mention, everyone, if you want to ask a question, there should be a question tab on your computer there. So click away and ask the question. I'll get to as many as I can. I can see a few are coming in. And we'll take the best ones and move along and feel free to ask questions.

So just let me know guys when my screen is fully showing because I won't be able...

You're up.

Okay.

So this is one of the -- on the left here, we have Jeff Ward, our VP, Exploration. His facial expression is probably squinting into the sun. I think it was about 40 degrees between Kelowna and Merritt that day. You could see some of the core that he's holding up. Interestingly enough, the drill contractor that we're using here is Atlas Drilling, who we used at Red Chris and we also used at Mount Polley, when I was working at those projects. And also, we have -- I don't have a picture of him, but Andrew Berry, our VP, Operations, he's not in this image, but he's also been instrumental in the success. Well, we began to get really excited with the drill core when the core began to come into the core shack in the morning with smiley faces on the lids of the core boxes. And you pretty much know when the drillers are drawing smiley faces on your core boxes that something interesting is going to be coming up. And we'll look at those pictures in a second. But this really made me laugh back at the time. So just to give you a real, real basic overview of porphyry systems. They're a little bit like Russian nested dolls, with the big doll, with the medium doll, with the small doll inside of it. And they tend to be really consistent. So when I was initially walking around on the MPD project, when we were looking at acquiring it, I noticed that there was a lot of rock that looked like this. It was in the propylitic facies of a porphyry system. There was copper oxides around. There was lots of pyrite around, little bits of chalcopyrite here and there. And historically, like if the surface was somewhere at this level, you had drill companies that were going and they were doing this, and they were drilling into it and they'd get a bit of copper, but they'd get it over a huge area. So the area that we saw that copper in was about 10 kilometers. I'm not able to write on my screen very well. But that 10-kilometer area was big. And it showed me that we had copper in a big area and possibly a really big copper system as well. So the recommendation there was to drill down deeper so that you could go across some of these zones. Now the erosion level on the project, I think if you look at it, is probably going to be pretty much like something like this, depending on where you're drilling. So you'll notice like with the drill core that we've got coming in now, some of the drill holes, like it would be the first hole that we put out in our results today, where we had like 600 meters of 0.25% copper equivalent, probably would have drilled through something a lot like this, whereas the drill holes when we stepped down about 75 meters to the south, they went through the zone like that hole there did. But the important thing is that you see this concentric zonation project-after-project, property-after-property. And when you see that you're in one part of it on a project that you're looking at, it gives you a very good idea that you might be just on top of what could be a major discovery. And I bring this up, this is an image of Red Chris, and it's from a technical report that was published in 2012. Again, this is a project that I did quite a bit of drill work on back in 2007. And you can see the scale here is really interesting. So we did drill holes that were over 1 kilometer to 1.5 kilometers long when we were there. So look at that, that's an 1,800-meter level and that's a 0-meter level. One of the euphemisms or one of the expressions in exploration is that nobody's ever really drilled the bottom of a porphyry system. So once you're on to these things, they tend to have very significant depth extent. But one thing that I want to emphasize here, Red Chris is really famous in B.C. as being a high-grade, big porphyry, again just had like an $800 million price tag on point of sale and that was, I think, for an 80% interest. But showing blocks here at 0.2% copper equivalent, so if you think about that, while you get cores on the system, you probably can't see my pen, but on the east part of the system, it's higher-grade. The most of it, I think, on average, it averages about 0.33% copper. But they're looking at modeling the zone with that 0.2% copper equivalent blocks. And if you look at what we just drilled here, here at the MPD project with Kodiak, you can see that one of these intervals, and I'll just highlight it here, that's 626.8 meters of 0.25% copper equivalent. That's basically very similar to what is being mined locally in this area and very similar, for modeling purposes, to probably where you'd put that outer envelope off of the mineralized zone if you're modeling something like a Red Chris as well. And you can see some of these -- these are really nice drill results that we came up with recently. I worked at Mount Polley as well. That's around a 0.3% copper system, so 78.5 meters of 0.39% copper with a 0.12 grams gold. Or here, you're looking at 275 meters of 0.28% copper and 0.08 grams gold. That's a 0.36% copper equivalent. This is what I was saying when you're in that outer zone on the porphyry system, what you need to do is then move in the direction where you're getting closer toward those nested inner sort of Russian dolls in that model. And that's what we just did with these drill holes. And this is what we began to hit. So here you go, that central zone is now -- you've got higher temperature alteration, better mineralization, 45 meters of 1.4% copper and 1.5 grams gold, so 2.75% copper equivalent. And the wider interval here -- remember, this is only partial, we don't actually have results for here and we don't actually have results from here yet. Looking at the core, I think this is going to be the best part of it. But it doesn't mean that the system doesn't go here and doesn't go here, just like it does on the adjacent section 75 meters away. But within here, 225 meters of 0.8% copper. Again, that's like 4x -- or sorry, 3x the grade of what's being mined at the adjacent deposits. So absolutely exceptional results. I'm really curious with the size of the copper anomaly that we have in soil and the fact that we know we have multiple copper porphyry centers on the MPD project. I'm really curious how big this one is and whether there are any more in the property, too. That's something that only drilling is really going to tell you. So looking at the core in front of you, this is what the core looks like when you're out in that sort of propylitic envelope. This would be the upper part of some of the holes that we've had or out on the margins. You can see that you've got pyrite. You've got a little bit of chalcopyrite. And you can see the rock is sort of a greenish color as you look through it. It's green, it's dark-colored. When you see this, and this is what you see when you see a bedrock at MPD and you walk around on surface, there's lots of kilometers and kilometers and kilometers of this kind of stuff. So when I first was walking around the project, this is what I was looking at. Our geos like Jeff and Andy, [ Cam ], the guys that are out on the project, when they were walking around, miles and miles and miles of this stuff. And then when you begin to drill into it deeper, you get a little bit lower. I should also mention that in the copper zones, at that surface and you're dealing with the zone, say, it's 300 meters wide or so and you're drilling across it from here down to here, you might have hit the copper at, say, 300 meters depth to, say, 500 meters depth. But that zone will actually go right up to a bedrock surface as well. It just happens to be in these drill holes, as you're going down across them, we began to see more, now you can see the chalcopyrite, which is this lighter-colored stuff, and the pyrite over here. Go down deeper in the core, it starts to look pink. You can see these monzonites. They are pinkish color, more potassic feldspar, potassic feldspar alteration in them, so the rock is starting to look better. You get more into the zone, this is what you begin to see. You get to see splashy-looking sulfides, chalcopyrite stringers and pink alteration, this potassic feldspar alteration. This is in the first holes that we put out that you looked at today. And then go deeper, you get into -- step to the south, go into more where the porphyry center is and you look at that dark red rock. You're into strong potassic feldspar alteration, other accessory minerals. And now you're into semi-massive sulfide stockworks, most of which is now chalcopyrite. You can see that goldish-colored sulfide, that's chalco. This more silvery stuff is pyrite. And you can see it's dominated by chalcopyrite. Now this is what the core starts looking like when it gets really nice-looking and you're drilling through these zones. You get these silica veins, they're filled with chalcopyrite. You get this actinolite alteration and you get this other sort of banded veining and, of course, the widespread potassic feldspar. If you look at core from, say, like a GT Gold-type discovery, if you look at core from like around Red Chris, you're going to see a lot of stuff like this. Other porphyry deposits in B.C., you can find stuff like -- that looks like this, let's say, like Copper Mountain, you get really excited when you start seeing this rock. And then when you go down into the system and you begin to get into that high-temperature sort of middle of the porphyry, this is what you start to see. And we showed some pictures of this stuff today from hole 5. And you can see that's a lot of silica. One of the things I remember best about drilling Red Chris back all those years ago was it was like drilling a giant quartz vein, like 1,000 meters of heavily silicified, high-grade rock. I mean we drilled 1,000 meters of 1% copper. Here, like we said, we've just drilled off 280 meters of about 0.7% copper or just about 1.2% copper equivalent. And you can see, adjacent to this stuff, you get that red rock. It gets to be a reddish brown when it's higher temperature. It's probably biotite there, the silica veins and the chalcopyrite. And of course, box-after-box of this stuff, you can see it behind the image of it, what it looks like here. And when you're looking at more of that, the silica veining, the sulfides, really nice-looking stuff. And then, of course, there's what's to come. So as we mentioned, we wanted to come clean with everybody, and we wanted people to understand that this hole, as good as it is, MPD-20-004, this is definitely not one and done. Just taking a sip of some water there. You can look at this as mineralization that we put out in the news release today that's coming up from the next hole that we drilled. And you can see very extensive silicification and you can look at the sulfide content on that, very impressive. Obviously, we're really looking forward to getting the assays back for this. And this is a picture of what some of that core looks like when you see more of it other than just a hand sample. Again, very strong amounts of silicification, very strong amounts of sulfides. You can see that basically -- I was talking to a friend of mine that worked at Red Chris with me, Kevin MacKenzie. He's now an analyst over at Canaccord. So we're looking at the pictures that we put in the news release today. And this really does remind me of that East zone from Red Chris in terms of the silicification and the high sulfide content. So this is the kind of thing I'm really curious to see more drill results when this stuff comes back for assay. We're waiting for it, really looking forward to that. And obviously, what we need to do is drill a lot more holes into this because this is one exciting discovery. So with that, guys, I think that sort of -- that just walks me through what I wanted to talk about. And I guess we could hand it over to some questions.

Yes. Thanks, Chris. Here, we thought you were a gold guy. And looking forward to seeing more of those boxes with the happy faces on them. That's fantastic. So we do have a lot of questions coming in. I'll start sort of with a broad one for you, Claudia. So the obvious question is what's next for MPD? How are we going to follow up on this?

Well, more drilling is the simple answer to that. As I said, our original program, the 4,000 meter, would have brought us to mid-September. We've already -- before we saw the results, today's results, just looking at the core, we knew that we wanted to drill more and have now planned to drill until the end of the year. And then yes, upwards and onwards from there.

And another question came in about our Mohave Project in Arizona. Given the success that we've had with MPD and the COVID situation, how are we going to approach Mohave?

Well, Mohave is a good project. And I'm glad we have it in our portfolio. Now with these results at MPD, we're obviously focused on MPD, first and foremost. So we'll -- I don't think we'll be doing any drilling on Mohave this year. But at the same time, it's a great portfolio project to have and it has discovery potential. So yes, it's there.

Yes. We were certainly very lucky to have this situation, with the whole COVID situation, that we could work with the local team and local drillers, and we were just all set up and ready to go. And I guess, while Jeff and Andy are still up there, we're going to keep going. And so that's exciting. Another question here, maybe for you, Chris. Any preliminary thoughts on the dip and orientation of the mineralized porphyritic diorite?

That's a great question. It looks like it's pretty much upright from what we can see. I think it's striking kind of north-south and dipping very steeply to the east, like at 80 degrees or so. So it's basically upright and kind of in place. So it's not like -- I've been to some weird porphyries, like in Yerington in Nevada, where the whole thing is over 90 degrees on its side, which is actually pretty cool. This does not look like that's going to be the case. It looks like it's upright and in place. Like we don't know how big it is yet. We haven't done enough drilling. That's all coming down the pipe. But man, it is certainly very exciting to see it begin. Like how many holes is this, guys, that we have in here so far? Since last year, we did 3 holes in it last year. And this was 7 holes, to see that kind of thing, that kind of stuff coming out of the ground, absolutely phenomenal. It reminds me of the early days of Great Bear, with Bob doing the modeling and us really hitting it out of the park. I have to say Jeff and Andy have done a great job on the project up to this point. And congratulations to them for having such a big success with so few drill holes.

This is after 50 years and 129 holes and then this is what we hit, so...

Well, you always hear in the business, they say, "Well, there can't really be anything there because so many other people have worked on the project." Well, the whole junior mining industry exists because nobody gets it right the first time or the second time or the third time or the fourth time. Sometimes, it takes it 50 years, right? So this is kind of the same here.

So back to a corporate question, who are your institutional holders, Claudia? Maybe that kind of opens up the question of what's our shareholder base and our capital structure and all that.

Well, company -- for a company our size, I think our shareholder base is quite typical. We have majority high net-worth individuals and some smaller funds and management and close associates, I believe, 12% approximately, and the rest, retail.

Okay. And then there's a lot of questions here. What is your current fiscal situation?

What is our current physical situation?

Fiscal, financial situation.

Okay. That makes more sense. We raised $2.7 million in the spring that funded our exploration work over the summer. We still have some reserves left to keep drilling. But our plan was always from the start to then in the autumn with some good results in our pockets to run -- to raise the next round of finance. And that's what we'll do in due course.