Angkor Gold reels in Jogmec

When Mike Weeks first started nosing around for mineral concessions in Cambodia in late 2008 and early 2009, the typical reaction he got from people in the business was that he would be better off looking for assets in more developed mining jurisdictions like Nevada, or in parts of Canada, rather than in the small Southeast Asian nation.

But Weeks stuck to his guns and the strategy has put him at an advantage, he says, as the company he took public in October 2011, Angkor Gold (TSXV: ANK), has signed a handful of deals with large Asian companies that view Cambodia as a rich and convenient source of minerals right in their backyard.

In the past four years, Angkor Gold has closed on seven deals with a total value of US$15.6 million — the latest came with Japan Oil, Gas and Metals National Corp. (Jogmec) signing on to explore the junior’s Oyadao South licence, which hosts a copper-gold-molybdenum porphyry prospect.

Under the joint-venture exploration agreement, Jogmec can acquire 51% of the licence for a total US$3-million investment over three years. If Jogmec meets this target, the two companies would fund the project expenses on a pro-rata basis. Angkor will be the operator.

Field staff collecting termite mound samples on Ankgor Gold’s property in Cambodia.  Credit: Angkor Gold.

“Jogmec is a world leader in exploration and the Jogmec joint venture brings credence to both our company’s assets, as well as the industry at large in Cambodia,” Weeks says. “It should go a long way to dispel any questions about whether serious players are interested in exploring what Cambodia has to offer.”

Weeks says that management has been working on the deal with Jogmec “for a long time” and had signed a letter of intent (LOI) three months ago, but adds, “I never announce LOIs, because if they fall through, or take three months to cross the finish line, people think there’s a problem.”

Jogmec’s reputation is “second to none” he continues, noting that as an independent administrative agency under Japan’s Ministry of Economy, Trade and Industry, it has a mandate of investing in exploration projects around the world to secure a supply of natural resources for Japanese industry.

And Angkor is keen to work with the Japanese group. “We are looking for more ground because Jogmec wants more ground with us,” Weeks says. “They want to do a separate joint venture with us because they think their copper-gold-moly play is a lot bigger than that licence.”

In addition to Jogmec, Angkor Gold has signed two deals with a subsidiary of Indian steelmaker Mesco. In March 2013, Angkor sold the Phum Syarung prospect on its 300 sq. km Oyadao South Concession for US$1.2 million, and the company has a net smelter return royalty on all production from Phum Syarung.

Weeks says Mesco’s Cambodian subsidiary, Mesco Gold, is building the underground mine and waiting for its final permit to start production, which he expects any day now.

Once in production, Phum Syarung will be the country’s first modern, commercial gold mine.

“They’re working on their third horizontal adit and have finished their vertical adit, and they just commissioned a lab,” Weeks says. “They’ll start bringing rock out of the ground as soon as they get the permit.”

The headframe for the third shaft under construction at the Phum Syarung gold project in Cambodia where Angkor Gold holds a royalty after selling the project in 2013.  Credit: Angkor Gold.

Weeks notes that he just returned from a trip to Cambodia and met with the Minister of the Environment, who told him the EIA is in his technical department and is almost done. “He said he’ll sign it soon and the rest of the government has already said they’ll approve it, so how soon will it happen? I’d say soon.”

He explains that Mesco Gold built the operation quickly because rather than complete a resource estimate compliant with National Instrument (NI) 43-101 standards, the Indian company spent the money on construction. “In that part of the world they’re not so strict on stuff like that as in North America,” he says. “They did their own resource estimate that we couldn’t announce because it wasn’t NI 43-101 … to get a resource estimate we would have had to spend US$10 million on drilling, but they spent that on building the mine, and they don’t need as many drill holes to do a resource estimate. We drilled 19 holes and they did another seven, and then they started building the mine. We hit good resources in the area and they hit good resources in the area, and as they’re building the mine they’re proving it out even more, so they’re really happy.”

Angkor Gold completed a second deal with Mesco Gold earlier this year, signing a definitive joint-venture agreement on its Oyadao North Concession on Jan. 12. Under this transaction, Mesco will spend US$1.3 million on exploration and Angkor keeps a 15% free-carried interest. Under a sliding scale, the next smelter return royalty (NSR) will be 2% when the gold price is less than US$1,000 per oz., and will increase 0.3% for every US$50 that the gold price exceeds US$1,000 per oz., up to a maximum 7.5%. For all other minerals, a 7.5% NSR will be applied. (A similar sliding-scale NSR applies to the Phum Syarung mine.)

Other deals with Asia-based companies include the sale in January 2013 of a large prospect on its Oyadao South Concession to a private Chinese company, Canxiang Mining, for US$2.4 million (Angkor did not retain a royalty on that deal), and a US$10.5-million strategic investment in April 2014 with a Chinese equity fund based in the city of Chengdu and incorporated in Hong Kong under Tohui Beishan Property Group Holding. Tohui includes a consortium of associates, including Beijing Explotech Engineering Co. Ltd., and the China Chemical Geology and Mine Bureau Shandong Geological Prospecting Institute.

Angkor also has an agreement with Vancouver-based Blue River Resources (TSXV: BXR) to explore  Angkor’s Banlung tenement. The recent deal gives Blue River the right to participate in up to a 50% interest in the Banlung licence after investing up to US$3.5 million on exploration over four years. (It can also choose other options, such as a 10% interest or a 40% interest.) If Blue River finishes a bankable feasibility study, its ownership stake would increase by 20%. Angkor Gold would keep a 30% free-carried interest if Blue River opts for the 70% stake, but Angkor can also convert that to a 5% NSR. Angkor found a gold anomaly at Banlung measuring 2 sq. km in October 2015.

The company is also closing joint-venture deals on another licence — one with an Asian company and one with an Australian company — and Weeks says if all goes well an agreement could be announced in the next couple of months.

Angkor is the first publicly listed North American company in Cambodia and has seven exploration licences under its belt covering 1,448 sq. km (Cambodia’s total land mass measures 181,035 sq. km). The company has completed stream-sediment geochemical sampling on all of its tenements, and covered most of the ground with aeromagnetic surveys. It has drilled 22,000 metres of NQ core in 190 holes, in addition to numerous trenches and detailed geological field mapping.

Termite mounds have played a role in Angkor’s exploration efforts over the last seven years, too. The company has collected more than 110,000 termite soil samples in over 20 centres of interest over a combined area exceeding 140 sq. kilometres. The termites dig down to the water table, and bring any mineralized soil back to the surface — making them a useful exploration tool.

“The termites are amazing explorers,” Weeks says, noting that on its Banlung tenement optioned to Blue River, for example, 80% of the samples taken from the termite mounds showed visible gold. “You get a sample all the way from the surface to the water table and over there it’s down five to six metres below surface, and the termites push some of the dirt up, and they also poop a lot out on the hill.”

Weeks notes that the company’s former vice-president of exploration, and now a consultant to the company, Adrian Mann, confirmed their use in Cambodia by taking regular soil samples from auger drilling in a particular location and plotting them on a graph and comparing the results from samples from the termite mounds in the same location, and the results were identical.

Sampling termite mounds is also cost-effective, Weeks says, slashing costs down from US$30 per soil sample down to US$1 per termite mound sample.

So far Angkor has found three mineralized porphyry systems. Its latest discovery, the Halo copper-moly prospect optioned to Jogmec, covers an area of 1 km by 750 metres. When Halo was found in June 2015, the director and associate professor at the University of British Columbia’s Mineral Deposit Research Unit, Craig Hart, noted that Cambodia was not previously known for porphyry systems. (“The fact that Angkor has discovered three porphyry systems in a jurisdiction not previously known to host such deposits is a massive measure of success and a testament to a strong exploration team,” he said. “It also indicates the opportunities and upsides that are within Cambodia.”)

Cambodia has modelled its mining regulations on those of Western Australia, the company says. Permitting is fairly straightforward, the company says, as the country is keen to develop its mining sector. Corporate taxes run to 30% and the government retains a 3% NSR on all mining operations.

Cambodia’s violent history, moreover, during the catastrophic dictatorship of Pol Pot and the Khmer Rouge in decades past, has meant that only 10–15% of the country has been explored with modern methods, Weeks says.

“Their mining legislation is all new,” Stephen Burega, Angkor’s vice-president of corporate development, adds in an interview. “The infrastructure and the process associated with reviewing and issuing mining licences — no one has really gone through this before — so we’ve been quite impressed by how the government has handled it.”

Indeed, it has been just four years since Angkor identified the Phum Syarung prospect and then sold it to Mesco, and now the mine is on the verge of production.

“All of the international standards have been adhered to, so it’s been a great experience working closely with the government to see through this process for the first time, and now we’re weeks or months away,” Burega says. “We’re close to the finish line and once that mining licence is issued, Mesco will turn the lights on within 30 days and begin mining, so for us it’s a huge milestone.”

Burega notes all Angkor’s asset sales have been done without having completed resource estimates.

In Mesco’s case, he says, Angkor “drilled a few holes; did the surface work, geochem work and induced-polarization work; and [Mesco] said: ‘We’ll take it.’ There was no need for us to go through the 43-101 preparation of reports because the suitors, those who we’re dealing with, aren’t interested in that. They’re interested in the facts: whether it’s mineable, and whether the country is safe.”

The company has also traded above its initial public offering price from day one, Burega adds. “We’ve weathered the worst cycle in most peoples’ careers — we’ve weathered it and done quite well — and we’ve got an extremely loyal shareholder base due to our unorthodox approach, and we’re here for the long-term.”

Of the company’s 90-million-plus shares outstanding, “twenty million is the float that we can’t identify, and the rest of it, some 70 million shares, is in hands that we can easily talk to,” Burega says. About 25 million of those shares are held by management, with Weeks and his wife Delayne, the company’s founders, its two biggest shareholders. (Delayne is Angkor’s vice-president of corporate social responsibility.) Another 15 to 20 million are held by a small group of major shareholders, many of whom are based in Grande Prairie, Alta., where the Weeks live.

Weeks says he knew immediately that he wanted to work in Cambodia after his inaugural visit.

“We first went to Cambodia at the end of 2008 and I fell in love with the country, and fell in love with the people,” he says. “Years ago I was told to look at properties in other jurisdictions and came close to making a few deals, and right now I’m glad I didn’t, because the Japanese, the Chinese, the Koreans and the Indians really like Cambodia, and it’s in their backyards.”

Not only that, Weeks says, but after years of working on relationships and building community support, Angkor is “looked at as the best company in the country.”

“We develop our properties, we work with the local people, we hire local people and we work hard on our social development programs.”