Interview with Scott Close, Director of Investor Relations Eurasian Minerals (TSX: EMX, NYSE MKT: EMXX): Generating Royalties by Following an Inexpensive Royalty Generation Plan
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By Dr. Allen Alper, PhD Economic Geology and Petrology, Columbia University, NYC, USA
on 9/30/2016
Recently, 17.9 percent zinc, 6.9 percent lead, a half a percent copper and 68.9 grams of silver were found at
Eurasian Minerals’ Gumsberg property, in the Bergslagen mining district, Sweden. The following is an interview with
Scott Close, Director of Investor Relations at Eurasian Minerals, Inc. (TSX: EMX, NYSE MKT: EMXX), who discusses how
Eurasian generates royalties by following an inexpensive royalty generation model. They find promising properties,
do enough surface and near surface exploration to get other companies interested in development, and then collect a
royalty when the property advances into production. This, coupled with strategic acquisitions, has built a
substantial royalty portfolio for Eurasian Minerals.
Dr. Allen Alper: This is Dr. Allen Alper, Editor-in-chief of Metals News, interviewing Scott Close, Director
of Investor Relations for Eurasian Minerals.
Well, this has been an exciting year for Eurasian minerals. Could you tell us what's happening with your
various projects?
Mr. Scott Close: Well we just issued a news release regarding one of our projects in Sweden called Gumsberg.
This is a volcanogenic massive sulfide type deposit or VMS for short. We had drill results that included 2.8 meters
of 17.9 percent zinc, 6.9 percent lead, a half a percent copper and about three ounces of silver, as well as some
other very significant hits. That was a very positive development for Eurasian Minerals in a very famous mining
district, called the Bergslagen. Incredibly, this district has been active for over two thousand years.
Dr. Allen Alper: Wow, that's great! Could you tell me a little bit more about that area? Infrastructure, et
cetera.
Mr. Scott Close: The infrastructure up there is really quite good because it's in Sweden. The area is known
for polymetallic mineralization. Primarily VMS, but also some carbonate replacement deposits and things like that.
Gumsberg - Historic Östrasilvberg pit (up to 250 m depth)
There's plenty of electricity, roads, telecommunication, rail and so on. There's also plenty of water. There's
probably more water than a lot of people need at times up there, but it's an excellent place for mining, and
certainly Sweden is a very favorable jurisdiction for mining. The Swedish Geological Survey is also very helpful and
manages a massive trove of geological data that companies can use for reference and research.
Dr. Allen Alper: That sounds excellent. Could you elaborate on Eurasian minerals’ business model of being a
royalty generator and elaborate on your projects?
Mr. Scott Close: We refer to ourselves as The Royalty Generator, buy really we are a royalty company; we just
don't subscribe to the traditional royalty business model. In the traditional business model, companies acquire
royalties by writing really big checks. That's certainly an expeditious way to build a royalty portfolio but it's
also excessively capital intensive.
What we do is largely build our portfolio of royalty properties organically from our own portfolio of
exploration properties and projects around the globe. We go out and do basic, inexpensive exploration on properties
we have acquired. We don't do much drilling because that can become very expensive, very quickly. We typically
stick to surface or near surface exploration methodologies: rock sampling, Bulk Leach Extractable Gold sampling of
stream sediments or BLEG for short, soil geo-chem, outcrop sampling, a variety of geophysical surveys, a lot of
mapping, things like that. Then hopefully we find enough mineralization or signs of mineralization to entice another
company to come in and pick up the project. When they buy the project from us, we hold back a royalty. The new
property holder is then responsible for advancing the project. With some luck, that property will go into
production. When that happens, we start realizing cash flow from the royalty on the production of the metals.
That is obviously a much less capital intensive way to build a royalty portfolio. It's a slower process, but it's
also less risky. We aren’t putting all of that money out there to be at risk. We also have a very deep understanding
of the project because we have been involved with it since day one.
I can draw an analogy with the whiskey business. When you start a whiskey distillery, you don’t produce
product for the first few years. You then begin to slowly bottle a few of your first batches and sell them off, but
you still aren’t making any money. The real payday has yet to begin. As the years pass, your inventory builds and
you release more and more bottles as your product matures. You now begin to generate positive cash flow which
continues to multiple. It takes time, patience, perseverance and a lot of hard work, but in the end you’ve built a
company with a bright future. That’s where we are now.
We have spent the past thirteen years exploring the world, building a portfolio of properties that are now
maturing into that 13 year old, finely aged whiskey. We are on the cusp of having multiple, organically derived
royalties beginning to cash flow. That is why both Dave Cole and I have been buying shares in the company. When
these properties that we have so carefully cultivated over the years begin throwing out cash flow and we cease to
consume cash and instead generate more and more, I think we will see a dramatic re-pricing of our shares in the
upward direction.
Dr. Allen Alper: That sounds like an excellent model. Could you give our readers examples of some of the
royalty projects you have. Who your partners are.
Mr. Scott Close: Of course. We have a cash flowing royalty right now coming out of some Newmont’s gold mines
on Carlin Trend in Nevada. Now that is not one that we grew out of our own portfolio. This is one we uncovered that
was favorably priced and we firmly believe has huge upside potential. We acquired it using Eurasian shares as the
primary currency with the addition of some cash. That royalty helps sustain us by providing solid, long term cash
flow and should for many years to come.
- We also have royalties on the incredible Cukaru Peki copper discovery in Serbia that is now owned by Nevsun
and the property immediately adjacent to that to the west. We also have a royalty on the very mineral rich lead-
zinc-silver project in Turkey called Balya with Dedeman Madencilik, a Turkish concern that is currently in small
scale production, but may not be small scale much longer. The Viscaria copper-iron property with Avalon Minerals in
Sweden. Sono Global Holdings in Haiti on the Grand Bois gold-copper property. A number of other properties in Haiti
that we have a half a percent NSR on that Newmont holds. Along with Desert Star, Arizona Minerals, Kennecott which
is an arm of Rio Tinto, Ely Gold, Entrée Gold, Pasinex Resources, Tumad Madencilik which is another Turkish company,
Black Sea Copper and Gold, and Land and Mineral Limited out of New Zealand.
As for partners, we have a lot of them. Chief among them are Rio Tinto, Newmont and Freeport McMoRan as
well as long list of non-majors.
Dr. Allen Alper: That sounds great. Could you tell about your plans for the rest of 2016 going into 2017?
Mr. Scott Close: We will continue to execute our business model by going out and finding perspective mineral
real estate, performing basic exploration, then vending those properties out, while holding a royalty back. That's
always the plan going forward. We'll perform further exploration in Sweden on the Gumsberg project along with some
exploration activities in Arizona where we have a number of copper properties. Arizona is a world renowned province
for large copper deposits, so we are down there looking for the elephants.
Dr. Allen Alper: That sounds very good. Could you tell us about your background, the team's background, the
Board?
Mr. Scott Close: That would be my pleasure. I studied geology at Colorado State University. I have worked in
mining for about 15 years. I've worked at an In Situ Uranium Mine for Westinghouse, an underground lead zinc silver
mine for Asarco and wire line services in the oil & gas sector. Additionally, in the planning department for a coal
mine of Occidental Minerals. When things got slow in the sector, I was actually in the restaurant business and when
things heated back up, I'd go back into the minerals sector, which I really love. I particularly like working
underground, I find it pretty exciting. And of course I’ve worked here at Eurasian Minerals for over nine years now
and have loved every minute of it.
Dr. Allen Alper: That sounds great. Could you tell me more about the management, Dave's background, the other
team members and the Board?
Mr. Scott Close: Dave Cole is the founder of Eurasian Minerals and is the CEO and a director. I've known Dave
for about thirty years. Dave is an exceedingly capable geologist, coupled with being a very shrewd business man. I
know you have been around the sector for a long time yourself Al, and I’m sure you recognize that those two
qualities rarely occur together.
Dave spent eighteen years working for Newmont. He has worked as a geologist all over the world including
stints in Southeast Asia, South America, Eastern Europe, Central Asia, and a lot of time working in Nevada on the
Carlin Trend.
Dave earned his undergraduate here in Colorado at Fort Lewis College. Then he received his master’s degree
in geology from Colorado State University under the guidance of Dr. Tommy Thompson who's a very well know economic
geologist. Upon graduation, he went back to work for Newmont, then eventually left the company to found Eurasian
Minerals.
Dr. Eric Jensen, is our general manager of exploration. He's worked for a number of big name companies. His
specialty is porphyry-style deposits, high-and-low-sulfidation epithermal gold deposits, and alkaline gold systems
such as the Cripple Creek Mine in Colorado. Eric literally wrote the book on that deposit, which their mining
geologists still utilize today. Additionally, he’s very fluent in IOCG deposits or Iron Oxide Copper Gold. He
received his PhD in economic geology from the Center of Mineral Resources at the University of Arizona in 2003,
which is arguably the best school of economic geology in the country.
Coupled with him is Dr. Dave Johnson, our chief geologist, who studied with Eric at the U of A where Dave also
received his PhD. Dave's specialties are IOCG and copper porphyry deposits. I call Dave and Eric our geo-savants as
they truly have an enormous, encyclopedic knowledge of geology.
That's why we're so engaged in Arizona. Those two gentlemen along with some other guys in the company such
as Dr. Dave Maher and Dr. Doug Kriner are also products of the University of Arizona’s economic geology programs.
Their real focus is on porphyry style copper deposits, which Arizona is known for. If you find a large
copper porphyry deposit that's economically viable to develop, the contained value of the metal in those can be
denominated in tens of billions of dollars. You can only imagine if we had a one percent royalty on something like
that. How much money would that earn for our shareholders over decades of production?
Dr. Allen Alper: That sounds great.
Mr. Scott Close: Our chief legal officer is Jan Steiert. She is an attorney who has counseled a long list of
high profile mining companies. She is the immediate past President of the Rocky Mountain Mineral Law Foundation, a
past President of the Colorado Bar Association Section on Energy and Natural Resources Law, and was listed for many
years in The Best Lawyers in America and Who's Who of Mining Lawyers.
The initial structuring and basic agreements of deals with companies are relatively easy to put together,
but coming to terms on the full blown contractual agreement can be an agonizingly protracted affair. We have found
that having an in-house attorney, familiar with that whole process is very useful in condensing those durations.
Mike Sheehan takes care of our geo information systems; the computer mapping, organizing and compiling data
sets and such. Mike has his Masters from the Colorado School of Mines in geological engineering. He also works as a
field geologist part of the time. He’s an amazingly smart guy. We're really lucky to have him on board.
Dr. Allen Alper: That sounds like you’ve built a very, very strong team.
Mr. Scott Close: Yes, it’s an astonishingly team of very clever people.
Dr. Allen Alper: It's nice to have the right team.
Mr. Scott Close: It is.
Dr. Allen Alper: People should be very interested in your company. Could you tell me a bit about your share
structure, your capital structure?
Mr. Scott Close: We currently have just under 74 million shares outstanding. We have just over 3.7 million
options. We have no outstanding warrants. On a fully diluted basis we have about 77,667,210 shares. We have zero
debt.
Dr. Allen Alper: That's great.
Mr. Scott Close: Most of our shares are traded in the US under the symbol EMXX. We're also traded in Canada
on the Venture Exchange under EMX. The US has five to ten times the amount of liquidity compared to the Canadian
side. If people are looking to buy our shares they can buy them on either exchange. The US is probably the best one
because there is the most liquidity available.
Dr. Allen Alper: That sounds very good. What are the primary reasons our high-net-worth readers/investors
should consider investing in your company?
Mr. Scott Close: Well we have spent a lot of time dissecting the mining and exploration business. We've taken
a really hard look at who makes money in this business and how they do it. Specifically what vehicle or vehicles are
they utilizing to make money and create shareholder value? Everything we do has a business focus. There's no sense
engaging in a project or chasing something down if you can't make money. We are here to make money for our
shareholders, that is our goal.
Take a look at mining. Mining is a massively capital intensive business. Geo business statistics tell us the
average time horizon between the initial exploration on a gold project and the first pour at a gold mine is about
ten years. When you take a look at a large porphyry copper project, the time horizon from initial exploration to the
first production at the mine is expanded out to about 24 years. Who in their right mind would wait around for a
decade or two plus decades just to begin to realize an ROI? That's lunacy.
Moreover, as a miner you take on a long litany of risks such as political risk, social risk, commodity pricing risk,
environmental risk, geologic risk, metallurgical risk, labor risk and so on. That’s a lot of risk.
Let’s examine one more benefit of royalty companies. Let’s assume that you have a royalty on a mine with a
moderate to long mine life. The general rule of thumb is that from the initial resource, when a mine first begins
production to the end of mine life, the resource doubles in size. When you bought that royalty, if that's the route
you took, you only paid for that initial resource. Not only that, the royalty holder paid ZERO for all of the
additional exploration, mine expansion, intellectual capital and so forth to facilitate the doubling of the
resource.
What we found was a segment of the industry that makes the most money with the least capital and the lowest
effort and trades at the highest multiples relative to other segments of the industry.
The royalty space is where we want to be and that's where we are staying.
Dr. Allen Alper: That sounds excellent! You are clearly a brilliant business man as well as a
geologist/mining expert. Our readers/investors are going to appreciate your informed summary of what a royalty
company does.
Mr. Scott Close: Thank you, Dr. Alper.
http://www.eurasianminerals.com/
10001 Titan Road
Littleton, CO USA 80125
Phone: +1 (303) 973-8585
Fax: +1 (303) 973-0715
info@eurasianminerals.com
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