Cornejo to step down from Constantine, work as consultant: A deeper look at the ebb and flow of the industry by Kyle Clayton, June 25, 2020
Constantine Metal Resources has reduced its share of the Palmer Project and vice president of community affairs Liz Cornejo stepped down from the company.
Dowa Metals and Mining, Constantine’s joint venture partner at the Palmer Project, is financing more that its 49% share of summer work, reducing Constantine’s ownership in the joint-venture project, according to a Wednesday morning news release. Cornejo, who has resigned effective June 30, will still work as a part-time Haines-based consultant to the company.
Cornejo is the fourth company manager to resign since December. She said Constantine expects the dilution to be less than 1%, which would leave its majority interest in the project intact.
With reduced summer exploration plans, stock prices hovering around 12 cents a share, a weak metals market, a remanded permit and no new capital from outside investors, Constantine, and its Palmer Project, faces an uncertain future, which is typical, according to industry experts.
As of Jan. 31, according to its first-quarter financial statement, Constantine had a cash balance of $689,379 versus liabilities of $465,650. The company’s quarterly operating losses averaged $250,000 to $300,000 until the first quarter of this year. Constantine president and CEO Garfield McVeigh said last week that the company cut this year’s first-quarter losses to around $200,000 as of April 30.
But without additional capital, which exploration companies need each year, Constantine appeared to have less than a year of operating cash on hand. In March, Cornejo said the company had been unsuccessful in attracting investors to fund the company’s underground exploration tunnel at the Palmer Project.
In October 2019, Constantine took out an unsecured, five-year $630,000 loan at 12 percent interest from an investment group to pay for operating costs. In 2019, Constantine’s six-person management team earned more than $700,000 in combined pay. McVeigh and Cornejo earned about $240,000 in salaries between them in 2019.
In August, Constantine spun off all of its gold prospecting assets in Alaska and Canada to High Gold, a new company staffed now by three former Constantine managers, leaving the Palmer Project as Constantine’s sole project.
In December, Constantine vice president of exploration Darwin Green resigned and became the CEO of High Gold. In March, Constantine’s vice president of advanced projects and its vice president of investor relations, Ian Cunningham-Dunlop and Naomi Nemeth, resigned and assumed new positions at High Gold. McVeigh and a financial officer now serve as Constantine’s current management team. Green still performs work for Constantine as a consultant.
McVeigh said the spinoff aimed to provide new opportunities for employees and benefits to shareholders, but that it had the added benefit of cutting operating costs at Constantine during a time of reduced exploration. Constantine shareholders had the option to trade three Constantine shares for one share of High Gold. Constantine’s stock price declined after the spinoff.
Long-time mining industry expert Jim Kuipers, a Montana-based consultant who was recently hired by Rivers Without Borders to analyze Constantine’s preliminary economic assessment (PEA) of the Palmer Project, said company management moving around is common with junior exploration companies like Constantine. Kuipers worked as a mining engineer and project manager at mines in Montana, Nevada and Alaska before starting his own consulting company. He said an industry norm is that for every 10 advanced exploration projects, one will become an operating mine.
“A lot of these folks are on multiple boards, multiple companies and things of that nature,” Kuipers said. “The mining industry is transient. Few people stay with one company very long. It’s an indication that folks are looking for greener pastures. If you’ve got a project that you think is going to be a going concern, that’s what you stick with because your rewards are quite good.”
Kuipers said last week, prior to the announcement of financing from Dowa, that Constantine’s balance sheet, paired with market conditions and the PEA, indicates that something is likely to change at the Palmer Project, including the possibility of new ownership.
“The economics of the company would appear that somebody needs to step in sooner or they could in fact be in trouble,” Kuipers said. “Very rarely do these assets disappear. Somebody will end up with them. Something’s got to happen. That might be what tells us all where this is going, what does happen over the next six months or so. There’s not a lot of cash available right now.”
In a follow-up interview, Kuipers said Dowa’s additional financing indicates it is now the most likely party to develop the mine.
Constantine signed the joint venture with Dowa in 2013. Dowa contributed $22 million over four years, gaining ownership of 49 percent of the project’s claims. Since then, Constantine has maintained its status as the operator by funding 51 percent of exploration.
Constantine president Garfield McVeigh said changes to ownership in projects related to financing or other third-parties acquiring a project interest is normal.
“Ultimately, for a small company like Constantine to retain a 30% interest in a project like Palmer is attractive,” McVeigh said. “Constantine needs to continually evaluate funding in terms of project equity (cost of dilution) versus share equity (issuing shares for money). Constantine does not like to raise money at a low share price because it dilutes their shareholders.”
Share prices fell in August 2019. Shareholder returns have been down 72% during the past year, while returns have fallen by 1.1% industrywide, according to simplywall.st, an online stock analysis website.
“We are in a COVID-19 base metal market that perceives a period of reduced demand and metal inventory buildup looking ahead the next year or two,” McVeigh said. “We like to avoid raising share capital at low share prices, especially a large amount of capital when there is low investor interest in your commodities.”
Last summer, Constantine released the PEA, intended to help attract investors, highlighting a high-grade project with good economics. Kuipers questioned its assumption for selling barite, as well as its low capital and operating cost projections. Russ White and Cindy Buxton, local geologists with a background in mining and operate a consulting business, said they found Kuiper’s analysis reasonable, especially regarding projected operating costs.
“It looks to us as if the operating costs are significantly too low, as compared to nearby mines,” Buxton said. “Operating costs directly affect the profitability of the mines.”
White and Buxton said although PEAs are allowed to be optimistic, mining exploration is inherently risky and project advancements are determined by a combination of factors.
“They could find a lot more ore. The metal prices could change. Right now, it doesn’t look economic to us. It doesn’t mean it won’t be. It’s a very risky business,” Buxton said. “It’s important for the readers to understand that it is no guarantee that there will be a mine.”
“If all the environmentalists left town, there’s still no guarantee that there will be a mine,” White added.
Tim Murray, an Australian “short-seller,” an investor who bets on a stock price falling and co-founder of the investment group J Capital Research, called Constantine’s high-interest loan a desperation move. From his perspective, if Constantine didn’t come up with additional capital, the company will be broke in six months.
“Since Constantine put out this PEA their share price has fallen more than 70 percent,” Murray said. “That indicates to me that nobody believes in this.”
Murray last month issued a report skeptical of NovaGold and its proposed Donlin gold mine in the Yukon-Kuskokwim region, raising similar warnings as he has for the Palmer Project. NovaGold refuted Murray’s assertions.
Bob Loeffler, professor of public policy at the University of Alaska Anchorage and former director of the Division of Mining, Land and Water for the Alaska Department of Natural Resources, said it’s common for junior exploration companies like Constantine to take a hiatus for a year a two depending on market conditions.
“It doesn’t mean a project is doomed or abandoned, but sometimes it does,” Loeffler said. “Predicting the future profile of small mining companies, if I could do it, I would be a wealthy person.”
He said of every 10 exploration companies that advances a PEA, one becomes an operating mine. Of every three that advance beyond a feasibility study, Constantine’s next step, only one becomes an operating mine.
Language in Constantine’s own financial statement, which began appearing in its reports last year, indicates the inherent risk involved in the industry. “These matters indicate the existence of material uncertainties that may cast significant doubt about the company’s ability to continue as a going concern,” the company’s financial reports say.
The company’s auditor, who drew attention to the language in his audit of Constantine’s annual report, said such language is common with junior exploration companies.
“It’s not overly great news obviously,” the Canadian-based auditor said. “The only time we don’t put that in is if someone did a large financing and it’s quite clear they can last another year without requiring that. That hasn’t been the case for anyone for quite a while.”
Kuipers agreed that it’s common for junior exploration companies to be in Constantine’s situation.
“Most of the balance sheets for juniors are not much different. They’re living from investor to investor to investor,” Kuipers said. “This could be one of those times where the investors run out and people have to begin walking away from projects like this. That has happened historically when the market planed out. I wouldn’t want to be trying to run a speculative mine right now.”
“Time is always important,” McVeigh said of the next few months for Constantine. “Right now, it is a time for patience.”
The company isn’t currently drilling and the planned excavation of an underground tunnel for advanced exploration has been put on hold after Constantine’s permit was remanded by the Alaska Department of Environmental Conservation last fall. The company is currently waiting for test results that indicate whether its planned groundwater discharge would connect to nearby surface waters. If it does, the company will likely need to apply for a more stringent and costly federal permit to drill its underground tunnel.
Buxton said for Constantine to continue exploring in earnest and to create a feasibility study, the company has to build the underground tunnel and better define the ore vein.
No drilling is planned this summer. The company will be evaluating prospects for future drill targeting, the news release said.
Constantine’s local staff is now one full-time position and three part-timers. Last year, the company employed 22 people here.
In 2019 the company spent about $4.5 million on the Palmer Project expenditures including more than $1.8 million to Haines- and Alaska-based suppliers. They’re spending $2.1 million this year. Constantine and its partners have invested more than $50 million into the project since 2006.