There is no single right way to organize and operate a junior resource company. Instead, each company needs to figure out its own path to maximizing shareholder value. Whether it is a greenfields exploration story or a brownfields mining restart, every project is different. Peter Clausi, CEO of CBLT Inc. (V.CBLT), spent the early part of his career as a commercial litigation lawyer on Bay Street. He’s seen most of the business models.
“I’m from Timmins,” said Clausi in a telephone interview. “Mining is in my blood.” Literally, putting three summers into the zinc smelter at Kidd Creek Mines to put himself through law school.
Clausi spent part of the early 90’s as a lawyer advising reporting issuers and practicing securities litigation. “It was intense high-stress work and I decided to take a year off,” said Clausi. When he came back, Clausi continued to practice law but he also began working in what can best be described as an investment banking role. “I advised, I raised capital, I was a shareholder activist,” said Clausi. “I was involved in eighteen hostile takeovers.”
Along the way, Clausi realized, “Exploration success does not equal market success. You can make more money with the pen than with the drill bit.”
It is an insight which goes to the heart of the junior resource business. “There is no value in just drilling,” said Clausi. “Pure exploration dollars are not being rewarded. We’ve been in a mining depression since 2011.”
The effect of the “mining depression” has been to make a lot of good exploration and development resource assets available for acquisition. Often these assets will have mapping, geophysics, trenches, drill holes and even old workings, all of which can often be purchased for a very reasonable price.
A lot of those resource assets are owned or controlled by geologists, not business people. “Most geo CEOs lack an understanding of the entire business, though there are exceptions,” said Clausi. “They want to drill holes and drill holes and drill holes, and that costs money. Money which is hard to raise.”
Clausi took his lawyer’s training, years of practice and business acumen to CBLT Inc in 2011. The objective was to find good, undervalued, assets, acquire them and do effective technical work before selling them on. “We’re business people first,” said Clausi.
CBLT’s focus starting in 2016 was on cobalt assets. “Cobalt was trading at less than $40,000 USD per ton when we bought the assets,” said Clausi. “It went over $90,000 USD a tonne in early 2018.”
As cobalt rose in price, CBLT spun various cobalt properties out to purchasers and optionors. These transactions were structured to provide cash and shares in the purchasing companies to CBLT. Each of these sales/options/joint ventures was different but the net effect was always to get more for the asset than CBLT had initially paid for it and a look in at the asset down the road through the equity piece. As a result, CBLT has not had to do an equity financing since 2016.
It is a strategy which CBLT still follows, but it is not a strategy which would work for most junior resource companies because the transaction costs would be prohibitive. Having experienced mining and securities counsel as your CEO drops those costs fast. “We do our regulatory filings and most of the contracts and subscription agreements in house,” said Clausi. “Our CFO, Brian Crawford is a CPA who is very familiar with the requirements of Reporting Issuers. Our last deal, the sale of our 56% joint venture interest in the Northshore Gold Property near Hemlo, had total legal fees, from LOI to definitive agreement to closing on patented lands, of about $16,000.”
High level in-house legal and accounting is a huge competitive advantage for CBLT. The other advantage the company enjoys is a reputation for looking for good, if undervalued, assets. “We’re looking at assets every day,” said Clausi. “We evaluate those assets based on location, infrastructure, work already completed and what the next “hot” metal is likely to be. Right now, gold in Canadian dollars is the highest it has ever been.”
The execution of the strategy can be seen in CBLT’s press release of September 23. In it, Clausi pretty much outlines the play, “Omni’s efforts make CBLT more valuable. Our large equity position in Omni gives us passive ongoing exposure to gold and to Omni’s development successes like Monday’s press release. It also allows us to continue our business plan to create shareholder value by continuing with strategic M&A activity, as with Northshore Gold, and by developing our Canadian mining assets.”
CBLT was paid $350,000 in cash and $1,100,000 in shares of Omni for its Northshore Gold Property Joint Venture. When Omni lists, CBLT will be a large, if not the largest, shareholder in the company and will participate in the success of the exploration play. All the while, getting paid for an asset it acquired and then sold.
More money from the pen. CBLT has what insiders call “deal flow”. “We’re looking for assets every day,” said Clausi. It looks like CBLT is finding them.