Interview with Northgolds CEO Mitchell J. Vanderydt

For those who have not heard of Northgold, can you tell us more about your business and what you do?

Northgold is a gold exploration and development company focused on advancing multiple co-located projects in the Middle Ostrobothnia Gold Belt of central Finland. Our strategy is three-fold, number one, grow resources and advance our flagship Kopsa towards development, number two, continue making new gold discoveries across our district scale land package, number three, continue to consolidate and expand our footprint within our region of focus.

What trends and drivers in society do you see benefiting Northgold in the future?

We believe that gold is the world’s most important commodity, as it is essentially the nucleus of the global financial system and acts as a core form of currency and strong store of value, which investors and central banks can own to help back their other forms of currencies and investments that are susceptible to inflation. Therefore, we see all investments in gold as helping to move society forward by helping to unlock the potential of the global financial system. Gold investment benefits Northgold by helping to bid up the gold price, which in turn increases the value of our gold in the ground. 

When do you expect your flagship sight to reach the production phase?

There are essentially three key stages in the mining life cycle: exploration, development, and production. Our flagship site Kopsa is still in the advanced exploration stage but is approaching a return to the development stage (which includes engineering, economic evaluations and construction), which it had reached historically following the completion of a 2013 preliminary economic assessment, or PEA, that contemplated on-site ore-sorting, with off-site mineral processing at a nearby processing plant. Kopsa has an updated resource estimate due by mid-year 2023, with metallurgical and ore-sorting test work slated to re-start before year-end, and with both an updated PEA and updated environmental impact assessment (EIA) set to begin next year, which should lead to Kopsa reaching gold and copper production in as little as four years, or as early as 2027.  

Can you explain how Northgold’s revenue model works?

Northgold is currently a junior mining company, therefore, we don’t currently have any revenue. This might seem strange to investors unfamiliar with the junior mining space, which is essentially a research and development arm for producing mining companies. The junior mining business model is centred around sourcing cash from equity financings and investing the cash into drilling and economic studies:

• Drilling helps to increase the number of prospects and the quantity of mineral resources in the ground, which adds critical mass and increases the likelihood of positive economics and ultimate extraction. 
• Economic studies (such as PEAs and more advanced feasibility studies) help define the engineering attributes of the project along with costs and revenues for a range of gold price assumptions, which culminates in a project net-present-value, or NPV. 

Resource-stage exploration companies like Northgold tend to trade within a range of enterprise values per unit resource, according to the current commodity price and the likelihood of ultimate extraction, and development-stage companies tend to trade within a range of factors or multiples of its project NPV, which similarly varies with the commodity price. Northgold, a resource-stage explorer, has recently traded near an enterprise value of 9€ per gold equivalent ounce resource, which is a discount to the recent group average of 32€/oz for a group of some 19 resource-stage gold explorer peers that we track, as we are near the smaller end of the spectrum with mineral resources currently around 800,000 oz gold-equivalent. But with our mineral resources set to increase in the coming months, the gap between Northgold’s recent valuation and its peer group average should narrow.  

How do you expect the recent gold price rally to affect Northgold?  

All gold companies rely on high gold prices to help support their valuation, producers, developers, and explorers alike. Typically, companies in all three stages trade at higher valuations when the gold price rises. The current gold price rising to USD 2,000 per ounce isn’t fully reflected yet in the gold equities versus historically, including for producers, but especially for the developers and explorers, which on average currently trade near half of their valuations from one year ago when the gold price was around only USE 1,950/oz. This lagging effect of gold equity valuations when the gold price is rising is not unexpected, as it sometimes takes time for investors to subscribe to the idea that gold prices will remain high, or continue to rise, for a sustained period of time. We are starting to see increased investment and higher valuations among gold producers, the group that is typically first to realize the benefits of higher gold prices as they regularly sell gold. Then, if the gold price remains high or continues to rise, this investment in gold equities will typically spill down-cap to the developers and the explorers. Smaller-cap explorers like Northgold are typically the last to be rewarded but often have the most significant relative upside potential.

What are Northgold goals in the short and medium-term, and what do you see as the most significant challenges going forward?   

The near-term goal for the coming year is to continue to grow our resources and make new discoveries in our area of focus, the Middle Ostrobothnia Gold Belt of central Finland. In the medium-term, beyond one year, we are looking to advance our flagship Kopsa gold and copper project to the development stage through the completion of an updated preliminary economic assessment that would contemplate off-site processing of the Company’s mineral resources. Finding a suitable off-site processing arrangement and implementing any necessary mill modifications is one of the critical challenges and risks faced by the Company moving forward, as we don’t yet have any detailed plans or agreements in place with either of the two processing plants in our region that we have identified as potentially suitable (that is, Pyhasalmi mine east of Kopsa or at Laiva mine north of Kopsa). We intend to advance plans and possible processing arrangements next year in conjunction with our completion of an updated PEA for Kopsa.

Can you give three reasons as to why Northgold is a good investment today?

1. Northgold offers a district-scale land package with solid starter resources with 800 000 gold-equivalent ounces in a top mining jurisdiction of Finland, which consistently ranks among the top three nations in the world in terms of investment attractiveness, after Canada and Australia, mainly due to its prospective rocks that are relatively under-explored, as Finland did not open its doors to foreign mining companies until 1996.

2. Solid lineup of news flow on the horizon, including remaining assays from 2022 drilling, an updated resource estimate for Kopsa due by mid-year, and continued drill results throughout the year from this year’s ongoing 2,500m drill program.

3. Strong current gold price appears to be rising due to geopolitical, inflationary, and recessionary pressures. And this high and rising gold price could coincide with the possible advancement of Kopsa to the development stage, thereby bolstering its valuation re-rating potential.