Lexam VG Gold AGM Update



Lexam VG Gold AGM Update
(June 13th, 2011)

AGM Update

The presentation had some interesting slides in it showing some 3D visualizations that had been done very recently, here’s hoping they appear on the website soon.  These slides are not part of the corporate presentation that appears on the site as of today.

Rob McEwen did the intro’s as Chairman and handed the meeting over to Tom Meredith to run.  Here are some highlights. There were approximately 35 people in attendance.

  • before the consolidation of Lexam and VG Gold there was $14 million in cash from Lexam and $2 million in cash from VG Gold.  After the merger there was $14 million remaining, Ha Tran ( current CFO) presented these figures.
  • $1 million was due to the merger and G+A
  • $1 million was used in drilling (leading to the most recent drill results was implied)
  • Ha Tran noted that there was currently $12.6 million in cash, the draw down mainly from exploration
  • Tom highlighted the $10 million 70,000m drill program and that most of it will be below 1000ft
  • of note was his comments that the Davidson property is on the same line as the Goldcorp Hollinger property south west of the Davidson property.  He noted that Goldcorp’s property was expected to be very active over the next year or so.
  • Tom noted that ultimately LEX would like to be like another Lakeshore with a $1 billion market cap
  • he also noted that they are able to leverage an estimated $100 million (in todays dollars) in infrastructure underground for their projects.
  • there are 4 rigs drilling and there is a focus on drilling above and below the 106 hole in the recent press release

Rob McEwen’s Update

Rob McEwen did a discussion after Tom.  Rob’s comments were more his general take on the industry with a bit of economics thrown in.  He seemed to use this time to provide a general update on his current thoughts.

  • confirmed he see’s gold going to $5000/oz and silver to $200/oz before we see a top
  • Rob noted that many are simply trying to protect their capital and recounted the 2008 meltdown and the fact that there is still ally of money on the sidelines since then
  • he see’s this sideline money looking for a home and expects gold and silver to be a major destination
  • he see’s QE3 around the corner and 4,5 etc
  • he recounted the Weimar Republic and the speed and impact of inflation on Germany and recommended everyone read the book “Inflation Nation”
  • he reiterated that governments are more worried about the next election than you or I and will print money to try and get out of this mess
  • McEwen noted that everyone expects cheap credit will last but it won’t
  • he noted Central banks are buying gold and silver but they say it’s not money.  Gold is Money.
  • he says ETFs have helped the commodities to be more accessible to the average investor and have helped increase exposure to the space.
  • He noted that as people get more comfortable they will move from commodity ETF’s to the senior producers and then eventually down the the juniors as more players enter the space.
  • He expects you’ll see juniors go from being worth millions to billions. There will most likely be frauds like Bre-X but also legitimate juniors with Bre-X valuations
  • He expects a ‘crowd psychology’ to take over

Just as the Rob was going to wrap up the meeting an investor asked what the production plan was? The investor commented that he liked to have a sense where they are headed and what is the “ace in the hole”. Rob took the question and responded that there is no production plan, Lexam VG Gold isn’t even at a preliminary feasibility study stage yet. He was deliberately blunt in his response that Lexam VG Gold is still searching for the “ace in the hole” that the investor was referring to. He noted this is a very high risk situation that where one should only be playing with discretionary funds.

After this question someone else asked if they were planning more rigs and the cost. Key Guy, in charge of exploration, commented that they had no plans for more rigs and 4 were more than keeping them busy at present. When asked about drilling cost for the 4 rigs, Rob jumped in and commented $1 million/month.

My Thoughts and Observations

Disclaimer: Please do your own due diligence. The following are simply my personal thoughts from the AGM and and not intended to be a recommendation to buy or sell LEX. I am a shareholder of LEX and have been for about 1 year.

The following is simply my thoughts and observations on the AGM. I would have to say that I don’t consider Tom a great presenter and he almost seemed to stumble thru his part of the meeting, that being the official business. Another observation was that I don’t think I once saw Tom and Rob talk to each other and at one point they almost seemed to turn their backs on each other. Granted Rob certainly does have a presence. Because of this I’m assuming there will be a definite shake up coming, the question is when. I have always found it interesting that Rob has simply taken the Chairman of the Board and not the CEO position like he did with Minera Andes. My guess is that if/when Lexam VG Gold makes a significant strike, like El Gallo for US Gold, then Rob will initiate the next shake up. Rob hasn’t taken things to the next step yet by moving his own people into Lexam VG gold positions. At some point I’d expect Tom Meredith and Key Guy to all quietly disappear. Rob already has HA Tran as CFO who has involvement at US Gold.

Another observation was in relation to Rob’s response of basically a $1 million/month burn for the 4 rigs. This would seem to imply that if you do the math on a $10 million drill program, LEX will likely be looking for more funds in less than a year. It would seem reasonable given Rob’s pattern with other firms that this will simply be via a private placement where he will take a significant portion to maintain or increase his stake in the firm.

At the reception afterwards I asked Tom what sort of resource size they would want before making a decision production. He reiterated that they are an exploration company and the focus currently is increasing the resource. They hope to move from an approximate 1 million oz play to a 2 million oz play in 12 months. He noted that this would be the most beneficial for shareholders and could see the stock increasing by 2-3 X with a doubling of the resource estimates. As a shareholder I can’t argue with that! As to the exploration plan they will continue to move deeper over time, they will search for the shallow deposits since they are cheaper to find and potentially extract and move deeper over time.

I did meet a shareholder that was an ex-broker and had been in since $.10 for about the last 6 years. He commented that the most impressive thing about Tom was that he didn’t try and sell VG Gold to him, he kept having to bug Tom for followups and details. An interesting observation.

On entering the AGM there were 2 documents on each chair, one was the recent press release of drill results for LEX, the other was a print out of a speech Rob gave in 2006 at the Denver Gold Show. It’s entitled, ‘Giving Shareholders What They Want: A Higher Share Price’, I found a link to the same article here. Rob didn’t really comment on the article and I’m not sure if it was intended as a message on the state of management and board shareholdings in companies in general or was directed to current LEX management but it’s an interesting read just the same.

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