My second CEO conversation at this year’s Rule Symposium in Boca Raton, Florida was with Dolly Varden Silver CEO Shawn Khunkhun. Shawn has always impressed me with his presentation skills at conferences, and I was happy to have the opportunity to have a face-to-face conversation with him in Boca. Dolly Varden (TSX-V:DV, OTC: DOLLF) is busy drilling with four diamond drill rigs at its Kitsault Valley Projects in the Golden Triangle. In a June update, the company noted that two drills are targeting the Wolf Vein and two are at the Kitsol Vein. A fifth drill rig is available as the program progresses and my conversation with Shawn helped to shed some light on the ongoing 45,000 meter drill program.
Goldfinger:
I’m sitting down with Shawn Khunkhun, CEO of Dolly Varden at the Rule Symposium in Boca Raton. Shawn is an interesting person in the junior mining sector, and he’s done a really good job as CEO of Dolly Varden. So Shawn, how did you find your way into this business and how does one become a junior mining CEO?
Shawn Khunkhun:
That’s a good question. For me, it was a necessity. I came in for a job. I was 22 years old. I came in and I was doing investor relations. What was a job for the first, oh, I don’t know, a couple of years then turned into a passion, but really it was just a job and it was an IR job that actually, in all honesty, I hated. So I got in it would’ve been March 2004. I hated it so much after two months that I took off to Australia. Remember, at that time I just turned 23 and I went backpacking for two and a half months in Australia, and it was on the beach of Australia, actually in a restaurant in Australia where I was working that I realized what a phenomenal opportunity I had back home.
I came back with this drive, this conviction, and it was just I’ll never forget it, it was November of 2004. I’m at a mining show in Winnipeg. I didn’t understand what was happening, but there was this gentleman who got up on stage and there was a group of Winnipeg businessmen that were following this guy like he was onto something. I just thought, “I don’t know what’s going on here, but I’m attracted to this.” I attacked it with this tenacity, a relentlessness, and I really focused and I gave it my all. Then I started getting indoctrinated into the whole thing about gold as money. Then I saw the gold price take off and I saw the company I was working on take off, and it just became a bit of a Cinderella story over the next six or seven years.
Goldfinger:
That’s really interesting for a number of reasons. First of all, we’re about the same age. We’re almost exactly the same age. My entrance into the junior mining sector was in 2003 on the investment side, just as a shareholder. I bought shares in Northern Dynasty at 45 cents in 2003 and that was my first investment. It turned out to be a 10X over the next 12 months, just pure luck and great timing. As we know very well, timing is everything, especially in the mining sector. So you started out as an IR person for a company. You weren’t really sure you’d like the job, but you fell in love with it at some point, what had you eventually fall in love with it?
Shawn Khunkhun:
Listen, I’m a people pleaser and I was keen to make my employer happy with the work I was doing. My father worked at a sawmill for 44 years, same company, same mill. I always wanted my story to be that I was coming into one job, one organization, and giving that organization loyalty over a long period of time. That’s something I wanted to do. But the first year was tough. It was a tough market. There was one day, I want to say it was March 1st, 2005, the market was dead. All of a sudden, I think it was Newmont who put $100 million into a company called Shore Gold.
Goldfinger:
Yes, I remember that.
Shawn Khunkhun:
I think it was a diamond discovery in Saskatchewan. All of a sudden the market went boom, and uranium started popping. The little junior that I was working for doubled in the day and it traded some volume. We traded like 3 million shares. Then things were dead again for another, I don’t know, maybe even a year. But I actually lived off that excitement and I didn’t need much positive reinforcement to keep going. So yeah, I don’t know really what kept me going in those early days because they were really hard. One of the companies I worked for, actually one company I worked for, couldn’t pay me for nine months. Thankfully, I was living at home with my parents at the time, so I didn’t really need to earn a lot.
I don’t know, I just believed there was something bigger. I believed that these companies were going to do something because, even though I didn’t understand it all, I was shown previous cycles. I was also taught about some of the things like the debt we were getting into or the fact that central banks had turned from being net sellers of gold to even being buyers. Then people started showing me things like inflation adjusted gold prices. So in the early 2000s when the gold price was around $400, the guys I was working for were saying, “Shawn, inflation adjusted gold should have it around $1,650.” I bought into that idea and I thought, “Wow, our project’s going to be pretty valuable if we got even halfway there.”
Goldfinger:
Yeah, I think that’s a really good point. So the junior mining sector is very cyclical as you know. We have these up cycles in May/June 2020 where it seems like every company is the Belle of the ball, and companies are going 5X, 10X in a couple of months right and left, and then we go through these downturns kind of like we’re in now where nobody’s really interested in this sector. People focus on the bad news or the bad things that are happening. In your mind and from your experience, how do you manage through these cycles?
Shawn Khunkhun:
So it’s the same way I manage through a vacation or anything in my life where it’s all about expectations, right? So just even right now, as much as I think there’s a possibility for things to get extremely active and for a new flow of funds or a sector rotation or for new capital to come into the space and a rising tides lifting all boats, I’m taking the view that, okay, this is going to happen at some point this decade, and it may not happen. So for me, I think it’s working out, right? I don’t expect to go into the gym and see results tomorrow. I’m going there because it makes me feel good. I’m going there because mentally and physically it’s good for me. I just approach it the same way where it’s like it’s gardening. Just do it every day and at some point maybe.
I think back to our business in the junior mining sector, because it hasn’t been very rewarding in the last 10 years. We had that little blip in 2016, we had that little blip in 2020. But apart from that, it’s been hard yards. But I’m convinced that it’s at times like this, it’s bad right now, where I can’t leave because it will turn. Then when things get really good and I’m feeling good about my portfolio, I have to take some profits and I’ve got to move money either just to the sidelines or into other asset classes.
Goldfinger:
I think that makes a lot of sense. Basically, you are managing for the worst case a lot of the time and making sure that you’ll live to fight another day, but also in the back of your mind you know due to the cyclical nature of the industry that there’s going to be good times ahead. You just can’t guess exactly when they’re going to be. Is that right?
Shawn Khunkhun:
Yeah. The other thing is, what I try to remind myself is, for example, after we went through a period where the gold price went from a few hundred dollars to almost a couple thousand dollars in the 2000s, call it 2005 to 2010. Well, there were a lot of companies that bought projects, put a lot of money into whether it was exploration or development. There was a bit of a mania phase of buying and acquiring and getting bigger. I remember after the gold price rolled over, a lot of these companies got punished for all that M&A activity and all that craziness, going after projects that were on the margin. What brought me to today was thinking, “Look, the industry in the last decade has not invested in exploration.”
I can’t remember the exact numbers off the top of my head right now, but it’s something in the neighborhood we’re spending or we’re raising 20 cents on the dollar of what we were raising a decade ago, okay? So we’re seeing instead of say $8 billion going into the ground, $2 billion is going into it. So I just think that it’s the idea that if I can come up with a deposit, grow it through either the buy and build strategy or exploration, that’s going to be worth something. These majors that are depleting mineral inventory, they’re going to have to come knocking for projects. It’s tough and it’s hard to stay focused, but at some point that has to happen and it all happens at once, I think.
Goldfinger:
That’s an interesting point. I can recall 10 years ago when people were starting to talk about that, how the majors are going to have to acquire the juniors at some point because they’re just not going to be able to replace the reserves in the ground. In addition, many producers got rid of their exploration department and instead basically took toehold 9.9% stakes in juniors as a way to get exposure to new discoveries. So with what we’ve seen in the last couple of years in the sector, we’ve seen some M&A, we’ve seen some acquisitions take place, but it definitely isn’t a frenzy by any means. What are you looking for to say, “Hey, it’s time”? The big guys, Barrick and Agnico, are cutting some checks and buying smaller companies.
Shawn Khunkhun:
So the way I look at it is like this, how do I position ahead of the inevitable, right? So how do I position myself and my shareholders? So if you analyze where does Agnico Eagle want to be? They want to be in the Abitibi, right? Where does Newmont want to be? They want to be in the Golden Triangle. So I just think that for me it’s looking at where majors want to be and getting into those camps and building up resources in those camps. You would think at some point that particular major or another competitor is going to be interested in what you’re doing. Now that’s my strategy. Others take different strategies. One of the things that’s kept me out of the Maritimes in a big way in the last number of years is because I don’t see any big major mining companies there, but that didn’t prevent…
You look at Atlantic Gold, Stephen Dean’s strategy of some smaller satellite deposits. That was an effective strategy where Santa Barbara came in and acquired Atlantic Gold. So I think you can employ different strategies. Maybe this time’s going to be a little bit different. Maybe there’s less companies, so there’s less companies that are going to be doing that flurry of M&A. Some could argue that Newmont just acquired Newcrest, they’ve got so much that they’ll be spinning out different parts, but trying to grow in different camps. So I think it’s always going to be always a little bit different in terms of its rhyme, but it’ll be a little bit different.
So I think you’ve really got to go and be led by groups who understand the intricacies of camp consolidation. Then you have to be prepared when your project is going to be relevant, if ever. So you have to be prepared to then make a decision to build it yourself if no others are going to build it. So I think it’s a tough question, but I definitely don’t think we are miles away from the M&A flurry that we saw in 2010/2011, nothing like it, and maybe we don’t even see it. Some would argue that that market, if you look at the last hundred years, was one for the ages.
That might have been from an equity standpoint, the best we ever see in our lifetime, or it may not, right? Maybe commodity prices go higher, or maybe the companies are so lean and strong and better actually than they were then that this coming market is even better. I don’t know. History will write that story. But I think for me, I try to keep it simple. In the case of my company, we’re in a camp that’s relevant, that’s seen a lot of M&A, 5 billion in M&A in the last couple years, not even accounting for this New Crest deal and grade, grade. Let’s stick to projects that no matter what the gold or silver price is doing, they should work.
GDXJ (2010/2011)
The GDXJ rose more than 100% from February 2010 to December 2010
Goldfinger:
Yeah, that’s a really good point. Actually I have never heard a CEO say, “We may not ever see it as good as it was in 2010, 2011.” Usually they’d rather say, “We’re going to have another market like that again in the future.” But you said you just don’t know and you can’t manage for some market forecast. You have to manage what the market is like now and what investors want now. So who are your idols in the sector? As a CEO, as somebody who is coming to your own in the last several years and CEO of Dolly Varden now 200, $300 million market cap company, which is actually pretty damn good for the junior mining sector, who do you look up to and who’s helped you to learn this business?
Shawn Khunkhun:
So my idols change over time as I grow and as I change. It’s interesting because the things I wanted five years ago or 10 years ago are different from the things I want today and my idols change all the time. As I get more knowledge and go through different challenges. So right now, one of the guys that I really have a lot of respect for and appreciate is Bob Quartermain. One of the reasons is today, after being a CEO for a number of years and being in the industry for 20 years, what he did at Brucejack is insane. Just bring in the power line, forget the rest of it. The way he treated the Niska and Tahltan. Forget the discovery, the geology, you know the amount of money he raised, the grace he carried himself with during the short reports and the lawsuits and just the… So I would say Quartermain today. Many people have helped me, too many to name. But I got to say one of the guys that I have a lot of love and respect for is Rob McLeod.
Goldfinger:
Rob McLeod.
Shawn Khunkhun:
Including myself, there isn’t a person in this business that doesn’t need others who have complementary skill sets. But I’ve got a lot of people I look up to and respect, and there’s some tremendous people that I just think this business is full of incredible stories and the more people I meet and get to know.
Goldfinger:
Bob Quartermain is a great name to throw out there. I don’t think he’s as well known to most investors in the sector, especially the ones who are relatively new to the sector, but he has accomplished a lot. Anytime you can make a new discovery, build a mine, and sell it to a major, that is deserving of huge respect. It’s not easy to do, right?
Shawn Khunkhun:
No, not easy at all.
Goldfinger:
So let’s talk about Dolly Varden. You guys had a tremendous market run at the end of 2022 that lasted into Q2 of this year. The market cap rose above C$300 million for a period of time. Since then, the stock has been dragged down along with a lot of other silver juniors and the silver sector overall. But it’s interesting for me to look at Dolly Varden as an investor and a shareholder. The company continues to grow and advance its projects. Dolly Varden is busy with four drill rigs going around the clock right now. Please tell us about the drill program that’s ongoing and what we can look forward to this year.
DV.V (Daily – One Year)
Shawn Khunkhun:
Just to touch on what you said there a little bit though, in April we were a $316 million company and today we’re a $200 million company. The share price has almost been cut in half. Now we’re in the midst of a big program. So we’ve got four rigs turning. I’m expecting some drill results maybe even as early as next week, let’s just say the next two weeks. I’m flirting with the idea of adding a fifth rig. The reason that I’m pretty optimistic is… we came off a banner year last year. We found some big numbers on the gold side and on the silver side, some of the best drill results for the entire Golden Triangle in 2022. So I want to build on that.
But one of the reasons I want to get more aggressive is we’re about halfway through the planned drill program, which is about 45,000 meters, but we’re only a third through our budget. So I feel like, and again, it’s early days, things could change, weather could change, cost could go up, but at this point I feel pretty optimistic we’re going to blow through 45,000 meters. I also am pretty keen on some of the results that we’ve already put out, built upon that success. But the approach here is let’s focus on Wolf where we stepped out and we had a lot of success. Let’s keep trying to see if we can build that and see if Wolf can be like Torbrit, which is the big silver deposit on the property. It’s a 50 million ounce silver deposit. So can Wolf be Torbrit? I think it has the potential. I bet you, it wouldn’t surprise me if it’s already half of Torbrit and approaching full Torbrit.
Outside of Wolf, how Wolf was found and the success we built upon it was when our geological team was looking at areas that were open. So I’ll give you an example. So we’ve got this one occurrence called Moose. So we’re going through all the old history, and at Moose it was open, but the reason the old timers didn’t follow up on it is they didn’t own the claims next door. Okay, well, we do now. We’ve consolidated everything in the area so we can follow up and step out and go to climax and drill there, and let’s see if Moose can turn into a Wolf, Wolf’s turning into a Torbrit, and we’ve got another 90 plus occurrences like that we want to follow up on.
So that’s on the silver side, and then up at Homestake on the gold side, we had some big numbers we pulled out of Homestake. We want to follow up on the highest grade parts of that deposit. We had a 200 meter step out hit at Homestake Silver. We want to follow up on that. So it’s Wolf, it’s Moose, it’s Homestake, Maine, Homestake Silver. Then lastly, there’s about a kilometer and a half that separates Wolf and Torbrit. I’m trying to connect those two deposits.
Goldfinger:
That seems to be one of the main goals of 2023 drilling, connecting the two deposits (Wolf and Homestake).
Shawn Khunkhun:
So there’s a fault that runs in between. Now we projected, I say we, Amanda Bennett, our geo who really grew Wolf, she projected where that mineralization could be on the other side of the fault. We’ve drill tested that. If we can show the market, if we can show our investors and the community that we hit, I think it’s going to be a good moment for us because it opens up a new corridor, a new pathway. It bridges the gap between the two deposits and it’s proof of concept. So we’ll see if we’re successful at drilling on the other side of the fault, expanding the Kitsol vein heading to Wolf.
Goldfinger:
So yeah, there’s a really nice slide in the company presentation that illustrates how they may come together at depth. So how important is that for you to try to prove that?
Shawn Khunkhun:
Well, I think it’s really important. I think this idea that we can connect deposits is important. There’s some characteristics in terms of the dip and the orientation of the mineralization, and there’s some similarities between Kitsol and Wolf. So I think when two systems come together, my experience in other mining projects can be pretty special where you can have a high concentration of metal and good grades. So that’s exciting. But I think the key first step is let’s get on the other side of that fault, let’s see if we can find that vein on the other side of the fault. Then it’s going to be a bridging of that gap, right? You’ve got about, in my estimation, about 1,400, 1.4 kilometers. Let’s get in there and start getting closer. But then the other side of it is one of the other directions we’ve got, we’re expanding Wolf and we’re expanding it southwest and northeast. So look, I’ll take growth wherever I can on this program.
Goldfinger:
Who are the potential acquirers of Dolly?
Shawn Khunkhun:
So when I first came in to run Dolly Varden, there was, I don’t know, maybe a dozen companies that were interested in what we were doing. There were silver companies. They said to me, “Shawn, when you get to a hundred million ounces of silver, let us know. You’re at 44 and it’s interesting, but when you get to a hundred, that’s really when things are going to get interesting.” So with the acquisition of Homestake, it took us through that number. It took us to, on an equivalent basis, 140 million ounces of silver, 63 million ounces of silver, million ounces of gold. But what happened when we got Homestake is we opened ourselves up to gold companies, not just the silver companies. I can’t name them because we have signed CAs, but there are companies that are valued in the tens of billions of dollars that either A, want to get into British Columbia., or B, want to specifically get into the Golden Triangle.
They’re not trying to compete with Newmont, but there’s lots of companies that are interested and that are kicking tires, and not just corporate producers, but also some PE groups that have raised some money, whether it’s a few billion or maybe 700 or 800 million type of numbers who are calling up going, “Hey, why don’t we just build this thing and what does that look like? Why don’t we come in and take investment and then fund it?” Right? So I guess at this stage, what I’m trying to do is figure out what this animal is. Is it what it is right now? Then if it is what it is right now, maybe it’s got a 15 year mine life and it’s going to produce five or 6 million ounces of silver a year. But I don’t think the exploration’s done.
So let’s give me another season or two and let me figure out how big this thing is and then let’s figure out what we want to do in terms of development, who we want to sell it to. Let me understand what it’s worth. We’ve got an analyst that covers us that’s put a certain value on it. Anyways, I just think that from a standpoint of valuations, we’re doing okay relative to some of our peers. But from a historical standpoint, I still think that we’re not realizing full value. So it’d be pretty hard for me to support a deal in terms of an acquisition at this stage, unless it was an all paper transaction and we really believe in the upside of the acquiring company.
But lots of companies are interested and we’re conducting lots of site visits, we signed lots of CAs. We’ve got our preferred choices for partners. We’ve got companies that we like, either their balance sheet, their management, their complementary assets, their team. So yeah, lots in terms of M&A. Well, I think you’re going to see a lot this year. I think you’re going to see more analysts pick up coverage. I think you’ll see more institutions pile into the name. You’ll see results. I think it’s a good time to be looking to get to know us.
Goldfinger:
I agree, I bought some shares at $.66 in June.
Shawn Khunkhun:
66. I like it.
Goldfinger:
Final question, what is a junior mining CEO’s job and what makes somebody a good CEO in the sector?
Shawn Khunkhun:
So our job is to deliver a return to our shareholders. You’ve really got to be a jack of all trades or you’ve got to have a team that can cover all bases. I think what makes a good CEO is somebody who works really hard, who’s really focused, who can tell a story, who can raise money, who can drive operations, who can lead and inspire teams. Yeah.
Goldfinger:
Lead and inspire. I think those are two powerful words. Thanks a lot, Shawn. I appreciate your time, all the good information and getting to know you a little bit better. It’s been a pleasure.
Shawn Khunkhun:
Thank you so much.
Disclosure: Author owns shares of Dolly Varden Silver at the time of publishing and may choose to buy or sell at any time without notice.
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