 Hello everybody. Welcome back to Investor Intel. I'm Peter Quasi and today we're speaking on a topic near and dear my heart and that's M&A activity in the mining industry. Our corporate theory at CVLT has been you can make more money with a pen than with the drill bit and our guest today Douglas Hertz, geologist, is going to explain why he and his teams believe the same thing. Welcome to the show. Well thanks. Thanks so much for having me Peter. It's wonderful. Now you and I only met through our friend Dylan so I thank Dylan for putting us together. December the 7th Eclipse and Northern Vertex announced that they were going to do a merger. Can you walk us through the highlights of the merger? Sure. Well so the CEO of Eclipse is a guy named Mike Allen and so Mike and I pulled together a company called Northern Empire a couple years ago and we were looking for other assets to buy or merge with or to do a deal with and Northern Empire was just over the Nevada border in Arizona and they were developing great mining jurisdiction. It's a wonderful jurisdiction. Absolutely. It's a great place to work for sure. And so we started to get to know the guys at Vertex and we looked at the mine and the mine was just in its early stages of development so they were sort of working their way through teething problems and then we were offered a buyout by core mining and so Northern Empire disappeared. We took the best elements of Northern Empire and we retooled it into a company which we listed in February called Eclipse and Eclipse right away re-engaged with Vertex. Eclipse it's listed on the venture exchange. That's correct. The symbol is EGLD. Eclipse goal and we re-engaged with Vertex with the idea that we would try to revive the deal that we were talking about with our previous company and so Vertex at that point had just started to work through its teething problems and they're decent operators and they've managed to do that but it's one of those companies that doesn't have a very big profile. It's kind of in the shadows. It's just below institutional radar. 50,000 ounces a year is a nice mine but you want to get it to a hundred before the market really begins to pay attention. That's like an oil and gas company doing a hundred barrels a year. Exactly. It's very similar. Very similar right? And so there are no investment dealers in Canada that cover this company with research. They're okay at investor relations but they really didn't understand capital markets and that's something that our company is rich in. It has lots of that kind of experience. If you look at the orbit of the directors and insiders and people that we've done business with, there are half a dozen transactions that have happened in the last four years. Those are all listed in the company presentation and it's a pretty impressive list of M&A. Collectively the group has been doing it for 20 years and there's a big long list of those kinds of things but those are the recent ones. It's touted as an app market merger and both companies have roughly the same number of shares out and they're both trading at roughly the same price. That's correct. What do you think the market is saying about your transaction? Well, so there are people that body clips with the idea that it was going to be an exploration story and that it was going to have a binary outcome. The binary outcome means that you get drilling success and you make five times your money or you have drilling failure and you lose half or more of your money. When we announced this, a whole bunch of people jumped overboard. That's not the company that I invested in but the businessman in us says, you know what? If we merge with a company that has production and positive cash flow, all of a sudden your downside is limited. Yeah, it decreases the number of problems you have, decreases your risk profile, moves your risk return into a different quadrant. Dramatically, so we still think that there's, you know, and the wonderful thing about the Moss mine is that there's a lot of blue sky there and it's right next to an operating mine and it's going to directly affect the value of these assets just using the drill rig. But there are no assets being spun out, right? All the assets in each of the companies will remain in the resulting issue. That's correct. So Eclipse is bringing an asset to the table called Hercules and Hercules is about an hour drive from Reno and surface samples, 390 surface samples averaged a gram so that's on the surface in Nevada which is, we couldn't believe we found this thing and now there is a historical legacy of drilling, almost 300 drill holes and every one of them were drilled the wrong way. Well, so now we're getting into 43-101 territory, so read the disclaimer, these are historic non-compliant holes. Exactly, they are. And so we have not really revealed what they showed because you're right, they're before 43-101 they're not compliant. But they do serve to inform your knowledge of the property and you're obviously happy with them. Yes, yes we are. So we've been figuring out the geology there and the last round of drilling, we drilled over 20 holes and we were hoping to get our results in November but Asset Labs are so jammed right now that we won't get those results until late January, even early February. Is that RC? It was all RC, that's correct. Thanks for the gravel. Yeah. See how late northern Ontario, you get that core, you get to hold on to it. No, that's true. Now, so there was some historic drilling where they did some core so we have that as a geological record. Okay. Why do the deal when you have drill holes pending? Yeah, you know what, you do the deal when it comes and we've been negotiating with these guys for eight months and it happened to land in December and we would rather have drill holes out but you know what, we even looked at shipping samples to Peru, thinking that the Asset Labs in Peru might be better. Really? Wow. So you know what, you do the deal when you signed it. So some people do WMNA because they're kind of skanky and they just want a series of payout bonuses. Nobody's getting one here. No, so if the merger goes ahead, when the merger goes ahead Eclipse's CFO will get a control bonus because she's not going to be part of the new entity but everybody else is going over. That's nice. That puts money in the treasury where it belongs, helps the shareholder. It does. So the other thing Peter is that management of Eclipse is signed up to hold their stock for a year so there's hold agreements. Nice and these deals are complex. I was telling you before we started about a transaction that one of our companies is in, it took literally 30 seconds to negotiate the transaction. The guy on the other side is a friend. We're both honest and transparent. It's opportunistic. Other times it takes a long time and this seems to be one that's been in the works for a bit. Yeah. Yeah. You do it when it's there. Well, and you do it when it's there. So for the merged entity, we see that the now the downside risk is covered or a big part of that downside risk is covered. And so now the risk-reward ratio is as good or better as Eclipse but the downside has been muted dramatically. Fantastic. So what's the next step at Hercules? You get the holes back, you release the assays, a ground proof thing, aerial, mag. Yeah. So we've done a good chunk of that already and because it's in Northern Nevada and a little higher elevation, we're kind of wintered out until March or April. So there'll be another drill campaign this summer. Red voted Moss. How high is that? Yeah. So Southern Nevada, Northern Arizona is dramatically warmer and we can drill all year round. Anything that I missed that you want to tell us about? Well, you know what? So the guys at Vertex have done a good job in building and operating and cleaning up the operations of this mine. So it's now generating very positive cash flow. It's on a quarterly basis. If you multiply that by four, production will be about 45 to 50,000 ounces and those ounces are making great cash flow. So operating cash flow last quarter was just under 12 million US and so that was about 6 million US when you run it through the accounts. So that must be the all-in-sustaining cost is relatively low. So the all-in-sustaining cost the last quarter was $1,300 but $300 of that was a leach pad expansion. So the leach pad will now be able to handle the entire sort of 400 to 500,000 ounce resource. Nice. And I also see that Northern Vertex recently drilled it Moss. 15 meters of 3.35 grams. Yeah. So that's a new discovery. That's in the wall of the pit and it's called the roof vein and it's pretty early days on that. So we don't really know what to make of that but so right now Vertex has three drills going within the patented claims within the mine, the permanent boundaries of the mine and to date on that kilometer and a half stretch of the Moss structure, the Moss vein, they've outlined about a half a million ounces of resources and we look at the geology map and outside of the patented claims it's a different permitting exercise and so that's on BLM ground, Bureau of Land Management ground and the permitting process is just different. But you're fairly standard. You're not inventing anything new here. No, no. And so permitting outside of the patented ground was something they had no energy or capital for because they were busy developing a mine and you have the ability to do that. We do. So they've now permitted 500 drill sites on 10 kilometers of vein outside of the patented ground. There's old mine workings. There are surface grab samples with gold and that's our upside. So you think of a kilometer and a half with a half a million ounces and 10 kilometers of vein to explore. There's very significant upside here. So the merger really is of equals one plus one equals three. Yep. Yeah. Nice. So when do you think you're going to close? So the financing we figure will close the first week of January and the merger will close sort of the end of February. You need shareholder approval? Yes. Okay. And that's the delay. So Vertex does not, but Eclipse does. Why doesn't Vertex need shareholder approval? Because it's a smaller transaction. It's not enough of their capitalization for them to need shareholder approval. So it's a renewable transaction on a fundamental change. Yep. Okay. Cool. I'm going to be keeping an eye on it. Very good. I thank you for your time today. I learned a lot. No, a wonderful discussion, Peter. Thank you so much for your time. Douglas Hurst on the Eclipse Gold Northern Vertex merger. You can make more money with your pen than with your drill bit. Peter Clausi signing off at Investor Intel. Bye, everyone.