21 Questions with Dr Mark Cruise

June 29, 2018

Dr Mark Cruise is the CEO of Trevali Mining. He founded the company approximately ten years ago to take advantage of what he saw then as a tightening in the
zinc market. Trevali has since grown to be a successful exploration company and now owns four operations: Santander in Peru, Caribou in Canada, Rosh Pinah in Namibia, and Perkoa in Burkina Faso. Today, Trevali is a top-ten global zinc producer. Prior to Trevali, Mark was a senior exploration geologist with Anglo American, primarily working in the base metal division where he focused on zinc exploration globally, although he was largely based in Ireland as part of the Lisheen development team. In 2001 he moved to North America to be based in the hub office for exploration in Vancuover. He is a PGeo member of the Institute of Geologists of Ireland and a EurGeol member of the European Federation of Geologists.

Grigor Topev: You received a Bachelor of Geology (BA) and a PhD Geology from the University of Dublin, Trinity College. What were your reasons for choosing geology?

Mark Cruise: I liked being outdoors. I started my studies doing general science. I did chemistry, physics, and more lab-based subjects, in addition to geography and geology. Once we had our first field trips in first year I realized that geology gelled well with a lot of my hobbies and that if you could find a career in geology you could work outside and get rewarded for it and travel the world – these things were very attractive to me. I quickly chose to specialize in geology. That’s where my main focus has been ever since.

GT: You have travelled a lot. Which place has left the strongest impression on you?

MC: Most recently, I’ve been in the Americas. I have worked a lot in Argentina, a little bit in Chile, an awful lot in Peru and also Mexico. My work has been mainly in Latin America since the end of 2000. Our Santander mine site in Peru is stunning. It really is beautiful. It’s at 4500 meters. We’re right up the continent, right in the Andes and it is a glaciated terrain so we get wonderful mountains, sunrises and sunsets. It is a harsh environment but pretty as well. More recently I have been spending a bit of time in Africa, which is also beautiful. Namibia is stunning. We really are in the wilds out there. I think Peru and Namibia have left the strongest impressions on me.

GT: What is one of your favorite memories from your career so far?

MC: It is very fulfilling to have founded the company and built the team. Several of us have been working together for many years, since the onset, and even prior to this in previous careers with Anglo American. But it is quite rare to make that transition from explorer to developer to producer. The odds are probably 1 in 1000, maybe even higher, so the fact that we have done that is fulfilling. I think a factor in that good feeling is that we are a small management team and everyone enjoys going to work. There are always going to be both good and bad days but the main thing is that we still enjoy the work and enjoy working with our colleagues.

GT: Do you miss being a field geologist?

MC: Yes, I do some days. I do a bit of everything now – but more on the business side. When I can I will sit in the budget meetings and work with the exploration guys and obviously keep abreast of that side of business. But some days I do miss it. When I can sneak off and look at rocks I usually try to take a day or two at each site. And I do enjoy doing that. As our careers evolve, I am adding more value in this current role. We have some great up and coming field geos and exploration geos within the group and I am more than happy to let them get on and add real value there.

GT: How did Trevali Mining come to be established?

MC: Trevali was established in late 2007, effectively 2008. It was founded specifically to look for zinc polymetallic deposits of opportunity. The rationale was most of the super majors had gotten out of zinc at that point and the mid-tier kind of base metal companies had transitioned or were transitioning into copper miners. There was a bit of a niche, there wasn’t much competition, so we thought it was a good opportunity to be able to grow the company and try to acquire some good assets and, obviously, if we got lucky with the drill bit, we would go from there.

We were mainly focused on zinc but at the same time we were interested in polymetallic – we like our lead and silver credits. We looked in Mexico and Peru and worked there extensively. After six months we came across the Santander opportunity. We liked Santander even though it was limited in exploration and certainly no modern exploration. Based on our assessment, we thought that it was potentially a very large system. We were able to acquire it at a reasonable price and we were successful early on.

We got a significant interest after our second drill hole. From there, based on the experience of the team, we were able to fast track it through permitting and do a lot of the engineering studies, metallurgy, in tandem with the exploration drill-out. We were able to get it into production in a timely manner. And that was when our relationship with Glencore started.

GT: Can you tell us more about that relationship?

MC: Our maiden resource estimate was about 3 million tonnes at 5–6% zinc, with some lead and silver by-product credits. And that would have been in 2010, so about a year and a half after we started drilling the project. We liked that it showed similarities with one of Glencore’s mines, the Iscaycruz mine in Peru, which is on care maintenance at the moment. What helped to facilitate the relationship was that Santander had a very old mill on-site. It had been poorly shut down and mothballed. So instead we entered into an agreement with Glencore to acquire the mill from their near-by Rosaura Mine that was just out of feed and it had closed down in 2010. Effectively, we had a deposit that required a mill and they had an empty mill that was of scrap value. We put two and two together and got six by moving the mill to Santander. We acquired the mill on a lease-owned basis. We got a completely refurbished, brand new mill for 37 million USD as compared to the costs of 80 to 90 million USD to build a standalone mill. That got our cap-ex down and allowed us to get up and running at Santander.

Trevali and Glencore work very closely and very well together. I think you see your partner’s true colors when times are tough. Glencore invested in the company and they also provided some additional funding to get us over the final hurdle. When we saw some opportunities in Canada it was a natural fit, given how big they are in zinc space. We reached out to them and they helped us derisk our Caribou operation in Canada.

At this point in time Glencore is our largest shareholder – they own about 25% of the company. The relationship has gone from strength to strength and we will hopefully continue to do future business with them.

GT: In 2017 Trevali Mining purchased two mines across the African continent. Do you plan to purchase more properties?

MC: We acquired the African mines from Glencore last year. We are finishing the integration of those assets. I would say they are about 90–95% integrated at the moment.

We are continuing to look for further opportunities but any potential purchase has to make sense technically as well as financially. We never stop looking, but we are fortunate, given what commodity and zinc prices are. We are in a good position at the moment.

What we like about our assets is that they remain open for expansion. 2018 is the first year that we have ran a pretty aggressive exploration campaign and we have received commitments from the board to fund a five-year exploration push. We increased our exploration budgets 30% this year and we are actively drilling at all mine sites. And it’s not just exploration for the sake of growing resources, our Vice President of Exploration Daniel Marinov and his team are spearheading exploration to find tonnage to drive production optionality for the mining guys.

GT: Trevali is currently the eighth largest global zinc producer. What are your goals and vision?

MC: We want to build the best base metal company out there. We are unique in that all our mines are underground. In the North American market the preference is for open pits. Lower grade operations that allow for more throughput are technically a little bit easier to do in open pits. But we see our underground core skillset as a major strength that sets us apart. And we really are a true mining company. We think that we should be able to leverage that in further opportunities globally and at our own operations. Our market capitalization is probably 900 million CAD today. We want to form a true mid-tier mining company.

I would classify us as a large, small-cap mining company, but based on our assets and if we can carry out some smart mergers and acquisitions (M&As), I see no reason why we can’t form a mid tier mining company. In the North American capital market I would argue there is a lack of competition in the mid-tier space, so I think that the market would probably reward that or would be interested in supporting another name in that category.

GT: What are Trevali’s properties at the moment and which one has the highest potential?

MC: Our Perkoa mine in Burkina Faso is one of the world’s highest grade zinc mines in production at the moment. The mine head grade is between 13–15% zinc.

Very high recoveries are in the 92–95 % range. It shows off about a third of our zinc production. It is a volcanogenic massive sulfide (VMS) deposit – without getting too specific.

We are the only base metal mine in Burkina Faso and one of the few base metal mines in all West Africa. But given that these mines always occur in clusters, it is unlikely that we will not find more. We have been actively staking with quite a large land package of about 250 km2. We have flown airborne surveys and the deposit does have a strong geophysical response. We are seeing clusters of geophysical anomalies that look similar to the known deposits we are actively mining that have never been drill tested.

After that is our Caribou camp, which is a VMS camp where we control six deposits. It is an engineering and logistics challenge at the moment – even just scheduling that through our mill is a challenge. In the New Brunswick and the Bathurst mining camps we are looking at mill operations until at least 2035, perhaps a bit longer. Obviously we have to do more studies, contingent on commodity prices, but we do not need to find that much tonnage there at this point in time.

We also like Rosh Pinah in Namibia. It has been in production for 50 years and it has never been fully drilled off, it’s always had a 10-year life of mine. And we believe there is more tonnage to be found there. It is a true tier-1 zinc deposit; head grade is in the 8–10% range. We have been fortunate with exploration drilling there this year. Once we have completed the exploration drilling, it may make sense to increase the throughput to 3000 tonnes per day, and even more during the second phase.

GT: Trevali Mining has developed strategies for enhanced corporate performance. Can you elaborate on this?

MC: We look at a variety of things. Our principal focus has been on fulfilling our production and financial promises. Getting the tonnes out of the ground at the cost we say we are going to get them out at and obviously getting them to market.

The transaction of the African assets only closed in Q4. The first clean quarter of production coming out of Trevali was Q1 2018. We want to continue to deliver our performance for the rest of the year and ongoing. As I said exploration is a major drive and there’s a lot of market interest in exploration as well as the potential of these assets.

Some of that is because some of the African assets were previously unknown. They were part of Glencore’s zinc portfolio. They were only aligned items so no analyst had visited them. There are limited reports; so I think any value shown there will be accretive and that value will be with the drill bit and the exploration teams.

In the short term – I think it’s about delivering on our results, and on our cost, to grow the resource with the drill bit, and then, if we can do some smart or accretive M&As, I think that would be the third pillar. That way we should be able to drive performance and hopefully outperform the market and our peers.

GT: Besides price, what other risks might be challenging zinc manufacturing companies at the moment?

MC: You know the TCs (Treatment Charges) are down. There are some new zinc mines coming on board. As with any other commodity, the market is cyclical. The industry is debating how long the good zinc cycle can last.

One positive point to note is the quiet response from China. Historically, when zinc prices have rallied we have seen a lot of zinc production come out of China, which causes the market to become imbalanced or go into overcapacity. Then we have to wait several years for it to rebalance. For now zinc miners are making money in the price cycle and we are not seeing a massive response from China. If anything, Chinese zinc production was down about 8% in 2017. It looks like this zinc rally may have longer legs and may be stronger for longer.

Another challenge is to incentivize new zinc mines because the industry needs them and it needs zinc metal. It looks like previous long-term zinc prices of around a dollar per pound (or approximately 2200 USD/tonne) probably don’t make sense anymore. The consensus on long-term zinc prices suggests 1.20 to 1.30 USD/lb (2645 to 2865 USD/ tonne) are more likely necessary if you want to incentivize new zinc mines and make a basic return of approximately 15% (IRR).

GT: What do you think is missing or could be improved upon in the client-drilling contractor relationship?

MC: This year, like every other year we go out to tender. The relationship is not just about cost. I think what we would like to see is drilling companies and contractors to work closely with us. We try to use innovation as much as possible right the way through the business but clearly in drilling as well, so we would like to use companies that are a bit more technically focused, who will work with us and overcome challenges, such as bad ground conditions. What we have been doing successfully in the last year or year and a half, which is new to us and new in Peru and in some of the areas that we have been working in, is using directional drilling. In Peru we’re in the mountains where it’s topographically challenging. We’ve had some targets there since 2010 that we haven’t been able to drill. We put one or two holes in but the angle was not perfect so we knew mineralization was there but we just hadn’t got the technical ability to drill properly and get good cuts, and the mineralization has been critical.

So last year we did some directional drilling down there, working with a drill contractor. It took some time to train the drill crew, and it was a bit slow and frustrating for a period, but now we are very effective at drilling mineralization at depths that before we wouldn’t have considered because we can drill that one mother hole and then kick off with directional drilling from that with the daughter holes and get multiple intersepts. What’s emerging is a nice high-grade product mineralization at the Santander Pipe. This work is facilitating opening up new ground for us. We will start using that technology in Namibia as it hasn’t been used on the site there. Hopefully, that will lead to further opportunities for us.

So I think having an open relationship with your contractor definitely helps. Having those hard conversations and discussions. Just working together closely will help you overcome technical challenges and to share the risk. That has worked well for us in the last couple of years and will continue to.

GT: The lowest drilling offer in a bid often in reality turns out to be the most expensive one. What is your opinion?

MC: I agree. Sometimes people can put in low bid offers to try to win the contract. While we have a matrix, price is not the only consideration. For us, the main consideration is safety, so we look at the safety stats of the rigs, how the equipment is maintained, who are the drillers, what is their reputation, and how do they deal with potential spills; generally making sure that the company operates very high standards. Our highest priorities are safety and the environment. And after that is it just responsiveness – will they work with us to overcome challenges? Are they innovative? Do they look at things in different ways and try to help? Maybe they have got more specialty guys and better supervision than some of the competition. So definitely it is not just about drilling. This year we did not award our contract to the
lowest bidder, I think our decision was to a bid somewhere in the mid-range.

GT: In the oil and gas drilling industry, you find the so-called ‘company man’ on-site. That is to say, an experienced drilling specialist hired by the client to look after the client’s interest. Why we don’t see such ‘company men’ in mineral exploration?

MC: I think we are starting to move towards that model. For example, in Namibia we use a local drill contractor. Even though the contractor had a nice new rig, they had some challenges getting up and running. In order to avoid situations like that, we cooperate with a consultant drill specialist, which is similar to the company man model. I would say in the last quarter or two we have seen drill rates increase substantially, which is pushing us to move closer to that scenario. However, we would only use a company man model where there was a special need for it, such as with bad ground conditions, or maybe to help us with a specific skillset.

Peru was a special case so we brought in some drill consultants to help with the directional drilling there. The same consultants are also helping us now with the drilling in Namibia. As the old saying goes, time is money. If you have a rig sitting there and you are not meeting your exploration target that means you are not making production decisions, and even though it may not cost you a lot of production – that time is money and people sitting around there doing nothing is a waste. I would say that we are selectively moving towards that model.

Dr Mark Cruise at Santander Mine in Peru

GT: Assume that you are running a drilling company and you want to make it a market leader. What would you focus on to achieve that?

MC: Innovation. I think to set yourself apart, innovation in the form of some specialty drilling functions, lightweight rigs on tougher terrain, newer man-portable or chopper-portable rigs will help. Investing in innovation R&D will be the key to becoming a market leader.

GT: All too often, drilling companies lack the commonest drilling equipment like, hex barrels, taper bits, recovery tools, rod cutters, cement plugs, wedges, and so on, or lack the most common spare parts on-site. What do you think should be the client’s position on this?

MC: Companies like that do not work for us as they are not our client base. When we look at bids we check the company’s reputation for professionalism.

We make sure the company has proper maintenance procedures, a proper drill supervisor and on-site supervisor for the various rigs. Rigs do break down. It is a tough time for the rigs, but we make sure that they are maintained and more importantly when they do go down we ensure there are sufficient spares that minimize that downtime. This area is a important to us and the above elements are taken into consideration in the bidding matrix when we score the various drill companies that are tendering for us.

GT: What are the latest trends and innovations in the sphere of mineral exploration?

MC: The potential for improving results using 3D imagery, using 3D models, is incredibly powerful. However, we are seeing that some of the younger up and coming geologists think that a 3D model is the end result or is the most important product.

At Trevali we have gone back to basics. Some of the recent success we have had at Perkoa and in Namibia has come about from reinterpreting the geology, from looking at the rocks and then feeding good quality data into a 3D model. But one of the problems posed by the power of 3D models is that if the information looks slick, people think that the quality of the data is good and that is unfortunately an increasingly common mistake.

With geology we are focusing on first principles, based on effective data collection that we bring into 3D models where it becomes more powerful. We’ve often found that people don’t have the time to focus on this or spend time in the field. So we focus on the field work.

GT: What are your understanding and definition of a good exploration geologist?

MC: I think you need to be an optimist. You need to spend time looking at the rocks, you need to spend time in the field. The morerocks you look at, the better the geologist you become. You need to see a variety of deposit types, keep an open mind and be willing to work with people. As an exploration geologist you are the first person on the ground, so you need to have the kind of skillset to interact with local stakeholders and local communities, whether they are indigenous or from anywhere else in the world. Because if you make a poor impression you can kill a project even before it starts. You really are an ambassador for the company and you need a variety of skills. Spend time on the ground, have good people skills and keep an open mind.

GT: How do you see the future shaping up for mineral exploration? Where should the industry focus, and where not?

MC: As I have commented earlier, I think open pit mining is going to become increasingly socially unacceptable in many parts of the world. We need to see a return to underground mining and we have the key skills to do that at Trevali.

I think we, as an industry, need to become a lot better at communicating the benefit for society that mining brings. We have to act in a responsible manner and an environmentally conscious manner, to focus on the inputs and try to minimize the amount of water we use and the power we use, and to start moving towards using sustainable energy and/or electric vehicles.

GT: Can a diamond-drilling focused publication like ours be of help to the exploration geologist? Please be honest!

MC: I think it could. Most of the time when I get updated on the latest drilling technology and trends, it is through talking to a drilling contractor. I think a broader dissemination of the latest trends and technology and the latest benefits they can bring will be an important tool to an exploration geologist.

I would say 70% of the budget goes into drilling and we would like to increase that to 75%. Whichever way we get more information on how to drill smarter or drill better to get more drilled meters in the ground it will make us more successful. Being aware of the latest trends and latest technologies is critical for the exploration geologist. The drill rigs are our main tool and that is not going to change, certainly not in the short or medium term.