The Country of Gold – A Review of Founders Metals

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I am assigning Founders Metals a Wingman Assessment Value (WAV) of 3.95 out of 10.

The main setbacks for Founders are Characters, Claims, and Communities.

Characters: I find Colin to be very transparent and think he has the potential to be a very successful entrepreneur in this space and is already making a name for himself with Founders Metals. However, their lack of experience in Suriname and Mr. Bonnell’s selling took a negative toll on their score in the Character section.

Claims: This is the property section and the potential for this score can drastically change and is actually making me reevaluate my checklist. Because they are in a gold-rich belt, and it is evident as the majority of the country’s economy is focused on gold mining. There are people mining for gold literally on the property they have an option on.

However, the lack of a 43-101 resource and majors in direct proximity took a hit on this score. But make no mistake, I, as well as anyone who has conducted their due diligence on this company, can see that the exploration potential is tremendous here. To reiterate, my checklist favours more advanced stories, and I will be reevaluating this section.

Communities: The country of Suriname is relatively young, and they need to provide further clarity to their mining industry. I do believe that is why there is a lack of majors in the country even though there is much potential there. For example, in Founders Technical Report, the royalty section has this statement regarding royalties:

“When the project starts production, royalties on production are set by governmental decree and varies depending on the deposit and the commodity.”

The deposit? Why should that make a difference?

It appears the government is very supportive of groups and people they prefer, and until they provide clearer guidelines in their mining industry, the country is leaving foreign investment on the table.

Colin Padget – President, CEO & Director: Shares: 0 | 0.00% | Restricted: 1,250,000

Colin has over ten years of experience in mining and mineral exploration. He was most recently the Senior Geologist for Thesis Gold Inc. Mr. Padget holds a Bachelor of Business Administration from Memorial University of Newfoundland, a First-Class Honours (B.Sc.) in geology from the University of New Brunswick, and pursued graduate studies at the University of Calgary. There, he received the highest level of support from the Natural Sciences and Engineering Research Council (NSERC) through Masters and Doctoral awards for his work on orogenic gold deposits.

Sam Yik – CFO: Shares: 0 | 0.00% | Restricted: 175,000

Mr. Yik assumed the roles of CFO and Corporate Secretary on January 5, 2024, so it has only been a few months since he joined. He brings with him over 20 years of experience in both public and private companies across diverse sectors, including technology, mining, oil and gas, chemical, transportation, and manufacturing.

It appears that Sam has been running his consulting business, Samuel Yik Consulting Ltd., for over 10 years, and Founders is not his primary source of income or focus of time. While this arrangement is perfectly acceptable, I always like to closely monitor the CFO of companies.

Tip: If you notice the CFO buying on the market, it's likely the company is undervalued, as they tend to be the most critical judges of value.

Roy Bonnell – Director: Shares: 3,293,066 | 5.36% | Restricted: 150,000

Nicholas Stajduhar – Director: Shares: 3,866,666 | 6.29% | Restricted: 550,000

It seems that the directors hold the largest positions, and many are also involved with Thesis Gold. Additionally, Colin's previous role was Senior Geologist at Thesis. Since Colin is at the early stages of his career, it's not a significant concern that the CEO does not currently hold common shares.

However, it appears that Mr. Bonnell has sold quite a few shares and is likely riding on his investment without any financial risk at this point.

For a junior company, the capital structure appears to be rather healthy. Since the warrants and options are in the money, we can anticipate the share count to increase further. However, this trade-off results in more cash flowing into the company's treasury.

The thesis is that during the separation of South America from Africa, a significant geological event occurred, resulting in the formation of gold-rich deposits that host large gold districts. Proof of this is large gold endowed areas in West Africa and in the northern countries of South America.

The country of Suriname benefits from a warm climate, enabling year-round drilling operations.

As of 2021, there are more than 16 mining pits in the Antino-1 area, with no known pits in Antino-2. The Antino Project area has produced a total of 531,390.8 troy ounces of gold between 1891 and 2021 from surficial pits and alluvial gold workings.

In 2021, Orea Mining Corp. obtained the right to acquire up to 75% of the Antino Project from Nana/Lawa Gold N.V. Subsequently, in 2022, Founders Metals entered into an agreement with Orea, Lawa, and Nana for the right to acquire 75% of the Antino Project from Orea.

The Option Agreement consists of three stages:

• First Option Stage – 51% Ownership Interest.

• Second Option Stage – Additional 19% for a 70% Total Interest.

• Third Option Stage – Additional 5% for a 75% Total Interest.

The terms include exploration expenditures totaling C$33.8 million and the completion of a Preliminary Economic Assessment (PEA) and bankable Feasibility Study to acquire the full 75% ownership. Upon successful earn-in, a joint venture with Nana will be established to commence production.

The Project comprises two contiguous Right to Exploit Gold mining titles over claims: GMG 180A/16 (Antino-1) and GMG 181A/16 (Antino-2), covering a combined area of approximately 20,000 hectares.

Situated 220 km southeast of Paramaribo, the capital city of Suriname, and west of the Lawa River, which forms the border between Suriname and French Guiana, the Project's nearest town is Maripasoula, French Guiana, approximately 15 km east of the Project. The region experienced a gold rush, with many small-scale miners extracting gold. However, modern exploration techniques employed by Founders reveal exceptional grades just below the surface.

The claims of the Project are currently held by Lawa Gold N.V. (Lawa), a Suriname-based private company.

The Upper Antino hosts the Froyo Gold Zone, measuring approximately 500 m in length and 250 m in depth, adjacent to small-scale open-pit mining. Other targets include Eclaire, Cupcake, and Donut, all with historical open-pit operations.

Besides Upper Antino, three other mineralized systems exist, with Buese being the most prominent, evidenced by the presence of small-scale mining operations in the region.

In 2023, the first phase of drilling involved up to 10,000 m of diamond drilling at the Antino Gold Project, with 7,000 m allocated for infill and 3,000 m for various exploration targets.

Founders is fully funded for an initial 2024 drill program of up to 30,000 m. Approximately 10,000 meters are planned at Buese, with recent press releases showcasing the company's success at Upper Antino.

On March 22, 2024, the Company reported 38.0 m of 10.90 g/t gold from its furthest northwest Froyo drillhole to date, marking one of the best intercepts on the project.

On February 23, 2024, the Company reported 45 m of 2.16 g/t gold in drill hole 24DO06 and confirmed a new gold zone with over 250 m of strike length in a discovery at the Donut target, situated approximately 800 m east of the Froyo Gold Zone.

The company has maintained a robust cash position since its last financial report. With ongoing drilling operations totaling around 30,000 meters, at $160 per meter, there is a possibility of another financing round before 2025. However, considering that warrants are currently in the money, if fully exercised, they could generate at least another C$5 million. This additional funding could potentially enable the company to postpone any further financing until 2025.

Colin appears to be straightforward and proactive in updating the market, often featuring in videos to communicate with investors.

While they may lack a prominent figure like Ross Beaty, they have garnered attention from several newsletter writers who seem to appreciate the company's story. As far as I know, there is no analyst coverage on Founders.

The results are undoubtedly speaking for themselves. Moreover, the reliability of the assay lab allows the company to provide frequent updates on drill results, which is a significant advantage not enjoyed by many others in the industry.

Now, this section will be longer than normal because (1) I did not know much about Suriname, and (2) after researching, I believe this is the biggest risk for the company.

Suriname is in South America, but it is interesting in that it does not border any Spanish-speaking countries. Directly below is Portuguese-speaking Brazil, to the west is English-speaking Guyana, and to the east is French Guiana, which speaks French.

The official language of Suriname is Dutch, making it the only country outside of Europe where Dutch is the majority language.

The border between French Guiana and Suriname consists of the Maroni River.

Suriname is the smallest and least populated country in South America, with a population of around 623,000. Nearly half of Suriname’s population resides in its capital, Paramaribo.

Mining accounts for nearly half of the public sector revenue, with gold representing more than three-quarters of total exports. The country heavily relies on natural resources, which is both advantageous and problematic. With limited options to generate income, many men and women turn to the gold industry to support their families. However, this often means that best practices are not prioritized, and there is a history of mercury being used to extract gold.

The country's history is more colourful than just its natural resources. Suriname gained independence in 1975, leading many Surinamese to flee to the Netherlands out of fear that the new government would worsen conditions. Unfortunately, their fears were somewhat justified, as crime, corruption, and fraud increased.

In 1980, a military coup led by Desi Bouterse overthrew the government, plunging the country into political turmoil for the next two years. Towards the end of 1982, 15 influential and prominent civilians were murdered, prompting the United States and the Netherlands to suspend development aid to the country.

This was followed by 9 years of military rule and a bloody civil war, during which many Surinamese, mostly Maroons, fled to French Guiana.

Suriname has a diverse heritage, with a large portion of its population being Maroons.

In the 2000s, drama continued. Former dictator Desi Bouterse was elected President in 2010. Just before his election, he was charged with murder but granted amnesty. He was re-elected in 2015, only to be convicted in 2023 and sentenced to 23 years in prison for his role in the murder of those 15 people in 1982.

The Wikipedia bio provides a comprehensive summary of his controversial tenure.

Apparently, he is not even in jail, and there is no international arrest warrant.

Suriname gained independence in 1975, making it a very young country relatively speaking. Within that time, a lot has happened.

There are a few other factors worth mentioning. High inflation and currency instability remain major challenges.

The Surinamese Dollar (SRD) has been the currency since 2004, with its value being set by the central bank between 2004 and 2021. Consequently, the black market currency exchange thrived.

In June 2021, the Central Bank of Suriname ended its fixed exchange rate policy and allowed the Suriname Dollar (SRD) to float at market rates.

I wouldn't be surprised if they follow the footsteps of Ecuador and adopt the USD as their local currency, or something more stable. It's just difficult for a country with such a small population to maintain a stable currency.

According to the IMF, so far in 2024, the country has experienced an inflation rate of around 20.4%. While high inflation may not materially affect Founders' operations since they keep their treasury in Canadian dollars, one can expect numerous negative economic side effects such as increased crime and theft.

Suriname has undergone a gold rush in recent years, and in 2020, hydrocarbons were discovered offshore. This development looks promising, as the country may emerge with a vibrant oil & gas industry that could involve U.S. energy companies. This makes sense given the reserves off the shores of Venezuela and Guyana.

On September 13, 2023, Total Energies announced the launch of a $9 billion offshore oil project in Suriname. A Final Investment Decision is expected at the end of 2024, with a "first production" target for 2028.

Suriname’s government is looking to increase commercial ties between U.S. and Surinamese companies, and similar to Guyana, Suriname could be one of the fastest-growing economies due to the new oil rush if it comes to fruition in 2028.

I want to conclude this Communities section with these closing remarks.

Now, yes, this Vice video is 8 years old, and yes, they narrate in a specific way. That said, I believe it provides a lot of context to the situation in Suriname. According to the map around 3:20 in the Vice video, Founders Metals’ Antino Project appears to be near the "Benzdorp" area.

Apparently, 8 years ago, "Benzdorp" was known as Suriname’s wild west, and as a fun fact, they were using gold as a currency of exchange.

Certainly, some things may have changed since then, but I'll leave it to you to ask the questions, research, and determine how much can change in eight years.

There is undoubtedly gold in Suriname, and small-scale miners seem to only scratch the surface. If there is gold at the surface, it is coming from somewhere, indicating very promising exploration potential.

Additionally, I personally perceive their option agreement as rather demanding regarding exploration expenditures, especially for just 75% ownership. It makes for an exciting story because you can expect a lot of drill results. But if something negative were to happen, they are large exploration programs. There are certainly less demanding agreements out there. However, it sounds like it can be renegotiated, which could warrant a rerating.

Providing actual numbers with a resource could help demonstrate this potential to the market, and I anticipate that by the first half of 2025, we could see one.

Of course, they are drilling frequently and are one of the few companies able to provide assay results rapidly. Therefore, continued success in drill results will likely lead to an increase in Founders' market cap.

There is also discussion of tailings. I'm not sure if there can be cash flow from that opportunity or what the potential revenue might be, but if it could potentially generate 1-2 million a year, that would certainly be material and cover their G&A.

The community section was already getting lengthy, so I wanted to elaborate on the challenges further here, as I believe this would be the biggest risk. However, from my research, it seems that everyone understands the importance of gold mining for the economy of Suriname, and individuals are keen to balance environmental concerns with providing for their families.

However, I pose this question: why are there only two majors in a country so incredibly endowed with gold? Newmont and Zijin Mining.

In February of last year, IAMGOLD sold their Rosebel project to Zijin Mining for cash consideration of approximately $360 million and the release of IAMGOLD's equipment lease liabilities amounting to approximately $41 million. This move could be a pivot for IAMGOLD towards focusing on North America, as these funds were used to finance the Côté Gold project in Canada.

While Newmont's operations are more to the north, it's still worth noting. The “Small-Scale Mining Survey” for the Sabajo ESIA report for Golden Associates and Newmont Suriname would provide further insight into what community relations can be like. Refer to page 42, where they discuss small-scale miners being vulnerable to theft and violent assault.

So, in my opinion, it's not the small-scale miners that pose the challenge; rather, it's others who may view them as targets.

Operating in Suriname presents unique challenges for a first-time CEO. I'm not concerned about execution; rather, the country and local risks are my biggest concerns. I would be less worried if this were not a single-project company and had equally compelling projects in other countries.

Other challenges could arise if Founders does not maintain the exceptional results they've previously achieved. While I don't see this as an immediate concern, the market might be disappointed if drill results are considered less optimal than what has been previously announced.

In terms of cash, for an exploration company, they are in a healthy position, but dilution is inevitable in this space.

Results are currently being rewarded in the junior mining sector, particularly in gold companies. I'd like to draw your attention to Reunion Gold (Guyana) and Newcore Gold (Ghana), where investors are valuing technical success more than in the past few years.

Gold prices are closer to their highs than their lows, and with an election year underway in the United States, there's a strong chance the Federal Reserve will lower rates leading up to the election. This is broadly considered bullish for gold and gold equities.

Hindsight is always 20/20, and it would have been more comfortable to take a position in Founders six months ago. However, speaking solely on the commodity, I believe there is still upside potential for gold equities, and any pullbacks may present an opportunity for entry.