Phone call with Bruce Winfield

Q:   I've been dealing with a company almost four years and they have big discoveries, Chinese uranium. And the stock has soon doubled. They canceled an underwriting we arranged. The stock has technically doubled in two weeks.

A:   This is the uranium industry.

Q:   Anyhow, that's a good industry. Mr. Winfield, you are present of a public company with a  capitalization fully diluted of about $20 million Canadian. The company as it states has expanded uranium exploration in the Argentine. Now, the first question is what is special in Argentina, to you or maybe other people, that it can support a growing company in the Canadian and American markets?

A:   Well, what I would suggest is the reason people like ourselves are in Argentina, is the excellent geological potential in Argentina. It's only had one wave of modern exploration. It's undergoing its second wave of modern exploration. A lot of the exploration in the country is still first generation, and there is tremendous potential for large new discoveries, such as EMS's... EMA's Aquiline Navidad deposit, Quakavayo. There are a number of new discoveries coming out. I think Felidaro came out of the first wave of exploration. So it's extremely productive.

Q:   If I remember my history books and newspapers, Argentina is a financial and agricultural country.

A:   It has been primarily agricultural. Financial, not quite so much but perhaps in the past. I think now it's not looked on so much as a financial center. It has been more agricultural.

Q:   But in the 1930's, the country was considered a very serious contender to the United States.

A:   Right. In the 1920's and 1930's, Argentina was the powerhouse of South America.

Q:   Financially as well, no?

A:   Yes.

Q:   And what happened to that powerhouse?

A:   Essentially Peron in the 1950's. He took it from a...the country has very populist politics. He developed very expensive and extensive social welfare programs, and economically the country has had its problems for the last 40 to 50 years.

Q:   I remember when Governor Schwarzenegger said that when he came to America, he couldn't speak English, and a friend translated for him what Senator Humphrey said. He said, well, this is a garbage socialism. I had it at home, I'm not interested. And then another guy came on television and it was translated, and he said, Who is this? He said Nixon. He said who is he? He said he's a Republican. He said, well, if he's a Republican, I'm a Republican. And so in other words, the socialist mismanagement, which is characteristic of every socialist or communist government, destroyed the preeminence of Argentina as the banker of South America.

A:   That's perhaps slightly strong. It's not a communist government per se, but it's certainly a populist government.

Q:   But it's coming from me. I hate them. I lived in a communist country.

A:   I appreciate that, but I wouldn't put as strong a slant on it, but it's certainly a very populist stand.

Q:   But the country was always agricultural, okay?

A:   Yes.

Q:   And this agriculture extended later into commodity items, that's what you're saying?

A:   It now lives off of a blend of agriculture and to some extent manufacturing. But its commodities are growing in importance in Argentina. Until the early 1990's, they were not prominent in Argentina. In the last fifteen years, there's been a lot of growth of commodities, metals, industrial minerals, oil and gas.

Q:   And there is a political stability which means that foreigners invest, take their money out. The production of commodity items?

A:   Yes.

Q:   May I ask you, if you take the whole of South America, which country is the strongest in terms of economic cooperation with the civilized Western world?

A:   I would suggest the biggest... If you include Mexico, Mexico, Brazil and Chile would be the three that immediately come to mind.

Q:   And Argentina, where does it come in?

A:   It's a much smaller entity as far as importance. Chile is not a big country but it's a big country because of its mineral wealth. Mexico is a big country. It has a substantial population, and it's close to the U.S. so there's a lot of interface with the U.S. Brazil is just a large country with a big manufacturing base, and mineral base. Colombia is actually amazingly strong economically as well, although they have had a very difficult social environment for the last forty years, with the guerillas and the ongoing civil strife, and so on.

Q:   Argentina is a highly civilized country.

A:   Yes. It's probably the most European of all of the South American countries.

Q:   And they have high educational standards and probably very high ethical standards. I mean, if you compare it to Colombia where you don't know what happens when you walk in the street. I've been there.

A:   It's more stable. It's safer, yes, definitely. It's definitely more European. Whether its ethical standards...ethics to me is a broad range of things. It's not necessarily the security in the streets. It's business, it covers a broad range of factors.

Q:   You go back to the last fifteen years, as you mentioned, and other companies start to look for items like uranium, probably nickel, coal, oil, whatever the market is interested in.

A:   Primarily Argentina has been concentrating on base precious metals and to a lesser extent industrial minerals with oil and gas.

Q:   When you say industrial minerals, which ones do you have in mind?

A:   Industrial minerals, phosphate, sulphates. There are a number of "sellars" up in the high Cordiera and they are producing industrial minerals.

Q:   The prices of these commodities are high, and unlikely to come down in the near future. So consequently the macro business environment, if the country is solid, it is very good.

A:   Yes.

Q:   In other words, let's say you start with uranium, the more you find, the more money you would put in because you see the market price is in your favor, and the country is in your favor.

A:   Certainly the more you find...if you were to find a major deposit, it would be exploitable in Argentina. Argentina is relatively... I don't know the exact number on the index of political risk and country risk...

Q:   Put it this way. Have you heard of too much political risk since you have been there? Has it disturbed you?

A:   There is political risk anywhere in the world. In Argentina the political risk comes from the internal politics of the country. It has a very populist politics. It implies that politicians say whatever it takes to get them elected. During periods immediately prior to elections, anti-mining sentiments can affect the industry. It depends very much on which province you're working in and it depends very much which municipality within the province. Three provinces are particularly good, a number are average and a few are very bad. We're working in two. We're working primarily in Mendosa Province and Chabut. Mendosa up until now has been one of the not very bad, not very good ? it's in the middle. Chabut had a bad reputation. But they have controlled that situation and as a result, we've been exploring there for three years very successfully with no problems.

Q:   Let me ask you a key question. It happened to a number of countries. You let foreigners in, they develop resources, they deliver, they pay taxes, everything is fine until a lot of valuables are discovered. You're talking about big numbers. And then comes the government and says, hey, instead of 25 percent we want 45 percent, or we want to nationalize it. Is there any inkling that this could happen in Argentina?

A:   It can always happen anywhere in the world, but the Argentine has a well structured modern mining law, which calls for taxes and royalties to the country, and lays out clearly the basis and foundation for foreign investment in the mining sectors. So as far as that is concerned, there's the normal risk as you would have in any country that they may change the royalties. But as far as actually nationalizing whole sectors, no, there's no indication of that.

Q:   I remember after the war, many Hungarians where I was born were going to different countries. America was closed because of the immigration laws, and one of the countries which I heard of as a very young boy was Argentina. As a matter of fact, one relative of mine moved to the Argentine. It's very European. Germans, even those who escaped from guilt were moving there. In other words, Argentina has a basic, solid European backing and Europeans don't nationalize.

A:   As I said, there is no indication at this point that Argentina is going to take steps to nationalize or anything along those lines. I repeat, they have a well established mining law. It's at a national level. It's bought into by all of the provinces, and it's upheld by the central government. So failing a radical change in government and government policy, no, there is no indication that they would be in the process of nationalizing or considering nationalizing.

Q:   Now, let's come down to the fundamentals. You move to the Argentine and you are looking for uranium. So far what have you done?

A:   What we've done is acquire a series of concessions in two different locations, two different provinces. We're doing the preliminary investigations. One set of concessions is more advanced than the other. In Mendosa Province we actually surround a known deposit, and so it's a more advanced style exploration. In Chabut Province, we're in the same area as a known deposit, so again, we're building on a known mineralized model. We're sampling, mapping with a view to drilling to test our specific concessions.

Q:   How much uranium did you potentially identify?

A:   So far we're at the early stages and we have identified showings, potential. We do not have any reserves resource at this point.

Q:   So what do you have at the moment?

A:   What we have at the moment is our airborne anomalies on the ground that we hold. The anomalies are coincident with the favorable geology to host ore bodies or mineralization. And we're looking to define specific zones. On one of our properties in the Mendosa camp, we know there is a mineralized zone. We don't know the details of the mineralized zone because it was drilled by the government and we do not have access to their information. But they were drilling off a zone on closed-space centers, and the drill pattern straddles our property boundaries. So we know we have at least mineralization on those claims specifically and potentially. Who knows? We just don't have the information.

Q:   So in other words, numerically can you identify what you have and what you are expecting, let's say within a year?

A:   The model that we're working on are the two different deposits in the two camps. The Sierra Pintara model in Mendosa, that mine is a open pit uranium mine. Globally it had 25 million pounds of uranium. Five million has been mined and 20 million remain as a reserve. In the south in Chabut Province, the model that we're following is the Sera Solo deposit, which is 10 million pounds of uranium in an open pit mine setting. So both areas' potential is for a 10 to 25 million pound ore bodies. At this point, I again repeat, we don't have any defined mineralization.

Q:   Let me ask you if the industry has a number of how much they would pay, let's say,
20-25 million potential uranium under the ground.

A:   I believe outfits like Canacord and Haywood are allowing something in the order of $8 to $10 per pound of uranium in situ.

Q:   So in other words, 25 million at $10 is $250 million.

A:   That would be the potential market. That would be what they would suggest as a market cap.

Q:   Let's take the following hypothetical case. If you had all the money in the world and equipment and time, how long would it take for you from today to get into not the mining stage?

A:   Feasibility?

Q:   Yes, feasibility.

A:   Conceivably you could take a property to feasibility in three years. But that's very optimistic. That's an optimistic time frame, because you have to locate the area, you have to drill off the area, you have to do your environmental studies and get all of your permits in place. So three years would be the minimum.

Q:   How much would it cost?

A:   Expense-wise you're probably looking at a minimum of $10 to $15 million.

Q:   And how much money do you have at the moment?

A:   Well, we will be financing shortly. Right now we're looking at about $1.3 in cash.

Q:   You have $1.3 million in cash? So in other words, $15 million would carry you to the feasibility stage.

A:   Assuming we found an ore body or sufficient indications that we would be successful at each stage, yes.

Q:   Let's say you can identify 25 million, you can always raise money by selling stocks, okay? Now, the uranium industry is unique. I'm spending a lot of time on this because the prices are very high and are unlikely to come down in the future. As a matter of fact, I use $200 per pound for my calculations. Is there what you call project financing?

A:   If you have a bankable feasibility study, yes, of course.

Q:   But before that?

A:   Very rarely.

Q:   The only type of project financing is if a more powerful company would issue stock which you can sell or you can borrow against, so you can have some hybrid financial structure.

A:   Yes. Obviously, you can joint venture. There are a number of ways that you can raise money. Junior companies raise money through simply equity, equity sales. They raise money through joint ventures, they raise money through perhaps debentures, a number of different ways.

Q:   Your company, besides mining and so on, in the next few years will have to do a number of imaginative financings. Mathematics after all is number one in the world, no? Again, we go back to the issue of the commodity you are engaged in, namely uranium. Look, if you take silver which is $13, can silver go to $20? Maybe. Can it go to $30? No. So $13 to $30 is 100 percent, but the last ten points are highly questionable. If you take nickel at this stage, whether it will go from $22 to $44, again questionable. To $30 it might. At the same time, when you come to uranium, everything is possible. There is no limit to what the uranium price can go to because as another alternative energy, there are politicians already saying that this ethanol is a joke because there is hardly enough farmland to feed the population of seven billion. Now if you want to take it away or double the price, you have a bigger problem than before. And the electric car is an even bigger flop. So people, politicians eventually will turn to uranium.

A:   Yes.

Q:   If you turn to uranium, the $120 price, can it go to $400? Yes. It's very simple. You have the Chinese alone building three power stations a year, and that's just one country. There are about a hundred power stations in the growing world next to the 400 that exist, and this is without the United States which is still studying the issue. And every power station has to have fifteen years of supply. Otherwise you can't open a power station. So the uranium mines will be compared to the South African gold mines at a time when Churchill's parents visited South Africa at the turn of the last century. South African gold mines were gold mines 110 years ago. The first time I was in South Africa in 1961, I acquired some shares. I still have them. And let me tell you, they are paying very good dividends.
But uranium is something unique. It's the feed stock of the future of the 21st century, so therefore the price is going to jump and the futures market. Financing a company like you, if you have uranium, is going to be a very big job, an imaginative job, and a very lucrative job. That's my point.

A:   I think certainly uranium is a special commodity at this point in time. It's had very specific factors in the past that have led to keeping the price low. It's been out of favor for 25 to 30 years. There's been little exploration. The world has been living on false security.

Q:   Professionals know what we are talking about. But at the same time, it's not yet on the front pages.

A:   Yeah, okay.

Q:   So then really at the moment, your next step to work out a long-term financial structure to carry the company to the next three years. Plus, obviously you will dig for more, but basically it's now a question of a modern financing technique.

A:   Yes.

Q:   Thanks very much. I took a long time with Argentina because people always ask questions, is the country going to nationalize and so on.

A:   Argentina is not without its problems, but on the other hand, it is a modern, very European style country. It is slightly socialist but it's not nearly as socialist as Venezuela, Bolivia. It's more like Chile, Peru, Brazil, where they are left of center but they're a very pragmatic or capitalistic socialism.

Q:   Eichmann was in the Argentine, no?

A:   I believe so, yes. There's certainly a very strong German influence in both Argentina and Chile.

Q:   And Uruguay.