- TSX-V: SRL
- Shares Outstanding: 127M
- Share price C$0.19 (29.04.2020)
- Market Cap: C$24M
These days, everyone’s got big ideas. “Become an established Tier-1 producer within 5-years,” “build up the gold Resource to 5Moz and then get taken out by a major,” “blow the market away with high-grade exploration,” and “deliver value through the drill-bit.’
However, an idea isn’t a plan. We are often told a story by a mining CEO, and it becomes very clear, very quickly: they have an idea, but they don’t have a plan.
If you’re going to pitch an idea to me because you want my money, I don’t just want to hear what you want to accomplish; I want to hear how you intend to accomplish it. If you can’t explain your business plan in logical, achievable steps, I’m not interested. CEOs seem to find it very easy to promise investors the world, but they are usually much less adept at explaining a systematic process for achieving returns. There’s a reason for that: some CEOs are learning on the job with your money, some are making it up as they go along, some don’t have a clue what they are doing, and some are knowingly designed as a lifestyle company.
A company that most definitely doesn’t fit into this lacklustre bracket is one we have interviewed recently: Copper and Gold Explorer Salazar Resources (TSX-V: SRL).
Director, Merlin Marr-Johnson, was able to effortlessly break down the steps that he thinks will lead Salazar Resources to the top of the mountain: becoming a meaningful South American copper-gold-zinc player.
We recently spoke with Marr-Johnson for another interview to follow on from our last conversation with him in December 2019.
We’ve previously written an article about Salazar Resources on the Crux Investor website. For those who haven’t had the chance to give it a read, Salazar Resources is an Ecuadorian mineral exploration company. The company is led by CEO, Fredy Salazar. Salazar is a renowned geologist and ex-Newmont team leader in Ecuador. He has been exploring and discovering major copper-gold assets in Ecuador for over 20-years.
El Domo Curipamba
We’ve previously discussed with Marr-Johnson how the company farmed out its first copper-zinc-gold asset, the El Domo Curipamba VMS discovery, in a JV with Canadian miner, Adventus Mining (TSX-V: ADZN).
It looks like an astute move. A PEA conducted for the asset demonstrates an economically viable resource…
What the the key figures?
- Measured Mineral Resources for El Domo total 1.4Mt grading 1.92% copper, 0.37% lead, 3.52% zinc, 3.75 g/t gold, and 58 g/t silver.
- Indicated Mineral Resources for El Domo total 7.5Mt grading 2.02% copper, 0.26% lead, 2.81% zinc, 2.33g/t gold, and 49 g/t silver.
- Inferred Mineral Resources for El Domo total 1.3Mt grading 1.52% copper, 0.20% lead, 2.25% zinc, 1.83 g/t gold, and 42 g/t silver.
The numbers are great on paper; most mining executives would probably leave it there. Marr-Johnson isn’t most mining executives. He was keen to get into the details of Salazar Resources’ partnership with Adventus Mining.
- The company is fully carried for 25% at El Domo.
- Salazar Resources receives US$250,000 in advance royalty payments (up to a limit of US$1.5M). The Ecuadorian miner also receives additional recurring management fees of over US$350,000pa, and will also lease out their 3 drills.
- Adventus has a 75% option on project, obtained by funding CAPEX of US$25M over 5-years.
- Exploration activities of the Alliance are carried out by Salazar on a cost +10% basis.
The FS will be completed in 2022 for El Domo Curipamba. In the meantime, Marr-Johnson explains there is some metallurgical work on the ore body still to carry out, though much of it is finished.
Salazar Resources intends to be in production by 2024. If you’re an optimist and want to go along with what Adventus is saying, production could possibly begin in late 2023.
We like that Salazar has the geological knowhow to seek out promising copper-gold resources, then get other companies to foot the bill. It’s a de-risked, substantiative and methodical plan. We like it a lot.
Adventus-Salazar Exploration Licence
Adventus Mining works with Salazar Resources on several other projects as part of the Adventus-Salazar Exploration Alliance. Salazar Resources looks to have secured a great deal.
Commodity diversification is something I value highly. If a company is reliant on the performance of a single commodity, risk is enhanced. Salazar Resources has managed to mitigate risk by adding zinc to its copper-gold formula. The Ecuador-wide variation of the Alliance covers all zinc targets. It also covers some additional specific projects:
- Again, as part of the Adventus-Salazar Exploration JV, Salazar Resources has two addition exploration licences, both for copper-gold porphyry exploration targets with epithermal gold/silver veins: Pijili and Santiago.
- Salazar Resources has a minimal financial burden on either project. It has no obligation to fund activities. As part of the agreement, Adventus must provide 100% of development and construction expenditures until a construction decision is made.
- You can read more about these two smaller ventures on Salazar’s website.
Aside from the alliance, Salazar Resources has an impressive portfolio of 100%-owned concessions/exploration licences:
- Rumiñahui – a 2,910ha exploration licence (2 concessions) held 100% by Salazar Resources that hosts copper-gold porphyry targets.
- Macara Mina – a 1,807ha exploration licence (2 concessions) in southern Ecuador held 100% by Salazar Resources that host VMS targets.
- Los Osos – a 229ha, single concession, copper-gold-silver exploration licence in the Cerro Pelado-Cangrejos mineral district in southwest Ecuador.
- Lastly, as previously mentioned, Salazar Resources has a wholly-owned stand-alone subsidiary, Perforaciones Andesdrill S.A, that owns three diamond drill rigs.
Rumiñahui, Macara Mina and Los Osos could provide potential catalyst moments in 2020 and beyond. Exploration is planned for 2020. The difficult decision Salazar Resources will have to make is which one of these projects to focus on, and which two to farm out. We’re sure Fredy Salazar’s geological expertise will come in handy. The plan is clear and concise: identify the best, monetise the rest. Excellent.
All of these projects are at varying degrees of licencing, but they are conglomerating to form a comprehensive portfolio in a country that is regarded by many mining commentators as under-explored and full of potential. When we last spoke to Marr-Johnson, at the turn of the year, Salazar Resources had c. US$5M in the bank to continue exploration and the possible addition of further licences.
Nothing Is Perfect – Any Red Flags?
So far, I’ve been very impressed with Salazar Resources’ business plan. The leadership also appears to be top-notch. However, there are a few concerns I’d love to see the company address.
Ecuador – Slow And Steady Wins The Race?
Ecuador isn’t a mining jurisdiction with an enormous amount of history.
While this brings with it a wealth of exploration potential, there are some shortcomings, particularly in the permitting department. Ecuador is currently modifying its mining code. As a consequence, the permitting process, including water permits and environmental permits, is slow.
This perhaps explains why Salazar Resources has been relatively slow to deliver on its exploration plans for the last 18-months. These permitting issues are Ecuador-wide, and there is little Salazar can do other than control what it is able to control. We have no doubt the management will position the company effectively despite permitting hitches.
Ecuador – Social Issues
Many of the mining companies we interview have societal issues to contend with in their respective mining jurisdictions, and it appears Salazar Resources is no different.
There is a presence of anti-mining, populist sentiment in parts of society, with occasional vocal protests taking place.
However, the much more important thing is the attitude of the national administration. The Ecuadorian government itself is actually very pro-mining. This should stand Salazar Resources in good stead as it proceeds with exploration this year and beyond.
The primary concern for shareholders is that Salazar Resources has been suffering from share price stagnation.
Marr-Johnson spoke very candidly about this: the main issue for the company right now is a lack of liquidity in the stock. Low trading volumes are being driven by a great story failing to resonate in the market. How can Salazar Resources resolve this?
Marr-Johnson was confident that Salazar Resources can get this under control. The company needs to clearly communicate the value proposition in a manner that gets investors up out of their seats and heading towards their nearest broker. The company has been delivering the operational results investors will demand, but now it’s time to get out there and start telling the story.
This situation reminds me of another one of my favorite companies Crux Investor has interviewed recently: Neometals. They have an equally smart business plan but are being hampered by ineffectual storytelling to the market. The reality is that some CEOs are such good salesmen that they can sell you snake oil with consummate ease. Others can actually run their mining company properly. I know which camp I’d rather be in…
Looking To The Future
Investors will now be interested in Salazar Resources’ plan going forward; in particular, what will Salazar Resources do with its remaining US$3.5M in cash?
Exploration for growth on Salazar’s 100%-owned portfolio appears to be the current priority. As previously mentioned, these operations could create the catalyst moment the company is crying out for, and turn this diligent and smart Ecuadorian miner into a copper-gold-zinc winner.
There is plenty to like about mining in Ecuador and an awful lot to appreciate about this business model. Let’s hope Salazar Resources can deliver for investors in 2020 because I have faith in the team and the model. Now, this needs to be reflected in the share price.
Company Website: https://www.salazarresources.com/
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