Sierra Metals (TSX: SMT) – Good Fundamentals, Main Shareholder Restricting Stock (Transcript)

Interview with Igor Gonzales, President and CEO of Sierra Metals (TSX:SMT).

The fundamentals of Sierra Metals are good and the company is effective, safe and robust. However their share price has been negatively affected by a significant shareholder, Arias Resources Capital, needing to off-load up to 30% of the shares. Arias controls 52% of the shares so liquidity was an issue previously. The market knows this and despite successful operations on the ground, the price is being held back. We try to find out how the company is resolving this issue. Let us know what you think about their response to this in the comments below.

Sierra Metals is a South America brownfield and greenfield focussed Silver, Copper, Lead and Zinc miner. $290M, NPV c. $500M. They have paid back a $34M of debt and $15M revolving credit back by restructuring their debt, currently at $59M. Revenues are $52M with $13M of operating cashflow, to fund their capital requirements and operating costs. 2019 is a year of heavily capital costs as they will be investing $83M.

Sierra Metals is one for new investors. Existing long-term shareholders should also feel that the share price will eventually be resolved with Arias. Short-term holders and traders may be be less satisfied, but they always are. We view this as an opportunity to get in cheap.

There is a new 43-101 due by end of the year and another in Q2/20. Lots of infill drilling. Brownfield and greenfield exploration is the foundation for their strategy going forward. A good track record of delivering improvements in operations and they are generating cash. Operating in two countries with good mining codes and taxes with a good infrastructure and in the right mining jurisdiction. There is a lot to like on the mining side.

Interview Highlights:

  • Overview of the Company
  • Projects in Peru & Mexico
  • Company Financials: Arias Resource Capital, a 52% Shareholder – How Quickly Do They Intend to Sell and Are There Any Regrets?
  • Why Invest in Sierra Metals? What’s in it For Investors?
  • Strategy & Risk Mitigation

Click here to watch the interview.


Matthew Gordon: We spoke back in May when you told us your story. We want to catch up and see how things are going. So, why don’t you kick off for people who’ve not heard this before with a one-minute summary and then we’ll get into some questions.

Igor Gonzales: Sierra Metals is a poly-metallic producer that operates in two jurisdictions, Mexico and Peru. We have two operations in Mexico, the Bolivar mine, which is a copper and gold Silver play, and the Cusi mine, which is a Silver play. It’s our smallest mine. And then in Peru, we have the Yauricocha mine, which produces all fine metals. We are now in a process of expanding our company.

Matthew Gordon: Tell us what’s going on in Peru?

Igor Gonzales: In Peru, given the fact that we have an older mine that has been operating for 70 years, we need to keep on top of the infrastructure upgrades. And therefore, we have five ongoing projects now in Yauricocha. The main project is the shaft upgrade, the Yauricocha shaft. This is a brand-new shaft that we’re building from scratch and we’re in the third year of construction and we have 1.5 years to go. However, we’re going to be implementing portions of the project as they become available. Then, we just completed the Yauricocha tunnel, which connects all the entire mine facilities with the processing facility, that’s now up and running and operating. Then we have all the ventilation upgrades that we’re doing, and that work is continuing as we speak. We also have the tailings dam, phase five upgrade. We obtained the permits and now we’re in full construction mode, which should finish the main dam for phase five sometime in September of this year. And then we also have a new mess hall and camp refurbishing project which is ongoing and will finish in the second quarter of next year.

Matthew Gordon: What’s happening in Mexico?

Igor Gonzales: We completed two expansion projects. One in the Bolivar mine, which initially was conceptualized to go from 3,000tpd to 3,600tpd. We then added some additional capital spend and now we have completed all the construction of that expansion and we are in the final phases of the ramp up, both the mine and the plant. And I’m happy to report that as of Q2 we have on average 3,700tpd per day, which is above the initial target and we continue to ramp up those 4,000t in Q3. We would like to take that ramp up to 4,250tpd in in the Q4 of this year. So that ramp up is going well. We achieved the intended initial capacity and then we continue to ramp as we go. Then on our next mine, the Cusi mine in Chihuahua. We increased its capacity from 600tpd to 1,200tpd. 100% increase in capacity. We have completed most of the construction. We still have a few things that we’re finishing up. But we’ve had struggled with the ramp up both at the mine and at the plant. However, we will continue to increase the throughput. We’re now approaching 1,000tpd so we’re getting closer to the 1,200tpd and we’re trying to get to 1,200tpd by the end of Q3 of this year so those are our two expansion programs.

Matthew Gordon: Let’s talk about your finances? When we talked previously you were talking about investing $83MIL into the company. You’ve got a market cap of $290M, NPV $500M. Those are good numbers, but you’ve got some debt as well, and you’re self-funding on the capital expansion program. So, can you run through some numbers for us, please?

Igor Gonzales: I will talk about the debt. We had a loan from a Banco Acredito Peru this year at the end of Q1 for $100M and that allowed us to pay a remaining $30M-$34M in the purchase that we did in Yauricocha, which was another loan that we had outstanding. And we also pay a revolving credit of $50M and we will have $30M of funds for additional expansions or we would like to give it. We have reconfigured our debt profile. Right now, our net debt is about $59M. Now, going to our performance for the Q2. We had revenue of about $52M and about $13M in operating cash flow, that allows us to still fund our capital requirements and all our operating costs. This is a year of heavy capital investment for us. We initially budgeted for $83M. We had a strike Yauricocha that forced us to defer some of the capital into 2020. However, we remain with the same projects. Also, we completed the capital spend in Bolívar and we are completing the capital spending in Cusi. So, it’s going to be a very fruitful year for us once we are done with all the capital investment.

Matthew Gordon: I feel that you know what you’re doing, your team knows what they’re doing. It’s a very well-run, safe and to use a word that you’ve used in your presentation, it’s a very ‘robust’ operation. But I’m not excited by it, and I want to know what am I missing. Because you’re producing cash flow. You’ve got revenue. You’re in production. All the right parts are there. What am I not seeing?

Igor Gonzales: I think we’re not also happy with the current share price, which think we’re undervalued.

Matthew Gordon: Why?

Igor Gonzales: We think that we don’t have enough float in the market, in our share. We have a main shareholder which holds 53%, Arias Resource Fund; he holds in two funds. He’s trying to resolve Fund 1, which he’s committed to do and I think that’s part of the equation here. And so, when this Fund 1 issue gets resolved. I think that the float is going to normal levels and then that’s going to help our share price.

Matthew Gordon: How much does Fund 1 own?

Igor Gonzales: Fund 1 owns roughly 30% and Fund 2 about 23%.

Matthew Gordon: So that’s a lot of shares to come into the marketplace, which is great for potential liquidity, but it’s also a problem for the Fund. How quickly does he need to sell these into the market?

Igor Gonzales: I don’t have that information because we don’t we don’t manage the Fund and Arias Resource Capital has that all that information.

Matthew Gordon: So, they are not are not obliged to tell you how they’re going to manage that into the marketplace?

Igor Gonzales: I know they’re doing some movements to try to resolve that. And they have invited third parties to review our operations and see if they can commit to packages. But that’s as far as I can I can tell.

Matthew Gordon: Because that’s going to be holding the stock back, because people know that’s coming.

Igor Gonzales: They’ve been inviting the parties to look at our operations. We’ve entertained their visits and so forth, so I think it’s a moving process.

Matthew Gordon: It’s a moving process, which is affecting your ability to create shareholder value today. All you can focus on is delivering on the mining side, the production, the announcements.

Igor Gonzales: Exactly. That for us is extremely important not to lose focus of what we are here to do, which is our long-term strategy. We need to continue to add value to our units and to create value for our shareholders, independent of who holds our shares. I think that focus needs to remain and we are doing that, we’re delivering on the expansions. We will do another expansion in Peru. We’re now doing all the permitting work. And so, we continue to drive our strategy forward to grow the company.

Matthew Gorodon: It must be like trying to do your job with one hand tied behind your back, because you’ve got a significant shareholder restricting your ability to create value for shareholders in the marketplace. So, you are having to focus on mining, which is which is good is what you’re good at. And I fully trust that you get at it from what I see. Do you regret doing that deal with Arias?

Igor Gonzales: No. Arias had the ownership of the shares for quite some time now. I entered the company after all the shares were in place, so I have to focus is on trying to grow the company myself and not be side tracked by the activities of the shareholders.

Matthew Gordon: It’s a kind of salutary lesson in terms of how share structures are set up and ownership structures are set up, because it can restrict a company’s ability to perform as it should. I would argue that on your fundamental numbers, your shares shouldn’t have done what they’ve done in the last year. They should be heading the opposite direction. So, what’s your message to shareholders on this topic?

Igor Gonzales: I think our main message to shareholders is we’re staying the course. We’re creating value. We’re showing the numbers, we’re reducing our costs, we’re increasing our production throughput and recoveries. And so, we have all the main elements that create value in a company and they are in place. So, we will continue to do that and remain focused on that aspect of this.

Matthew Gordon: What I’m about to say, I don’t think is of any comfort to your existing shareholders, but for new shareholders coming in, this is a very interesting proposition. And I don’t expect you to comment on that, you’ll get yourself into trouble.

Igor Gonzales: Once the metal prices recover, the potential for our shares to improve are quite significant.

Matthew Gordon: So, it’s a question of time? When Arias sorts out Fund 1 or one of their two funds, and gets these block sales away, then your arm will no longer be tied behind your back. You feel that the market should recognise what you have been doing, is that what you’re saying?

Igor Gonzales: Ibelieve so. I believe that once we have the right float then the market will start recognizing the value for Sierra as they should.

Matthew Gordon: Do you mind if we just talk about strategy? What’s your thinking in terms of building this business? I know you could say you’re mitigating jurisdictional risk because you’re in two countries. You’re underground mining. That’s what you know, that’s what you’re good at. And you’re obviously in production, which is all good. But what is it that you’ve set out to build? And what will this company look like in 12-24 months’ time?

Igor Gonzales: A fundamental element of our strategy is exploration, brownfield exploration for one. And then the second phase is greenfield exploration. We have been putting important Resources in both areas. We’ve been growing the Resource of all our three mines steadily over the last three years and we continue to do so. As a matter of fact, we will have two new 43-101’s for Bolivar and Yauricocha by year end in 2019. And another 43-101 in the second quarter of 2024 at the Cusi Mine. We continue to do brownfield infill drilling also, in all three mines, but in Bolivar and Yauricocha, besides the brownfield, we’re also doing some greenfield exploration close by the operation. In Yauricocha, we have high value targets for this year. We’re already drilling with two platforms and in Bolivar we’re also doing some near mine exploration, but these are brand new targets and we continue to expand our Resource. So, I think that’s one of the key elements for our growth is to find additional Resources, then turn those Resources into a reportable Resource, via 43-101’s and then conduct the expansions that we require accordingly. So, exploration for us is the fundamental foundation of our strategy.

Matthew Gordon: So those are things that you’re going to do. Build up the Resource and reportable Resource, but to what end? What’s the strategy? Not what’s the deliverables? You are going to drill holes to build a company of a Resource of what size and for what purpose? Are you going to mine it yourself?  Are you going to sell it? What’s the game here? What do investors need to know?

Igor Gonzales: Well, it will be hard for me to tell right now what we are going to find via the exploration. However, we’re open in doing joint ventures or bringing new partners if our exploration results deliver significant results. So, I think we keep ourselves so open. We keep analysing other properties, other projects that come by and we were open to growing the company also via that avenue which is associated with other enterprises.

Matthew Gordon: But you can’t say to what end? If someone said “What is Sierra Metals? What are they trying to be?” What what’s your answer?

Igor Gonzales: We would like to be a second quartile producer in terms of volume of production. And right now we’re in the third quartile and our target would be to be in the top of the second quartile and the top of the second quartile of production with all the other Silver producers.

Matthew Gordon: I think the fundamentals of your company are good, but I’m struggling to understand why I should be investing in your business. You talk about track record, robust performances, strong capitalization, low net leverage, robust liquidity. What do all these things mean? Why should I invest in your company and not the 50 other South American businesses doing the same thing?

Igor Gonzales: I think what we’ve got is a business that is generating cash. We’re operating in two countries that are very supportive to mining. We have all the Resources available to do our jobs in terms of contractors, people, services and legislation and tax stability. We also would like to point out that the potential of our properties is very significant given their location within the countries where we operate. In the case of the Yauricocha mine, it’s located in a major fault system where North and South you have very large deposits and so the likelihood of finding significant additional Resources is important. Likewise, in Mexico, in the Bolivar mine, we’re in a location where it’s a mining jurisdiction with a huge potential for growth. So that’s another part that is very appealing to our story. We’re not just in one mine and trying to develop one mine, and that’s it. I think we can grow these mines into something much bigger. We don’t have the results yet, but they all the geological information that we have to date indicates that we are in a very fertile zone. Our track record, if you analyse Sierra at 5 years ago and Sierra today, we increased our throughput and our production, our cash flow generation tremendously. 5 years ago, we were probably in Yauricocha around 2,000tpd. In Mexico, at 800tpd and today we’re at 4,000tpd. So, we’ve improved our capacity to generate cash via production in a significant way. So that’s our track record of creating value for our investors via the improvement. In the meantime, we also have generated the cash flow. We’ve been trying to manage our debt. We have a solid financial position. We have $40M cash as we speak. We have a $59M in debt. And as soon as we finish our expansion projects, our ability to generate cash is going to be even greater than what it is today. But the most important element of our business is the people. We have been able to attract talented and experienced people into our team. And we operate with three mines and the mines have their individual staff. But we also have a senior team at the corporate office that provides technical support to our operations in projects, in managing, in planning, and very soon in maintenance and asset management. So, with that oversight and support to our operations, we bring the experience at the head office that can be utilised in the different operations without interfering with their work, but reviewing their plans, improving our plans. I think that part of the business has been reinforced in such a way that we brought in very talented individuals in to our company.

Matthew Gordon: I buy a lot of that. These are good mining jurisdictions. We’ll see what the drilling reveals. Having $40M in the bank is fantastic. Having free cash flow is fantastic. But you’re still paralysed in a way, in that shareholders make money when your shares increase. Don’t you think that you need to get involved in a conversation with Arias Resources Capital. Rather than them just sending people through to diligence your mine. Shouldn’t you understand what is the process by which you are going to release this pressure on us, because it is pressure on your share price. At what point do you get involved and say we need to be part of the solution?

Igor Gonzales: We review this situation with the board on a regular basis, and we have a share buyback program, for one. We had an ATM in place or another. Arias Resource Capital is moving is trying to deliver on Fund 1 and they are trying to resolve that issue. And we’re all aware of that. In the meantime, we have to stay focused on what we’re doing. But we don’t have control of what Arias Resource Fund does with the shares.

Matthew Gordon: I appreciate you don’t run their fund, but I’m saying that they should, as a matter of courtesy and expediency, work with you to agree and resolve the way forward if they are to exit quickly.

Igor Gonzales: And we’re are co-operating, they’re bringing parties for review, etc. and we are cooperating with that. We have an active data room where they can go and see our company and they can analyse the potentiality of our business.

Matthew Gordon: I think that you’ve got a great company. I think you’ve got a great team. I really like the way you talk about your business. But I think there’s this pressure with Arias Resources Capital which needs to go away. But when it does, I would like to think that your shares will be given the chance to breathe again and maybe start moving in the right direction. Igor, thank you very much for your time today and your explanation. You’ve been very honest, as always. So, thank you.

Igor Gonzales: Thank you, Matthew.


Company page: https://www.sierrametals.com/home/default.aspx

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Sierra Metals (TSX: SMT) – 121 London Mining Conference (Transcript)

CRUX visited the London 121 Mining Conference and spoke to Sierra Metal’s CEO Igor Gonzales. Hear what he had to say about his South American based Poly-Metallic mines – the Yauricocha Mine in Peru, and the Bolivar and Cusi Mines in Mexico.

Click here to watch the interview.


Matthew Gordon: Hello Igor, how are you?

Igor Gonzales: Hello Matthew, how are you today?

Matthew Gordon: Fantastic. Lovely to have you in London.

Igor Gonzales: Yes it is.

Matthew Gordon: Now, I always start off and I get people to do just a two three minute helicopter view of the business.

Igor Gonzales: Okay. Sierra Metals is a poly-metallic producer that has operations in two very well established mining jurisdictions which are Mexico and Peru. We have one… our largest mine in Peru which produces three types of concentrates. Lead, Copper and Zinc concentrates. It’s the  Yauricocha mine located at 4,700m  above sea level. Then we have two other mines in Mexico. One is the Bolivar mine in the state of Chihuahua. Bolivar is currently at around 3,600t per day in throughput and then we have the smaller mine which is the Cusi mine which is a silver mine essentially and now running around 1,200t per day.

Matthew Gordon: Okay and give us a sort of sense of the size, of the scale of the business

Igor Gonzales: Well we will generate an EBITDA this year in the order of $90M to $100M. Our revenue is in excess of $250M. And our debt is about, our total debt around $65M. And so we generate positive cash flow and we finance all of our capital requirements and with our own cash flow.

Matthew Gordon: Thank you very much for that. You’re obviously here in London. At the 121 Conference. Why are you here?

Igor Gonzales: Well we want to promote our company. we think that we are a growth story.  We’re a success story in terms of exploration results. Growing our reserves and resources, and putting those resources and reserves into operation. We’ve been growing our throughput steadily in the last three years. And so we will want to continue to do that. This year is the largest investment for us in terms of capital requirements. We will invest in the neighbourhood of $83M  just to grow our operations in both in Mexico and Peru.

Matthew Gordon: That’s self-funded?

Igor Gonzales: It self-funded, all funded from our cash flow. We think that’s a very attractive story for any investor because or where we have a solid base from which we’re growing our business which is where we’re growing our resources and reserves and then we’re growing our production plants. And therefore our unit costs will drop as a result of that. And our investors will benefit from that lower cost production.

Matthew Gordon: Okay. You’re listed on the TSX obviously

Igor Gonzales: We are listed in the TSX and then the New York Stock.

Matthew Gordon: New York Stock Exchange. Okay, so those markets at the moment seem quite illiquid. And a lot of companies are coming to London to other parts of Hong Kong other parts of the world looking for new access to new investors. What are you trying to do? Are you trying to get better liquidity because you’re unhappy with perhaps the market cap now. I mean what’s the goal for you?

Igor Gonzales: Yes we would like to have better liquidity. Our liquidity hasn’t been all that great. As we moved from Toronto to New York we improved our liquidity. However we were also looking for other areas where London could be one of them. But one of the issues we will face is that we have a major shareholder that holds 52% of the company. And he has that 52% divided into two soft fund.

Matthew Gordon: This New York fund?

Igor Gonzales: Yeah. Our fund. But one of the funds is due now. And so he will have to deal with that fund eventually and that will bring a lot of liquidity to our stock

Matthew Gordon: New shares into the market. Not new… Shares into the market. And so who are the other major shareholders at the moment?

Igor Gonzales: BlackRock and Ingalls And Snyder.

Matthew Gordon: That’s right. So are you… There’s quite a bit of your shares are taken up with major institutional money. Are you looking to drive interest from the retail market, High Net Worth family office type?

Igor Gonzales: Yes. That’s our target because we think there is a lot to gain from our story and our ability to generate cash and revenue and earnings per share.

Matthew Gordon: Again I think like a lot people you’d say you’re undervalued. And if you didn’t, you wouldn’t be doing your job. So let’s take that as read. What is the growth… What’s the growth actually going to be delivered by for these shareholders? You know your share price is what it is today. You are funding yourselves, self-funding. You’re growing, it’s a big growth story. People look at your presentation which I encourage them to do on your website. There’s a big growth story there. You’ve got three quite good assets. Where’s the upside going to come for new investors?

Igor Gonzales: I think the upside for new investors is based on our growth. our growth is quite steady and the other area where we bring a lot of value to our investors is the way we spend our capital. our capital spent it’s quite with very high ROI’s. And the reason we do that is because we do small increments in capacity to our plants. and we use local talent local engineering firms construction and labour. And therefore we’re very efficient in the use of capital because we’re in two well-known mining jurisdictions. We don’t need to go outside of Mexico or Peru to find the skill we need to grow and that makes the capital we use… it’s quite profitable in the sense that we get a great return on our investment and the for the expansion we’re doing in both Mexico and Peru.

Matthew Gordon: Okay. So in that case your AISC is what it is. How are you going to drive that down if you’re already very efficient? Is that something that you’re trying to do?

Igor Gonzales: As we increase our throughput. Ours are fixed costs which are our operating costs will start dropping round and our net cash flow will increase and that will drive the earnings per share.

Matthew Gordon: So it’s going to be coming from grades?

Igor Gonzales: Grades, higher throughput

Matthew Gordon: So if we look back at 2018, what would you have done differently?

Igor Gonzales: I think we would have done a similar story but faster if we could have.

Matthew Gordon: Yeah. Interesting. Okay. That’s your big learning from last year?

Igor Gonzales: Yes probably. So yeah. And we’ve been slowed down by permits for example. we would have probably applied to permits much earlier than we have and that’s a learning lesson from us where we could have done this faster. Had we applied for permits especially in Peru. Peru it a jurisdiction where there’s a lot of bureaucracy in the permits. And had we applied earlier and moved on those permits faster, we would be…

Matthew Gordon: You’d be there today. OK, so if I look at 2019. People always talk about catalysts and catalysts for growth. How do you balance running a company and all the risks associated with that and driving shareholder value, share price appreciation?

Igor Gonzales: I think we try to balance that by trying to meet our targets in being responsible in our spend. We try to apply the capital where we need it. We try to be very disciplined in our production and our results. and we show that quarter over quarter. and and by doing so then we will represent to any potential investor a solid story a responsible company that will look after the interests of their shareholders by respecting our budget in numbers by meeting our metal production by meeting our costs by meeting our capital requirements by respecting the all the framework that it’s required to operate in the two countries we operate. I think that’s how we show to our shareholders that we’re a responsible investor and someone you can trust and someone you can you can go there and and rely on what we’re saying. We deliver on what we say.

Matthew Gordon: Yeah I think it’s a very interesting story. It’s kind of slow steady growth as opposed to telling people they’re going to get multiple baggers.

Igor Gonzales: That’s right. And with that we have a track record that it’s very clearly proven.  We’ve been delivering on our commitments to the market in a very steady pace.

Matthew Gordon: Okay. And how are you going to manage these new investors coming in, how are you going to manage the stories to them that you’re telling?

Igor Gonzales: I think we’re going to manage them by and continue our path. Of delivering results continue our growth in a more dramatic way. If I could use that word because we were looking at larger expansions in the future. And once we’re in that position and then we can then look into M&A’s and the like. In other words a growth story altogether.

Matthew Gordon: Right well that’s what I want to come onto. But first let’s talk about the markets. You’re poly-metallic, which basically means you’re into lots of things: you’re gold silver copper lead zinc. I think that’s right. You kinda spread the risk but you’re also quite exposed to the commodity market generally at the moment because it’s pretty flat.

Igor Gonzales: Yes it is. It is but at the same time we’re exposed to precious metals and we’re exposed to base metals. And when one does better than the other then we have a natural hedge there. By proves in five different metals. unfortunately we don’t choose whether we could not be a poly-metallic producer because that’s the nature of our resources. But what we can do is we can gauge our production according to the needs of the market depending on the metal. I’ll give you a good example for that. Two of our mines the Yauricocha mine and the Bolivar mine are copper producers that we produce copper concentrate. And if, had the market, had the price of copper would go up we would have the flexibility to increase our throughput in terms of copper for example. And likewise in zinc or in lead, we have some flexibility in our production to try to meet the needs of the current metal market or the metal price for example there is a trend that zinc and silver will… might go up in the rest of the year then we can move into those directions if we need to.

Matthew Gordon: Right. But again you’ve got to be able to produce those efficiently. So how does a poly metallic company operate?

Igor Gonzales: The poly-metallic… What happens in our Yauricocha mine, the truly metallic, poly-metallic is that we have three mines in one. We have one mine that’s truly metallic has all the metal in it. The other some mine of Yauricocha has essentially copper. And then we have lead and zinc on the other one. So we can in our mine plan we can then gauge that according to our needs and put more emphasis in one versus the other. Without of course stepping out of the boundaries of our efficient cost structure.

Matthew Gordon: Right. So you’re spending a lot of time working on efficiency. And therefore margins.

Igor Gonzales: We are. For example putting a lot of emphasis in our planning team we have incorporated in our team very senior planners. Now we have a senior planning team in our corporate office that provides services to all three mines so that the mines do the short term plan and the senior team does the long range planning trying to obtain value from the different attributes that each mine has.

Matthew Gordon: You mentioned the word strategy a few minutes ago and part of that strategy is M&A or M&A potential. So you’re running three assets at the moment you’re optimising those continually, you’ve got a planning team working on that. How do you go about identifying new assets, a lot of competition and not a lot of good assets.

Igor Gonzales: Yes we usually get assets and this… We have this planning team that will go and evaluate these assets and compare to our assets. And of course estimate the potential of growth operating costs location geography infrastructure et cetera. And based on that we’ll say  yes or no to any potential possibility of M&A. We would like to stay in a jurisdiction that we know where we’re comfortable and how are we… We don’t discard other jurisdictions just because of their geography. But we are quite comfortable where we’re operating.

Matthew Gordon: Yeah well I think that’s smart. Yeah very very smart. So running a company is about managing risk every day. There’s always something that can go wrong.

Igor Gonzales: Yes.

Matthew Gordon: Okay. Are you frustrated by the market? Because that’s another layer of risk which you’re having to deal with.

Igor Gonzales: I am, we can not manage the market. We cannot manage the prices. We don’t have control of the prices but we do have control in our own cost structure our operating costs our capital efficiency our ability to deliver our production into the market so that’s what we have the control and that’s where we have to work in. We don’t have to worry so much about copper price because we don’t dictate the copper price. But we have to be as efficient as possible in our copper output per unit cost.

Matthew Gordon: And you think compared to your peers, you’re achieving that

Igor Gonzales: Yes we are. We’re competitive.

Matthew Gordon: Okay. So big question to finish with. Is mining still a relevant investment class?

Igor Gonzales: The world is going to continue to grow and there is many countries that still have not fully developed. and those countries will demand metals. For the long run.

Matthew Gordon: And you’ve got the right metals.

Igor Gonzales: And we have the right metals. We have the industrial metals and we have the precious metals. So as far as the grow the world grows we have I think in mining a reliable industry that can sustain that growth for both the industry and the humanity.

Matthew Gordon: What do you think the mining industry or even your company needs to do better to explain to new investors coming into this space with some spare cash. What do they need to do?

Igor Gonzales: Mining has been seen as an industry that is not friendly to the environment. What I can say to new investors is that mining can coexist with environment as a matter of fact we do that. There are farming areas right beside our mining operations today with the available technology. You can work hand-in-hand with the farming hand-in-hand with animal raising at hand-in-hand with other industries. Give you a prime example. All of the water that leaves our properties in Peru for example are all treated to water quality standards so the farms or the users down the road cannot complain and then we’re monitored by third parties by the authorities we get audited and everything else. So I think the technology has made mining a much more friendlier industry than it was in the past. Yes we do move earth from one place to the other but underground mines are friendlier than open pit mines for example in that sense. But nevertheless all the waste rock facilities now are monitored they have drainage they have water contention they have water and they have canals that divert water from entering into those facilities et cetera. So the technology is there. We have continuous monitoring of all of our effluent including the camp effluents and everything they all have to be treated.

Matthew Gordon: I think that’s a great point. Igor Gonzales thank you very much for coming and seeing us.


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Lumina Gold (TSX-V: LUM) – Turned $175M into $1.5B for Shareholders. Doing it Again With Ross Beaty (Transcript)

CRUX sits down with Marshall Koval, CEO of Lumina Gold. A precious and base metals exploration and development company focused on it’s Cangrejos project in Southwest Ecuador. This team is replicating its success of Lumina Copper.

  • It’s backed by Ross Beaty and several long term investors that have been with them through the Lumina Copper story.
  • Amazing assets in Cangrejos, Ecuador. Still has the potential to grow significantly.
  • Made returns for investors in the past with Lumina Copper, which raised about $175M to return $1.5Bn to shareholders. We think that the opportunity for large returns to shareholders still exist in this story.

Click here to watch the interview.


Matthew Gordon: Hello Marshall, how are you sir?

Marshall Koval: Great Matthew. Thanks for having me on.

Matthew Gordon: Pleasure is ours. So Marshall we’ve been wanting to hear your story for a while. So can you give us a two-minute summary of the projects? Elevator pitch if you will.

Marshall Koval: So Lumina Gold Corporation is an offshoot of the Lumina Group. And you’ll know the Lumina Copper story from the past. Ross Beaty developed that company. So it’s the same group and it’s the same basic business model as Lumina Copper. Basically adding value to projects,  de-risking them. These are generally large projects. The Cangrejos project that we have in Ecuador is a large Gold Copper porphyry system and from the Lumina Copper story we’re pretty good at porphyry systems. So the idea here is to add value, de-risk it, do the technical work we need to. But these type of projects are large-capital-costs projects. So ultimately, we’re an explorer-developer and we’ve advanced the Cangrejos projects since 2014. We’ve completed a PEA study on the project and now we’re in the field doing all the field work: drilling, engineering related to a pre-feasibility study, should we decide to move forward with one.

Matthew Gordon: Thanks for that summary. I guess it would be pertinent to start with understanding a little bit about you, your background and how you got involved the project.

Marshall Koval: Sure. So as far as the Lumina Group goes I’ve been involved since 2014, been a business partner in all of the Lumina Group endeavours. Personally I’m a geologist by profession. I’ve got 40yrs experience in the industry. A lot of it has been with major mining companies, engineering companies and prior to joining the Lumina group I was president of Pincock, Allen & Holt, which is an engineering company that did a lot of work on project finance as an independent engineer for banks on major projects like Los Pelambres. So my background is more in engineering development. I’ve been involved in building mines. So that’s kind of the thumbnail sketch.

Matthew Gordon: Okay, Marshall, so tell us a bit about the board. There’s some pretty big names associated with it – Ross Beaty, obviously. Who put this thing together?

Marshall Koval: So this was a Lumina Group effort and Ross, and then we have quite a few long-term investors that have been involved with this story: Rick Rule, Asif Sharif. Management owns quite a bit in the… Ross and management own quite a bit of the company, about 27.5%. I’ve got about 4% of the company myself. So we’re really well aligned with shareholders and that’s been kind of the philosophy of all the Lumina Group companies.

Matthew Gordon: And who are the active members in terms of the project itself?

Marshall Koval: So I act as the CEO, Scott Hicks is V.P. of Corporate Development. Martin Rip is the CFO. Martin has been involved with the Lumina Group companies for quite a while. In country are Vice President and Country Manager Diego Benalcazar. He’s our senior V.P. Diego is an Ecuadorian geologist with substantial experience in Ecuador and internationally and he’s been a key-player. And then on government, corporate affairs – John Youle, who’s been with the Lumina Group for quite a while. Leo Hathaway is the key guy as far as geology goes. He’s been with Ross and myself since 2004. So we have a senior management team that’s worked together on quite a few of these projects, both through Lumina Copper and today.

Matthew Gordon: How do you deal with local issues? You spend a bit of time in your deck talking about that. Obviously, it’s a fairly new mining jurisdiction, so how does that work?

Marshall Koval: Yeah, I mean basically, I’m directly involved myself a lot with the government relations and actually in the field with the communities as well. Diego Benalcazar, country manager is really key. He’s based in Ecuador. John Youle  our V.P. of government affairs is down there every couple of weeks. And so basically, we’ve got a pretty robust corporate social responsibility team focused on community relations and we’ve got quite a few people in the field in our camp. Good relations with local communities. We don’t have indigenous communities in the area and the closest community is about 7km-8km away. We have a lot of programs with several employees and it’s primarily agricultural areas. So a big focus of the company is on CSR and community relations. As I mentioned.

Matthew Gordon: And given the team has been together for a while, this is a long-term play, in terms of getting this thing through to production but that’s not necessarily your end-game. And so can you explain what your business plan is?

Marshall Koval: Right. So basically when we acquired the asset in 2004, we were an early-mover in Ecuador. We saw things were changing. We did a lot of work compilation and put a big portfolio together. And then, you probably saw last year in August, we split Luminex Resources out of Lumina Gold and that was more earlier-stage Copper projects and subsequently Luminex has deals with BHP that we’re working on now with Anglo American and with First Quantum. And that’s more of an early-stage exploration play. So the philosophy with Lumina Gold is that this is a development project. It’s on the development pathway. It’s large. Right now we have four drill rigs in the field and we’re drilling, we’re doing exploration drilling. We have a new discovery area called Gran Bestia. That’s separate from the main Cangrejos deposit and I can give you a bit more details later. And we’re doing the geotechnical, hydro-geologic environmental work. Also doing a pretty robust metallurgical testing program and we’re supporting all that with these four drill rigs. So far this year we’ve drilled about just shy of 8,000m. And it’s been divided between Gran Bestia deposit, where we have about six drill holes and +200m of drilling. And that’s really exciting because it’s got the potential to change the whole project, make it even bigger. The PTA had about a 400Mt project that we have identified. So it was roughly a 16yr mine-life and there’s a lot of things beneficial to the project. In Ecuador, it’s close to the port facility, it’s close to infrastructure, power, roads, that sort of thing that’ll help the project. So back to the start of your question, the idea here is to continue to understand the magnitude of the project, to de-risk it ethically, socially, environmentally and then move the project on to somebody that would build it. We’re looking at initial capital cost on the project of over $800M and then an expansion in Year 5, that would require another $400M roughly. So it’s a big-dollar project and we’re a one-asset company, a junior developer, so it’s logical that a major or mid-tier producer would take it on and build it.

Matthew Gordon: So if I just understand that, obviously, the management, the board, friends and family have got about 27.5% of the business. Who holds the rest?

Marshall Koval: So Ross and the management own the 27.5%. And then I would say friends and family beyond that, but as a close to 50%. We have a lot of long-term investors that have followed the company. The Lumina Group, the Lumina Copper and it’s a pretty strong investor base in Canada, the US and Dubai. That’s been a lot of the history of the people that have followed us.

Matthew Gordon: And in that context they’re high-net-worth’s or they’re retail?

Marshall Koval: There’s a bit of both. We also have some funds involved. You know, we have a couple of funds out in California and in Canada and New York that are following us. But we do have a retail base. We just recently listed on the OTCQX in the US to try to get a broader investor base in the US. So I would say there is a mix of all of the above.

Matthew Gordon: The reason I ask about the shareholding and the type of shareholders is… The plan, the business plan as explained by you, it seems to be ‘we’re gonna drill a whole bunch more and sort of work out the size of what we’ve got’. But how do you put that in the context of explaining to existing shareholders or new shareholders coming in what the plan is for creating value?

Marshall Koval: So, you know, I mentioned the Cangrejos deposit and we still haven’t totally defined that.  That’s the main deposit for the project and we’re drilling it now. So basically there’s an opportunity for that main deposit to grow but Gran Bestia, which is about a kilometre to the North-West isn’t included in our resource that we used in the PTA. And we’ve got some really long drill intercepts that are above the cutoff grade that were included in the mine plan and the PEA. So it looks like we have either a satellite deposit that’ll be a new starter pit for us, or to add mine life to the projects. So basically, if you look at the PEA resource we had about 8.5Moz of Gold and a 1Blbs of Copper. So this thing is really large-scale. And it’s growing and it’s got the potential to bring the Gran Bestia deposit. So if you look at where we’re at in the market as far as share price, we’re trading at a really high-discount to NAV. And there’s a lot of upside and we haven’t unfolded the whole story as how large this deposit is. And this was formerly a Newmont project, so what we would anticipate is, as we start to understand the larger nature of this and de-risk it, that there’ll be a lot of upward movement in the share price potential, with the Gold price environment that’s increasing. And we did the economics of the project at $1,300 Gold and $3.25 Copper. So that’s roughly where we’re trading in the market today and there’s a lot of optionality to the projects. So, if we go up to $1,400 Gold, for instance, the project gets a lot bigger. So the upside is being able to come in now and at a low-point in the market or relatively low -point. We moved up a bit since last year. And then as we add value and de-risk this, the potential to move up and, ultimately, just positioning the company with a buy-out.

Matthew Gordon: You touched upon a couple of points there. You’ve put the numbers in there at, well $1,400 on page seven, $1,300 on page eleven on the Gold and as you say, the Copper price is also quite well-priced, considering today’s pricing. Why have you shown the numbers using those high-prices, do you think it’s justified?

Marshall Koval: Well, basically, the study was done back in mid-last year and at the time those prices… We looked at analysts estimates, we looked at consensus, and looked at pricing going forward and that seemed like a good place to be. At the time when we released it, Gold was about $1,350. And then when we did most of the work and then when we released it, it moved down towards $1,300 and then a bit below.

Matthew Gordon: Will you be releasing an updated PowerPoint with slightly more discounted Gold and Copper numbers or are you going to stick with what’s in the deck?

Marshall Koval: So what I think we would do in the current market is be right in the same ballpark in… Our plan right now is to update the resource in the second half of 2019 and then we’d have most of the field work done, and the metallurgy, and basic engineering that we can move to a pre-feasibility study. And that would roughly take another year beyond the release of the resource estimates. So you know, my view-point is the current Gold price would make sense at this point in time to do the next study.

Matthew Gordon: But I think sort of generally you’re peers with the share price around $1,100-$1,150 in the deck, I just wondered why you hadn’t. And again with the PEA, do you feel that that’s quite an aggressive number or you feel that’s fair in relation to what you’ve got?

Marshall Koval: No, I think it’s a fair number. Basically, a lot of engineering backup went into this. I mean, you see a lot of… You know, my background is running engineering companies and serving as independent engineers for banks on projects. So, the way we look at a PEA, it’s a full industry scoping study. We do a lot of engineering backup to support it, and then we extract the results from the PEA and results from the scoping study and put those into the PEA.

Matthew Gordon: Right, okay. Because again, you know, the IRRs at the moment using a high Gold number, a PEA, which, typically, with my investor hat on, I’m gonna go plus or minus 30%. You know, the IRRs right now, they’re not complementary to what you feel you’ve got. Is that because, again coming back to, we need to be thinking as investors, we need to be thinking there’s a long term play?

Marshall Koval: Basically when you look at large projects of this sort of scale, you get a project like this up to, say a 20% IRR, which we show in the deck and I believe it was $1,400 Gold price roughly. There’s very few large-scale projects like this that end up with those kind of IRRs. So we feel pretty good and, obviously, we’re trying to de-risk it and improve the economics with the work that we’re doing, with the target to move up towards that 20% IRR range, with the discount rates as we showed them in the PEA.

Matthew Gordon: Right. So I guess I’m trying to get the balance between getting in early with some potential upside as you build out the resource, because you’re talking it’s a very large district-wide body you’re working with here. This is not a small company or a small asset because there are more attractive grades out, there are more attractive immediate, seemingly immediate returns with lower-costs associated with them. I mean, how are you selling this to people? When you’re talking to investors, what are you saying to them?

Marshall Koval: I mean it’s still a growth story as we speak right now, like I mentioned earlier with the exploration works on. And like I say, Ecuador is evolving and it’s becoming a premier mining destination and the sovereign risk related with Ecuador is going down substantially. I mean, we’ve seen in the time that we’ve been in the country, the royalty rate… the windfall tax disappear, the royalty rate reduce, the tax risk fiscal tax regime reduce, so that you attracted majors, like I mentioned earlier, BHP, Anglo, First Quantum, Newcrest. So basically it’s one of the last systematically explored jurisdictions in Latin America and probably the world. So basically the upside for investment, investors are participating in the early-stage of the project. The project has enough legs that will likely build this mine in the future and we’re doing all the work we can to identify the scale of it, which looks like it is growing at this point. De-risking in, putting in place the permitting, and if you compare it to a lot of the… Let me just scroll through the deck here for a second. This is kind of important to go to page 14. Basically what we did here was we looked at Gold producing projects that have the potential of over 250,000oz/yr. And on this slide what you’ll see is projects in blue and then projects in yellow. So basically Cangrejos is the fifth-largest global development project, controlled by an independent developer. And all the blue ones are majors and mid-tiers. And if you look at how it stacks up, the project is significant. I mean we have about 373,000oz of Gold production a year.

Matthew Gordon: What are the assumptions that that’s based on?

Marshall Koval: That’s based on the PEA study and that’s the economics that we did in the PEA study. So basically, if you go, let me scroll around a little bit more here, the slide number eleven. Let me just walk through the PEA metrics real quick and you’ll get a feel for it. So on the bottom left on page eleven we’re looking at the initial production of 40,000tpa. Initial capital cost there is $831M and then in year five we would finish the expansion to 80,000tpd. That’s another $406M of initial capital. And then the life of mine – 16yrs. So there’s another $271M of sustaining capital. And then if you go up to the production scenario, in the first 5yrs you get 270,000oz of Gold a year and 25Mlbs of Copper. And then at the expansion, starting in Year 6 through 16, that’s 421,000oz/yr for the overall average of 373,000oz. And the other aspect that the project has in its favour is low operating costs. So if we look at C1 cost, we’re looking at $523/oz. And then if you look at AISC on Gold, we’re looking at $569/oz and then, because it has Copper, if you look at Gold equivalent, our cash costs are $706 C1 cost and then $741 AISC. So that gets us down to the pre-tax IRR of 15%, in the NPV – $920M and that’s at $1,300 Gold. Now one of the interesting aspects of this is we did this on the 5% royalty rate and the government has just changed the scale on the royalties that you negotiate with an investment contract. So if we were to go to 3% of the bottom grade and then… The government did this acknowledging that some of the projects, like Cangrejos don’t have the high grades that say a Lundin Gold, Fruta del Norte does. So the government, if we could get 3% that would bring the post-tax NPV up to a billion dollars roughly. So we’ve had initial  conversations with the government and we need to continue to move the project along to get an investment agreement in place. So you know there’s upside in that context.

Matthew Gordon: But just again for investors new to you, new to this part of the world, explain to them what large-scale low-grade mining involves.

Marshall Koval: I mean basically long mine life and I think it’s in economy of scale type project. So for instance Ecuador has low power costs, it’s about 6 cents per kWh. It’s a diesel-producing country in its oil sector so diesel is relatively inexpensive. The project itself has a low stripping ratio. So when you look at all of these aspects from an operating cost, when you look at whether this project will be feasible and during production will it throw off generate good, free cash flow. Really it comes down to two things. It’s not so much the sustaining of the initial capital, it has more to do with the operating costs and the Gold price. So we can’t control the Gold price environment but we can, with the scale of this thing, be very effective in the operation of it. So there’s quite a few things going for it. That’s why you see on page 11 that it’s got favourable cash costs. And when you benchmark it against a lot of other Gold projects in the world and if we go over to slide number 15, for instance. When we start to look at average Gold production versus all in sustaining costs, Cangrejos ranks really well compared to its peers. And that even includes Fruta del Norte that’s quite a bit higher grade. We’re producing a similar amount of Gold every year. And then if you look at the mine life versus the U.S. dollar capital per ounce of mine, the capital efficiency, as you would say, it’s sort of $250/oz. So that benchmarks well with peers as well. So Cangrejos, compared to other independent developers, is a long-life, low-cost asset. And if you go back and you look at page 14 again, you can see a lot of the high-capital cost projects or a lot of the blue projects to the left of Cangrejos, a lot of those projects are looking at quite a bit higher initial capital to operate.

Matthew Gordon: Yes. Again help us understand this a bit better. So this all have been based off a PEA, which is a very, well, includes in the name, preliminary document. But in terms of the team’s experience of moving projects from PEA stage, you know the assumptions you’re making… Tell us why you’re confident of being able to get through to a point where someone would want to take this off your hands because the economics are delivered as you are forecasting them here.

Marshall Koval: If you look at our history with the Lumina Copper story – and that’s the best way to compare it – the first major project that we advanced and it’s a mine today is the Caserones mine in Chile and it’s a large upper Porphyry mine. We took the same approach, we went in and explored, tried to fully define it. We went ahead and de-risked the project and it was acquired by Pan Pacific. So the key to that was really good solid engineering exploration work. So that project was de-risked. And then we moved on, I was the CEO in Northern Copper and that project was acquired by Chinamin metals and Jiang Xi Copper and what we did there is we did a PEA, real solid engineering work and we were at the pre-feasibility stage and it was acquired for $550M roughly. Then we were involved in the religio project which is a project today in Chile and that project, we had a resource estimate, we were still doing exploration drilling, very similar to where we’re at with the Cangrejos project and check acquired that Project. And it’s in the development pipeline today and when tech required and they did a lot more exploration work and it’s a much larger project. Now the ultimate one that we sold was talk and talk. The first quantum. And that project we did at the PEA level. We took major risk areas like the pre-strip, metallurgy, water and we advanced that word to a pre-feasibility level and First Quantum acquired the project and that’s next in their Q after coming into Panama. So that’s going to move into the development scenario. So I think as far as an exit goes, basically the level of work that’s being done now should give most companies comfort that this project can move forward and be economic in the future. And obviously, a lot of that depends on the Gold price, Copper price environment. But there’s very few projects out there with this sort of scale, particularly ones that are in independent developers’ hands. So I think that the potential for a major or mid-tier to come in, probably before we even complete the pre-feasibility study exists, and then, ultimately, if we have to continue to move towards pre-feasibility study, we’re doing all the work right now to continue to advance the project.

Matthew Gordon: Okay. So I’m hearing it’s a large project. We’ve seen it before, we’ve done it before and we’ve delivered for investors before.

Marshall Koval: Exactly. Exactly. And I think just to highlight that in the Lumina Copper scenario, we raised about a $175M and returned about $1.5B to shareholders and, I guess, maybe the best way to look at that is if you flip over to Slide number 17. You can see the tombstones for all the different companies that have been part of the Lumina Group and the senior management team and Ross have been involved in all these companies and that’s been our business plan, our model and we’ve been very successful at it. And very few companies have done that. I guess on another note, the Enfield Gold asset that’s shown there, that was merged with track and with Newcastle to form Equinox Gold, where Ross is the chairman. So we have a long history, we have access to capital, we have the ability to execute tactically, and we have the wherewithal socially, environmentally to navigate difficult jurisdictions and Ecuador is evolving in a really positive way. And we feel that we’ll be successful in Ecuador as well with Lumina Gold.

Matthew Gordon: Yeah. We heard the Equinox story earlier this month. Great story there. Do you think that the Ross Beaty factor always helps, because you said it just now. You feel confident about being able to go and raise capital for the next stage. So on the money front, you’ve got $14M in the bank. Now you’re going, what are you going to deliver in 2019 with your cash?

Marshall Koval: Basically that cash gets us through the year and the bulk of the money is going into the ground in Ecuador right now, related to the drilling programs, the engineering work, the metallurgical work. All of that is where the majority of that money is going. We run a pretty thin corporate overhead. So most of the money is in the ground and it’s going towards de-risking and further understanding the extent of the project, particularly understanding the new Gran Bestia area where it could be a project changer from the PEA.

Matthew Gordon: Right. And are you raising any more capital this year or you’re good?

Marshall Koval: We don’t anticipate it at this point, no. Basically if you look at the history of the Lumina Group, we’ve just got six holes into Gran Bestia. Newmont drilled five holes. We just finished a hole that was some 800m deep and we had mineralization through it and we’re in the process of really getting into the Gran Bestia area. Now if we continue to have good success there, we may bring more drill rigs in. And that’s the history. If you look at the talk and talk project, we started with one drill rig and ultimately ended up with 10 drill rigs. So that’s the only thing, continued success there that could change the spend for the year. And if that happened, we would evaluate where we the set cash flies, and determine if we need to go back to the market.

Matthew Gordon: Marshall, our investors want to know how you’re going to make them money. How can you answer that question?

Marshall Koval: Yeah I think basically one of the main ways to look at that is, we still haven’t discovered the full scale of this project and I think what I want to do is direct you over to Slide number 10 in the deck. And I think this really shows you the upside here, which isn’t realised in the market at this point. And basically if you look at the right side of Slide Number 10, that is the Cangrejos deposit. And basically what you see on this slide is, the pinkish colour is all of the Gold equivalent grades between 0.35g and 0.85g. That’s all above the cutoff grade that would go into the mine plan in the PEA. And then the hot red colour there is over 0.8g per Gold equivalent. And what you can see in this slide is that there’s a significant deposit in the Cangrejos deposit at the right, where the majority of those drill holes are. And about a kilometre to the left of that is the Gran Bestia project. And basically what you see there is five of the Newmont holes and two of our holes. Subsequently we drilled four more holes and this thing is holding together.  What we don’t know is if this is a true satellite deposit, if the two deposits are connected and are one deposit. So if you look at that slide, there’s this red outcrop at the surface which is 4.8g/t Gold and 2.3g/t Silver. Basically, there’s some other intercepts around 10g and this is all at the surface, on the very edge of that which is that grey outline. And if these two things are connected and we’re going to drill in between, we’re going to fully understand the size of Gran Bestia, which looks large at this point. If these two things are connected you’ve got a really large pit, which would totally change the scale and the economics of the project. So as we have it right now and the PEA, just the deposit at Cangrejos on the right is included in the PEA. Everything to the left at Gran Bestia is not, so that’s going to be new resources added. And if the two are connected, it’s a substantially larger deposit. So there’s upside on the scale of the project. The number of Gold ounces.

Matthew Gordon: And potentially the grades are… they seem higher at the surface, why is that?

Marshall Koval: The outcrop on the surface that could be a little bit of secondary enrichment from the oxide near the surface. But we do have good Gold grades. For instance the best Gran Bestia  Gold grade was, I believe was hole number 99, was 208m of 0.91g/t Gold and 1.16g/t Copper right from the surface. So like I said earlier we’re looking to see if Gran Bestia will be a higher grade near surface starter pit or if it’ll just add resources to the mine life for the project, so there’s some real upside in the scale of Gold ounces that could potentially be discovered here. So that’s a big upside for investors.

Matthew Gordon: Thanks for pointing that out. And do you think there’s any, I mean, what else do you think the company is going to be able to do this year to, again, just drive that market cap, drive the share price. How are you promoting this for instance?

Marshall Koval: Yeah, you know, it’s kind of been a story that for quite a while we’ve sort of been flying under the radar. We were consolidating our land position in the district. Now we control 100% of the known mineralization at Cangrejos and Gran Bestia. And really until we put out the PEA last year we were pretty quiet. We had some press releases on it. Now we understand the scale of this thing is real. And we’re more active getting information out to the public, generating more of a project definition and I think there’s a couple other aspects of the project that are really positive. If you look at a lot of candy and Copper and Gold project they’re high elevation in Peru and Chile. Cangrejos, the highest point on the projects is 1,300m, we’re 40km from a deep water port where you could export concentrates. We’re looking at developing a couple of different concentrates – a Gold concentrate, that could go to Europe or the US, and then a Copper concentrate with Gold and that can go to China. So the transportation operating costs, related to the proximity, the infrastructure, the low strip ratio that I mentioned earlier, all bode well for the project. And so I think it sets itself apart from other Andean projects because of the proximity to this good infrastructure, low elevation and it is a high-rainfall area and that can all be managed. But if I look at the project layout, we’re doing some other things also, on page number 12 there. We’ve got the open pit. You can see in the upper right-hand side, it goes to primary crusher down the plant and we’re looking at Dry Stack Tailings Facility. And basically that’s really positive from a water-management perspective and environmental perspective. There’s been a lot of issues out there with tailings failures, particularly in Brazil. So there’s a lot of scrutiny raised to that. And the other thing too at the PEA, it anticipates no use of Cyanide in the project. So from a permitting and environmental perspective the PEA project plan looks pretty positive in that regard. Now we’ll continue to evaluate whether we know what the process flow sheet is going forward. But things look good for the project in that context.

Matthew Gordon: Perfect. Well thanks for running through some of the technical aspects there. What are the top five reasons why we should invest into your company?

Marshall Koval: The team has a track record of success. It’s backed by Ross Beatty and several long-term investors that have been with us through the Lumina Copper story. We have an amazing asset in Cangrejos. It still has the potential to grow significantly, we’re exploring it now. We have access to capital to execute and de-risk this project and put it in the position that a major and mid-tiered company can move it forward. We’ve been there, we’ve done this. I mean, we’ve had high-returns for investors in the past. The Lumina Copper story, which is the same group here, raised about $175M to return $1.5Bn to shareholders. We think that the opportunity for large returns to shareholders still exist in this story.

Matthew Gordon: Okay well that’s great. That’s our first time hearing the story, we’d love to catch up with you in the next couple of months and sort of see how things progress with the drilling.

Marshall Koval: Okay. Appreciate it Matthew. Thank you.


Company page: https://luminagold.com/

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