Salazar Resources (TSX-V: SRL) – An Exceptional Copper-Gold-Zinc Business Model

Salazar Resources Ltd
  • TSX-V: SRL
  • Shares Outstanding: 127M
  • Share price C$0.18 (30.04.2020)
  • Market Cap: C$23M

Crux Investor recently conducted an interview with Merlin Marr-Johnson, Director of Salazar Resources (TSX-V:SRL). We were already interested this copper-gold-zinc story based on our last interview. Were we equally impressed this time around?

Salazar Resources is an Ecuadorian exploration company. There are some important decisions on the cards for this year. Which one of Salazar Resources’ three 100% owned copper-gold-zinc assets will it develop, and which two will it farm out?

What is the plan for the Adventus Exploration Alliance in 2020? How will Salazar Resources work to resolve Ecuadorian permitting and liquidity issues? Marr-Johnson has answers to everything as he usually does.

We Discuss:

  1. Company Overview
  2. Business Model: Uniting the Different Components
  3. Partnership with Adventus Mining: Terms, Conditions and Benefits. What Did They See in Salazar?
  4. Timing Value Creation
  5. Upcoming Exploration and VMS Deposit Potential
  6. Plans Going Forward: Focus and Money Allocation
  7. Ecuador as Mining Jurisdiction: Mineros Conquering the Pitches
  8. Solving Liquidity Issues
  9. Catalyst Moments and the Future for Salazar

Company Website: https://www.salazarresources.com/

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Salazar Resources (TSX-V: SRL) – I saw it coming, from miles away (Transcript)

The Salazar Resources Ltd company logo
Salazar Resources
  • TSX-V: SRL
  • Shares Outstanding: 127M
  • Share price C$0.18 (30.04.2020)
  • Market Cap: C$22M

Interview with Merlin Marr-Johnson, Director of Salazar Resources (TSX-V:SRL).

Salazar Resources is an Ecuadorian exploration company. In our last interview, we discussed how this gold explorer had farmed out its first copper-zinc-gold asset, the El Domo Curipamba VMS discovery. The PEA shows an economically viable resource. The company is fully carried for 25% and receives US$250,000 in advance royalty payments (to a limit of US$1.5M), additional recurring management fees standing at over US$350,000pa, and was also given the ability to lease out their 3 drills. At the time, they had c.$5M in the bank to continue exploration and consideration of M&A options. Salazar Resources has 3 additional copper-gold assets at varying degrees of licencing. Adventus has a 75% option on project, obtained by funding CAPEX of US$25M over five years. Fully carried for 25%, and receiving annual cash payments. Interesting. A Feasibility Study will be completed in 2022 for El Domo Curipamba, and lots of metallurgical work has been carried out. The aim is for production in 2024, possibly late 2023.

We really like project diversification and commodity diversification. It helps mitigate risk by removing a company’s reliance on a single asset performance. So, in addition to running the copper-gold side of things smartly, Salazar Resources has a zinc-exploration JV that falls within the Adventus-Salazar Exploration Alliance that contains two projects, Pijili and Santiago. Salazar Resources has no activity-funding burden at Pijili or Santiago because Adventus must provide 100% of development and construction expenditures up to a construction decision. Exploration activities of the Alliance are carried out by Salazar on a cost +10% basis.

It’s a good solid model: Salazar Resources can seek out exciting copper-gold and zinc projects, then get other companies to foot the bill. CEO, Fredy Salazar is an ex-Newmont team leader in country and Salazar Resources.

Lots of green lights here, but what about concerns and possible red flags? Ecuador a mining jurisdiction making changes to mining code. The permitting process, both water and environmental, is slow. In light of this, Salazar Resources has been quite slow to deliver on exploration ambitions in the last 18-months due to Ecuador-wide permitting issues. Like in many countries, the mining industry has some social issues in Ecuador, with the usual vocal protests and populist sentiment. However, the administration itself is very pro-mining. Another issue is that the board is a little burdensome.

Perhaps the primary reason behind Salazar Resources’ share price stagnation is the issue of a lack of liquidity in the stock. Marr-Johnson and the rest of the Salazar team are clearly aware of this. Marr-Johnson was steadfast in his response: all the team can do is get out there and tell the story to prospective investors, and continue delivering results. We feel Salazar, and in particular, Marr-Johnson, have communicated the value proposition effectively. It’s up to investors to listen and decide if they think Salazar Resources is an Ecuadorian winner.

Moving forward, what will Salazar Resources do with its US$3.5M cash? Exploration is planned. Potential catalysts in 2020 will be drilling on the 3x 100%-owned exploration licences: Rumiñahui, with copper-gold porphyry targets, Macara Mina, with VMS targets, and Los Osos, with copper-gold-silver targets. The big decision the Salazar face is to select which of their 3 assets they are going to select to develop; the other 2 likely then farmed on on a similar basis as El Domo. There is a lot to like about mining in Ecuador and lot to like about this business model.

We Discuss:

  1. Company Overview
  2. Business Model: Uniting the Different Components
  3. Partnership with Adventus Mining: Terms, Conditions and Benefits. What Did They See in Salazar?
  4. Timing Value Creation
  5. Upcoming Exploration and VMS Deposit Potential
  6. Plans Going Forward: Focus and Money Allocation
  7. Ecuador as Mining Jurisdiction: Mineros Conquering the Pitches
  8. Solving Liquidity Issues
  9. Catalyst Moments and the Future for Salazar

CLICK HERE to watch the full interview.

Matthew Gordon: Hi Merlin. How are you sir?

Merlin Marr-Johnson: Good, thank you. How are you?

Matthew Gordon: Not bad. Locked up at home, as I see you are?

Merlin Marr-Johnson: Yep. Yep.

Matthew Gordon: Enjoying it?

Merlin Marr-Johnson: It has its advantages. The children are back at school, so they are all logged on, so if the Wi-Fi goes down, I know that one of them started gaming.

Matthew Gordon: Right? That’s a control mechanism. I love it – well thought through. I think I may experience the same problem and not to mention the various animals running through the house so bear with me as well.

Well, good to speak to you, we haven’t spoken for a few months, and obviously the world is a very, very different place so I think it is worth catching up. Not to mention we have recently done a little bit of, now, we have used you as a guinea pig, Merlin, used Salazar as a guinea pig to try and help people understand South American Explorer type stories. So, it would be great to catch up with you to be able to sort of see if indeed we’re close to being correct. But first of all, let’s kick off with a one-minute overview for people new to this story and then we’ll kind of pick it up from there.

Merlin Marr-Johnson: Salazar Resources is an Ecuadorian company listed on the TSX-V. It has made a big discovery of a very rich VMS and it has farmed out a stake in that. So it’s fully carried all the way through to production, but it’s kept its exploration roots intact. And it’s an exploration company that’s well-funded, that gets a little bit of income from it’s a joint venture partner and it aims to make the next big discovery in Ecuador.

Matthew Gordon: Okay. Thanks for that. So like I said, we have produced a report recently, which is just to kind of help wade our way through the masses of exploration stories out there and try to find points of differentiation. And I think why we picked on you guys as it were is because when we spoke before, there were a couple of things I liked. I liked the newness of Ecuador and the fact that the big boys are piling in there because it’s a much-underexplored country. But the second thing was that you have got an interesting business model, and if you don’t mind, I wouldn’t mind going through that with some people. So, can you just tell us a little bit, give us a little bit of background about what you’ve done because those are kind of farm-in components plus this exploration component.

Merlin Marr-Johnson: Yes, so you know, some of these companies have a classic project generator model: that you find something and you work it up the value curve and then you farm it out and you have a retained interest and you get some cash from that. Salazar Resources has actually been listed for 13-years and it set out as a pure exploration company. It made the one discovery and it worked it up, got it into indicated resources, got it to a very advanced stage and then has done the farm-out. So, on that farm-out, we bought a 25% state code all the way through to production but we also get advanced payments through royalties and management fees, which ticks us over with about USD$600,000 a year. So, we have got income from that asset.

We have also got some drill rigs which we’re using on those joint venture properties, actually 3 projects that we have farmed out and that provides us with income as well. So as an exploration company with about USD$1M of income, we can then fund the early stage value accretive work, which is a lot of the expertise of our Ecuadorian geology, our Ecuadorian exploration team, and it’s a very low-cost but high-value point. You know, you spend USD$1M and you can mix up a big discovery. So we’re actually using the money from the advance payments, management fees to turn it into the next discovery.

Matthew Gordon: Okay. So, so let me drill down on that: so, the who are the farm-in partners? And if you could give us a sense of their capability or ability; I mean, are they desperately scrabbling around looking for money or are they fully funded to do what they need to do?

Merlin Marr-Johnson: Our funded partners are Inventus Mining, and they set up in 2016, maybe 2015, as a special purpose vehicle looking for Zinc and Copper assets backed by an A-list of investors and shareholders. So, they’ve got Altius behind them. They’ve got Wheaton Precious Metals. There’s a big group out of Ecuador called the Novus group. They’ve got RCF, you know, it’s an extraordinary shareholder list backing Adventus Mining, which is, at the moment Ecuadorian-focused, they are not in production yet, but they’ve got very good access to capital.

So, they’ve done very well raising money for the joint venture. And actually the, I think a key point for Salazar is that because we have managed our treasury very well, and because we have done the farm-out, we haven’t had to issue equity, so we are kind of a dilution protected vehicle. We haven’t actually issued equity since 2014.

Matthew Gordon: Yes, I noted that, but we’ll come onto that in a bit. But what exactly have they bought into? You know, why did they pick your asset above others which may have been available to them, give them the capital that they’ve got?

Merlin Marr-Johnson: Oh, well, I think one of the key reasons is that El Domo, which is the name of the deposit within the bigger Curipamba project, this is in central Ecuador, just South of Quito. It was a discovery made by Salazar and it’s one of the richest volcanogenic mass of sulphides in the world, discovered in the last 10 years. A really good analogue is the Degrussa deposit in Australia, which Salazar also has. Now, when they made that discovery, their share price went from $0.07 to USD$7. And they are now mining that company, they’ve taken about USD$2Bn of revenue out of that asset. Their market cap, even with the 50% drop they’ve had in the last couple of months is still around USD$500M, and it is these assets that can be the cornerstones for really big companies.

Matthew Gordon: But why do you say that? I have got to interrupt you there. Why are you making that comparable? You know, where they are and where you are is miles apart? So in what way is it comparable?

Merlin Marr-Johnson: Their maiden discovery was 7M tons at 4.6% Copper and 1.8 grams of Gold. It then grew into 14Mt and it’s around 5% Copper with about 2g/t Gold. On a recovered value basis, their ore is worth about, today, USD$280 p/t. Our asset is 11Mt and it is running about 5% Copper equivalent. In our ore value it is about USD$260 p/t. You know, we have got Copper and Gold, Zinc, Lead and Silver. You know, they’ve just got Copper and Gold, but the value per ton is roughly similar. Our sizes are roughly similar. There’s nothing like it.

I mean, the average grade of Copper mines in the world today is around 0.5%. Our Copper equivalent grade is 5%. That’s an order of magnitude that’s 10 times higher grade than anything else. The economics on that deposit are stunning, and as a company, Salazar Resources with a market cap of USD$15M today is fully carried on 25% of that. We don’t have to issue a single share to get it into production. We don’t have to invest a single cent. We are fully carried to production.

Matthew Gordon: Which is fantastic. The fully carried, I was actually going to get onto it so you’ve answered my question. You stole my thunder, Merlin. So, you are fully carried and they are paying you money, which is fantastic. You said they haven’t started, well, where are they at the moment and when do things get moving? When can you, Salazar, expect to start seeing some value accretion for your share of this?

Merlin Marr-Johnson: Okay, Salazar Resources, because it’s been an Ecuadorian company; it’s run by Freddy Salazar, I’m the only gringo in the team, they are all based in Quito. They haven’t done over the 10-years that have been listed, remember, it’s been a downturn in their in resources sector for most of that time. They haven’t been pounding the streets telling the world what a great asset they have so it’s a slightly forgotten, slightly overlooked asset. Our liquidity is poor, but equally our value doesn’t really reflect what we have got in the portfolio.

The project is at the PEA stage where we did a PEA about a year ago. We have gone through metallurgy, we’re going to complete the Feasibility Study in 2022, sorry, 2021, and aim for production in 2024. That’s when the Ecuadorian government is expecting us to be in production.

Adventus is in a real hurry to get into production. They want it to happen. So, production date, they are probably aiming for late 2023, but 2024 is a more realistic timetable. I think the key thing about, you know, you asked about when are we going to start accreting value, that is, when does value really start being recognised; I think once we have got a mining permit and a Feasibility Study, then people will sit up and realise, well, hang on, this is a Degrussa, this is a Sandfire Resources lookalike. You know, the NPV on the PEA was USD$300M and our 25% of that is whatever you want to call it, USD$70M or USD$75M. That is at our market cap today at $15M.

Matthew Gordon: Exactly. Which is, you know, 0.2?

Merlin Marr-Johnson: 0.2 of NAV.

Matthew Gordon: Yes, it seems ludicrous in a way.

Merlin Marr-Johnson: It is ludicrous just on the value of El Domo. But then actually, El Domo is the value case for the company. But what you would want to get invested in Salazar resources for is the fact that we are Ecuadorian and that were explorers and we are going to find the next deposit.

Matthew Gordon: And we’ll come onto that. We will come onto it, but I think you’re being valued at the moment on that 25% free carry on El Domo. Okay. So, I just want to just dig down a little bit deeper on that one. So, these guys are fully funded, delivery 2024, into production 2024, there or thereabouts.

Merlin Marr-Johnson: They are not fully funded. We are fully funded. They have to keep issuing equity, but they’ve got very supportive shareholders.

Matthew Gordon: Sorry, bad phrase from me. They have got the ability to, I meant, I was referring to their shareholder base and the expectation that they could carry on funding themselves without coming against difficulties in the marketplace. So thanks for clarifying that. But I want to talk about, you know, where value accretes for them, because if their PEA stages is, NPV is nearly $300M, once they get into a PFS, Feasibility Study and the DFS, one would expect that to continue to gain in value. Typical Lassonde curve type structure. Right. And for you too, you can, you would hope to see that. But at the moment, I’m looking at your share price: it’s fairly static. It’s fairly flat. Non-dilutive for many, many years, which is fantastic. And you know, from what you’re saying, the money that you’re bringing in should allow you to do quite a bit and that is probably a time to talk about some of the things that you are going to do to try and drive some kind of value which people recognise and hopefully reflected in your share price, which is the exploration assets that you’ve got and that you’re working on. Can you give people a quick rundown of the, I think you’ve got three at the moment, but one which you’re focusing on in particular.

Merlin Marr-Johnson: Yes, smaller companies typically really only get the value when there are kind of good catalyst, as you say. And the best catalyst is mineralized drill core and when the market can see that you’re on a growth story. So, discovery and drill out, that’s the most exciting. And that’s when you get a rocket-fuelled share price, and that’s tremendous.

Now, we have got in Salazar Resources, we have got three kind of main exploration licenses that are 100% owned buyouts. We have got one in the North, which is a Copper porphyry. Sorry, it’s a porphyry system, but actually it’s Gold rich. And that’s kind of a Gold target with Copper associated with it. And that’s right up next to the SolGold Yuri Manhwa kind of the big deposits up in the North. Right down in the South, we have got another VMS target and that is just over the border from some fantastic VMSs in Peru and our assets in Ecuador. And then we have got another Copper-Gold asset in South-Central Ecuador, next to the Lumina Gold deposit.

Matthew Gordon: Can you just quickly explain for people what VMS is? Because some geologists love it. I like those types of deposits, but not everyone understands what the potential there is. So maybe if you just give us a quick overview.

Merlin Marr-Johnson: Okay. A VMS is a volcanogenic massive sulphide and they form on the sea floor when the ocean floor is spreading and you get hot vents coming up, paring minerals, they hit the sea water they cool down and they deposit and they, you get circulating hot water and lots of fluid flow. And these things occur in little pods along the structure on the base of the ocean floor. So, where you get the Quasi Rift, or the faulting system, you can get lots of these pods. Typically, they are very high in value and they are normally quite small. So, you get clusters of them. They are typically 2Mt to 3Mt to 5Mt. And in every cluster, you get a bigger one and it’s 10Mt or 20Mt or 30Mt.

Rio Tinto, down on the Iberian Pyrite belt, they are called down in Southern Spain, that’s where there’s a whole series of these VMSs. Rio Tinto got started on here Agnico Eagle, Kid Creek, that’s VMS. Lundean Metals up in Sweden, they are going on a VMS now. They can be company makers. And the reason why they are so attractive is because they are high-grade and relatively compact and so they are absolutely ideal for a starter company to get going. Sandfire in Australia, the Degrussa deposit, they have got there. That requires a huge amount of infrastructure. They are a small compact, high-grade deposit that really helps you get started as a mining company. And that’s why they are liked.

Matthew Gordon: Okay, so I have got to deal with this, El Domo took a while to kind of work up and get into that kind of farm-in position. The potential here is to kind of replicate that model, to keep replicating that model, you know, find assets, work it up to the point where you bring someone in who has got cash to be able to develop it and get some free carry on it. Nice model, lovely model, but it takes time and there’s no real blue sky for you in terms of the upside potential. You are kind of almost restricted by whatever deal you can construct. So, can you just help me understand what you’re going to do with the money that you have? I get that it’s non-dilutive, which is great for shareholders, it does cause problems with liquidity, I think, in the way that you’ve got things set up but we’ll discuss that in a sec. What do you do with your USD$3.5M between now and the end of next year with exploration? And how do you work out which one to focus on and which ones to potentially farm out?

Merlin Marr-Johnson: Okay. Well, just on the farm-out question, there would be the landscape and Ecuador has changed enormously. So, because they’ve reformed their mining code and because they really need their mining industry to develop, they actually prioritised it as a strategic industry. The oil price collapse has meant that they weren’t getting paid from the oil industry anyway and now they are getting even less. So, they are really pushing the mining industry and the world has woken up to that fact. And so, there is a very competitive landscape in Ecuador, and we are being called up the whole time with people wanting to do farm-in deals to get access to our expertise and our land position.

So, the ability to do a farm-out is completely different now to what it was 5-years ago, 2-years ago, 10-years ago.

Matthew Gordon: What do you mean by that?

Merlin Marr-Johnson: That there are people willing to do farm-in deals now whereas they weren’t 2-years ago or 5-years ago.

Matthew Gordon: But not in the sense that the type of deals that you do, they haven’t changed. It’s just that the number of people inquiring has increased. That’s what you mean?

Merlin Marr-Johnson: The terms of the deals are better. And also, they are willing to come in and pay for much earlier stage assets. So, the farm-in deal that we did on El Domo, Curipamba was on a well-defined resource that we’d been drilling for seven years at that stage, or six years. It was indicated and inferred resources about to go to PEA state. And we did a value accretive farm-out deal at that stage. But we have now got people looking to do farm-ins at a very early stage on our exploration portfolio, which are essentially grass roots in the sense that we have got drill targets, but we haven’t drilled them yet. Now, as I said, exploration companies really get the rocket under their share price when they have a growth story that they can follow on a hundred percent basis, and we will keep our best assets or what we think is our best asset for ourselves so that we can drill it and report those results to the market.

Matthew Gordon: Which asset of your three is that?

Merlin Marr-Johnson: Well, there’s a slight discrepancy within the team over which is our best asset and so we have got to do a little bit of work first work out, which is our best assets. Freddie Salazar, great geologists, they are going to the CEO of the company. He really likes Rumiñahui, up in the North. He’s said that there’s a one Hector area where out of all the outcrops he has seen, he says it’s about an average of two grams Gold for 0.2% Copper. He said this is a really big and rich Gold target. He has seen the alteration up at Cascobel, sold all asset and he seen the alteration and the veining in our area, and he says he prefers ours and he wants to drill that as a priority and we will be drilling that later this year. So that’s got all the potential to be the company number one.

The one that I’m quite keen on is the one down in the South, Macara. It is the VMS target. It’s got a lovely Gold cap. The beauty about those Gold barite caps is that it’s often oxide Gold. So, it’s free milling, very low-cost operating. When I was at a conference, one of the old timers from who’d been working in Peru came up and he looked at our licenses and he said, wow, I like those. He said that Gold cap, he says, I reckon you have got 500,000oz, 3g/t, maybe 3.5g/t. That well, okay, that’s a nice compliment. And he says you’ve got all the indications of the VMS body underneath as well. I can’t tell if it is on the edge or on the top of it, but you need to do gravity, you need to do a gravity survey. And it’s the classic thing for VMS deposits; you have to do, or you don’t have to, but the best way to find these things is to do gravity surveys. So that means that Macara is running actually behind Rumiñahui. So the one up in the North, we can go straight in to drill, while we’re drilling that we can do the gravity survey and then come back and he’ll mock it up. Okay. And with those, we afford to do both of those and at that point farm out the one that we want to take on.

Matthew Gordon: Okay. So, that process will take what? Between now and the end of this year? Or will it take a bit longer? By the end of this year you’ll make a decision?

Merlin Marr-Johnson: Yes. Yes, absolutely. The field teams are out at the moment and kind of getting ready to go back into Rumiñahui Freddy is on the phone all the time with the landowners. He’s actually, he owns some of the land at Rumiñahui. One of the reasons he is so keen to get in there is that when he first went there 25 years ago, there were these massive blocks, 10m blocks of boulders, rocks, which obviously have not travelled very far. And he assayed them and they were running 20g/t Gold 2% Copper.

Matthew Gordon: Right, which would get everyone’s notice.

Merlin Marr-Johnson: So, you know, he really likes Rumiñahui, he thinks it has got real potential. But getting the field crews back in, as I said mining is a strategic sector for Ecuador, we are being pushed to get back into the field. Obviously, with COVID-19 concerns, people have to do it in a very safe manner and not introduce, you know, isolation, dealing with the communities, working that all out, but we’re still looking at a plan to get into the field, wrap up the final drill pads, get the water permits for drilling and aim to be drilling kind of September, October this year.

Matthew Gordon: Okay. So, you make an interesting point there: in Ecuador, as a sort of relatively new virgin territory in in many ways. Although I do appreciate that Freddy is of ex-Newmont and they’ve been working there for 20 years, but in the sense where there hasn’t been a lot of money piled in. The government is encouraging and wanting people to start mining for revenue reasons but there are some groups who are anti-mining in the country who are either looking for you to stop or looking for assurances about the way that mining is carried out. So, the government’s going through some kind of assessment at the moment. What can you tell us about where that is and what it may involve?

Merlin Marr-Johnson: Yes, sure. I mean, Ecuador is an amazing country and the mining industry has really struggled to get going there, and it’s for a whole host of reasons. Some of it is political. It is historic, it’s socialist governments which have been kind of quite anti-mining. It has had a very pro-environment and tourism and ecological bent to the politics. The local communities, the indigenous communities are anti-mining. They are pro-tourism. You know, it has been tough going and in the past, they have put on windfall taxes and all kinds of things to almost inhibit mining.

The great turnaround, should we say, came around in about 2010 when the socialist government realised they couldn’t afford their welfare programs. They couldn’t afford the investment into social infrastructure education, you name it. And looking around at what sector could provide the funding for those, the societal, the country level investment that was required, the only thing that could work was mining. You know, there was X growth and they had done these bad loans to the to the Chinese oil firms for cash. Agriculture was X growth. It’s also a dollar-based economy so it’s quite hard to compete with Peru or Columbia or Bolivia for coffee or cocoa. Tourism was X growth. And then the final kind of realisation was that actually there is already mining in Ecuador. There’s a lot of illegal mining, there’s a lot of environmental degradation, and so the choice was between good mining and bad mining and if you can get good mining, which is well regulated, safe, properly done and it generates tax dollars and foreign exchange earnings for the country, so much the better. Now, that’s all the positive. The negative is that you’ve got a community that doesn’t really understand mining or if it does understand mining, it’s bad. It’s kind of criminal enterprises. It’s environmental degradation. There’s a great deal of fear in the local communities about mining, and you’ve got a couple of very, very vocal anti-mining protestors calling for referenda the whole time. So, it is one step forward, half a step back.

Matthew Gordon: But you guys, I read something that was quite interesting: I mean I like football. I think a lot of people like football, most of South America likes football. But you guys, I think Freddy has started an initiative which seems to be growing. I’m not quite sure whether you can be a mining company or a football team because you’ve created this kind of, what are the, I’ve forgotten the name what’s miners in Spanish?

Merlin Marr-Johnson: Los Mineros.

Matthew Gordon: Los Mineros – there you go. The Los Mineros program, which is about building out these local football teams who, you know, play in leagues and so forth. I guess that’s not just for the love of football, but to help spread and educate the right way to go about mining and why is it a positive for, could be a force for good. Can you tell us a little bit about that program? Because I kind of, I’ve only seen bits and pieces, but it seems great.

Merlin Marr-Johnson: Freddy is Ecuadorian. He is from the communities. You know, the El Domo project was discovered by one of our best geologists who lives in the town nearby. We are not a foreign company coming into kind of plunder the riches of the empire. It’s a very Ecuadorian company with a focus on developing the community and working for the benefit of Ecuador, and Freddy has got a real knack for knowing what is going to work in which area. In some places it’s a cattle project, in other places it is corporate projects. And around El Domo he felt that there were two things that worked really well: one was a dance school with local cultures. And the other was this football team, the football team, he sets up his little community academies. So, both male and female, boys and girls. They come through and there’s training, there’s football and he’s funded also the state football team in Bolivar state, which didn’t really have a football team. He called that Los Mineros and all the little community football teams in the areas where we’re working can feed players through to the kind of the central Academy, and we’re putting some money into that central Academy and it’s going really well through the leagues, through the division.

We are speaking to some other mining companies. We hope that they will take us up on it, but we’re looking to offer them our template so they can set up their own little football academies in the regions where they are working. And that can all feed through to the mining football team, which of course helps a country realise actually, here we go, the miners are a real deal. That’s a kind of a cultural force for good.

Matthew Gordon: No, I thought it was very interesting way to do it. Because normally you read, it’s the same old thing, you know, we built a school, it was great, built a school but then walked away. We built a well and then walked away. But there’s a kind of, there’s a real kind of legacy component to it. I really, really liked it. I thought it was a very attractive way of doing it and enabling the mining community, because you are opening it up to other mining companies in the region and the country to be able to tell and sell the same story.

Merlin Marr-Johnson: There’s one quite cool thing: Ecuador played England in a world cup match in the nineties.

Matthew Gordon:  I remember. Yes.

Merlin Marr-Johnson: And the goalkeeper, the Ecuadorian goalkeeper from that game, he is actually from a town near us and so no, it’s not one who got shot. I think that was a Venezuelan or a Colombian?

Matthew Gordon: The Scorpion, the guy who did the scorpion kick.

Merlin Marr-Johnson: No, that’s a Colombian, with the dreadlocks. I think he died, unfortunately. But the Ecuadorian goalkeeper who played against England, lives in the town local to us, a couple of communities away, which has traditionally been a very anti-mining town. He has joined Los Mineros as our coach and also as our goalkeeper, and he’s really interested in mining. So, it is a, it’s a nice kind of full circle thing. He’s is an ex-national player, playing for Los Mineros. I think he’s in his forties now.

Matthew Gordon: Okay. So, so old. So old.

Merlin Marr-Johnson: So old, right?

Matthew Gordon: Well, we better get back to how you’re going to make money for shareholders, because one of the things I talked about earlier was this liquidity issue, which I think is problematic for small companies where lots of shares are held by management or insiders, or even large institutions in some cases and they are not, they are not fully traded. What are you going to do about that?

Merlin Marr-Johnson: Well, what can you do? All you can do is tell the story, get out there and deliver results. The only two things you can do, communicate what you’re doing and the value proposition. And you can get out there and return results. So, that’s what we have got to do, and we will be drilling at Rumiñahui later this year. We will be pulling samples and maps and targets out of MACRA, the VMS project in the South. We’re applying for new licenses. We have got our eyes on, because we’re Ecuadorian, we have got our eyes on some of the best ground in Ecuador, and ongoing projects, ongoing work with our joint venture things. But what I haven’t said is that El Domo is the one that’s going to Feasibility that’s the VMS, but Adventus are also drilling a couple of big porphyry targets and they will be drilling those this year. So, we have got that funded drilling that will also generate value and results for us later this year. So, we have got five or six projects which we will be drilling this year, or advancing this year, plus the main one which is just going through to feasibility.

Matthew Gordon: Okay, Merlin. Well, I think we’ll leave it there because I mean, like I said, we have done a ton of this analysis or appraisal of your company. It was really just a case of helping us kind of wade away through the many, many South American junior explorer stories which we get on our desk every day. And this did stand out for all the right reasons. I think, like I said, I do think my concern is like if people are interested in you, it’s going to be difficult to get hold of shares because there is not that selling going on. So, I’m looking forward to seeing some of these results and if they are going to make a difference in the market in terms of these catalyst events. I’m looking at your face. Do you think they will?

Merlin Marr-Johnson: Can I just chip in with a couple of extra comments? One is that the risk-reward profile of exploration companies is always quite scary. You hope that they are going to find something but you’re never sure that they are going to. The kind of the value proposition that I see in Salazar Resources are that we have already found something and it’s not in the price and it’s marching up that value curve as it goes towards production. So, we know that the share price for Salazar is going to gradually reflect that stake in El Domo. It might take six months, it might take a year, but the value is much closer to USD$1 than it is to $0.20 and that is the kind of return that you want to be looking at as an investor over a year or two. And then we have got the kind of the spice, or the excitement of this great exploration portfolio with a team of proven geologists who know how to operate in Ecuador in one of the most fertile geological districts in the world. You know, that gives you the real excitement on this exploration story.

Now, when it comes to liquidity and can you buy the shares? The company has been listed for 13-years. It’s got 50% of the shareholder register, which is very tightly held, but the other 50% has been relatively, perhaps relatively tired, having held it on for a number of years. Liquidity will come, you know, get out there in the market, bid for a hundred thousand dollars worth of stock and you’ll see that the liquidity will come. It might not be at $0.17, but it might be at $0.25. The key thing is that I’m pretty sure that liquidity will be there, and as you approach the right valuation point, that liquidity will come back. I’ll leave it there. Thanks.

Matthew Gordon: So, we should stay in touch, please, because I think you’ve got a lot of things which are important that are coming up, once we get through this kind of COVID-19, you know, lockdown that we’re in. Like I say, pick up the phone, let us know what’s going on because it’s one of our favourite South American junior exploration stories now. We spent a lot of time on it. And we look forward to speaking again. So great. Thank you very much.

Company Website: https://www.salazarresources.com/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

The Salazar Resources Ltd company logo

Salazar Resources (TSX-V: SRL) – A Smart Business Model That’s All About Making Money

Salazar Resources
  • 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.

Salazar Resources

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.

Merlin-Marr-Johnson, Director of Salazar Resources
Merlin Marr-Johnson has really impressed us

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?

  1. 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.
  2. 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.
  3. 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.

  1. The company is fully carried for 25% at El Domo.
  2. 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.
  3. Adventus has a 75% option on project, obtained by funding CAPEX of US$25M over 5-years.
  4. 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:

  1. 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.
  2. 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.
  3. 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:

  1. Rumiñahui – a 2,910ha exploration licence (2 concessions) held 100% by Salazar Resources that hosts copper-gold porphyry targets.
  2. Macara Mina – a 1,807ha exploration licence (2 concessions) in southern Ecuador held 100% by Salazar Resources that host VMS targets. 
  3. Los Osos – a 229ha, single concession, copper-gold-silver exploration licence in the Cerro Pelado-Cangrejos mineral district in southwest Ecuador.
  4. 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.

Liquidity Difficulties

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?

The Ecuador National Flag

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/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

China Gold Int (TSX: CGG) – Gold And Copper On A Grand Scale

A photo of a silhouette hand picking out a gold Chinese ring.
China Gold International Resources Corp.
  • TSX: EQX
  • Shares Outstanding: 113.5M
  • Share price C$12.6 (21.02.2020)
  • Market Cap: C$1.43B

We recently sat down for an intriguing interview with Jerry Xie, Executive Vice President and Corporate Secretary of China Gold International Resources Corp. (TSX: CGG, HKSE: 2099).

Investors may want to read one of our most recent gold-related articles, or even watch a different gold interview.

Gold had a good year and an especially positive 2H/19. However, China Gold Int. had a negative correlation on its share price throughout 2019. The company operates two producing gold mines that form a low-grade, bulk-tonnage gold operation with a copper by-product. The operational statistics look good on paper, so why this share price tail-off? We discuss:

  1. The Decline In Share Price: Why?
  2. The Gold Market Outlook For 2020
  3. How China Gold Int. Plans To Get The Share Price Back Up

Company Website: http://www.chinagoldintl.com/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

A photo of a silhouette hand picking out a gold Chinese ring.

Salazar Resources (TSX-V: SRL) – The Very Model of a Major General

SALAZAR RESOURCES
  • TSX-V: SRL
  • Shares Outstanding: 126.48M
  • Share price CA$0.21 (21.01.2020)
  • Market Cap: CA$26.56M

I am concerned, when interviewing a CEO, if they are unable to clearly articulate their business plan. Call it an elevator pitch, call it a sales pitch, call it what you like, but if you, as a CEO, cannot tell me in less than 2 minutes what separates your business from the crowd and how I am going to make money, you’ve lost me; big red flag planted firmly in the ground and I am onto the next opportunity.

My other bugbear is when I think I am being misled or the CEO is avoiding answering the question directly. Very few people are smart enough to hide the childlike tells. The furtive look, the eyes searching into the distance hoping to find inspiration to be magically plucked from the air and the awkward squirming in their seat. Non-verbal communication and reading body language in all walks of life is important and accounts for so much of how people see you.

Sometimes it can be fun to set a trap for the CEO: ask a difficult question to which I already know the answer and see how the CEO responds. If it is a mistruth or even a small misdirection, I now know I cannot trust this individual to report properly. Another big, and in this case, terminal red flag.

We tend to begin our diligence from a standpoint that places the burden of proof on CEOs: we will not be giving you our money. It is their job to tell me why I am wrong and why I should. I’m looking for faults in their argument. It doesn’t take much, and I’m off. It’s my money. There are thousands of ways and places I can invest it, so why take a risk?

That brings me to Salazar Resources.

Salazar Resources, an Ecuadorian exploration company, has appointed Merlin Marr-Johnson as Director. A mercurially fabulous name! I’m already intrigued. We spoke to him. Mr. Marr-Johnson is British, very British, and demonstrably intelligent. We set about our task of finding reasons not to invest.

A black and white portrait photo of Merlin Marr-Johnson.
Merlin Marr-Johnson, Director of Salazar Resources

The first thing Marr-Johnson talks about is their business plan. They are gold-copper project developers in Ecuador and Colombia. They have just farmed out their first gold-copper-zinc asset, the El Domo Curipamba VMS (Volcanogenic Massive Sulfide) ore deposit discovery. The PEA conducted at the site shows an economically viable resource.

So, here is the clever bit. Salazar received a royalty payment, courtesy of an ongoing partnership with Adventus Mining Corporation. Adventus has the option to acquire 75% interest in the project by funding initial costs of US$25M over five years; they must provide 100% of the development and construction expenditures up to commercial production after the completion of a PFS (scheduled to be conducted in 2021). Salazar Resources earns US$250,000 per year in advance royalty payments up to a limit of US$1.5M. As operator, Salazar receives an additional 10% management fee (on some expenditures), standing at a minimum US$350,000 annually. Salazar also has the option to lease out 3 of their drills and is fully carried through at 25% with no additional capital outlay needed. Salazar Resources currently has c.$5M in the bank and with this additional reoccurring income and low overhead, Marr-Johnson believes that their exploration programme for this year is fully funded. Marr-Johnson takes time to apply a formula for investors to consider how to value the deal with Adventus. It’s reasonable and not wildly out of line with our numbers. So far, so good. I’m still listening.

Salazar has four other 100% interest options; three are in the form of Ecuadorian gold/ copper/VMS assets with exploration licences: Rumiñahui, a 2,910 hectare exploration licence that hosts gold/copper porphyry targets; Macara Mina, a 1,807 hectare exploration licence that hosts VMS targets; and Los Osos, a 229 hectare exploration licence that features a system of gold/silver veins, combined with hydrothermal breccias and mineralised gold/copper porphyries. Salazar Resources also holds 100% interest in a drill company, Perforaciones Andesdrill S.A, that owns three diamond drill rigs.

A diagram of a VMS deposit.
A VMS deposit diagram

Each asset is at a different stage of exploration or development, and each asset has had differing levels of mapping, soil geochemistry and rock-chip sampling conducted. However, when he spoke to us, Marr-Johnson provided some reasons for confidence. Salazar, in the shape of CEO and ex-Newmont in-country team leader, Fredy Salazar, has a ‘proven track record of discovery in Ecuador.’ In addition, the mining jurisdiction of Ecuador is seen by some to have a huge degree of untapped potential. The major mining companies have flooded into Ecuador in recent years, so there is clearly truth in Johnson’s claims regarding the unexplored nature of the geology. Ecuador could have a lot to offer for investors looking to invest in a region in its mining infancy.

We like the gold/copper/VMS side of the story, but the options keep on coming. Their joint venture with Adventus Mining Corporation was originally intended as a zinc exploration alliance. Adventus Mining was offered a stake in zinc-rich assets but instead opted for two different copper-gold (with some silver veins) sites: Santiago and Pijili. Adventus possesses 80% ownership but is required to fund all activities until a construction decision is made on any project.

So, what does this mean for investors?

Salazar Resources is funded for 2020: no dilution anytime soon. We like the look of their cookie-cutter approach to developing their portfolio of assets with minimal cash burn. If they can continue to replicate the Curipamba farm-out model, the numbers start to look very attractive. There is scale to this project. Marr-Johnson was keen to point out that Salazar does want to develop some of their own projects too.

A robust and, more importantly, refreshingly honest appraisal from Marr-Johnson. So far, no red flags, but this is mining. We are waiting for news on the water permit before we get too carried away, but if that comes, Salazar Resources is something that we can see ourselves investing in.

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Aldebaran Resources – Copper Gold bought cheap with Regional Scale (Transcript)

A wide photo of the Altar copper-gold project in San Juan Province, Argentina.

Interview with John Black, CEO of Aldebaran Resources (TSX-V: ALDE).

The third company from Regulus Resources’ management team, Aldebaran Resources is an “exciting” copper-gold play based in San Juan Province, Argentina.

Their flagship project, Altar, is a large copper-cold site obtained for a discounted value from a different mining company. Aldebaran, in conjunction with precious metals mining company, Sibanye Stilwater, are currently in the process of re-evaluating the project. Drilling began in January 2019, but time must be taken for exploration and the conduction of a logging program.

While the well-established track records of the Regulus Management team will instill confidence in many a prospective investor, the financials are slightly concerning. Share price has been as high as 90, but this year it’s plummeted down to 35. The company is also sitting on significantly less cash than it was in February, which begs the question: if the value of shares has gone down, how has Regulus used its cash reserves to add value?

Another concern will be the priorities of the management team. With so much already on their plates with Regulus, is Aldebaran a fledgling project that will find itself neglected? John Black offers some reassurance; a drill program on another Aldebaran project has begun in Aguas Calientes, and the primary asset, Altar, demonstrates immense potential, with over 2.5 billion tonnes of low-grade copper-gold mineralisation, and the promise of significant zones with a much higher grade.

The Route 1 group are significant shareholders with nearly 50% ownership of Aldebaran. This can provide long-term stability but for retail investors, there will be concerns regarding such high ownership levels from a single group. Will Route 1’s priorities align with the remainder of Aldebaran’s shareholders?

What did you make of John Black? Is Aldebaran Resources a promising prospect, or is it more of a pipe dream? Comment below.

Interview highlights:

  • Company Overview
  • Company Financials and the Share Price Drop of 2/3: What Happened?
  • Getting the Share Price Up: Will it be Possible?
  • Challenges and Opportunities for Raising Money
  • History of Aldebaran and its Potential

Click here to watch the full interview.


Matthew Gordon: We recently spoke about Regulus. Want to talk about the spin out which is Aldebaran. Could you give a one-minute summary for people new to this story, please?

John Black: Aldebaran is the third company from our same management team. Our first company, Antares Minerals, was sold to First Quantum in 2010 for about $650MIL. From that, we formed Regulus, which has the exciting Anta Kori Copper Gold project in northern Peru. And then we recently identified the opportunity for another exciting copper gold project called Altar, which is in San Juan Province in Argentina. And that forms the flagship project for Aldebaran. And it’s a large copper gold project. It’s one that was drilled out and previously purchased by a mining company. It was not a good fit with that company. And we identified an opportunity to pick it up for pennies on the dollar. We’ve captured that. We’re in the process right now of re-evaluating the project ourselves. And in the very near term, you’ll begin to see us demonstrating the full potential of this project.

Matthew Gordon: Beautiful. Thanks, John. Let’s start with the money side of things. So, you’re sitting on quite a bit of cash at the moment to develop the Aldebaran project, somewhere in the region of 11-12MIL bucks, is that right?

John Black: Oh, no. We’re actually at about $5MIL on the project right now.

Matthew Gordon: OK sorry. You’re right, that’s from February 2019. Good. Just sticking with the financials, share price, it’s been as high as 90, this year’s down at around 35 at the moment. What do you put that down to?

John Black: Well, when we captured this project, what we did is we had projects in Argentina as part of Regulus Resources that we had parked while we focused on the Anta Kori project. But we realized we had value in those. But we needed a little bit more to form a solid package of projects: a solid portfolio projects in Argentina. So, when we saw the opportunity to acquire Altar, we saw the opportunity to spin out and form a new company in Aldebaran. And we spun that out at a set price that was based on what our principal investors were willing to put in to get that setup at. And then the market settled that price down into where the market saw that, at that time. It’s a new project or a project that hasn’t been seen for some time on this. It’s in Argentina, which is a little bit less of a mining country. And so, we’ve seen a natural drift off on this as many of the investors that received Antares shares as spin offs, decided that they wanted to cash those shares out and put the money to work on projects that maybe had a more immediate opportunity to. And so, we’re now in the in the phase where we’re quietly putting together the Altar project and we’ll begin to reveal that value on the project over the course of the next year or two. And we’ve also just set up to begin to drill on our Aguas Caliente phase. So, a lot of the drift off has just been it’s a new company. There are projects that have not really seen much news on, as we’ve set it up in the years, it’s kind of in that initial stage where we’re consolidating and putting everything together, but we’re now in a position to begin to put out new drill results with the Aguas Caliente drilling. Aguas Caliente is a high-grade cup or high-grade gold silver opportunity that we see in Argentina, that drilling will start on in the next few weeks and we’ll soon be able to reveal how we see the Altar project and what the potential value is. And so, it’s a great time to get into a quiet story that’s just not really noticed by the market.

Matthew Gordon: Okay. I think as denoted by me getting the cash position wrong, your PowerPoint is from March 2019. You talked about starting to tell the story and I know you’ve got a PR presence, foreign personnel on board to start doing this. And you spent clearly 6-7MIL bucks since we last spoke. So, what are you going to be able to tell people about what’s happened to date?

John Black: We’ve recently just come out with the drill results from the field campaign earlier this year at the Altar project. And so, we drilled four long holes into the system, discovered a brand-new zone on the system, and have announced some very long consistently mineralized intervals. We’re talking about intervals of 800-1000-meter intervals of a +.5% copper equivalent with higher grade zones within those. So, that drilling was done to help us understand better the geometry of the mineralization in the system. We’re currently relogging the existing 115,000 meters of drilling that had been completed previously on the project, and with the new drilling and our re-evaluation of the old drilling on this, we’ll be able to present to the market over the next several months how we see this project really looking. It’s known as a very large but low-grade deposit and we view that that is what it is. But within that, there are distinctly higher-grade zones. And we want to reveal the importance, the economic importance of those higher-grade zones within the deposit. So, there’s a lot of geologic work we have to do in the background on this. We have put some of those results out quite recently. And they’re there for those that want to look for a good opportunity like this. But we’ll be able to show that in better ways in terms of how those higher-grade zones look in the in the course of the next few months.

Matthew Gordon: Right. So, it is interesting bit for me as a shareholder, I make money by share price going up. The share price has been hit, there’s been some resetting, I think you’ve called it, also maybe some market conditions, market nervousness around trade wars. And as we spoke with Regulus, you spent 6-7MILbucks within the last six months. You’ve no sense of whether you’ve got a dollar for dollar return there or not because the share price is down. What do you think you’re going to be able to do with the next 5MILbucks, which is going to drive to share price back up, or is that just not going to be possible for you?

John Black: We wouldn’t be spending this money if we didn’t think it was a good investment. We think of this money as our own money. We’re heavy investors. And keep in mind that as management we own nearly 18% of Aldebaran. And so, we think very carefully when we put this money in. Our business model is predicated on us identifying opportunities that we can capture at a bottom in the market, either due to lower prices in the market or in the case of Altar it was a project that was held by a company where it didn’t fit, and they were willing to part with that project. So, we captured this project for much less than it would cost to drill out, what’s known on it right now. And then it takes us many times a number of years for us to either drill the project out or in this case, to partially drill it out, but partially re-evaluate and identify clearly more economically viable portions of the project. So, this project is one of the larger copper resources that’s out there in the hands of a junior, potentially available for a major mining company to acquire. Major mining companies are not finding these projects themselves. And many of them are very optimistic that there will be a necessity for a lot more copper in the future as we see further electrification of vehicles and other things that drive copper price on this. And so there will be, I believe, in the next few years be an increased demand for these large copper projects. And we’ve put our hands on a great one right now. And a lot of times when we do that, when we initially acquire, this is not the first time we’ve done this. With the Hickory project we suffered through a couple of years when our market valuations were really low, even though geologically we knew we were on a great project. The same thing happened with Anta Kori and Regulus. And now we’re beginning to reveal the value on this one. I just view with Aldebaran right now, we’re in that early stage where we’ve put our hands on something at a great acquisition opportunity on this. We’re beginning to invest the money into it to reveal, but sometimes the full reveal of that value doesn’t come until just a little bit later on in the project. But there’s not an instant X number of dollars increase in price of our business. A lot of times you’re putting that money in. You’re working on showing the full potential of a project and then that potential gets revealed when we can show the project in its full potential on that. And that just takes us a little while to set up.

Matthew Gordon: Sure. So, you’ve got 5MIL bucks on the current run rate. That suggests another five months burn, right? Is that about right?

John Black: No, it’s very lumpy in this company right now because that’s very dependent on when we’re drilling on this. And so, what our plans are right now is, is that we will be drilling the Aguas Calientes and Aldebaran, we have the Altar project, which is our flagship project, the large copper gold play opportunity. But we also have a series of other projects at earlier stages and one in particular has caught our eye called Aguas Calientes. We have very encouraging high-grade copper or high-grade gold silver material on the surface and we’ll be drilling this for a high-grade gold silver epithermal vain opportunity in the course of the next few weeks. So that’s a relatively small drill program. We’ll spend about a $1MIL Canadian on that, which will result in the potential for a new discovery on this and results to come out soon on that. And then in the background, we’re putting everything together to be able to define what the next stage at Altar project is. Probably the first stage of that is to reveal the full potential of it. So, people can begin to see what that opportunity is. And that will determine how much drilling we’d need to do. We have a lot of drilling in Altar already. We have a lot of data there. So, it may be simply having us reveal what’s there by being able to better present in a different light the information that we already have.

Matthew Gordon: So, here’s the question. You’ve got 5MIL bucks left. You outlined some of the ways you can spend the money and I guess you’ll prioritize that in the way that your experience tells you to prioritize that. You expect some of those things to have an effect on share price. If they don’t, your market cap stays the way it is. You’re going to need to raise some capital. It’s going to cost you what it’s going to cost you. How are you going to approach that? I know you’re going to tell us story in the market. Really, really well. You’ve said you’re going to start telling the market really well. How do you approach the fund raise when you’ve done these things deliverables on your three projects and the market doesn’t appreciate it yet? They’re not listening to you. Just go ahead and raise small amounts or do you try and say I need to raise 12 months’ worth. What’s your thinking?

John Black: Well, our thinking really on this we’re just as I mentioned, we’re just kicking off a drill program in Aguas Calientes, so we’d like to see what those results are. They have the potential to dramatically change the situation on the project. We will be able to better reveal the full potential of the Altar project as we complete our relogging program and can present that in a little different light. I think what you’ll see us showing is the higher-grade portions of the deposit, which are still extremely large. The current resource is over 2.5BIL tonnes of low-grade copper gold mineralization. On this we view that within that 2.5BIL tonnes there are significant zones of much higher grade that form a deposit by themselves, if you will. And so, we’re in the process of being able to put that together to reveal that. When we show the results from the program at Aguas Calientes we will show our full thoughts on where we’re going with the Altar project. We believe that will warrant an adjustment in the share price on this, which would allow us to raise capital with less dilution. But the important thing is that we move projects forward on that. So, we do have the capability of raising capital somewhat independent of the share price on this. It’s just always best for ourselves as current shareholders and all of our other shareholders to do it at increasingly higher prices.

Matthew Gordon: What does that mean? What do you mean we can raise this independent of share price?

John Black: Well, we have some very supportive shareholders. This is a bit of a different structure to a company on this in that we have a group called Route 1 that’s been a strong backer for our team all the way back to the Antares days and they’re strong supporters for Regulus and they own nearly 50% of Aldebaran. Sibanye, the company that we acquired the project from has 20% of the project and his management, and we have 18. So, it’s fairly concentrated shareholders on this. And there’s alignment amongst the shareholders on this that the important thing is to move the project forward. Ideally, we’d love to do this. Our goal is to increase the value in the company, certainly by the end game, which we view as monetization and selling the projects to a mining company at the end of this. But we’re focused more on that end game than we are on day to day on this. But we do believe that the results from Aguas Calientes have the opportunity to bring us back on the map, if you will, on this. And we believe that when we’re in a position to reveal our full vision on what Altar is and what the full potential is, that that’s likely to result in an increase share price. But there are other factors that are beyond our control, like copper price or other things that could affect us as well. So, we have some time on this. And when we’re in a position where we don’t like our share price on this, the important thing is to roll out additional information, so people can understand better what we have and to be cautious. You don’t spend as much, you don’t raise as much on this when your lower share prices. But it’s important that you keep the company moving forward.

Matthew Gordon: But isn’t that kind of your problem. Based on that maths you’ve got 12% of free-floating shares, haven’t you? You’ve got 50, 20 plus 18. Liquidity’s the issue here, right?

John Black:  You’ll notice that many of the companies that do well, this is not terribly different than some structures of, say, some of the Lundeen companies and others where you have large concentrated holdings from groups that are very comfortable in the long term on this. It almost becomes a little bit more like a private company structure on this. And sometimes when you’re in a market bottom, that’s a little easier structure to have than when you have a lot of liquidity in a tough market. Liquidity is your friend when the market’s robust and going up, but your enemy when it’s going down on this. And so right now what we focus on is setting the project up, acquiring the project which we’ve done, and then setting it up and getting ready to begin to reveal that. And as we reveal that, and we raise additional capital, that’s where we anticipate we’d be bringing in new investors and increasing that liquidity. But the nice thing is it doesn’t take too much interest in us to move us pretty quickly right now, too, because it’s there not very many shares available. So, if we deliver the results that we believe these projects will deliver, a little bit of demand will have a sharp increase in our share price.

Matthew Gordon: Potentially. I think that’s a kind of fine balance. We’ve seen a few companies over this side of the pond who’ve had too much in the hands of one or two shareholders and it’s killed their share price, it had the opposite effect. It’s a balancing act. I appreciate that. But also, it gives me an insight into how you guys are thinking in terms of taking this forward. You know, you believe you’ve got the ability through your current shareholders to get you to a point where you’re comfortable to go out to market and it put some more shares in the market. Understood.

John Black: Keep in mind one thing on this, if we had a project that required a lot more drilling to reveal the full potential on it and a lot more investment on it, that would be one challenge. But here we acquired this project under very good terms, but it’s a project that actually has quite a lot of drilling to it. The Altar project was drilled out by a junior company like ourselves called Peregrine Metals and sold to the Stillwater Mining in 2011 for almost $500MIL U.S. cash at the time. It then stalled. The company that purchased it was not a good fit for the project and it disappeared off the map. So, we acquired it for much less than that. So, you know, right now, when you take a look at our market cap and the size company we have, we have the option to turn 80% of a project that at one point was valued in cash at over nearly $500MIL U.S. and when the copper market was robust. If we returned to that type of a copper market on this, we believe we can show that there’s more to this project than was even known then. And much of that we can do from simply relatively low-cost work to re-examine this and recast the information that’s there so people can better understand that this is not simply an enormous low-grade deposit, but there are distinctly economically more attractive higher-grade zones within it. That’s what we want to reveal to the market. That won’t cost us too much money to do that. That’s a lot of geologic work. We did spend some money this year for the drilling to gather information to better evaluate what we have. But we’re now in a position where we can reveal quite a bit of information about this project without a particularly large spend on it to go forward. And we believe with that information on the table, we’re likely to see a different valuation.

Matthew Gordon: So how much money has gone into this company in total then?

John Black: The way we structured this is as I mentioned at Aldebaran was a project that was acquired by Stillwater Mining for $487MIL in 2011. We acquired the option to pick up 80%. So, we had the option to earn 80% of the project for $15MIL U.S, which has been paid and for Sibanye, which was the new owner of the project after they acquired Stillwater, has 20% of Aldebaran as part of the process. And we need to spend $30MIL over the course of 5 years to acquire 60% and $25MIL additionally to go to 80% on the project. So, over the course of the next 8 years, we need to spend $55MIL total to acquire 80% of the project. We’re well ahead on this, we’ve just completed our first year on this and we’ve spent approximately 7 or $8MIL into that work commitment. So, we don’t have to work at that pace right now. We can a little slower as markets a little bit slower on this. But we anticipate we’ll spend that money to acquire the 60% interest within the next four years. So, we have we have time to do that. What we need to do now is to better demonstrate to the market what the potential of this is first. And then we anticipate over the course of the next few years, we’ll see, most likely, an increased interest in these type projects from major companies. And that will likely come as a predicted supply gap in copper emerges and we start to see copper prices move up. And so that will provide us a better environment to raise money at less dilutive costs.

Matthew Gordon: So, you don’t feel you’re under any pressure with regards to money as it stands because you can control the pace at which you move forward.

John Black: We can control the pace of it and we have good supporters on it and we’re on a great project with much more value than is currently revealed in our share price on this. But we don’t want to spend all of our effort just trying to get that up in the short term. We really want to set the fundamental situation so that the end game is there. We focus on that maximum value at the point that we would monetize this project by selling it to a major mining company.

Matthew Gordon: Okay. Look John, I think that’s a great reintroduction to what’s going on with Aldebaran. Fascinating. I think if people can pick shares up, might be worth having a look. Well, stay in touch. Let us know what’s going on. Sounds like a bit more drilling to happen as those results come out. Give us a call. Let us know how you’re getting on.

John Black: Yeah. Keep an eye on these Aguas Calientes. That’s a second project in there that has potential to emerge as something pretty exciting on this. And then the real fundamental part of the company to watch is how we reveal that value in Altar. And we’ve discussed a little bit on where the share price is right now. But in our previous two companies, we suffered through these same points where even though we knew we were on a great project, a lot of times takes a while for the market to see that. And the important thing is, is that we will be able to move the project forward. We will have access to the capital we need. We’re no risk of concerns that way.


Company page: https://www.aldebaranresources.com/

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A wide photo of the Altar copper-gold project in San Juan Province, Argentina.