IGO suspends annual dividends from Tianqi JV amid market downturn
The JV experienced a build in lithium hydroxide inventory at Kwinana over recent months.
The difficulties experienced by the junior community in 2019 were not confined to Peru. With the notable exception of Australia, exploration expenditures decreased in 2019 in five of the six countries with the biggest global exploration budgets.
According to the S&P Market Intelligence World Exploration Trends report from 2019, Peru received 6.3% of global investment in non-ferrous metal exploration in 2018 ($609.7 million), putting it in fifth spot behind Canada, Australia, the US and Mexico, and ahead of and Chile.
Peru’s mining industry increased by over 20% in 2019
Looking at the Ministry of Energy and Mines (MEM) statistics, although investment into Peru’s mining industry increased by over 20% in 2019, exploration was the one area which went down, from $413 million in 2018 to $357 million in 2019 (figures from Minem) – a 13.5% decrease.
This has been reflected in the membership of the Canada Peru Chamber of Commerce (CCCP), according to general manager Carla Martínez, with the number of junior participants decreasing in recent years.
“To reignite the interest of the junior mining community, permitting and authorization times must be reduced,” she affirmed.
This sentiment was shared by Paul Murphy, manager of the South America region for technical consulting firm Mining Plus, who has noticed the global trend of financing migrating towards jurisdictions that are considered safer investment prospects.
“Peru is just too well endowed geologically to ever be ignored by explorers, but in the current climate where drill permits are taking a considerable amount of time to be approved and with ongoing social challenges, this is testing the friendship between the jurisdiction and juniors,” he said, adding that Peru has to be aggressive in ironing out corruption to attract more investment into its exploration sector.
Aware of the challenges facing junior companies, stimulating exploration is a key objective in 2020 for the government, according to Vice Minister of Mines, Augusto Cauti, who pointed to the decree of urgency enacted on December 27th 2019, that grants the definitive rebate of VAT for the next three years.
“Furthermore, we reinstated legislation that allows companies that invest large amounts in the country to perform accounting in US dollars,” added Cauti, commenting that MINEM is planning to review more adjustments to specific legislation to see how the permitting processes can be expedited.
Drilling permits and exploration licenses mean little to juniors without access to capital, and in this respect, the Canadian money markets hold significant influence.
In early 2019, the Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV) made a strategic decision to establish a full time presence in Lima to explore new opportunities across South America.
From a mining standpoint, Latin America represents 23% of mining issuers on TSXV, second only to Canada with 45%.
The man in charge of leading this growth is Guillaume Legare, head of South America for the TSX and TSXV, who outlined the reasons for choosing Lima as a base: “We chose Peru as a base because it is the most important South American mining market for our Exchanges.
In Peru, there are 57 companies listed on TSX and TSXV that are active in South America with 135 mining properties
In Peru, there are 57 companies listed on TSX and TSXV that are active in South America with 135 mining properties.”
With a goal to support more local management teams access the Toronto exchanges’ two-tiered ecosystem, Legare noted that there are different channels available for accessing capital other than a traditional IPO.
One option is the Capital Pool Company (CPC) program, which introduces experienced investors to entrepreneurs whose growth and development-stage companies require capital and public company management expertise.
“There are a number of CPC founders looking for mining opportunities in the region; We want to bring investment opportunities from LatAm to these founders, and better communicate the different options for raising capital to potential issuers,” he explained.
In 2018, the cannabis and cryptocurrency boom in Canada saw risk-capital leave the mining sector. Why then, in 2019, as the cannabis and crypto-bubbles burst and metals prices continued to rise, did equity not flood back to the market?
One reason, according to Ryan Matthieson, head of investment banking at Haywood Securities, is the remarkable performance of the precious metals producers, with the likes of Wesdome Gold Mines and Kirkland Lake Gold trading at eye catching multiples.
“In the eyes of the generalist investor it is riskier to pick a micro-cap that could double when some of these intermediates have been doubling,” he explained.
Matthieson went on to explain, however, that the current discrepancy between producers and juniors is not sustainable, and the movements of the larger players investing in exploration companies bode well for 2020.
This trend is evident in Peru, with precious metals producers investing in base metal juniors to diversify their portfolios. With gold-focused industry heavyweights such as Barrick CEO Mark Bristow declaring he believes copper will be “the most-strategic metal on this planet” in a decade, and a lack of undeveloped gold assets large enough to satisfy big producers, copper offers the upside linked to the impending electrification movement, as well as the type of assets that guarantee long-term production.
In May 2019, Gold Fields completed an C$8 million investment for a 16% stake in Chakana Copper. The investment correlates with the company’s decision to reallocate a budget for exploration and M&A in the Americas in 2019, according to Luis Rivera, Gold Fields’ executive vice president for the region.
Commenting on the company’s new strategy, Rivera explained: “We have always been focused on gold, but are also starting to expand our interest into copper in the Americas, considering the geological potential.”
The biggest precious metals producer in Peru, Buenaventura, also made a strategic investment into a base metals junior in 2019, announcing in December the purchase of over 65 million common shares of Tinka Resources for gross proceeds of C$16 million, equating to a 19.3% stake in the Vancouver-based company.
Víctor Gobitz, Buenaventura’s CEO, elaborated on the rationale behind the investment: “The company’s vision is to have assets that can be in production for at least 10 years. Ayawilca is a high-grade zinc project, equidistantly located between El Brocal and Uchucchacua.
In both plants we have the capacity to produce lead and zinc concentrates. Therefore, it makes sense to think that Ayawilca, rather than being developed as a standalone project, could be developed as a satellite mine to feed those plants.”
Considering the scarcity of sizeable junior copper assets globally, a name frequently brought up as a buyout candidate is Regulus Resources, whose AntaKori project has produced five of the top 20 copper intercepts reported worldwide over the last two years with mineralization close to surface.
John Black, Regulus’ CEO, provided an update on the company’s phase II drill program, where approximately 16,000 m of what is anticipated to be a 25,000 m phase II program has been completed.
Mentioning that the focus of the phase II drilling program has been to extend the mineralization, mostly to the north of the project, Black noted that the resource already announced has given Regulus a strong foundation to build upon, with 250 million mt of 0.48% copper and 0.29 g/mt gold in the indicated category and 267 million mt of 0.41% copper and 0.26 g/mt gold in the inferred category.
The Regulus management team has already had success with Antares Minerals, which was sold to First Quantum for C$460 million in 2010, and Black believes they have the same scale of project or better with AntaKori.
“Considering its potential size and immediate proximity to operating mines, I believe that AntaKori could logically become part of a joint venture between a number of different parties to consolidate the district and establish a large long-life copper-gold mine,” he said.
“We have already demonstrated a sizeable resource with great opportunity for expansion. We have the security of a solid investment premise on the known deposit, but also the benefit of additional exploration upside,” concluded Black.
Regulus’ expects to complete the phase II program in mid-2020, which will allow for an updated resource by the end of 2020.
Regulus’ expects to complete the phase II program in mid-2020, which will allow for an updated resource by the end of 2020.
Another of the Canadian juniors active In Peru, Chakana Copper, built upon the success of the investment received from Gold Fields in May 2019, starting a 20,000 m drill program at its Soledad project in June 2019, with the aim of testing numerous targets and completing definition drilling on additional mineralized breccia pipes, according to president and CEO, David Kelley.
After drilling 5,700 m of the program in 2019, Chakana made the decision to halt drilling and wait until an expansion of its drill permit had been granted to allow access to other parts of the property that have not been drilled yet.
With drilling expected to recommence in Q2 2020, Kelley spoke of how Soledad is evolving from a mineralization standpoint: “Looking at the value of what we have drilled up to date, approximately 60% of the value sits in gold and silver and the remaining 40% sits in copper. I believe as we go deeper, copper will become more dominant.”
When asked about the potential scale of the project, Kelley outlined Chakana’s initial target for publishing a resource is 10 million mt, which will allow for investor confidence and put the company in a position to raise money to continue aggressive exploration.
“There are approximately 40 to 50 breccia pipes. Each breccia pipe varies in size and we have confirmed that the breccias become bigger at depth. We have never seen the bottom of a breccia pipe, even though our deepest breccia intercept is over 700 m.”
One of the issues since the decentralization process that transferred more power to regional authorities in Peru is the risk of individuals with an anti-mining stance opposing permits. This was the case for Eloro Resources, whose number one target for its La Victoria gold and silver asset is located in the San Markito area close to the Pallasca community.
Awaiting a maiden drilling campaign in 2018, the permission to attain surface rights was not granted by the Pallasca community president at the time, despite receiving the backing of the vast majority of the community, according to CEO Tom Larsen.
This led to Eloro stopping activities at La Victoria in December 2018 and turning its attention to the recently acquired Iska Iska project in Bolivia, which caused the company’s share price to double from December 2018 to January 2019.
When questioned, Larsen reinforced Eloro’s commitment to Peru, revealing that a new mining-friendly president and committee in Pallasca was elected in December 2019.
“We hope to restart exploration at La Victoria by April 2020. We expect to attain the surface rights in the very near future, and have all other permits in place.”
While Eloro’s continued intention to develop its Peruvian asset is encouraging, the positive market reaction it received in acquiring a project in a different jurisdiction is an illustration that Peru cannot rest on its laurels, and geological potential must be backed up by streamlined permitting procedures.
On the silver side, private company Kuya Silver acquired the past-producing Bethania silver mine in 2017, and has since received investment from the likes of Eric Sprott in an effort to get the mine up and running by Q1 2021.
Kuya’s all-in costs to acquire, expand and restart the mine will be US$18 to 20 million, according to president David Stein, who elaborated on his company’s strategy to remain private for the time being: “When I first struck the deal to acquire Bethania we were in a bear market.
At the time, we thought that staying private until production we could go public as a junior producer, something like Excellon Resources, which would be much more attractive for our investors.”
However, with silver traditionally outperforming gold during a bull market, and the outlook for the precious metal with industrial qualities bullish in 2020, Kuya is remaining pragmatic with regard to a potential IPO.
“We are conscious that if silver makes a run we may have to act more quickly and we are lining things up to be ready to go public in such a market,” concluded Stein.
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