GoldMinerPulse Transcripts: Mexican Silver Mines Webcast from Thursday, May 28, 2009
|Home||Gold List||Silver List||Index||Blogs||R & D||FAQs||Terms|
Mexican Silver Mines Webcast from Thursday, May 28, 2009
Dennis Boyko, GoldMinerPulse
June 1, 2009 (version 1.03)
About The Call Transcript
The transcript from Mexican Silver Mines Webcast is presented below. The Webcast PowerPoint and a replay of the conference call, Business Combination with Rio Alto Mining Limited, are both available at the Mexican Silver Mines Ltd. Web site (viewed June 2009).
The GoldMinerPulse transcript of this conference call is annotated by Webcast PowerPoint slide number and also by time into the call. The hyperlinks inserted into the transcript below are a GoldMinerPulse addition and either provide very general Wikipedia type definitions, company web sites, or else GoldMinerPulse Metal Valuation Report sections on other mines mentioned in the presentation.
Good morning ladies and gentlemen. Welcome to the Mexican Silver Mines Limited corporate update and background on Rio Alto Mining Limited conference call. Please be advised that this call is being recorded. I would like to turn the meeting over to Feisal Somji, President & CEO. Please go ahead.
Good morning ladies and gentlemen.
Thanks for participating here in todays conference call on Mexican Silver Mines and Rio Alto Mining. The information being provided in this presentation today is jointly between Mexican Silver Mines and Rio Alto. The Rio Alto information will be presented by Mr. Alex Black, President and CEO of Rio Alto Mining. Due to the stage in which this merger is in and information being presented today we are required to read out the cautionary statement on page 2 of the slide show in full unfortunately, so I appreciate your patience while I comply with this requirement and they we will quickly move on to the presentation.
Page 2, Cautionary Statement Regarding Forward-looking Information.
Certain statements contained in this presentation may constitute forward-looking statements. These statements relate to future events or the Rio Alto Mining Limited's future performance. All statements, other than statements of historical fact, may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", continue", "estimate", "expect", "may", "will", "project", "predict", "propose", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Rio Alto Mining Limited / Mexican Silver Mines Limited ("RIO/MSM") believes that the expectation reflected in those forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this presentation should not be unduly relied upon by Investors as actual results may vary. Unless required to be updated pursuant to securities laws, these statements speak only as of the date of this presentation and are expressly quantified in their entirety, by this cautionary statement. In particular, this presentation contains forward-looking statements, pertaining to the following:
With respect to forward-looking statements listed above and contained in this presentation, RIO/MSM has made assumptions regarding, among other things:
- capital expenditure programs and cash flow estimates;
- development of deposits, resources and reserves;
- treatment under regulatory regimes;
- treatment under taxation regimes or other government financial regimes;
- development, availability and suitability of new technology;
- expectations regarding RIO/MSM ability to raise capital; and
- work plans to be conducted by RIO/MSM.
RIO/MSM actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors set forth below and elsewhere in this presentation:
- the legislative and regulatory environment;
- the impact of increasing competition
- current technology trends;
- unpredicted changes to the market prices for gold and copper;
- that costs related to development of gold and copper properties and the development of gold and copper production projects will remain consistent with historical experiences;
- anticipated results of exploration and development activities; and
- RIO/MSM ability to obtain additional financing on satisfactory terms.
RIO/MSM plans and results could differ materially from those anticipated in these forward-looking statements as a result of these risk factors set forth above.
- uncertainties regarding the regulatory regime and the application approval process;
- volatility in the market prices of gold and copper;
- lack of technological development;
- uncertainties associated with estimating and developing resources;
- geological, technical, construction and processing problems;
- liabilities and risks, including environmental liabilities and risks, inherent in developing gold and copper production projects;
- fluctuations in currency and interest rates;
- competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel; and
- unpredictable weather conditions.
Thank-you very much ladies and gentlemen for listening through that. I now turn to slide 3 of the power point presentation.
Slide 3, MSM Capital Structure (time=4m10s) ^top^
We wanted to first give you a bit of a background on Mexican Silver Mines share capital, corporate status and the projects we have in Mexico. Mexican Silver Mines is currently trading as a tier 2 issuer on the Venture exchange under the symbol MSM. There is also a dual listing in Frankfurt. We currently have got 40 million shares issued. Warrants outstanding 11.8 million which range from $0.50 to $1.30 on strike price with expire in June 2010. Options outstanding 3.3 million. Fully diluted, 55.1 million. Our market cap based on yesterdays close at $0.19 is roughly $7.6 million and cash on hand is $6 million which represent $0.15 a share in cash alone. I now turn you to slide 4.
Slide 4, Mexico Properties (time=5m07s) ^top^
As background to Mexican Silver Mines properties, as the company advances, as you will see later in the presentation into gold production in Peru, we will maintain our entire landholdings in Mexico. Our carrying costs to do this are quite marginal. The properties that we have in Mexico are located between the city of Monterey, which is the second largest city in Mexico, and Laredo Texas. You will see a red line that goes directly from each of the cities which is the national highway leading from Mexico into the US. So excellent access and infra structure and power, availability of fuel, equipment and personnel. Year round access on the sites. We are not restricted on any climate issues. In summary we have about 1,300 km2 of land which encompass a minimum of 20 previous producing silver mines on the property. All the properties are 100% owned and they are split between three. The RAL concession which includes the La Iguana group of projects -- there is 41 km2. The Providencia, in the middle, in the red, which includes La Blanca and the Vallencillo Mining District -- there is 614 km2. And Anillo de Fuego in the south which includes the Mamulique Mining district there is 645 km2.
Slide 5, Mexico Project Sites (time=6m37s) ^top^
These, what we have now done is broken down the various mining areas, historical mining areas on our projects as well as the areas we have focused in the last year and a half. The Iguana and Voladora mines sites up in the RAL concession. There has been historical production and identified in both the Voladora and Iguana mine. At the Iguana, Mexican Silver has done two phases of drilling which has shown the deposits in the Iguana mine extend beyond the area that has been mined. The company was in the process of drilling on tighter spacing intervals to determine the tonnage and grades of the deposit remaining. We also wanted to drill to depth to see if there were additional economic layers. The Voladora was a recently acquired historical silver mine. Mexican Silver did some surface mapping and some underground mapping and sampling. The mine was a significant producer in the past but no drilling or underground development has occurred yet at Voladora.
The Vallecillo district is again a historical producing area. It is referred to a district as it extends over 5 km and has over a dozen past producing mines. The town of Vallecillo is a mining town, the location of a historical smelter in the late 1800s. Drilling by MSM has found additional mantos layers in the area of past production. However, using geophysics, the company has focused on finding the source of the fluids that results in these high grade deposits. And these deposits averaged in the 100s grams per tonne so significantly high grade type deposits with significant percentages of lead and zinc associated with it. Over the next couple of slides I will demonstrate some of the results we have had in trying to find the sources of these historical deposits.
The third area of our properties in Mexico, the Mamulique District again has had historical production, extensive underground workings, and what the company has done is focus on three of these deposits and has worked over the last little while to enhance the underground workings. Historical productions had grades of up to 40% zinc. Underground and surface sampling by Mexican Silver has averaged grades of 14% from all areas. However in some areas, for example the Victoria mine, the average zinc grades were 25.9%. The rehabilitation of underground workings was completed in late part of 2008 and the project is now ready to initiate underground drilling with the intent to build our first 43-101 compliant resource report.
The 4th project is the La Blanca project. Now this is an area of significantly high grade silver deposits. What we found there during trenching and sampling were the discovery of massive galena type boulders found in shallow pits. The trenching averaged between a 1000 and 4000 grams a tonne with average of 2100 grams per tonne. No further work was done by the company at this point. The next slide.
Slide 6, Mexico - Vallecio District (time=10m05s) ^top^
Slide 6, goes to show you the area of Vallecio. What the company did at the end of its exploration programs in 2008 was look for the source of the deposits that lie in the Vallecio District that hosted over a dozen silver mines. You can see from a regional airborne survey that we identified intrusive sources which are represented in the reds or circular features towards the west of the area that was historically mined. What the company also noticed is that there were more sedimentary cover as we moved from the actual Vallecio District towards the west towards these red intrusive bodies. One has to recognize that historically in Mexico the mines were discovered due to surface prospecting due to local Mexicans and generally they would find an outcropping feature and dig down and start to develop a small producing mine. With a sedimentary cover, a lot of these surface outcrops would not be able to visually identified and therefore we felt that a lot of the deposits towards the west had not been identified in the past and we turned to geophysics and geochemistry.
Slide 7, Mexico - Vallecio District (time=11m26s) ^top^
The next slide, slide 7, identifies where the majority of the historical work had been done up in the Dolores Zone on the top right of your slide you can see down to the bottom left the new target called the Coronel. The Coronel was the focus of Mexican Silver Mines exploration program towards the end of its exploration in 2008.
Slide 8, Mexico - Vallecio District (time=11m57s) ^top^
Turning to slide 8. This is a close-up of the El Coronel, again which sits in the Vallecio District. We have current ground IP (Induced Polarization) geophysics using Walcott out of Vancouver. The data arrived into our hands just a few days ago so it is currently being reviewed by our technical team. Surface sampling in middle to late 2008 using a Niton handheld meter resulted in a 1000 to 3000 grams a tonne silver from surface. What we also noticed was is a domal feature surrounding the El Coronel target which suggests the possibility of a site of source intrusives. Nearly 200 samples were taken at El Coronel and the samples have now been shipped to the lab for processing. The plan for Mexican Silver is to use the geophysics and geochemistry and move this target into a drilling phase in the near future.
Slide 9, MSM Strategy (time=13m0s) ^top^
To slide 9 now. The presentation that I have given so far is a very very quick summary of the projects in Mexico. You will identify that the project that although have historical producing lead/zinc mines in the area, are really still exploration phase or exploration stage although fairly advanced. The company in 2008 was moving towards its first resource estimate down at the Mamulique area and was also moving towards the El Coronel target. But as we all know the market changed in the middle of 2008 and there wasn't really a lot of value being put towards exploration. Mexican Silver has $6M in cash but we have to look at that cash, look at what was happening in the markets and we determined it was better for us to shut down our exploration efforts in Mexico, sit on the cash and turn our focus towards acquisitions in the market place. What we wanted to do was to look for gold and silver. We felt bullish on those two commodity types. We wanted to stay fairly close to home. We looked in Mexico. We looked in parts of North America and South America. We also saw that copper prices were, we felt that they were the last commodity that started to deflate as the market turned and we can see that from recent copper prices they are showing some strong recovery. As a result, what Mexican Silver Mines did was look at over 30 companies and projects. With that type of parameters in mind we had some assistance from independent groups in the market place. At the end of the day the company chose Rio Alto. The decision for looking at Rio Alto Mining were the factors mentioned above. They are looking at gold production asset in Peru. We saw Peru as a stable country. We saw gold as good commodity to be in. And in addition we saw that the copper aspect of the project provides long term asset valuation going forward. What we did was we structured our deal with Rio Alto in a manner where by we asked them to initially raise a minimum of $3M dollars and a maximum of $4.5. The maximum is there due to the maximum number of shares Rio Alto could have and still remain as 49% or less of the combined company. But the raise was also a way to test the market and to also make sure that our treasury maintained or increased going forward rather than depleting as we started to move into Peru. We also liked the strength of the board and management at Rio Alto. We are not looking at moving away from exploration into production and that requires a whole different set of skills on the management and board level.
Slide 10, Merger Overview (time=15m15s) ^top^
We'll turn to slide 10 of the presentation. As a quick summary Rio Alto is a private company based out of Peru. It is an option to acquire the La Arena project from IAMGold. We mentioned the private placement that Rio Alto is currently doing. That minimum of $3M has now been reached. The amalgamation between the two companies will be a share for share basis. It will be a simple transaction where we have already received conditional approval from the exchange and as mentioned before MSM will also maintain its land position in Mexico. Its a 100% ownership. Our carrying costs are roughly about $150K US per year in government taxes. So we don't see that as an onerous cost and when exploration markets start to comeback into favor which we see as imminent, we well also turn back into Mexico and have a dual program of exploration in Mexico and development in Peru. Pro Forma, once the two companies come together approximately 80M shares outstanding. That is based on Rio Alto raising the maximum amount of the roughly 4 to 4.5M, in which MSM will be 51%, Rio Alto 49%. We will have a market cap of approximately $16M with about $8 or $9M in the bank account. And our focus will initially be the development of the La Arena project in Peru looking for production within 18 months.
At this time I'd like to turn the presentation over to Mr. Alex Black who is President and CEO of Rio Alto Mining.
[Alex Black speaking] Ok. Thanks Feisal and good morning everyone. I am calling from Lima Peru and the line is pretty clear but anything can happen. And if the line drops out bear with me as the I come back into the call.
Slide 11, La Arena Highlights (time=15m5s) ^top^
But just to go through slide 11, the option from IAMGold, we are or we can acquire 38% of La Arena by investing US$30M in the project, that's in the ground. We can acquire the balance taking us up to 100% of La Arena by making payments to IAMGold. Just a bit of background on IAMGold. IAMGold is nearly a $4B gold company, gold only company. It has production and development projects in 10 countries around the world. It acquire a company called Cambior, back in late 2006 and this project was a Cambior project. IAMGold decided to run a process on this project to divest itself of this project predominately because of the size and high quantity of copper that is contained in the resource and we participated in the project as a private company, and sorry, in the process as a private company and we won. So it is after a lot of hard work over the last few years to put our foot on this project but we finally got there.
Why did we target La Arena? We you can see by the numbers, the indicated resources containing nearly 3M oz of gold and 1.7B lbs of copper. Inferred resources containing approximately 1.2M oz gold and 1.2B lbs of copper. Collectively they have got 4M oz of gold and 3B lbs of copper. So it wasn't too hard to make a decision to go after this project. There aren't these sorts of projects available in the world today that have been drilled and are ready to go.
The near-term production. We are looking at production within 18 months as Feisal said. We think we will be producing from a reserve base in oxide in about 40 mt grading 0.66 g/t gold. There will be a starter pit that we will mine in the early years, early couple of years, with grades in access of 1 g/t of gold. You will see the cash costs that we predict are on the order of about $300 per oz. and the capex is approximately at this stage US$23.5M. All these numbers are non 43-101. We have Coffey Mining, who did our March 2008 43-101 mobilizing to Peru in the first week of June to work with us to put together a new 43-101 on these oxide reserves. You will also see that this story is just about La Arena. It is about other prospects on the property. We believe through exploration we can expand the oxide mine life. There is also a large or three large copper porphyries on the property and I'll talk more about that going forward. One of which is called Agua Blanca, which is a Copper Moly porphyry which is very close to La Arena. And La Florida which is an oxide target to the south of our property. So lots of exploration potential on our property.
Slide 12, The IAMGold Option (time=22m5s) ^top^
Going to the next slide, the IAMGold Option. We negotiated an earn option deal with IAMGold whereby we pay IAMGold US$1M on signing a formal agreement and that money was to come from the proceeds of the private placement. A couple of weeks back we heard from IAMGold and they elected to take their US$1M in share rather than in cash, which is a great validation for this project, and post merge with Mexican Silver, IAMGold will own approximately 10% of the company. So I think that is a great show of confidence for what we are trying to do. The 38.7% we can earn by spending up to US$30M on the project. As I told you before the first stage capex is estimated to be US$23.5. The second phase capex is approximately US$6M. So you can see from those two numbers we will be investing approximately US$30M in the project over the first couple of years of production. We also can earn the remaining 61% of the property that we don't own from investments we make, and very simply every percent can be bought for about US$0.78M a percentage point. We have up to 4 years to pay IAMGold. That US$47.6M was the purchase price that we offered IAMGold in the process. Its a price, once again its a number that we don't have to pay for at least 2 to 4 years and that number discounted at 10% would be about US$38M in today's dollars. So the beauty of this transaction is that fact that we don't have to pay them today. We invest money in the ground. And part of the agreement says we must expend at least $10M in the project within 4 years and with a capex of US23.5M that is not going to difficult to do.
Slide 13, Post-Merger Board (time=24m30s) ^top^
Next slide 13, Post-Merger Board.
Just like to say something that when you put two companies together it is usually people and egos that stand in the way of mergers happening and that is very unfortunately for shareholders. But in the case of us with Mexican Silver, we had a willing partner in the board of Mexican Silver who have complementary skills to the skills we bring from Rio Alto. I can say that it has pretty well smooth sailing to this point and I expect it will be smooth sailing going forward. We recently invited to the board, a well seasoned veteran in the mining industry in South America, and that is Dr. Klaus Zeilter. Klaus has accepted the position of non-executive chairman and director of the company. You can see there from his profile in some very large investments around the world. The biggest investment was here in Peru with the acquisition of Antomena by Inmet whereby they pledged US$2.5B to invest in the project which actually happened in a joint venture with other companies. Klaus moved on from Inmet to Tech Cominco where he was a senior executive for a few years and then as of this moment he is President and CEO of Amerigo Resources which has a tailing re-treatment project in Chile, a deal that they have with El Teniente, an offshoot of Codelco.
Feisal, well, Feisal will remain the CEO and President of the new company. Feisal has more than 15 years experience in the minerals exploration development business. He's run companies that have provide services to the industry. He's run public companies. And Feisal has a breath of contacts in the resource sector in Canada.
Myself, I'll move into the Chief Operating Officers role. I've been in the mining industry for nearly 30 years. Here in Peru, I took control of Chariot Resources (chart and message board) as a listed shell back in 2002/2003. At that stage Chariot was about a $10M company. It then acquired the Marcona Copper project and grew into a $350M company. That was its market cap about 12 months ago. Also with Klaus involved with the formation of the joint venture with Korea Resources Corporation and LS-Nikko and has very good relationships the Koreans. I have been involved in consulting and contracting in Australia for many years consulting contracting with many companies from all around the world. I moved to Peru in 2000/2001 and have been living here ever since.
Tony Hawkshaw who assumed the role of CFO of the merged company. Tony is currently a Director of Rio Alto mining limited. Tony has more than 25 years experience in the mining industry. I met Tony when I first came to Peru. At that point he was CFO of small company at that stage called Pan American Silver. While Pan American, from the time Tony joined it back in the mid 90s, to when he left, the company grew from being a small junior company to being a company today. Tony was instrumental in Pan American acquiring assets in Peru, Quiruvilca Mine, the Huaron Mine and the Morococha Mine while he was CFO of that company.
Tony has also worked else where in the world and brings a lot of project financing experience to our company.
Dan Kenney, who is currently legal consult for Mexican Silver Mines will become a director of the company. He is a partner of the law firm Davis LLP in Calgary. I've gotten to know Dan over the last few weeks preparing all of the documentation for this transaction and he is raring to go in this new role as director of Mexican Silver Mines. And Dr. Roger Norwich. Roger is a UK based Director. He is/has been on the board of Mexican Silver Mines for some time. He is on a couple of other boards. Roger has got a depth that is untouched in the UK and also in Mexico. He was instrumental in Mexican Silver Mines acquiring their portfolio.
So as you can see from that overview of directors, we have a very seasoned board. Obviously as we go will probably complement this board with other appointees. But we have a very capable board of directors from day 1.
Slide 14, Peru Management (time=23m50s) ^top^
If we go to the next slide, slide 14, not only does it come down to a board of directors but it also comes down to the management team that is going to execute the project. Here in Peru we have put together a great, well experienced management team. I lead that team. We have Jaime Soldi who will be our the General Manager. Jaime previously worked me at Chariot Resources. He was the President of Marcobre, the Peruvian subsidiary. He was also the chairman of the Korean joint venture. Prior to that he was with North and prior to that he was with Phelps Dodge. Jaime is well contacted here in Peru, from the government right down to the people in the community and he will be instrumental in the steering us through the development of this project. Max Schwarz is our Project Manager designate. Max has 15 years experience here in Peru in the mining sector, including 7 years leading Hochschild Mining environment, health safety and community department of that company. Hochschild Mining is a London listed Peruvian mining company which has been very successful here in Peru, Argentina and Mexico. And Max is instrumental in guiding us through the technical aspects of the management of this project.
Juan Rodriguez. Juan joined us last year. We were fortunate enough to recruit Juan when he left the nearby La Virgen Gold Mine which is owned by the Minera San Simon product and family. He was there from 2005 to 2008. He took that operation from 3.5Kt per day to 24Kt per day
. The mine is exactly the same as what we are going to be developing at La Arena. So we have the best guy to be the General Manager Operations of our project.
Alejandro Portal will be our Site Administrator. Alejandro has worked for a number of companies in Peru, particularly in the region where La Arena is. Tony has worked with Alejandro in the past at Pan American. And Alejandro is well contacted with the community at La Arena level and also at the La Libertad level which is the province level and is very important as to how we take this project forward as well.
Slide 15, Peru (time=32m40s) ^top^
If we go the next slide Peru. Peru, for those who don't know Peru, Peru is a great place to do business. Its a pretty large country. Thirty odd million people. It is has constitutional republic. Alan Garcia is the current President. Garcia has the backing of the country's business sector and the country has been booming. It has the best growth rate of any country in Latin America for the last few years. In 2008 it was 8%. I'm pretty sure in 2007 the published number was 9%. In the forecast for this year even though South America is suffering from the crisis just as much as everyone else, Peru still has a positive growth rate and forecast of 2% to 3%. So, this is a great place to do business. The government is all for mining. It is doing everything possible to help mining companies during this crisis period. Its expedited the environment process, approval process so that companies can get their environmental fitness quicker and get into development quicker. So we are in the right place, doing the right thing, and hopefully at the right time.
Slide 16, Why La Arena? (time=33m58s) ^top^
If we go to the next slide, page 16. Why La Arena? Well, if we look at that circle, the red circle on that page which is about 50 km across. This is a map that was produced by Cambior in 2003 so all the status you see there 2003 so they need to updated but it give you a good snapshot. But in that circle today is in access of 20M oz of gold resources known today. So this is a gold district. If we look at projects starting at top of the circle we have Shahuindo which is owned by a company called Sulliden Resources [sic] which is a TSX listed company, 2M oz of gold inferred resources. We have El Toro. El Toro is owned by a private Peruvian family. It has about a million oz of gold. La Virgen which is to the south of La Arena, has been operation since about 2004. Juan Rodriguez worked there as I mentioned before. It is currently produced at the rate of 80K oz per annum from gold oxides by dump leaching operations which is exactly the same as we are going to do at La Arena. It has exactly the same rocks. It is a carbon copy of what we are going to do.
Santa Rosa at the bottom of the circle. Santa Rosa is owned by a private Peruvian family. Has been in production for nearly 15 years. Its current production rate is about 200K oz of gold this year and its coming to the end of its life but its exactly the same as La Arena, exactly the same as La Virgen. By the way the operating costs at La Virgen the past few years have averaged in the range of US$300 an oz and that's why we are confident that our cash cost will be of that order.
Tres Cruices belongs to a company called New Oroperu Resources which is a junior TSX listed company. They have a joint venture with Barrick. Barrick is drilling away at Tres Cruices at the moment and they continue with their joint venture.
Then we have Alto Chicama. Better know today as Lagunas Norte. Alto Chicama today is 8M oz in reserves. They produce 1M oz of gold per annum. The cash costs are US$100 an oz. It is Barrick's cheapest producing gold project in the world. And that project is 15km from La Arena. You can see the La Arena property boundary is the area in blue in the middle. You can see the La Arena area is that little triangle in that property. And our neighbor abutting to the west of that property is Barrick. And they have a flag ship operation there. The reason Barrick's cash costs are so low is they have a heap leach operation, not a dump leach operation. They crush and that is something we are going to be looking at too in the trade-off study at La Arena.
Slide 17, Why La Arena? (time=36m58s) ^top^
If we go to the next slide, Why La Arena? We have a project here that was discovered here back in 1994 by Cambior. Over 15 years, US$20M has been exploring for gold and copper. There has been 60k meters of diamond drilling. 60k meters of core sitting at the property in core sheds. We are proposing to mining the gold via conventional dump leach technology. So nothing fancy. We probably have the best infrastructure that I've seen of a project located in the Andes mountain range so far. I mean, I've not seen with this sort of infrastructure and I'll go through the infrastructure in more detail. Once again, near-term low cost production. All these numbers are non 43-101 so I'd like to caution you and tell you that we are going to be working with Coffey Mining to bring these numbers to 43-101. But the capex is estimated these days at US$23.5M production within 18 months. And I think that from our internal scoping number you can see there we get a very robust US$80M at a 10% discount rate. Just to give you a background on that. That NPV is post tax. It is post investment of US$23.5M and it is post paying IAMGold US$47.5M. So it is an all-in NPV after you do all of those things. It is a very good number. On the exploration side well we do happen to have 3M oz of gold and 3B oz of copper sitting in sulphides in the adjacent La Arena porphyry. Those resources are probably 50/50 split between indicated and inferred. But if were just to apply some very conservative numbers to that resource of $0.01 a lb in copper and US$5.00 oz in gold, you can see that metal in the ground could have an in situ value of about US$75M. So that is on top of the NPV of 80 as we give no value to sulphur copper gold copper in the US$80M.
Slide 18, Infrastructure (time=33m30s) ^top^
Page 18, [noted, edited some checks on the callin line status]
Infrastructure. As I said to you before the infrastructure here is the best of any project in the Andes for a long time. Key point here is that an environment baseline study has been completed by Cambior and IAMGold. That is an important step that needs to be completed before you prepare an environment impact assessment. We've actually got an environment impact assessment that we have prepared with a local Peruvian consultant and it is ready to be filed. That EIA will be filed once we officially take management control of La Arena and we have our community workshops with the people, the local people of La Arena, to explain what we are going to do. So we are all ready to go. That will be a news item very shortly. We have strong community support. We are in a mining district as you saw by that map where I showed you that circle. We are in a mining district. The locals want mining jobs. This project has been drilled for 15 years and everyone is saying when are going to build a mine, when are you going to build a mine. Well, guess what, we are going to build a mine. We are going to utilize Peruvian contract miners, suppliers, workforce. Everything is going to be Peruvian. So from the CEO down, it is all Peruvian. We are going to build this project like a Peruvian mining company.
Infrastructure wise, we are close to power. The national grid goes to Alto Chicama, Lagunas Norte which is 15km away in a straight line from La Arena. We know we can connect to that power. We have already had discussions with Barrick and the concessionary of that power. The power in that area at this stage is being sold for about US$0.05 a kwhr. So very very cheap power in this area of Peru. There is also water available. Lots of ground water. Lots of surface water from seasonal rains. We are 3.5Km above sea level so during the afternoons you get rains in the afternoons during the various seasons.
We are on the main road that joins Trujillo, which is a port city north of Lima, with Huamachuco. Huamachuco is about 17km from La Arena. It is the nearest regional town. It is where most of the people that work on our project will be based at and living. The road Trujillo and Huamachuco is predominately paved. It will be completely paved within the next 12 months. Barrick investing money with the government in paving a portion of the road that isn't paved. But you are going to see a slide in a minute which shows that the road from Huamachuco to Alto Chicama is paved and a very new produced road. ??> there is an active port, the port of Salaverry. So when this project produces concentrate, all you have to do is put those concentrate on a truck, take them down the road to coast, put them on a ship, and send them of Asia somewhere.
We are 550km from Lima. To get to La Arena from Lima, it is a flight to Trujillo which is 45 minutes and then drive from Trujillo to La Arena on the paved road which is about 3.5 hrs. So it is very very easy to get to.
Slide 19, Regional Setting (time=43m22s) ^top^
There is the map that shows you La Arena, the red area, in land from Trujillo. You don't see Lima there but that shows you the northern part of Peru. The yellow area is the La Libertad province. La Liberated for those who don't know is the second largest gold producing area in Peru. Cajamarca is number one. Obviously written by Yanacocha which is producing only about 3M oz of gold a year or something like that. La Libertad has many mines, many gold mines and is a mining province of Peru. The La Arena land package that we are acquiring is 21,000 ha and I'll show you more of that in further slides. But we have a large land position. We are at 3500 meters above sea level. So, for those who get altitude sickness it is not too bad. We are not 5000 meters. We are at a very comfortable working level. As you can see there the distances from Lagunas Norte by road and from La Virgen by road is shown in those numbers there.
Slide 20, Regional Setting (time=44m35s) ^top^
Page 20. A couple of photos. The top photo shows the road. There it is nicely paved. And in the background you can see the hill, the La Arena hill which is the oxide deposit. That is what we are going to mine in the next 18 months. We are going to mine that hill and produce gold from oxides. You can see the airport at Huamachuco. Light plane airport at Huamachuco. You can fly there from Lima in a hour and half if you want to. So the infrastructure there is fantastic.
Slide 21, Phased Development (time=45m10s) ^top^
The development plan we've looked at is staged. We've though, ok, lets keep the capex at a minimum, lets look at getting into production and ramping up production as we go. So the oxide leach production for the first year is predicted to be +/- 60,000 oz of gold and we will then expand production to about 100,000 oz of gold per annum over the 2nd year for approximately 5 years from that point. So we become a significant gold producer. The ability to grow and expand the resource is good because you can start small, everyone can used to the project and then you get over your lumps and bumps and then off you go and expand the project and you are in full gear. We'll also do exploration at La Arena. La Arena resource base is can be expanded by further drilling at the edges, further drilling of inferred resources and I'll show you that on a another slide. And also La Florida, from an oxide gold point of view is a very interesting area of anomalies and drilling that has been done by Cambior and IAMGold shows that could host a reasonable sized gold oxide resource.
On the second stage we can look at the sulphides. That is our plan at the moment. Do the oxides first. Look at the sulphides second. Obviously the sulphides, to bring the sulphides into production, produce concentrate, the capex is going to be a lot higher than US$23.5M so it is best to get into production first and then see where you go from later. To add value to the sulphide project what are planning to do at some point in time, we haven't actually scheduled it yet, is to do a DFS. On this project to date, IAMGold has completed 3 feasibility studies on the development of gold and copper, so we have quite a lot of information so to take the project from pre-feasibility to final feasibility or definitive feasibility will not take much. It will take about US$10M to US$15M worth of work over about a period of 18 months. So it is something we'll plan to do once we get into production.
Slide 22, La Arena Deposit (time=47m45s) ^top^
Next slide, 22. Good photo of La Arena. There you can see the oxide hill on the left the sulphides are in the valley on the right. The good thing about this photo is shows you the topography. We are not moving mountains. We are not having to go across mountains. We haven't got jungles. We haven't got anything like that. The surface lands in this area are owned by individuals. IAMGold have bought today, 60% of the surface rights we need for this project and we have a program in place to acquire the remaining surface rights and that is built into our budget of US$23.5M. You can see, you know there is very little agriculture or systematic agriculture. It is all subsistence farming. As you can see to the left of the photo, there a sort of gray area, that is the IAMGold camp. So it is a beautiful area, a beautiful part of Peru and a great place to build a mine because of its undulating topography.
Slide 23, Extensive Drilling (time=48m54s) ^top^
If you go to the next slide, 23. Ok we are looking at it now in plan. What you see there is the pre-feasibility pit outlined in red. What happens is that you mine the oxides and then you mine the sulphides and the pit merges into one big pit. You can see the oxides there in a greeny yellow there on the left. We will be mining those oxides before we mine the sulphides. The sulphides are in a porphyry deposit right next to the oxides. There is no significant copper in the oxides, there is hardly any. There is gold in the sulphides and I'll go through that in more detail. Key point here is look at the drilling. The drilling in the oxides has been spaces at 50 by 50 meters and in the sulphides at 65 by 65. I mean this is one of the other reasons we bought this project. You don't have to do any more drilling if you don't want to. It is ready to go. So, very important thing is we don't have to be one of these companies that says, oh yeh, and we are going to budget drilling because we have got to take the resource from this size to that size. We don't have to do that. We can go into production straight away.
Slide 24, Independent Estimation (time=50m10s) ^top^
Here is the resource and reserve estimates that was prepared by Coffey Mining, our independent mining Engineers back in March of last year. These are NI 43-101 resources and reserves. The reserves, I have got to tell you, were based on cost parameters at that time and were also based on gold prices of US$750 gold and US$2.00 copper. So you know these reserves are going to have to be revised. Going forward, as I said with Coffey Mining, we are going to be looking at oxides only in a new 43-101 reserve estimate. You can see in the top table there, in orange, the gold resource there we have nearly a million oz, this is the 3rd column from the right, 910K oz of gold indicated and 15K oz in inferred. So, all the gold is in a category, indicated is a very very good category, a strong category for you to mine. The size and the nature of the grades in the sulphides, this is not very different to the Chapada copper, copper-gold project Yamana has in Brazil. I was looking at that yesterday and the grades and gold and copper are very similar to that of Chapada, a flagship operation for Yamana gold, so something you people should have a look at when we have a moment.[Yamana Chapada Insert, addition by GoldMinerPulse]:
Yamana Gold Inc. - Chapada Metal Classification Ore Grade Ore Quantity Metal Quantity Gold Proven + Probable 0.230 g/t 429.17 M t 3.17 M oz Gold Measured + Indicated 0.180 g/t 434.94 M t 2.52 M oz Gold Inferred 0.120 g/t 105.33 M t 406.35 K oz Copper Proven + Probable 2,600.000 g/t 368.72 M t 958.66 K t Copper Measured + Indicated 2,000.000 g/t 434.94 M t 869.89 K t Copper Inferred 2,000.000 g/t 105.33 M t 210.65 K t This mine summary was extracted from the Yamana Gold Inc. Metal Valuation Report which is based on (NI) 43-101 disclosures current as of 2011-04-04 (yyyy-mm-dd)
[La Arena, addition by GoldMinerPulse]:
Mexican Silver Mines Ltd. - La Arena Metal Classification Ore Grade Ore Quantity Metal Quantity Gold Indicated 0.360 g/t 58.00 M t 671.31 K oz Gold Inferred 0.280 g/t 1.70 M t 15.30 K oz Gold Indicated 0.270 g/t 220.00 M t 1.91 M oz Gold Inferred 0.220 g/t 170.00 M t 1.20 M oz Copper Indicated 3,600.000 g/t 220.00 M t 792.00 K t Copper Inferred 3,200.000 g/t 170.00 M t 544.00 K t This mine summary was extracted from the Mexican Silver Mines Ltd. Metal Valuation Report which is based on (NI) 43-101 disclosures current as of 2009-05-25 (yyyy-mm-dd)
Slide 25, Potential Oxide Deposit (time=51m40s) ^top^
If we go over to the next page, this is what we are going to be working with Coffey Mining on over the next few months. These numbers are non 43-101. We indeed to make them 43-101. But we think we are going to have an oxide deposit of about 40Mt at 0.66g/t with a start pit of approximately 6,000,000 t at +1.00 g/t gold. The gold content will be about 845,000 oz. We'll have a gold price, using gold price, this is what people are doing these days using about US$750 gold price, but we'll go through sensitivities with Coffey Mining on the gold price. The life of mine strip ratio you can see here is very low. The reason for that is we are mining a hill. So the waste you are moving is reduced. The recoveries we are using, these are dump leach, oxide gold recovery, 65%. The mill and test work that is being done by IAMGold to the pre-feasibility level showed recoveries up to 90%. These were lab recoveries. But what we intend to do is do a bit of trade off and look at doing dump leach instead of heap leach and what incremental capital cost would be to go to heap leach because you have to crush the material and the operating costs to run a heap leach operation and to see what the incremental recovery would give us as far as return goes. But as you can see the total gold recovered over the life of the oxide project is probably about somewhere about between 550,000 and 600,000 oz. So all this will be confirmed and will be the subject to press releases going forward. But we have a very robust project as we can see here from the numbers.
Slide 26, Current Activities (time=53m35s) ^top^
Next page. What are we doing? Well, we are have already started even though we are finalizing this deal with Mexican Silver and IAMGold and raising money. We decided to get a jump start last year and spend our own money. And basically we are in the process of co-coordinating Coffey Mining to come here in early June and look at the oxide reserves. The EIS, we have already got that in draft form and as I said we will be filing that shortly after the workshops with the local community. We will be doing an oxide mining study going forward. Obviously the oxide reserve estimate will be a snapshot in time. We'll have to do more work between now and development and with Coffey Mining's oversight we will do that study internally. Surface rights, as I said, we have 60% acquired to date. We have to buy the remainder. Archeological study. IAMGold started that. We are finishing that. There are no issues there with any significant archeological sites. Power study, as I said connecting the national grid out to Alto Chicama isn't going to be a problem. We just have to work out the cost of doing that and how we account for that in the capex.
Permitting, there is a permit at La Arena to do work. We will be renewing that permit so that we don't have any hiatus in any of the exploration we are doing, so that will happen as well. And because of what is happening in the industry we already have drill rigs on standby from local contractors ready to go on Geotechnical work and also on pre-production driling required for the start to go. So we are busy. We have been busy. Post merger we are even going to be even busier. When we say we are going to bring this project into production in 18 months we are pretty confident that is what is going to happen.
Slide 27, Exploration Potential, Gold Geochemistry (time=55m43s) ^top^
This next slide 27. This gives you a pretty good overview of the land page, you can see the blue line is La Arena. Let's just get something clear. We call the whole property La Arena but La Arena is actually a prospect, one of many prospects on the property and if you can read the text there, La Arena is the blue area sort of in the center of the property there, to the north we have another blue area called Maria Angola, to the south we have another blue area called La Florida. These are all prospects. We also have to the right of La Arena or to the east, we have Agua Blanca, you can see a blue triangle there. So this geochemistry. Gold geochemistry. You see why they targeted La Arean from the geochemistry that they did. But you can see significant other anomalies, at La Florida where IAMGold had drilled 5 holes, not enough to determined a resource. But 5 holes which carry the same sort of grades and intercepts that occurred at La Arena. La Florida is adjacent to La Virgen mine. The southern boundary of our property abuts the La Virgen Mine. Who knows, La Florida could be a continuation of the La Virgen ore body. We're not sure. We are going to have do more work. But sure enough we think that La Florida will probably host a standalone operation, oxide gold operation, dump leach or heap leach, I'm not sure yet. That will come out through the work.
Maria Angola. A very interesting area that is not dead. We noticed that on our recent site visit there are infomalies on that property which are local prospectors mining high grade gold. So they are a very good indicator that there might be something there so we need to go back there and have a closer look at Maria Angola. Agua Blanca we have oxides skirting another porphyry, the Agua Blanca porphyry, which I am going to show you on another slide, and there is one hold there about 70m of .7 g/t gold, so we think that possibly we can mine material at Agua Blanca and take it over to La Arena to put on the heaps at La Arena. So, big property, 21,000 ha of ground. So exploration but statistically only 25% of the property was being systematically explored. So we have a lot of work to do and a lot of up side.
Slide 28, Exploration Potential, Copper Geochemistry (time=56m22s) ^top^
If we go to the next slide, Copper Geochemistry. There we have a couple of interesting things. You can see La Arena there on the left. Obviously they encountered quite a lot of copper there but then across the valley there is a huge anomaly which is about 2km by 3km in size, which has never been drilled. And when we saw this anomaly, we though this looks pretty damn interesting. And we have talked with a number of geologists, friends and contacts about, and everyone gets excited when they see this map. Here is a copper porphyry that has never been drilled and it is within 2km of La Arena. So, very very very prospective.
Slide 29, Exploration Potential, Molybdenum Geochemistry (time=59m11s) ^top^
If we go to the next slide, page 29, you will see that copper is also associated with Molybdenum. Big copper/moly porphyry on the other side of the valley from La Arena that has never been drilled. So we have to weight up our options going forward as to what we do with this target. How we advance this target. And we are considering those options right now.
Slide 30, Exploration Potential, Agua Blanca (time=59m37s) ^top^
The next page shows you, page 30 shows you a photo of Agua Blanca. Here so here we are standing at La Arena looking across at the Agua Blanca copper/moly anomaly. So you can see from the topography if we do find economic mineralizations on that hill, getting down into the valley and across to La Arena will be pretty damn simple. We have a very very interesting target there on the copper/moly site.
Slide 31, Value Drivers (time=1hr5s) ^top^
So what are the value drivers for the company? Really getting into production as quickly as possible and developing aggressively as possible is what is going to drive our value. Intimating exploration at La Arena, La Florida and Agua Blanca is all going to add to value going forward. Staring with the copper at La Arena, doing a DFS eventually, will and also upgrading the inferred resources at La Arena, every component would add value to our company.
Long term growth strategy, doing the DFS, looking at Agua Blanca and looking at what Agua Blanca could be will add quite a bit, and also looking at other oxide occurrences on the property. And I must say there is geophysics on the property but not geophysics over Agua Blanca. There is geophysics on La Arena, there is geophysics on La Florida, there is some on Maria Angola but no geophysics on Agua Blanca which is quite amazing for such a big geochemistry target.
Slide 31, Company Comparables (time=1hr1m35s) ^top^
So just moving on to page 32. You know a lot of people show comparables. Normally analysts compare these comparable tables. Just to follow-up from what Feisal was saying, yes we have completed our US$3M financing. Contributors to that financing were US$1M from Mexican Silver Mines, about US$1.2M from IAMGold in exchange for the US$1M option payment, and the remaining US$800K, I think it is closer to US$1M were done through people we know. Weren't done through any brokers so we didn't get any broker help so we are pretty proud of that. So to do a comparable chart we have to compile it internally. We thought it wasn't too difficult so we looked at some comparable companies. You can see there their market caps in the 2nd column. There are companies doing business in South America, with similar sorts of deposits, copper-gold deposits, and if you look at the first red column, the Measured, Indicated, Inferred gold equivalent oz column, you'll see at the bottom we shape up with 10M oz of gold. That is the resource base at La Arena, on gold equivalent basis with US$750 gold and US$1.50 copper. 10M oz of gold equivalent. If you look at the companies above us there, we sit in the top 4. All right, we fit in with Exeter, Greystar, and Andrina Minerals. The rest are all sub 10M oz. If we look at the, we then start to look at the market caps, of these companies, and we look at the enterprise value, lets go to the red column to the right, you'll see the enterprise value there for each of those companies, and you'll see the range there but then you'll see our enterprise value there post merger of US$7M.
So this is a huge opportunities for a value shift. Investing in Mexican Silver Mines post merger should translate in a big value shift once we get this project forward. None of these projects are near production. Most of these projects, except for Greystar have finished their feasibility study in Columbia, but require huge capex to build the project. All of these guys are just drilling and they go extremely high valuations in comparison to Mexican Silver Mines post merger. With La Arena, we are going to move this company to other heights.
So, you can look at this table in more detail going forward.
Slide 33, MSM - Rio Alto Summary (time=1h4m30s) ^top^
Just wrapping up. I'll hand over to Feisal in a minute but hopefully what we have demonstrated from this presentation we have got a new board of directors that have extensive track record in creating value, we have a broad network of contacts through Latin America. We'll be looking at other deals. La Arena is a great focus for us but we'll have to build our project pipeline over the next few years. And we'll look at our contact base to do that. We have mine building expertise. from myself, down through my Peruvian team, we have been involved in the building mines in lots of different places in the world and also here in Peru. So, that the bases covered.
We have an asset in La Arena that has 60K meters of drilling. You do not have to drill one more hole. There is 4M oz of gold and 3Bn lbs copper. Remember on the equivalent basis with US$750 gold and US$1.50 copper we have 10M oz.
I believe that La Arena is one of the best mid-sized undeveloped gold/copper projects in Latin America today. I think from the statistics you've seen in this presentation, from the comparables you've seen, and you know from the fact we are going to be in production within 18 months, we've got one of the best mid sized undeveloped copper-gold projects in South America today.
And the exploration potential, well, what Feisal has been talking about re Mexico and what I've been talking about re Peru, I think we have got lots of room for growth. We are going to work hard as a board. We are going to work hard as a management team. We need shareholders to support us during the process. We are looking forward to your support. We look forward to talking to you more as we take this project forward. We are looking to update you with more information as we archive milestones. So, please be patient. Give your time and at the end of this presentation you'll see some e-mail addresses on the back of this presentation if you have any questions, at all, you'll also find numbers there. Call us direct. You'll talk directly to either Tony, Feisal or myself. You'll talk to people who call the shots. Give us your questions. Please make contact with us because we are an open book and we are working for you. So, now I'll hand over to Feisal to wrap-up and thanks very much for your time.
[Feisal speaking now] Thanks Alex.
Just a couple of summary points I'd like to make and then we'll open it up to questions. Here, the last couple of or three points on the slide, we are going to have about 80M shares with C$8M in cash post merger. One of our plans here is to also get another listing on the Lima Stock Exchange in Peru and potentially down in the states as well. One of the benefits we are looking at in the Lima exchange is there is a lot of capital available down there for Latin American type projects. It is available to be put into companies that are listed on Latin American exchanges. Here in North America we are going to be hitting the summer doldrums so to speak where traditionally the volume and activity in the market tends to die off in late June, July and August and coming back in September. Our plan is to get the dual listing in Lima fairly soon and allow our team to be marketing in Lima through July, August, and September providing additional liquidity and volume and hopefully appreciation in the share price coming into September and October in North America.
A couple of just summary points. Timing-wise, we are currently working through the definitive agreement with IAMGold. We expect to close that within the next week or so. As Alex has also mentioned the minimum financing is complete so we will close that once the definitive agreement is done with IAMGold and then we'll finalize the merger between the two companies. We anticipate all of this to be happening within 2 to 3 weeks and then we'll be able to proceed full force on getting through the community process and get the EIS filed in Peru on the project and have Coffey Mining take all of their information on the project to 43-101 level. We anticipate the new 43-101 on gold oxide to be completed in the next 2 to 3 months and then of course we anticipate the EIS to move towards an approval process in the fall and us move in towards on construction. So in the next immediately to 6 to 12 months you'll see a very aggressive flow of news releases, developments and milestones the company will be coming out with.
Some of the key points of the agreement with IAMGold is we get 100% of the cash flow coming out of the production. That cash flow will be used to towards the US$6M phase 2 capex. It will also be used toward the US$47.5M purchase price towards IAMGold. We are going to be a company that goes from being a micro cap exploration company to a within 18 months being between a 60M to a 100M oz a year producer. That equivalets to being a small to mid cap production company. So we hope the share price will reflect that leap to the next stage.
So with that I thank everyone for listening through. I apologies it has taken a little longer than originally anticipated but at this point I am going to hand it back to Joe who will co-ordinate any questions that anyone has for us.
... there were no questions.
Ok. Well, thanks everyone. And as Alex mentioned we are a company that is an open book. Our contact details are here on the powerpoint as well as the Web site and we look forward to receiving any calls or e-mails of any questions going down the road. And we look forward updating everyone here in the near future we progress. Thank-you very much.
Comments or corrections? Please send them to firstname.lastname@example.org
GoldMinerPulse screens blog comments before posting. Your e-mail address (and related e-mail header details) will not published and will not be shared with any other site.
Any mining companies visiting, please contact email@example.com if you are interested in having GoldMinerPulse produce a transcript for your future Web event -- audio is great but a written transcript is a more efficient reference.
Follow GoldMinerPulse at Twitter