One of Ecuador's largest private conglomerates with investments in everything from deep-water ports to real estate to agriculture has chosen Adventus Mining (TSXV: ADZN; US-OTC: ADVZF) and its Curipamba project as its first investment in the country's mining sector.
"I would equate them to Votarantim of Brazil, with fingers in everything," says Christian Kargl-Simard, president and CEO of Adventus Zinc. "We're talking about a company that employs as many as 6,000 people with several billion dollars of revenue a year."
The Nobis Group, known in Ecuador as Consorcio Nobis, is taking a 9.9% stake in Adventus Zinc -subscribing for $7.38 million of the company's latest private placement raising a total of $12.1 million at $0.876 per share.
Nobis is currently a one-third owner in a US$1.2 billion deep-water port under construction with one of the world's largest port operators, DP World, at Posorja, 120 km from the major port city of Guayaquil at the delta of the Guayas River. Nobis is also one of the country's largest agricultural conglomerates and its largest ethanol producer from sugarcane products; owns and operates energy plants; and its private and commercial real estate empire includes malls, hotels, resorts and apartment buildings.
"This is their first mining investment-they've been looking for three years to find the right vehicle-and they are going to work closely with us to build a Canadian-Ecuadorian mining company," Kargl-Simard says in an interview. "And of course they bring a lot of intangible benefits to us in addition to cash and that would be their reputation in the country ... and introductions to additional investors in Ecuador as well as potential for new projects and joint-ventures on mining projects that we wouldn't have an opportunity if they weren't involved."
Nobis' executive director, Roberto Dunn, will be nominated to the Adventus board of directors. The private group joins Adventus' existing strategic shareholders, Altius Minerals Corp. (TSX: ALS), Greenstone Resources LP, Resource Capital Funds, and Wheaton Precious Metals Corp. (TSX: WPM; NYSE: WPM).
News of the investment follows the release on May 2 of a preliminary economic assessment and updated resource estimate for Curipamba's El Domo volcanogenic massive sulphide deposit in the province of Los Rios, 20 km from the Pan American highway and a two and a half hour drive from Guayaquil.
The PEA outlined an open-pit mine life of 16 years with an underground component in years ten to fifteen. Average annual production would be 19,000 tonnes of copper-equivalent.
The majority of the current resource lies within 40-80 metres of surface; about 45% of the value of the project is copper, 40% is gold, and 15% is zinc.
The study estimated initial capital costs of US$185 million and life-of-mine sustaining capital costs of US$105 million. Payback is forecast to take about two years, based on metal prices of US$3.15 per lb. copper, US$1,350 per oz. gold, US$1.15 per lb. zinc, US$18 per oz. silver and US$1.00 per lb. lead.
The project's after-tax net present value at an 8% discount rate comes to US$288 million, the post-tax internal rate of return to 40%, and total after-tax cash flow over the first six years is expected to reach US$449 million.
"A lot of people indicated they thought this project was small, we have about 10 million tonnes of resource, but it's very high grade," Kargl-Simard says, noting that the life-of-mine copper-equivalent grade over 15 years is projected to be 4.9%. "This makes it one of the highest grade undeveloped copper projects in the world and you're seeing the impact of high grade on that free-cash flow."
He also notes that the 1,750-tonne-per-day project's C1 cash costs of US$0.96 per lb. copper equivalent are at the bottom quartile of cash costs, adding that given the deposit's big precious metals component a stream could be a large part of funding for construction.
"We think the PEA is pretty good," Kargl-Simard says. "Of course, these studies are rarely a catalyst for the share price, but it's a good base for us going forward."
The company incorporated all recent infill drilling in 2018 into the PEA, and El Domo currently hosts measured and indicated resources of 8.9 million tonnes grading 2.00% copper, 0.28% lead, 2.93% zinc, 2.56 grams gold per tonne and 51 grams silver per tonne. Inferred resources stand at 1.3 million tonnes averaging 1.52% copper, 0.20% lead, 2.25% zinc, 1.83 grams gold and 42 grams silver. Of the 8.9 million measured and indicated tonnes, 7.1 million are in the pit-constrained resource.
Adventus will complete a feasibility study and environmental assessment in the second half of next year. If it receives approval for its EIA in the fourth quarter of 2021, construction would take about a year, meaning commercial production could begin in the first quarter of 2023.
"That's as fast as we can push it and part of that is driven by our new vice president of projects, Gunther Sotomayor, who joined us from Lundin Gold and his experience in Ecuador," Kargl-Simard says. "He joined us in January and saw this as a great opportunity to build the next mine in Ecuador, because Fruta del Norte should be ramping up in the third quarter of this year."
Adventus is earning a 75% stake in the project from Salazar Resources (TSXV: SRL). Under the option agreement signed in September 2017, Adventus must spend US$25 million on exploration and development over five years. It has spent US$12 million.
The El Domo deposit is hosted in a juvenile volcanic-magmatic arc of the Paleocene-Eocene Macuchi Terrane. Sulphide mineralization is principally located at the contact between a felsic volcanic domeand overlying volcaniclastic strata and is generally flat-lying. It has been traced for about 800 metres in a north-south direction and between 350 metres and 500 metres east-west.
As far as mining jurisdictions are concerned, Kargl-Simard describes the federal government in Ecuador as "the most pro-mining government I've met in my life-it's startling how much they're supporting mining."
"They've done a great job of marketing the country to mining companies and the last piece of the puzzle is strengthening the constitutional court."
Indeed not all companies have had an easy time developing projects there, he concedes, and success and failure, like in many places, can hinge on where the project is located. INV Metals' (TSX: INV) Loma Larga underground project, for instance, has encountered some opposition from nearby communities, and in March, the company said it is evaluating whether it needs to relocate processing and tailings facilities planned for the site.
Loma Larga is in Azuay province, about 30 km southwest of the city of Cuenca. The center of the historic city is listed as a Unesco World Heritage site and is popular with tourists.
"In Ecuador the federal government controls the resources and it's theirs to make a decision on permitting a project-that is the law-but practically speaking there have been non-governmental organizations, anti-mining groups, etc. who have been trying to use regional courts to try to find loopholes in the system," he says. "So they need to close some of these loopholes so the situation at INV can't happen again."
"Every community has the right to consultations but it is consultation, not binding consultation, so that's a key part of it," he adds. "Some local courts have been using this to hold up projects so the federal government needs to streamline the law around consultation."
As far as social licence at Curipamba is concerned, Adventus "has not cut any corners," he says. "We had to spend significant time and money on social and community efforts."
To that end, the investment in the company from Nobis Group should also help win support. The 90-year-old family owned conglomerate runs the Nobis Foundation, which provides assistance to poorer populations in rural areas and also works on issues such as womens' rights and assisting women get into the workforce.
"They believe mining is the future in Ecuador and believe this is the time to invest in the sector."
Over the last year Adventus' shares have traded within a range of $0.66 and $1.16 per share and at presstime were changing hands for $0.90 apiece. The company has about 71 million common shares outstanding for a market cap of $64 million.