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Metminco Ltd: THE INVESTMENT CASE

Metminco Ltd branches out into gold in Colombia

The portfolio at Quinchia covers 6,043 hectares (Ha) of granted concessions and an additional 3,792Ha of pending applications
Metminco Ltd branches out into gold in Colombia
INVESTMENT OVERVIEW: MNC The Big Picture
Previous owner Mineras Seafield spent US$29mln on exploration at the project

Copper explorer Metminco Ltd (LON:MNC ASX:MNC) has moved into Colombian gold with the acquisition of the Quinchia project.

The portfolio at Quinchia covers 6,043 hectares (Ha) of granted concessions and an additional 3,792Ha of pending applications and contains a number of deposits and exploration targets including Miraflores, Dosquebradas and Tesorito.

Miraflores has measured and indicated resources 72.6mln tonnes at grades of 0.78g/t and 1.52g/t, with a further 3.76m/t at 0.51g/t in the indicated category.

Previous owner Mineras Seafield spent US$29mln on exploration at the project before its parent went bust just before completion of a feasibility study.

A technical report based on that work looked at a small mine operation at Miraflores producing 504,000 oz of gold and 280,000 silver from 12 years of operation at an all in cost of US$682 an ounce.

Metminco believes it can substantially reduce the costs in the technical report.

In addition, it sees scope for further discoveries at Tesorito and in the surrounding Quinchia licence area, which has already seen a number of large mines developed.

The consideration is 50mln shares at 0.5p in an initial payment, with a further 350mln shares on settlement along with A$0.5mln cash for costs already incurred.

There are also staged payments of A$7mln up to the point a mine opens at the licence after which a further A$7mln royalty payment becomes due.

What the boss thinks 

William Howe, managing director, spoke to Proactive Investor’s about the deal.

Why Quinchia?

“We have been looking for an acquisition in South America for some time.

“People here [at Metminco] have a lot of experience in gold from South African mines and are comfortable with it.”

What’s the strategy?

At MiraFlores, we intend to optimise the mine plan, reduce the mine life to 9 years to 12 years and boost production to 56,000 oz annually to reduce costs.

What’s the potential?

“The real story at Quinchia is Tesorito, only 800m away.

“It’s a porphyry gold system where the last drilling has one hole with 284m running at 1g/t gold from top to bottom.

“Potentially it’s a multi-million ounce deposit”.

 

What the broker’s say

SP Angel: Metminco has acquired a substantial package of exploration projects in a known gold belt hosting major gold deposits.

“The resources defined by the previous owners are relatively low grade, however, Metminco has proved adept at redefining its own Los Calatos project in Peru in order to enhance the economics through adjusting the scale of mining to improve capital and operating costs.

“They will now to be able to deploy these skills at Quinchia.” 

Metminco has already identified potential to reduce the initial capital costs and sustaining capital of US$83m and US$123m respectively by more than 25%. "Operating costs are also anticipated to significantly reduce".

Los Calatos

Elsewhere, Metminco has already shown its flexibility at its Peru copper project Los Calatos, where it responded to changed economic circumstances in the mining sector with a new development plan.

An initial study was completed in July (2015), but that work was improved upon in an optimisation study that delivered a 57% increase in the project’s net present value (NPV) to US$447mln.

Under the new plans, Metminco would mine 134.4mln tonnes of ore grading 0.89% copper and 0.036% molybdenum.

That would in turn lead to production of 50,000 tonnes of copper in concentrate per year on average, or a total production over the life of the project of 1.1mln tonnes.

Earnings before interest, tax, depreciation and amortisation (EBITDA) would then ring in at a hefty US$3.82bn, generating an internal rate of return (IRR) of 16.6%.

A key metric, cash operating costs per pound of copper, is set at US$1.29 per pound, significantly lower than the prevailing price of US$2.44 per pound.

Pre-production capital expenditure is a hefty US$665mln and Metminco is looking for a partner to take the project forward.

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Metminco Ltd Timeline

Newswire
March 30 2016

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