Herencia CEO Bohm speaks about new investor Nyrstar

Mike Bohm spoke in detail yesterday about Herencia Resources' (LON: HER) new major investor and why he was not prepared to sign an off-take agreement for the zinc from the firm’s Paguanta project in Chile.

The Herencia chief executive was upbeat about the deal with Belgian zinc and lead smelter Nyrstar, which has acquired a 10.4 per cent stake in the junior miner and a seat on its board.

"They believe in the asset," Bohm said. "Nyrstar also believe in the upside and they know us. They are a serious player in the market."

The sale of new shares brought in £750,000 of fresh cash. But there were also some tense negotiations as Nyrstar attempted to acquire the rights to the output of Paguanta, which is slated to go into production in 2012.

Bohm said he resisted overtures from the Belgians because he wanted  an ‘ace’ up his sleeve, adding:  "I want that off-take agreement to bring some competitive tension. Whatever we do has to be in the best interest of Herencia."

The mining chief was speaking on the day of the company’s annual meeting in London, at which he updated investors on the progress in Chile.

This included giving a more detailed timeline on how the group plans to get Paguanta into production in two-and-a-half years.

A feasibility study begins in the fourth quarter of this year along with an environmental assessment and the commencement of permitting.

The third quarter of next year should see the completion of the feasibility study, which will cost around US$8 million, though 30 per cent of that bill will be borne by Compania Minera Paguanta, the company’s joint venture partner.

An equity fundraiser is one funding option for meeting the expense, though there are alternative sources of funds. "It is no secret that a range of people have contacted us (with financing options)," Bohm said.

At the same time Herencia will also begin to consider project financing of the mine and its equipment, which was slated to cost US$56 million, when plans were originally drawn up in 2008.

Bohm hinted that this figure might actually be lower. The global financial crisis has obviously had its impact on price of new plant and machinery.

However the Herencia chief executive said he would not  be averse to buying second-hand where it is practical and appropriate.

‘I don’t think we can get costs down 30 or 40 per cent, but we can get them down,’ Bohm added.

With a keen eye on the firm’s overheads, he said the group was pressing on with plans to determine whether Paguanta’s ore can be broken using dense media separation. "DMS might present an opportunity," Bohm added, though company is not budgeting on using this method.

Paguanta is a zinc, lead, silver and gold project in northern Chile. However, Bohm was very candid when he admitted the development was what he called an "option on the zinc price".

Analysts are split over the direction of the metal, which is trading at just over US$1,800 a ton.

"If you believe the Chinese (expansion) story then this is an eminently bankable project," the Herencia chief said.
However at least one leading forecaster predicts the price will remain flat over the medium term.

Paguanta covers 39 square kilometres and is made up of 14 granted mining licences on the northern part of the Chilean copper belt.

With assay results due this month the company hopes to update its JORC compliant estimate of reserves by September.