www.minera-irl.com
Minera IRL Limited together with its subsidiaries (the "Group") is a Latin American precious metals mining, development and exploration company. Managed by a team of experienced mining executives, the Group's business was privately funded from inception in 2000 until listing on the London AIM Market in April 2007. Minera IRL Limited is currently quoted on the Toronto Stock Exchange (TSX:IRL), AIM London (AIM:MIRL) and the BVL, Lima, Peru (BVL:MIRL) stock exchanges.
The Group operates the Corihuarmi Gold Mine, is exploring the Ollachea Project, both of which are in Peru, and is also undertaking a feasibility study at the Don Nicolas gold project in Patagonia, Argentina.
Minera IRL: Ollachea gold project may be the 'company maker'
Record gold prices have been good news for Latin America-based miner Minera IRL (LON:MIRL).
The company has just recorded its most profitable quarter for three years on higher gold prices and better than expected output from its Corihuarmi mine in Peru, where costs also fell.
Executive chairman Courtney Chamberlain says Corihuarmi has been “a little gem” for the company since it opened three years ago and currently generates about US$40 million in annual sales on production costs of about US$13 million per year.
The profit coming from Corihuarmi runs the company and pays for the exploration and community development programme, he says, but adds it was never meant to be the “company maker” but to provide a springboard for the firm’s next generation of mines.
The “company maker” may be the Ollachea deposit in southern Peru, where Minera recently published a pre-feasibility study with the aim of production starting in the fourth quarter of 2014.
Chamberlain said the recent work had gone a long way to indentifying a very substantial project.
“We’ve been drilling there for three years, we discovered the deposit and have already got an indicated resource of 1.4 million ounces and 1.2 million ounces in the inferred category. It is open in all directions and will grow in size as it is an orogenic deposit and these are generally very substantial.”
The potential at Ollachea is also why analysts attribute an underlying value for Minera of between 117p and 124p per share.
Initial projections are for an internal rate of return of over 20% with $430 per ounce operating costs and nine years of life based on current reserves but Chamberlain is optimistic the mine will operate a lot longer.
The estimated returns are based on a gold price of $1,100 per ounce, which may look conservative in the current climate, but it is not out of line with assumptions other companies are making, he says.
“At anywhere near the current plus $1,700 the economics look fantastic for Ollachea,” he adds.
Minera is currently spending about $4 million per year on development, which will rise now it has committed to the full feasibility study, which includes a 1.2km tunnel into the project that will enable the group’s geologists to explore the eastern extension of the deposit by drilling from underground.
By this time next year the feasibility should be complete, the tunnel almost to the deposit and the company moving towards permitting says Mr Chamberlain.
The capital cost of the full mine development is currently estimated at $170 million, which will be met through debt funding and if possible more equity, though new shares will “need stronger stock markets and share price than we have at moment”, he adds.
Chamberlain says it is “very frustrating” that the share price has been so flat given the good news flow this year. From 100p in March the share price has drifted back to 70p despite the strong newsflow.
He says part of the problem may be misplaced political uncertainty in Peru. Earlier this year there was an element of concern with the election of Ollanta Humala as a new populist president.
However, he says the new government is off to a good start and has made very good appointments in key positions that are expected to ensure the country’s strong economic growth. The new regime and Minera IRL are closely aligned on social reform and community programs, Chamberlain added.
When it negotiated surface rights to Ollachea five years ago, Minera agreed to grant a 5% equity stake to the local community once the mine is established.
Still seen as controversial, Chamberlain says this model is now being regarded as a potential template for future developments in Peru with Minera increasingly being asked for asked for advice on how it was set up.
He is also relaxed over a new super profits tax, which he says is preferable to a royalty and, using the base case economics, has very little effect on the projected internal rate of return at Ollachea.
Elsewhere, the firm should shortly publish a pre-feasibility study on its Don Nicolas prospect in the Patagonia region of Argentina. The company issued a measured and indicated resource estimate of 382,000 ounces in August which will underpin the pre-feasibility.
Optimism is high at present. House broker finnCap expects total group production to rise from the present 30,000 ounces per year to more than 150,000 ounces per year by 2015 including first contributions from Ollachea and Don Nicolas.
Minera also has other prospects in Argentina and the plan going forward for these is “to drill a lot of holes” says Chamberlain.
He adds that the real expertise of the management, though, is in developing and operating mines, a process that he says he and other members of the team have been through before “a lot” in their careers.
“Exploration is important but that is just part of the team. If you have the deposits that can support the development and have contacts in the industry to bring in good people, it will fall into place quite well”.
