Lumina Gold Corp (TSX-V:LUM, OTCQX:LMGDF) holds a near 7,000 hectare (Ha) project at Cangrejos which is among the top 15 gold development projects in the world and the largest primarily gold deposit in Ecuador.
At a time when the planet is turning increasingly to greener energy, it also notably hosts an awful lot of copper, which is a vital metal in renewable energy systems. On the same theme, the project finds itself in an area that relies on green hydropower.
Cangrejos hosts 10.4 million ounces of gold and 1.4 billion pounds of copper in the higher confidence indicated category and 6.7 million ounces and 0.8 billion pounds, respectively, in the inferred category.
A preliminary economic assessment (PEA) carried out in 2020 was based on a 366,000 ounce-a-year operation over 25 years, which showed a net present value (NPV) of US$1.6 billion at US$1,400 per ounce gold and US$2.75 per pound (/lb)copper, and an impressive US$2.5 billion at US$1.680 an ounce and US$3.30/lb. Gold and copper prices currently stand at US$1,896 and US$4.55 so the metrics speak for themselves. The costs are also low - at US$604 per ounce all-in-sustaining-costs (AISC).
The company is currently drilling to upgrade the resource and advancing a pre-feasibility study, being led by engineering giant Ausenco. Notably, at the tail end of last year, the company inked with the Ecuadorian government a key Exploration Investment Protection Agreement (EIPA) concerning Cangrejos, which included an investment commitment by Lumina totaling a minimum of US$36 million between 2019 and 2024, while the government pledges to maintain legal certainty and stability for the investment, as well as to provide non-discriminatory treatment compared to other similar projects.
Proactive recently sat down with CEO Marshall Koval to dig a little deeper into this emerging mine developer.
Proactive: The credentials of Cangrejos speak for themselves. What work is currently going on at the site?
Marshall Koval: So what we're doing right now is we're advancing the project to the pre-feasibility (PFS) level. We've got an engineering team in place. We are in the field doing infill drilling and step-out drilling. The step-out drilling is to further define the second deposit - the Gran Bestia deposit. It looks like we're able to extend Gran Bestia based on some of the drilling we're doing right now. We don't have assays in but we have mineralization continuing in the step-out area so that's pretty promising. And at Cangrejos, we are primarily doing infill drilling to bring the confidence of the 2020 PEA resource up to an indicated or measured resource level. And on the engineering side, we are doing quite a few trade-off studies looking to optimize initial capital of the project, which was about a billion dollars in the 2020 PEA.
How are you aiming to try, via the pre-feasibility study (PFS), to optimize capital and operating costs for the Cangrejos operation?
Yes, we have Ausenco leading the PFS; IMC doing the mining engineering; and Wiley & Norrish doing the geotech pit slopes. If you take the Gran Bestia deposit, with this step-out drilling, even though Gran Bestia has a very low stripping ratio, if we are able to add additional ounces, it will lower the stripping ratio there and that helps the project economics. We are also looking at a process flow sheet and optimizing that and trying to get recoveries higher. We are also going to be doing another metallurgy program. Gold recoveries in the PEA were about 82% and we're hoping that we can get a few percent higher with an optimized flow sheet. We are looking at flow sheet optimization from a cost perspective as well.
And when the PFS comes out, earmarked for early 2023, what happens then? What are your plans after that?
The PFS is pretty important from a number of aspects. Obviously, it shows the de-risking of the economics of the project but it also helps with permitting the project in Ecuador. Once we have a PFS in hand we can start permitting as well as negotiations with the government on a term sheet for an investment protection agreement.
We just signed one of those for the exploration stage a few months back for our expenditures to date, but the next phase, once you have the PFS, you can enter into a term sheet that defines the investment - your royalties, your tax rates, all that stuff with the government, and then you'll use that in your feasibility study. And then in parallel, we will be able to go ahead and start some of the permitting.
What are the advantages/challenges of working in Ecuador?
We have several things that are advantageous compared to other Andean mining projects, particularly a large-scale gold-copper porphyry project closer to infrastructure than most. We are near the coast. We're about 40 kilometres (km) in a direct line from the nearest port, where the Mirador copper mine is already shipping their concentrates from, so that's a transportation advantage. There's minimal social impact. Mirador is trucking their concentrates 300 km across the country - we don't have to do that. We are at low elevation - 1,300 metres is the highest point. We don't have any communities directly on the project - that's advantageous. The country also has low power costs and a low diesel price. The country is an oil producer so there's industrial, commercial level production. Companies in the country, across all sectors, have lower fuel prices. We don't have any local communities on the site. Our nearest communities are about 8 km away. We have good working relationships with them.
I wouldn't call it a negative but a challenge for a lot of investors is how they view Ecuador from a geopolitical risk perspective. The current Guillermo Lasso government is very supportive of the mining sector and they see it as a function of the economy that's critical to the country going forward. Also, sometimes the permitting is a little bit slower than you'd like to see, but I think as they get up to speed as a country, hopefully, things will improve. It has continued to improve over the three elected governments we have seen since 2014.
Is it your plan to take the Cangrejos mine into production or are you're going to leave that to others?
The strategy of the Lumina group, if you go all the way back to the Lumina Copper days that I started with Ross Beaty in 2004, was that we had a whole series of companies and the strategy was to take on these larger projects, de-risk them, add value along the way, and then move them on to somebody that would put them into production. Having said that, our group (Lumina Gold) has the capability, if that strategy didn't pan out, to build the project. But the business plan is to de-risk it and move it on to somebody that would produce it. This is a project suited to an intermediate or major company in production scale.
What do you bring to the company as its CEO?
Wow, you put me on the spot! Well, I've been in the industry since the late 1970s. I've been on all sides of the industry. I did a lot of work as a consultant for banks on non-recourse project finance, M&A as an independent engineer when I ran the engineering company Pincock, Allen & Holt. At the end of the day you have to be able to finance these projects and you have to do work to a level that can pass the rigor of due diligence from entities that would finance the project. Beyond that, I worked for major mining companies so I have a pretty broad skill set in the technical side of the business. But I also have good experience in the capital markets. So I would say that those are the things that I bring to the table plus 42 years of experience in the industry.
If you were pitching Lumina Gold to investors, how would you sum up what an opportunity it is?
I think probably one of the best things I can look at is the value disconnect that we see and this is one of the main reasons to buy Lumina Gold. In 2017, we put our initial resource out of about 4 million ounces. And if you fast-forward to today, we grew the resource four times'. And if you look at gold performance over the period, it's gone up over 50% but our market cap is level. We're still at about C$200 million market cap. So I think as we advance and de-risk Cangrejos, we should see it come back into a better P/NAV ratio compared to our peers. We're trading below our peers by quite a bit - about 0.14x P/NAV versus Western developers at about 0.4x, so I think there's upside from an investment perspective in that regard. We should also have regular news flow all the way to the PFS in 2023.
Contact the writer at giles@proactiveinvestors.com