Latin American Minerals overcoming hurdles to get back on track

TORONTO (minignweekly.com) – Despite strong economic headwinds, several junior and midtier miners were able to advance projects towards near-production or into operation during the downcycle’s trough; however, plenty of others were less fortunate and had to retrench, mothball or even capitulate.

Other projects and operations fell into a grey zone. While the economics seemed viable and the deposits noteworthy, these projects faltered on poor planning or strategy errors – issues that would have damaged their prospects regardless of where the cycle was.

STUMBLING BLOCKS
Explorer Latin American Minerals fell within this category. Its Independencia operation had been designed to exploit the Discovery Trend within its Paso Yobai gold project, in Guairá Department, Paraguay.

On paper it looked attractive: more than 12 000 m of drilling undertaken since 2006, coupled with comprehensive soil sampling and surveying programmes. Gold was near-surface and exploitable using openpit methods.

The project was fully permitted, with state-of-the-art equipment bought and facilities built, including a fire-assay laboratory. 

Bulk-sampling operations got under way in February 2012. The goal was to generate cash flow for reinvesting into further exploration and exploitation, particularly at its six drill-ready targets at Paso Yobai. It also afforded a better understanding of the mineralisation involved.

The work confirmed mineralisation comprising veinlets with coarse gold. These were typically between 2 m and 10 m long and 5 cm to 1 m wide, averaging about 3 g/t gold. The company installed three heap-leach pads that came on stream in September 2014 and allowed for the processing of lower grades.

But the plan failed to deliver the expected results and the company fell into difficulties; debt and payables had grown to around C$2.3-million by end-September 2015, with a net loss of almost C$535 000 for the first nine months of 2015 .

The central problems related to mistaken operational parameters. “The operation has a lot of top-class equipment that just wasn’t configured properly,” said Hepworth.

Attempts to heap-leach fine-clay material were stunted because the material had not been deslimed. Processing costs started ramping up as a result.

“The production ran away with a lot of cash and that’s why it got into trouble,” company director Michael Hepworth told Mining Weekly Online. Stockpiled ore was left waiting to be processed and there appeared to be little forward momentum. 

NEW FOR OLD
Hepworth, together with Latin American Minerals chairperson and CEO Basil Botha, took up their positions at the company September 2015. They had been early investors in the company who had stepped away some years beforehand, but returned when asked to assist by one of the directors.

The pair assessed the company and approached its major shareholder, outlining a turnaround plan and winning the necessary backing.

The key was to deslime and vat leach. “The fine clay will be removed by desliming. You then have slurry in the vats and you push the cyanide solution through,” said Hepworth.

However, Hepworth and Botha requested boardroom resignations before reinvesting into the company, stipulations that they secured enough backing for.

The new management proceeded to offer a private placement that was oversubscribed, achieving gross proceeds of almost C$1.57-million on closing in mid-November. There was also a share price consolidation effective December 31, making one share the equivalent of ten shares held before that date.

Bank debt was reduced to about C$500 000, while Latin American Minerals sought a further private placement, the first tranche being announced on April 8, with the issuance of 1.91-million shares at C$0.12 a share, for gross proceeds of almost C$300 000.

The company also agreed to a streaming deal with SilverStream SEZC that provided $1-million in three future tranches. In return, SilverStream had the right to acquire 43% of Pasa Yobai output at a price equalling the lesser of $350/oz, or 80% of the prevailing market price of gold until 1 500 oz had been delivered.

The stream would then fall to 7.5% of production for the life of the project “The streaming deal is a vote of confidence in the project. These guys believe there’s sufficient gold there to do a streaming deal and streamers are always interested in the upside,” said Hepworth.

NEXT STEPS
The primary purpose of the streaming deal was twofold. Firstly, it would deliver sufficient cash for the company to reconfigure the mill and return the property to capacity. Secondly, it would allow Latin American Minerals to pay down further debt and focus monies on exploration.

There was plenty of material already to hand, Hepworth noted. This included tailings, which were attractive because the initial processing had left gold remaining. Low-grade stockpiles of more than 100 000 t were also available at about 0.5 g/t gold.

“And we’ve yet to get into the hard-rock side. They’ll also be considerably more material delineated when we start looking at the other targets, because this is an exploration story too. Those six other targets are drill ready,” he said.

Hepworth added that the cost of exploration in Paraguay was cheaper than in many other jurisdictions, with the company estimating about $30/m without lab work. “That’s pretty cheap when you compare it with other locations like the Yukon, where you might pay something like C$800/m.” 

The mid-term goal was to drill around 4 400 m to test targets to depth, while Latin American Minerals would also bulk sample at its Tacurú Block on the X-Mile trend. It also wanted to explore two other gold properties and its Itapoy diamond property with a view of possibly optioning or spinning-out.
 
“The exploration team found 78 diamonds in the time they’d been at the property. They’re clear and not abraded much. However, they’re small at roughly one millimetre by one millimetre in size. We believe it’s sufficiently attractive for a potential spin-out and that’s one of the things we’re investigating,” said Hepworth.

He further noted that the support for gold over the first quarter and into the current quarter was also a boon. “Every dollar that gold goes up goes straight to the bottom line, so it’s important. Projects or operations that were marginal at $1 100/oz can quickly become attractive and profitable beyond $1 200/oz,” he said.