Interview with Merlin Marr-Johnson, Executive Vice President of Salazar Resources (TSX-V:SRL).
Salazar Resources is an Ecuadorian exploration company. In our last interview, we discussed how this gold explorer had farmed out its first copper-zinc-gold asset, the El Domo Curipamba VMS discovery. The PEA shows an economically viable resource. The company is fully carried for 25% and receives US$250,000 in advance royalty payments (to a limit of US$1.5M), additional recurring management fees standing at over US$350,000pa, and was also given the ability to lease out their 3 drills. At the time, they had c.$5M in the bank to continue exploration and consideration of M&A options. Salazar Resources has 3 additional copper-gold assets at varying degrees of licencing. Adventus has a 75% option on project, obtained by funding CAPEX of US$25M over five years. Fully carried for 25%, and receiving annual cash payments. Interesting. A Feasibility Study will be completed in 2022 for El Domo Curipamba, and lots of metallurgical work has been carried out. The aim is for production in 2024, possibly late 2023.
We really like project diversification and commodity diversification. It helps mitigate risk by removing a company's reliance on a single asset performance. So, in addition to running the copper-gold side of things smartly, Salazar Resources has a zinc-exploration JV that falls within the Adventus-Salazar Exploration Alliance that contains two projects, Pijili and Santiago. Salazar Resources has no activity-funding burden at Pijili or Santiago because Adventus must provide 100% of development and construction expenditures up to a construction decision. Exploration activities of the Alliance are carried out by Salazar on a cost +10% basis.
It's a good solid model: Salazar Resources can seek out exciting copper-gold and zinc projects, then get other companies to foot the bill. CEO, Fredy Salazar is an ex-Newmont team leader in country and Salazar Resources.
Lots of green lights here, but what about concerns and possible red flags? Ecuador a mining jurisdiction making changes to mining code. The permitting process, both water and environmental, is slow. In light of this, Salazar Resources has been quite slow to deliver on exploration ambitions in the last 18-months due to Ecuador-wide permitting issues. Like in many countries, the mining industry has some social issues in Ecuador, with the usual vocal protests and populist sentiment. However, the administration itself is very pro-mining. Another issue is that the board is a little burdensome.
Perhaps the primary reason behind Salazar Resources' share price stagnation is the issue of a lack of liquidity in the stock. Marr-Johnson and the rest of the Salazar team are clearly aware of this. Marr-Johnson was steadfast in his response: all the team can do is get out there and tell the story to prospective investors, and continue delivering results. We feel Salazar, and in particular, Marr-Johnson, have communicated the value proposition effectively. It's up to investors to listen and decide if they think Salazar Resources is an Ecuadorian winner.
Moving forward, what will Salazar Resources do with its US$3.5M cash? Exploration is planned. Potential catalysts in 2020 will be drilling on the 3x 100%-owned exploration licences: Rumiñahui, with copper-gold porphyry targets, Macara Mina, with VMS targets, and Los Osos, with copper-gold-silver targets. The big decision the Salazar face is to select which of their 3 assets they are going to select to develop; the other 2 likely then farmed on on a similar basis as El Domo. There is a lot to like about mining in Ecuador and lot to like about this business model.
Interview highlights:
- Company Overview
- Business Model: Uniting the Different Components
- Partnership with Adventus Mining: Terms, Conditions and Benefits. What Did They See in Salazar?
- Timing Value Creation
- Upcoming Exploration and VMS Deposit Potential
- Plans Going Forward: Focus and Money Allocation
- Ecuador as Mining Jurisdiction: Mineros Conquering the Pitches
- Solving Liquidity Issues
- Catalyst Moments and the Future for Salazar
Company page: https://www.salazarresources.com/
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