I've been through some market cycles in the junior mining sector, but I didn't always know what I was seeing when it was happening. Going back through news around a story is a good exercise to help you understand how things looked at the time with the benefit of hindsight. For example, Oroco Resource Corp. (TSXV:OCO) is bringing new life to the Santo Tomas copper porphyry and it's essential to look into the public history of the project.
You can find some consideration of a geological report on Santo Tomas in an article I published here. I liked what I saw, but had some big questions.
For a period of time, Santo Tomas owned by a company called "Exall". Read on as I go through a selection of old news releases from Exall as in this document. I provide some quotes from various releases that jump out at me and why.
The first release of interest was made on 1992-10-06, titled "Exall acquires major copper assets in Mexico". The key quote below sounds good as a starting point!
"Exall will acquire exclusive options on three properties in Mexico: the Santo Tomas, Verde Grande and San Martin... The most advanced among these properties is the Santo Tomas porphyry copper deposit. This is a geologic resource of 195 million tonnes with an average ore grade of 0.52% copper. The company believes there is strong potential within the concession area to expand this resource."
As you might expect from reading this quote, the company came out with another release 3 weeks later to "clarify reports on the total contained copper" in that first release. They emphasized that these are historical numbers and the project is only at the exploration stage. This next release provides some other juicy information, such as surface trenching samples, first mention of gold in the porphyry, and metallurgical testing.
The acquisition terms for Santo Tomas seem reasonable with 1M shares on closing, a half-million shares at PFS, and another half-million shares on production. The news release don't say if the company selling the project was a related party or not, which is always an important fact to consider.
Exall announced a major financing on the back of the Santo Tomas acquisition with $5.58 million announced 1993-03-19. This was a substantial amount of equity capital that could fund a lot of good exploration work.
On 1993-04-30 a month later, the company announced a "Contract on Santo Tomas awarded" was awarded to Kilborn. Presumably, this Kilborn company is associated with Mining Hall of Famer Roland Kilborn, but it's unclear from the release.
Next, we get a couple news releases titled "Year end review" on 1993-05-20 and an "Annual report" on 1993-08-25. The company first announced plans for initial production in 1995, then updated the target to initial production in 1994. That's an aggressive timeline!
What's more, the releases had even more aggressive economic forecasts as they noted that "Cash costs are expected to be below US$0.50 per pound." For the trifecta, they planed for a full feasibility study "to be completed by December 1993" on the oxide section of the orebody.
At this point, the company notes that the mineral resource is "currently estimated at 195 million tonnes grading 0.52% copper, of which 22.8 million tonnes are oxide material with a grade of 0.60% copper." That's a good place to be one short year year after acquiring the project, although it is a bit suspect as they didn't update the resource estimate themselves. Full-steam ahead!
There was no shortage of things to encourage the bullish in these results, as "Field work carried out by Exall has identified additional oxide zones and there is a high probability of expanding the oxide reserves." The news release on 1993-11-24 titled "Positive bioleach test at Santo Tomas" was encouraging, as well. The potential for bioleaching is great and I hope it is even more likely now, 25 years later.
Shoutout to EnviroLeach as the winner of PDAC 2018 Disrupt Mining event.
In November 1993, a news release mentioned that the full Feasibility Study was not going to be complete by December. They wrote, "A feasibility study is scheduled for completion in 1994 which will outline the best development parameters for the deposit." Fair enough -- delays are a matter of course in the mining business.
Almost 6 months later, we heard from the company on 1994-04-26. They mentioned that a pre-feasibility study had been completed, which was a surprise to me as I hadn't seen mention of it in any prior releases. I also found out that Exall's drilling had twinned some of the previously-drilled holes, although I don't see any mention of assays in any releases.
On 1994-05-11, Exall made a headline with a release titled "Copper reserves exceeds 7 billion pounds". Such a big number is possible with porphyry deposits like this, but still exciting. What's more, they mentioned "A high grade core (grades > 0.7% Cu) will be the target of early mining with minimal pre-stripping required." All of that makes for a good start, but it's important to note that "The economic evaluations, metallurgy and other portions of the study are being compiled at this time." All this over a year since the $5M equity financing.
In the same release in May 1994, the company mentions that "Mintec of Tucson, Arizona has completed its ore reserve calculations on the Santo Tomas copper porphyry deposit in Sinaloa, Mexico." It is good to see the company do some kind of resource estimate itself as the prior resources and PFS were based on work by prior owner, however, it's important to note that all this was before the NI 43-101 rules gave rigorous structure to the business of mineral resource estimates in Canada.
A few months later in July 1994, Exall has a release titled "Positive prefeasibility for Santo Tomas". This should have been a bit of a surprise for people watching the company, as it was a PFS almost a year after the full FS was expected. And all this after they redid their own reserve calculations in May 1994? It doesn't look particulary surprising in retrospect, but it is concerning.
The initial timelines looked overly optimistic and the PFS itself has a surprise as it is based on "A total of 14,881m of drilling data completed by Asarco and the company was used for the study." This misses out half of "total of 30,000 metres drilled to date" at Santo Tomas, as announced in the first news release on the project from 1993-09-17. I'm not a geologist, but it seems like an avoidable problem.
On 1994-08-24, the company announced that "Mexican government supports Santo Tomas development." I can understand that support and imagine there is still local support for it, almost 25 years ago.
Six months later on 1995-04-11, the company announces a "Santo Tomas progress report". Time continues to go by, but the company reports that they have accomplished work on "ore reserve definition, mine design and processing facilities." It sounds like they are doing the right thing, but it is starting to become clear that they are struggling as they note that "A number of options are being studied to complete a final feasibility and construct the mine. Further information will be released when available."
In passing, I will point out that this is a mega-project. At a mining rate at 40,000 tonnes per day and after-tax IRR of 14.7%, the "Capital payback is estimated at about five years with a mine life of 22 years based on the new pit design." It's appropriate that the 1995-06-02 release noted Santo Tomas "became the main focus of its activities" during 1994 because a big project like that requires heavy lifting!
Three weeks later on 1995-06-21, the company announced "Final feasibility at Santo Tomas to be completed". Again, it sounds like things are moving forward as the company announces "it is expected that further developments will be announced in due course." However, it's important to look where the rubber meets road: exploration and development work.
Exall originally planned for a full FS in December 1993. That was delayed as they revised the resource and PFS. It was now July 1995 and their release titled "Final feasibility at Santo Tomas to be completed" mentions a new player, Bechtel Corp, who offer to "build the plant under a fixed price arrangement and also provide mutually acceptable completion and performance guarantees. Bechtel Financing Services has indicated an interest in assisting Exall, to obtain financing for the project." It's getting a bit late in the race to be switching jockeys, but their reported interest in helping build the project is encouraging. What else?
Things continue to get interesting as the same release notes that, "Bechtel has agreed to provide its services at cost. The total cost of the detailed feasibility study, including various field programs, is currently estimated at $1.5 million." Sounds good!
In July 1995, there was an article in the Northern Miner and one line jumped out at me: "Mr Roman says Exall's real prize is Santo Tomas, where reserves exceed one billion tonnes, making it one of the largest copper-gold projects in the world." I wonder about the use of the term "reserve" there as my understanding was that you need a Feasibility Study to have reserves, but I understand that this was a different time before the NI 43-101 rules following Bre-X.
In 1995-09-27, the company had a release titled "6mo results". This had the most realistic statement about timelines yet with the line: "Given a positive feasibility study in 1996, 18 to 24 months of construction and production starting in 1998, Exall would have cash flow that year and be debt-free by 2003. The company's present efforts are being carried out with that goal in mind." This may be a bit of wake-up call for those who were originally sold on the idea of production in 1995?
Things got even more interesting with arrangement with Bechtel when company announce in same release from September, when we learned that "A positive feasibility study will result in Exall and Bechtel negotiating a lump sum turnkey contract to construct the mine and mill facilities. Bechtel would build the plant under a fixed price arrangement and provide completion and performance guarantees. If Bechtel is not awarded the contract to build the plant, Exall will reimburse the deferred services costs to Bechtel." Again, sounds good!
Hope springs eternal following the 1995-11-02 news titled, "Letter of intent between Britannia Gold and Exall Resources". First, the good news:
"Britannia Gold has executed a letter of intent with Exall Resources of Toronto, Ontario, pursuant to which Britannia has the option to earn a 60% interest in Exall's Santo Tomas copper-gold project in Sinaloa State, Mexico. Britannia will earn a 30% interest by assuming and making property payments and taxes of approximately US$1,500,000 and a further 30% by financing the preparation of an independent feasibility study to be prepared by an internationally recognized mining consulting firm to be selected by Britannia."
If you read that carefully, then you have to wonder about the $1.5M Exall requires to cover property payments and taxes. That comment should strike fear into the hearts of speculator as losing a project in this way is game over for a junior mining company.
Things got worse with sticker shock for the cost estimate of a new Feasibility Study at $5 million. It's tough to hear that in 1995, since they raised that more than that just 2 years prior but now couldn't afford the $1.5M in property payments!
They did some drilling and revised the resource estimate and PFS since that financing, but not $5 million worth. Without going to the financial statements from the company to see all the gory details, it seems clear that the writing was on the wall at this point.
One of the last releases I will consider was released on 1996-05-24 and titled "Year end results". This news came six months after the November 1995 news release where the company announced that "Britannia Gold Corporation agreed to finance the entire cost of a bankable feasibility study as well as undertaking all property liabilities".
Turns out that "on completion of its due diligence review, Britannia concluded the project's rates of return did not meet its investment criteria and the agreement was not concluded." Six months sounds like a long time to wait for such material information. Regardless, hope continues as "The company continued marketing its Santo Tomas copper gold project in Mexico in order to complete a final feasibility study."
Exall did careful work on Santo Tomas under leadership of CEO Steve Roman, son of a Mining Hall of Famer, but the wind went out of their sails with weakness in copper markets following the 1995 Sumitomo scandal and then the Bre-X scandal in 1997. They did a good job, but the project was lost to public markets after ownership shifted to a private company around 2001.
Santo Tomas was subject to reliable work by competent parties when it was owned by Exall, but this is not to be relied on now in the age of NI 43-101. With the historical resource estimates and pre-feasibility studies described above, Oroco Resource Corp. is positioned to do some meaningful work on Santo Tomas immediately as they bring the project back to public markets that are getting desperate for large copper exploration and development projects.
