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Transcript: Adventus Mining (ADZN) - Planning for Near-Term Wins

April 27 2021, 12:32 GMT+01:00

Adventus Mining Corp.

  • TSX-V: ADZN
  • Shares Outstanding: 131.74M
  • Share price C$1.09 (26.04.2021)
  • Market Cap: C$133.76M

Interview with Christian Kargl-Simard, President & CEO of Adventus Mining (TSX-V: ADZN).  Adventus is a public company focused on copper-gold exploration and development in Ecuador. Adventus also owns a portfolio of exploration projects and equity investments in Ireland and Canada that are funded by commercial partners.

Adventus Mining chose to go to Ecuador three years ago as they were excited about the geological potential of the country and believe that it is the best place to look for copper in the world. The company has a platform of Copper-Gold projects including their most economic Copper development project, the El Domo deposit which is advancing towards production.

We Discuss:

  • 2:17 - Company Overview
  • 3:19 - Mining in Ecuador: Country Risk & Politics
  • 6:48 - The History of Adventus & Team Track Record
  • 9:48 - Getting Financiers Comfortable with Ecuador
  • 12:26 -Agreements & Relationship with Salazar Resources
  • 17:42 - Curipamba Project: Processes, Timeline, & Potential Issues
  • 23:37 - Money Matters: Cash Position, Burn Rate, & Allocation
  • 25:06 - Focus, Model, & Vision: What's to Expect & Get Excited About?
  • 31:49 - Curipamba Project & El Domo Copper Numbers
  • 33:02 - The Pijilí Project: Potential & Situation with the Trading Halt
  • 36:59 - The Future: Differentiation & End Goal
  • 41:35 - Plans & Options for Zinc

Matthew Gordon: Christian, how are you, sir?

Christian Kargl-Simard: I’m doing well. How about yourself?

Matthew Gordon: Not too bad. Been really keen to get you on for ages. Not least of all because we’ve had one of your partners, Salazar Resources, on here so we know a little bit about you. I feel we’re neighbours already.

Christian Kargl-Simard: I know, I’ve been watching all the Merlin, Freddy Salazar, interviews with interest. Hopefully, I can add something new. Also, some of our investors have been on. I know you’ve had Brian Dolton at least once or twice on from Altius as well.

Matthew Gordon: Yeah, good guy. A really good company actually. We’d better do some pleasantries. Where in the world are you talking to us from?

Christian Kargl-Simard: I’m in the ghost town of downtown Toronto now. There’s no one here. I broke protocols to go into the office to do this call. Yes, downtown Toronto. 

Matthew Gordon: Fantastic. Hopefully, you don’t get discovered, and you get home okay. We’d better kick off with the obligatory 1-minute overview of the business for people who are new to the story and I’ll pick it up with some questions from there.

Christian Kargl-Simard: Sure. Adventus chose to enter Ecuador 3-years ago. We could have built a business anywhere in the world. We had the financial backers to do so. We were excited about the geological potential of the country, like everyone else, I think. We see Ecuador as Peru and Chile 50 to 75-years ago and we were fortunate to partner with Freddy Salazar, the most successful explorer in the country, to build a Copper business. Ecuador is the best place to be looking for Copper in the world, in my view. What we’ve put together is a platform of 3 Copper-Gold projects. We happen to have the most economic Copper development project in the world in El Domo. We’re pushing that as fast as we can to construction, and while we do that we’re exploring for major new discoveries as well.

Matthew Gordon: Brilliant. Okay, I appreciate that. We’d better talk about country risk. People look at Ecuador, they don’t know it so well, it’s worth discussing. They’ve just had some elections there. Did the right guy win, and what does it mean for mining?

Christian Kargl-Simard: We were actually agnostic going into this final round of elections. Both candidates were going to be positive for mining, although with very different ideologies. Arauz was representing Correa’s party, so obviously left-leaning, maybe closer ties with China, but still a pro-mining mandate. There were going to be some advantages to such a backdrop. Lasso though is also pro-mining, pro-foreign direct investment, pro-IMF, so there’s a big IMF loan now to the country. That was important to see. He’s a former investment banker so really understands the difficult financial position the country is in and what the levers are to get out of that. Mining is really the key driver going forward. Lasso won a few weeks ago at the election. He has already publicly stated that he wants to reduce the value-added tax, which will be important for our project. It reduces the upfront capital. And he’s talking about removing the tax on currency outflows from the country that should reduce our project financing cost of capital. I would say it was a positive outcome. The international bonds of Ecuador rallied quite hard after the announcement and I believe all of the mining stocks connected to Ecuador have done well since then too.

Matthew Gordon: Did it matter who won? I know you said you were agnostic but did it really matter who won? I’m trying to understand, there are certainly a lot of people watching this that won’t be following Ecuador closely, let alone the politics. These are planned elections, there’s nothing erratic about it. It’s a democratic country. Is there anything for anyone to be nervous about in terms of the South American factor?

Christian Kargl-Simard: There’s always the South American factor. Governments go right-left, left-right, centre every election period. I think the most interesting thing going on in South America is what’s going on in Peru right now. That’s a risk. In Ecuador, as mentioned, either would have been fine. I think if Arauz had won, it would have been quite negative for the international bonds, to the country ratings. It would have been more difficult for Ecuadorians to access capital. It would have been potentially quite bad for the country. That said, likely with some higher taxes, certain projects could probably move quicker forward under Arauz’s government than perhaps with Lasso. The pros and cons are probably less obvious for the mining sector but much more obvious for the overall country from an international view into the country.

Matthew Gordon: Okay, I appreciate your view of the recent election results. I want to talk about you guys. Who are you? Why have you got someone like Brian backing you? What have you done before?

Christian Kargl-Simard: Sure. I’m a British Columbia raised kid, out of Kelowna, Vancouver BC. A metallurgical engineering background; I worked in the industry for several years for a company called Dynatec Corporation, which got sold to Sherritt in 2007. Moved to Toronto in 2007. I was an investment banker for about 10-years in the mining sector. that’s really all I know. Brian became one of my best clients. I was his financial advisor on multiple transactions, probably the one that maybe many of you might know is the Chapada Copper Stream that Altius transacted on that ultimately could be one of the best streams ever done in the mining sector. A deep friendship and relationship with the Altius group, and I was fishing with Brian in the summer of 2016. He proclaimed at dinner to a group of strangers that I was going to be leaving investment banking and running Adventus. He never even talked to me about such a concept, but he’s been a believer in me, convinced me to leave investment banking, and he and I have put together the shareholder base that we have today, and had the trust in me to build a business, somewhere in the world, somewhere in base metals. That was how it all came about.

Matthew Gordon: Okay, great friendship. Maybe some wine was involved. What’s the relevant experience? How did you put a team together and why, you said earlier, you could have worked anywhere in the world, but you selected Ecuador? Give me the back story to that. 

Christian Kargl-Simard: We were a base metals developer. We clearly wanted to get into the base metal space. The backers that we put together when we IPOs were Altius together with Greenstone, a private equity group in London. Resource capital funds, John Tognetti, the chairman of Hayward. That group notionally was backing us for a few hundred million dollars. For the first year out of my condo, we looked at 240 assets in 25 countries. We put several billion dollars of proposals on the table and after all of that, I went to the board and said, ‘We want to pivot into Ecuador.’ I think they fell off their chairs in the first discussion about that. But they quickly got comfortable with it. In late 2017 we transacted to go into Ecuador. All of the major investors supported us. Since early 2017, we’ve raised $100M in equity in the public market. It has been a very interesting ride. Definitely would not have guessed we would be pivoting into Ecuador when this company was formed or talking about building a mine in 2022 but we have assessed situations, made the right decisions, and then continued to build as we go.

Matthew Gordon: Tell me about that. You had a bunch of sophisticated financiers in the mining space, and you go, ‘Hey we’re going to Ecuador, buckle up,’ and they fell off their chairs. You can see why the market might be a little bit slower to react too. How did you get them over the line? How did they get comfortable? What did you say to them?

Christian Kargl-Simard: Let’s take a step back and see how Ecuador has transformed in the last few years. It’s gone from a country pre-2014 that you wouldn’t touch, then Lukas Lundin came in, bought Fruta Del Norte, created Lundin Gold, and really solidified the new platform in Ecuador for mining. Since then, you’ve got Lundin Gold in operation with Fruta Del Norte. That’s been a fantastic success. They’ve done everything right. It’s exactly what the country needs to see. A solid modern responsible mining operation. Also, the Chinese government has built a large open-pit Copper mine called Mirador. There are those examples in-country but it’s not only us that have been attracted to the geological potential of the country. Most of the major Australian companies are there and I think one of the most interesting stats I like to say is, over the last 10-years, most years in Latin America, money raised in the TSX was going to Peru and Mexico. They were perennially the 1 and 2 in terms of money raised on the TSX. Over the last 3-years, Ecuador has been number 1. There’s been an understanding and appreciation of Ecuador and the ability to operate there, etc. SolGold has been a big success there; Solaris has been recently. That all plays into the decision of the board. It is an up-and-coming jurisdiction that investors are interested in. The second part of it is just the willingness of the government to grow the sector. It’s been the most proactive government I’ve seen in the mining sector. Thirdly, it’s about the social licence to operate. It’s always about that but that comes down to Freddy Salazar and the good work that he does. For one, he’s the top explorer in Ecuador’s history. Why not get aligned with him? I have a long-term relationship with him as well. Embedded trust. Also, he’s Ecuadorian, his team is Ecuadorian, he built strong, social licences to operate around the projects, and our board was comfortable with that. Comfortable that we can actually build a company around these assets.

Matthew Gordon: Okay. Let’s talk about Freddy Salazar and Salazar Resources the company because you’ve signed agreements with the company, not just Freddy, right? Can you talk to us about what that relationship looks like? You’re the operator. You’ve picked up a couple of their projects. You’ve also got some options over more Zinc-focused projects going forwards. What have you established there? What does that relationship look like?

Christian Kargl-Simard: I was a young investment banker. I went down to Ecuador in about 2009, right after El Demo had been discovered. That’s where the relationship with Freddy started and I think he would tell you that I’m one of the few gringos he’s trusted over the years. It was easy to go back to Freddy in 2017 to restart discussions and see if there were deals to be done with them. I happened to enter a process that he was running to find a partner, and there were multiple interested groups at the table, but I also knew what he was looking for and that gave me a leg up on the competition and why we got a deal done initially at Curipamba, and then we expanded that deal because I knew of his team’s success in the country, I knew he had a good nose for finding new projects. We wanted to expand that relationship more than just Curipamba, and we put together something called the exploration alliance. Initially, we created exclusivity over any projects where Zinc was a top 2 metal. There’s got to be Zinc all over Ecuador. It’s never really been looked for but as the relationship has continued to strengthen, and I view Salazar and the team there as personal friends of the family, we have that trust to look at all the metals and all types of projects in Ecuador. If you look at the first 2 projects that went into what we called the exploration alliance, they’re both porphyry exploration districts. We’re working together on all aspects. They have some very attractive 100% owned projects that they’re moving forward with. They’re not exactly the types of projects we’re looking for. We’re looking for large Copper porphyry projects primarily. But I would expect us over the next few years to add more projects to that exploration alliance and continue to grow that relationship. It’s a different type of joint venture than most. I would say it’s the best functioning joint venture I’ve ever seen and they’re much more involved in the day-to-day than you would see in a traditional joint venture arrangement. We’re aligned incredibly well economically by the deals that we have and the synergy between what we bring, and what they bring is very clear. We continue to work that way to a common goal.

Matthew Gordon: Tell me about that. In fact, if you don’t mind firming up on the detail of exactly what the agreement is? They’ve got a 25% free carry, and they get paid a management fee. You’re the operator but they get paid a management fee. Can you just tell us a little bit about that, again for people who might not have heard this story? Let’s get a little bit of detail there.

Christian Kargl-Simard: At Curipamba, the deal is we have to spend $25M in the ground over 5-years and deliver a Feasibility Study to earn a 75% interest in the project. We are 3.5-years in, and we’ve spent $30M, and will be delivering a Feasibility Study in October of this year. Then we’re required to fund 100% of the Capex to get to commercial production but in doing so, we can encumber 100% of the asset with debt, streaming, or other types of non-equity financing, and we have the rights to 100% of the off-take on the project, which is actually worth quite a bit of money. Once we get to commercial production, we get 95% of the free cash flow out of the project until all of our money is recouped. Then, it drops to 75-25. There is a preferential payback on our side by arranging the finance for the project but as you said, they get management fees because they’re very much involved in consulting and helping with us and the project. We have a preferential agreement to use their drilling company to drill our projects. We get a very good rate in Ecuador, but they’re also making some money off of that. In the case of our porphyry projects, it’s an 80-20 arrangement. We fully funded a construction decision. In that case, if we build something, they do have to pony up the 20% to build what likely will be a multi-billion-dollar asset. There’s a standard dilution formula if they don’t. In that case as well, their management fees payable for consulting, and their preferred drilling contractors, so they make money off drills. 

Matthew Gordon: Okay, interesting. Feasibility by October, so Q4 this year.

Christian Kargl-Simard: Yes. 

Matthew Gordon: Fantastic. Can you tell us about what you actually do at Curipamba, if you don’t mind, in terms of exploration to support this Feasibility Study or for other purposes?

Christian Kargl-Simard: Yeah, Curipamba is a Volcanic Massive Sulphide district. Typically, VMS as we call them occur in clusters. The Salazars and ourselves really have only focused on El Domo, which is the subject of the Feasibility Study. We have identified 15 new targets in the district through airborne geophysics that we flew for the first time a few years ago. Now is the fun time of testing these 15 targets, looking for new discoveries. We will be drilling another 4,000m this year, testing a few of those VMS targets around El Domo. We’re hoping for a new discovery there but the majority of the focus here is getting EL Domo to the position of starting construction in October 2022. What do we have to do before then? We are deep in discussions on a project finance package. I think this is really going to surprise the market. We have multiple proposals, but $175M is the average. There’s 1 standout, and I think you’ll see that likely announced before the Feasibility Study is out. Secondly, we’ve got the environmental social impact assessment. The environmental permit that we plan to submit to the government of Ecuador by September. That’s a $5M investment run by Knight Piesold covering baseline studies that have been going on for years. Then it’s a 9 to 12-month approval process from there, and there’s the Feasibility Study that’s coming out in October. Subsequent to the Feasibility Study is a full ramp-up of the execution team, detailed engineering, etc. We are very focused on building up the team and the capabilities and putting together the money to build this. Why wouldn’t you? You’ve got $4.30 Copper, $1,800 Gold, the IRR after tax is 60% at current prices. This is a best-case scenario for us. 

Matthew Gordon: It’s an impressive production schedule you’ve laid out, reading through. But what I’m intrigued by is what gives you the certainty around the mine permit timing. Have you fully sorted out contamination issues around the metallurgy, which you mentioned in the 2019 PEA? Mining is tricky, right? There are always going to be bumps along the way. What gives you the certainty around this aggressive schedule you’ve put together?

Christian Kargl-Simard: We built a team of professionals from major mining organisations that fill all of the key positions here, plus an owner’s team around the Feasibility Study. Guys that have built mines covering all the different disciplines. Even though our last study was a PEA in June 2019, we’ve been doing a lot of engineering, metallurgy, infill drilling, geotechnical drilling, all those things. Put together a Feasibility Study, that’s not to flip and sell to someone else. To actually build. Sometimes, you’re making decisions that don’t help the economics but help your ability to execute and de-risk execution. It’s these kinds of decisions that have resulted in a PFS that we completed internally at the end of December, that we’ve used to go out and get project finance. We got multiple proposals on project finance with the option of announcing that before a Feasibility Study is done. That’s unheard of. That’s a testament to the strong work that has been done and really the high-quality resource that we have. The execution has us starting construction in October 2022 and starting production in February 2024. It’s quite a small, simple project. Construction is around 15 to 15-months. We have a very good infrastructure where the project is. This is a schedule that’s been put together by our technical team, who have built multiple mines before. It assumes a 12-month permitting timeline. Our indications are that it could be as quick as 6-months, but we’ve assumed 12-months, plus some wiggle room in there as well. Everyone that has looked at our execution schedule including the project financiers don’t see many holes in it, but definitely, if there was a risk, it would be on how long the ESIA takes to get approved.

Matthew Gordon: Again, coming back to the met stuff, and your comment from earlier about how you can be a little bit less concerned about the economics, is that your attitude to your met solution?

Christian Kargl-Simard: I said I was a metallurgical engineer. There are other metallurgical engineers involved here. Since we took over the project, we’ve added several hundred million in NPV just by finalising the metallurgical flow sheet. There has been significant work done since the PEA; what we did was change our reagents, we changed grind size, we added a Lead recovery circuit. We locked in that flow sheet in the summer of last year so now the metallurgical program for the Feasibility Study is just variability work. It’s more for operations than anything else. We shipped 10t of material from an infill drilling we just completed to Kamloops BC to do several tonnes of that variability work. Metallurgy I would say has been the core focus of this project. It’s the core focus of any Volcanic Massive Sulphide project but in this case, we’re not only thinking about it from a Feasibility Study perspective but also operating it and building a geo-metallurgical model as well. I’m very comfortable with the metallurgy here. 

Matthew Gordon: With Curipamba, we’re talking VMS and you’ve got an exploration program. How much money - I know you’ve got quite a bit of money at the moment, haven’t you? What’s the number? 45?

Christian Kargl-Simard: Yeah, $45M of cash and investments on September 30th last year. We just filed the year-in financials yesterday. For December 31st, that number had dropped to $33M.

Matthew Gordon: Right, you’ve got a bunch of cash.

Christian Kargl-Simard: Yeah, we have enough cash to take us to a construction decision on the project in the first quarter of next year.

Matthew Gordon: Right, but we’re focused right now on the VMS projects at Curipamba. How much are you going to be spending? Sorry, we talked about exploration but not about how many more metres you think you’re going to need to drill.

Christian Kargl-Simard: We spend 85% of our money on El Domo development permitting and everything associated with that. We have 15% to 20% assigned for true Greenfield’s explorations. The lottery ticket upside in the company. We have 4,000m of exploration drilling around Curipamba as I mentioned. We just completed all the drilling we need to get to commercial production on El Domo. We’ve been steadily releasing the best Copper equivalent drill results in the world over the past few months from that infill drill program, but we’re also drilling at our porphyry projects as well. Surgical drill programs around some pretty high-profile targets.

Matthew Gordon: That’s what I’m intrigued by. We’ve been entirely focused on the VMS stuff. You announced at the beginning your focus is on Copper porphyries. Help me understand where the actual focus is because I can see where you’ve been working recently but when you say, ‘We’re acutely focused on discovering Copper porphyries because of the sheer scale and volume of these things,’ it’s very exciting to the market. How much time and money have you actually spent on those?

Christian Kargl-Simard: Since we picked up the Pijili and Santiago projects, we’ve spent around USD$10M on advancing those projects. USD$3M of that was airborne geophysics. Let me take a step back to what the vision of this company is. The vision of this company is to put El Domo into production, which will be a cash flow machine, to build my goal, the next Lundin mining. There are a whole host of base metal companies that started on high-grade Copper VMSs. They are the cash flow engine that can build such companies. Take Lundin, take TAC, take Rio Tinto, take Hudbay, etc. They all started with a high-grade Copper VMS. That’s why we’re spending 85% of our cash on advancing El Domo to construction and production. At the same time, we have some pretty exciting targets and we’re looking for the next one. We’re also looking for the next discovery because it will improve our equity cost of capital and I’m sure you’ve heard, or your viewers have heard, about the Lassonde Curve trough. We’re in the midst of a Feasibility Study. No-one cares. If we can find a new discovery, perhaps we can get out of that trough. So far, we haven’t found a material new discovery, so our share price has suffered but we have a bunch of kicks at the can to make those discoveries by the end of the year. The most exciting one is our Santiago project. Santiago is very similar, if your readers or listeners know, to Solaris’ Warintza project. The analogies are that Warintza was drilled 20 to 25-years ago, shallow, about 150Mt resource at 0.6% Copper equivalent, Copper Moly. 20-years later they go in there and through modern geophysics, they find a deep-seated system. They’re drilling 1km holes and they’re onto 1Bnt+ and they’re already $1Bn market cap. The analogy we have with Santiago is it was drilled 25-years ago by Newmont. It’s got shallow holes, a Copper-Gold system. You could arm wave a few hundred billion tonnes at 0.5% - 0.6% Copper equivalent. We’ve gone in there, done the geophysics, we can see it’s a deep-seated system. You could fit several billion tonnes into that geophysical anomaly. We’re going to be drilling multiple 1km holes into the heart of that geophysical anomaly, twinning some of those historical holes. We’ll have the first results out in October of this year. You can see why I’m excited about that one. It’s permitted. You don’t need a big drill program for the material rewrite for Adventus’ and Salazar’s share price. 

Matthew Gordon: I can see why you’re excited. It sounds good. What are you going to be doing precisely between now and the end of the year to deliver that? It’s like we can talk about the what-ifs and maybes to this but how much more money, what are you doing, what are you hoping to get from that, and what should we be looking out for further down the line for Santiago specifically?

Christian Kargl-Simard: Yeah, this year we have budgeted USD$2.5M for the program. The bulk of that is for drilling. We currently have field teams on the project doing mapping and sampling and determining where we’re going to put those 3 or 4 drill holes. We expect to have a drill turning by the end of July on the project and we’re hoping to have the first drill results at the end of October. We have also been focusing on the social licence to operate. We’ve got social teams in all of the regional communities in a 30km area of influence around the project. That’s going very well. We’re adjacent to Newcrest and SolGold, concessions that are very high priority for them. Newcrest is a $110M earner with Cornerstone. SolGold has the second-highest priority exploration target in Ecuador, just south of us. Both of them are ramping up for drilling over the next 3 or 4-months as well.

Matthew Gordon: I know. Again, I don’t want to get into the world of near-ology or close-ology here. I want to go, you’re going to spend $2.5M, first of all, that doesn’t sound like a lot of money to discover or create a billion-dollar operation. Why should people say, do you know what, this guy is going to spend $2.5M and he’s going to create something I should be interested in today. There has to be more to it.

Christian Kargl-Simard: I advise all the readers to take a look at the corporate presentation. There’s a beautiful figure in there that shows the historical drilling and that big, geophysical blob. The big wine glass blob that should be the porphyry. It’s easy to see, okay you twin as one of the historical holes of 325m of 0.56% Copper equivalent, and you go deep from there. We know it’s a mineralised porphyry, we know it’s a large system. We’ve just got to get the drill up there. We drill for $220/m and off to the races. Solaris, off the first 1km hole, added $300M of market cap. You don’t need to spend a lot when you’re getting those kinds of results to see a substantial re rate in share price.

Matthew Gordon: Okay. You mentioned earlier that you’re using the Salazar rigs. How many rigs have you got turning?

Christian Kargl-Simard: Salazar has 4 drill rigs. We currently have 3 drill rigs turning. We had up to 7 a few months ago but we’ve pulled the drill rigs off to drill at El Domo because infill drilling is done there. The actual drill rigs that are turning at El Domo right now are geotechnical rigs that are not Salazar rigs. We plan to have one of the Salazar rigs in May turning on one of the VMS targets right next to El Domo, and we plan to have one of the Salazar rigs turning at Santiago in July. 2 diamond drill rigs we have planned for the rest of the year.

Matthew Gordon: I’m looking at the El Domo Copper numbers. They’re extremely good by any comparison. They’re extremely good. Do you think you need to do more drilling there, keep these high-grade numbers coming out, or do you think the market is now saturated with that story? Okay, we get it, just give us the Feasibility Study and we’ll move on, or we will view you differently in terms of a valuation?

Christian Kargl-Simard: Market I would say is numbed by our results from El Domo. We have drilled this El Domo deposit to the expectation of the Feasibility Study that 65% of the reserves will be proven, 35% probably. I don’t think you’ve ever heard of a company that will have that kind of confidence. We don’t need to drill any further for El Domo, and frankly, it’s cut off in most directions. What investors are looking for is a new VMS discovery to augment El Domo. There are 7 VMS targets within 3km of El Domo to the east, never drilled before, all with larger geophysical anomalies than El Domo. That’s our focus. If we can drill 20m at 5% Copper equivalent or so, 1km away from El Domo, our share price will do very well.

Matthew Gordon: What happened at Pijili? There was a trading halt.

Christian Kargl-Simard: Pijili is a super interesting district. It has the highest surface metal concentrations in that district within Ecuador. In that district, Southern Copper has the Chaucha Porphyry. That’s a 1 to 1.5Bnt low-grade Copper Moly porphyry that’s in Feasibility. It’s actually analogous to First Quantum’s Cobre Panama in terms of size and grade. What we have been building is a land position in a horseshoe shape around Southern Copper. We flew airborne a few years ago and we have 18 geophysical targets that we picked up from the airborne. None of them ever drilled. This is a 5 to 10-years exploration land consolidation program. We picked one of those to do surface work, mapping, sampling, etc., and then execute a phase 1 drilling program in which we drill 7,000m. We completed that program in February. We’ve put out 2 releases, 2 discoveries in the district, the last one earlier this week. What we announced earlier this week is a 2km step from our first discovery holes, with the headline number of 20m at 3.8% Copper equivalent from surface. That’s an overprint on top of the porphyry and that’s part of a 152m hole of 0.65% Copper equivalent. There’s one hole about 300m away that drilled the porphyry and it’s wide open in all directions. That last hole was probably the most exciting hole in the district or in our first phase program. All the holes hit porphyry, it’s a very large system, and more work needs to be done going forward. Unfortunately, the success of Solaris and SolGold has conditioned the market for porphyry exploration, that if you don’t drill 1km at 0.5% Copper equivalent or better, it’s not good. I think from a technical perspective, we had a huge win, and that last result is super interesting, but the market didn’t even move on it. We spent the money we said we would do with our budget on that project this year. We will drill more next time we go back to the market. That project is on hold for now.

Matthew Gordon: But why the trading halt?

Christian Kargl-Simard: Because it’s a material discovery in our view. The best practice right now, because we’re listed on multiple exchanges including Europe, is to put an even playing field out there, halt stock if you think there’s material news, and then put out the news and see what happens.

Matthew Gordon: And nothing happened. You must be annoyed.

Christian Kargl-Simard: It wasn’t the greatest week in the market either but frankly it’s very interesting. 19m of 3.8% Copper equivalent from surface. If you put 5 to 10Mt of that together, that’s another El Domo. That’s absolutely a mine. We have no idea geologically what’s going on there. The Silver numbers are extremely high and remember, it’s overprinted on a porphyry, so it definitely opens up a really neat window to explore there and see what we have but we have to remember what the focus of the company is, and what we need to do with our treasury, and that is advancing El Domo to commercial production and we’ll definitely get back there but right now, it’s more about El Domo than chasing up on that.

Matthew Gordon: Okay. You did do some drilling at Vaquera, didn’t you?

Christian Kargl-Simard: Yeah, we put a few holes in La Vaquera; we’ll have a release in May on the results of that and the drilling that will have started on those VMS targets. La Vaquera, we think, is a porphyry system. You can get porphyries around VMSs as well. These were 3 wide-spaced holes, we did about 1,000m. So, results in May. 

Matthew Gordon: Okay. I can see how you differentiate in terms of your plan of attack compared to Salazar, your partner. That’s clear. It’s clear where your focus is. You’ve got enough money for this year. Are we saying things like Pijili, you’ll come back to it in the next calendar year? Is that the schedule?

Christian Kargl-Simard: Yes. We raised $38M in a bought deal, the $1.27, substantially higher than where we’re trading today, last August. It was a prospectus financing. You have a defined use of proceeds. The bulk of it as mentioned is towards El Domo but we said we were going to drill 7,000m at Pijili, check. Made a discovery. We’re going to drill 3,000m at Santiago, that’s still upcoming. We’re going to do 4,000m regionally at Curipamba, so a lot of that is still to come.

Matthew Gordon: Just help me to understand what the future looks like here because I get the decision to say, ‘Let’s get some revenue flowing. We’re going to do the EL Domo Curipamba deposit, which could get into production relatively quickly, it could produce cash flow that will allow us to actually go after these Copper porphyries and that’s where the big prize is.’ If you want to be like Lundin, that’s where the big prize is. Given the resurgence of the Copper market and certainly, the last 6 to 9-months with the Copper price, is the El Demo project too small for someone to come along and say, ‘Hey, we want to take this thing out?’ Are you determined to get into production yourselves and operate yourselves, or are there other ways to finance chasing Copper porphyries in Ecuador?

Christian Kargl-Simard: Very good questions. I just ran it this morning under spot metals pricing. El Domo has a USD$500M NPV8 after tax. Free cash flow in the first year is USD$175M versus a capital cost of about that. We’re just about over a year at your pay back. This is a unique project in the Copper space. I would say the best similarity I know out there would be SilverCrest Metals Las Chispas in Mexico. It’s rare to find these things and you really need to think hard if there are M&A proposals on the table. Does it fit for others? Absolutely, especially because of the high precious metals content. At the peak of the Gold price last year, the project had close to 60% precious metals revenue, 40% base. Now that’s flipped around 60-40. This project actually caters to Gold producers and base metal producers. The Canadian producers are oddities. They are focused on units of production more than anything else rather than profitability in my view. If you look in Europe or in particular at the Australians, it’s more about free cash flow. We do have quite a bit of interest in El Domo, in particular as the next mine for ‘take your pick’ mining company. The problem is we’re trading at CAD$1 a share. Our net asset value for El Domo is $2.25 a share based on the analysts. No one is going to pay a 100% premium for an Ecuador mining project, even for these characteristics. We need to continue to de-risk, get our share price higher, and see what happens over the next 18-months. If someone is going to buy us, it’s going to be before we start construction. Sometime before October 2022. That’s not really what we’re focused on. We’re focused on building it. If we do the right things and get the permits, the price will naturally move higher and then we’ll make a decision if and when a proposal comes in. 

Matthew Gordon: You don’t become a Lundin company by selling off assets, do you?

Christian Kargl-Simard: No. You really need to understand what’s out there, cherish what you have, believe in your abilities. I can tell you; you don’t know me that well but I can tell you that if we build El Domo, we’re going to be super aggressive to build a major mining company. We’ve got all the pieces in place. We clearly have access to capital. We’ve got expertise in M&A and it’ll be fun.

Matthew Gordon: Okay, one last question about the Zinc, because we’ve talked about Copper and Gold so far. We haven’t talked about the Zinc. You’ve got some options with Salazar Resources to pick up Zinc projects. Are you really focused on Zinc? Do you care about Zinc?

Christian Kargl-Simard: I know Merlin likes to talk about it and our language is we’ve got exclusivity with the Salazars around Zinc. The reality is the cadastre that’s the staking system in Ecuador which has been shut for several years and we know of several properties that are interesting for Zinc, but we can’t access them. That’s one of the differences between Lasso and Arauz. Arauz said he wanted to open up the cadastre quickly. It might not open during Lasso’s 4-years, which actually is not a bad thing because it makes the value of the existing granted concessions worth more to us. We’re not really looking at Zinc in Ecuador right now for as long as the cadastre is shut. We’re looking to bolster with additional Copper porphyry projects.

Matthew Gordon: Okay, cool. Christian, I appreciate your time today. I’ve been dying to hear this story. I’m interested in the model quite frankly of how you’re going to build it out. Stay in touch, let us know how you get on with the various programs that you’ve got. I’d definitely like to take that phone call. I appreciate your time.

Christian Kargl-Simard: Thank you. This has been fun.

To find out more, go to the Adventus Mining Website.


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