Here's an interview your humble scribe did last week with John-Mark Staude, Pres/CEO of junior exploration play Riverside Resources (RRI.v) and first published in IKN76 last weekend. So with no further ado.....
Riverside Resources (RRI.v): An interview with John-Mark Staude
Tracking down Riverside Resources’ (RRI.v) head man John-Mark Staude and keeping him in one place long enough to answer a few questions isn’t as easy as you’d imagine, but your author finally got his Q&A session with this workaholic and genuinely nice guy late last week. Here’s the result for your reading pleasure.
IKN: Riverside stock has been on quite a run recently, John-Mark. To what do you put this run down to? Is it the general market atmosphere for juniors or is there something more company-specific?
John-Mark Staude: We believe that Riverside has been and is still significantly undervalued in the marketplace because we have a portfolio of strong assets and the marketplace in the short term values single asset, "go for it all" drilling explorers.We appreciate that approach but have been able to maintain a very tight share structure and converted our capital into ownership of precious metal assets.As exploration is done by us and our partners on our Mexico properties including anticipated drill results from Libertad, recent high grade Ag results from Clemente and early this coming week new gold results from Chapalota projects we hope to continue to see strong gains in share price coincident with de-risking, adding value to our properties.
The general market atmosphere has been very good, with particularly realization that gold needs to rise relative to the US dollar.Riverside has nearly 2 M Oz of gold in the ground at our 1,200,000 ounce gold resource that was drilled and estimated prior to the Toronto Stock Exchange’s rule 43-101 and is a non-43-101 inferred resource and secondly with the Capitan gold body where we have a volume of mineralized material that is still wide open and summarized in the filed 43-101 report.Riverside has 24.5M shares issued and is trading around US$1.00 which makes for a ~$25,000,000 market capitalization.Riverside has $3,000,000 in cash so the current Enterprise Value is $22,000,000.With gold now over $1350 and other insitu values exceeding $30 / oz the fact that just Sugarloaf at just $18/oz explains the full market cap of Riverside.Riverside has other open-pit style gold bodies and targets, drill results coming, exploration by partners, two strategic alliances that fund at least over $1,000,000 in exploration each year with no dilution to Riverside shares.
The two precious metals assets alone indicate in-situ value for Riverside at $20/oz of a market value of between ~$30-60M. This doesn’t even take into account the Company’s ten other value driving projects and initiatives.So we believe the market rise is both the overall market and also realization of the ounces Riverside has but still we are far from valued compared to with our asset base.
Then the other 100% owned assets in Mexico plus the newly drilled gold body at Libertad and the high grade silver at Clemente combine to give Riverside an exceptional portfolio and at a relatively low market cap; thus we see good upside potential right now.
IKN: Your new big partner is Cliffs (CLF). Can you update us on how things are going in the JV?
JMS: The Strategic Exploration Alliance with Cliffs is going well with Riverside now having identified targeted properties and in the field following up on locations that Riverside has generated from our proprietary 44,000 mineral location integrated database.The database provides a unique tool to rapidly launch this major generative program and now Riverside’s technical team is in the field, in fact I am conducting this interview right now from the Cliff’s field program as we are working as a team to highlight priority targets for the coming two month push.
IKN: Is there any news regarding Sugarloaf Peak coming up, or are the RRI efforts now largely aimed at your Mexican operations and assets?
JMS: Sugarloaf Peak is now on an joint venture asset capitalization track for Riverside where we have added value, shown already a double from the near surface now down to 200m open pit depth and with gold above $1300 this project looks increasing interesting. Riverside has focused this year on value, making a discovery and making some money along the way in Mexico.By making money we have limited the need for large financings and our capital is best spent in Mexico on our high quality Tajitos open pit gold asset plus having discovered new high grade silver areas in Mexico.
We expect to have news out from Sinaloa and Durango Mexico as projects have been advanced and now Riverside has at least 8 drill targets so we are in a very strong position for joint ventures and going forward ourselves.
IKN: So what, in your opinion, should be regarded as the company’s current flagship asset or project?
JMS: Our current flagship where we are spending our own money is the Tajitos gold project because it is in the exact right location among the large open pit gold systems of western Mexico and because we have high grades up to 1 ounce per ton and drill targets ready to go on the property. Riverside has successfully moved from drilling up a mineralized block at Capitan in Durango then a large gold inferred resource of Sugarloaf Peak in Arizona and now has worked up Tajitos. We realize that it takes a bit of thinking to appreciate having three large good gold assets and will be unlocking the value for shareholders over the coming 90 days with a significant push on deals and delineating the gold bodies.
IKN: You’re very much regarded as Mexico experts, John-Mark, but are there plans to expand into other LatAm countries? I ask this, because when we met for breakfast you just happened to be in Peru. Was that purely by chance or are there plans afoot?
JMS: Riverside looks for great opportunities and we are not bound by a country.My being Peru was for a growth opportunity and we will continue to rapidly go after assets, deals, alliances with a primary focus toward Latin America. The Arizona asset was an example as it came across my desk and we immediately moved and acquired it. This one asset substantiates our company value and is not even our lead asset now that we have high grade open pit gold in Mexico.As I have worked in over 20 countries and lived in different parts of Latin America we actively on the prowl.
IKN: What’s the current cash position and approximate burn rate at RRI? Are you planning to spend more aggresively and accelerate programs thanks to the current bullishness in the metals markets?
JMS: Riverside is well-funded with a current cash position of approximately $3M in the treasury, and a historic burn rate of ~$1.5M per year. We are more aggressively working to get deals done, help others who have raised money to access our projects and make discoveries and drill up our projects. We brought in temporary business development people to specifically help increase the deal flow and we ourselves have already included in our annual budget drilling and could be more aggressive based on results. We are pleased with Clemente, Tajitos and now Chapalota. Yes, Riverside has a set of very good assets and we will deliver deals that expose our shareholders to at least 6 advancing projects in the coming 3 months. It is exciting for Riverside and we are in action to leverage off the bullishness in the metals markets.
IKN: Thanks again for your time, I know what a busy guy you are. Any last words for IKN readers?
JMS: Yes, a final plug for our Youtube videos. Riverside through our YouTubeVideos, www.youtube.com/user/RiversideResources and our website www.rivres.com aim to continually provide information that can help investors and people interested in the exploration business.We hope readers will contact us via email info@rivres.com or call us 1-877-RIV RES1 (or 1 778 327 6671 x 333) to find out more. We truly aim to share ideas as we stand for “knowledge is golden” and are working to convert ideas into value for shareholders.
This first appeared in IKN73 last Sunday, September 26th and is a report of the meeting this humble scribe had with the CEO of FVI last Friday, September 24th at FVI HQ. Reproduced here for your viewing pleasure, the only thing missing is this author's concluding remarks. Enjoy.
A meeting with Jorge Ganoza, CEO of FVI
On Friday morning I sat down with Jorge Ganoza, CEO of Fortuna Silver, so here are the main points we talked about.
Denver: Ganoza had just returned from the annual Denver Gold Show and so that got some airtime first. He said it had gone very well for FVI and gave a few instances, with the main takeaway for author being that in this third time for FVI at the show it was also the first time FVI didn’t have to go out and look for meetings, contacts, etc. This time the mountain came to Mohammed and FVI had its agenda filled by people wanting to talk to him.
Ganoza also commented on happy holders he met up with at the show by saying, “It was rewarding to see people with whom we’ve been in contact with for the last months who made the leap of faith and bought the stock....it was rewarding to see guys who have been making money with the stock because Fortuna hasn’t just been moving with the pack; it’s been outperforming the pack.”
There seems to have been a sea change in the investor profile at FVI in recent months. When talking about a particular institution in Europe that finally made the decision to buy recently and has been making very good money on the trade since then, Ganzoa said; “Especially in Europe it’s about building a relationship with European funds and this is a conference where a lot of the Europeans come. London institutions, Swiss institutions. And those guys are different from North American investors. It takes more time with them but when they go in....they’re more stable shareholders.” On this subject, when asked for a best guesstimate of the percentage of shares held by institutions and tight insider hands, the answer came back “60% instos and insiders, 40% retail”.
Next subject was the possible listing of FVI in the USA. Ganoza said that the company is looking into the option and doing a legal review of requirements. Apart from not being Sarb-Ox compliant (not that difficult to fix, a case of hiring the right competency), Ganoza sees no big direct block to listing in the USA. It’s up to the board to make the decision to move forward (or not) on this matter, but if the decision is positive it wouldn’t take a lot of time to implement the policy. In the event of a US listing, FVI would expect volumes to rise and more shares to move to the retail holding sector, as today (in the CEO’s opinion) FVI doesn’t have a big retail following. Right now Ganoza said he is very happy the way the share has been operating, with plenty of momentum.
Exploration and M&A. I asked Ganoza about M&A and pointed out that in every quarterly conference call he’s said that M&A is a possibility for the company and that they’re looking around for the next deal. To this he replied, “When I think about M&A I think more about corporate transactions” and downplayed M&A as a main thrust of FVI. For sure if the right opportunity came along they’d jump at it but it’s not the top priority right now, according to the CEO (and that’s not a bad source, really). He then talked about the exciting opportunities he and the company sees in exploration potential at its San José property and it quickly became clear that FVI was planning to move aggressively on its large land package in the area around the current project under construction at San José. In particular, two areas that have not been explored in detail and are exciting the company sit to the East of the San José mine under construction and are called “Taviche” and “El Rancho”. Ganoza (and by inference FVI) is clearly excited about these prospects along with others on the San José concession and I’m sure we’re going to hear a lot more about them in 2011, as I was told (without getting to hear an exact figure) that the FVI exploration budget will be substantially higher in 2011 than this year’s $5.5m for San José and Caylloma combined. Exploration of San José’s newer targets will run alongside exploration at the San José ‘Trinidad’ area that’s going into production and also at Caylloma, where replacing and adding to reserves are the touchstones. At Caylloma, I was told that the exploration efforts will centre on the main producing areas (Animas, Bateas, the San Cristobal offshoots such as Soldedad, Silvia etc).
The talk of new exploration programs took up a surprising amount of our interview time, in fact. With Caylloma operating smoothly and the San José construction going according to plan, it was clear that FVI isn’t resting on its laurels and now has its next project (wherever it turns out to be) as a high priority. Here’s a transcripted section of the interview to give an idea of how keen Ganoza was on this subject:
Ganoza: “We have new directors so .....we are already reviewing our strategies with our directors. I can tell you that our position is to capitalize on what we have. That will be the cheapest way to add share value. We are very excited about the potential of what we own and so you’ll see our (exploration) budgets ramping up. Why do I talk about that now if we already had it? When we started in 2007 we had 17,000 sites to cover in San José. As 2008 progressed we continued with the work and then the second half of 2008 was the end of the world so we cut all the programs like everybody else did. And then as 2009 recovered, the recovery was fast and so we said “ok, let’s get the geologists out in the field again” and then (at that moment) we were blockaded at San José. So we pulled back the geols, because we didn’t want any sort of incident to affect our ability to build the mine. So we circled the wagons, focussed on San José permitting, engineering and construction. So now that the construction is launched and underway...
(Your author interrupts) “...and the social side is acceptable...”
Ganoza, “..And the social side is acceptable. I’m not saying there are no risks because there are minor risks, but I believe we can take those risks now. In fact the (local) government is now saying to us “is there more investment coming? More than you’re building now? Please, spend your money! Go ahead, we need the employment!” So we have two crews exploring as we speak at Taviche and El Rancho and we have lots of work ahead of us.”
As for M&A, the possibilities are still there. If the company can do something “from treasury” to add exploration value (by ‘from treasury’ Ganoza said he meant perhaps an optioning in agreement or a JV on the property) with the main target countries Peru and/or Mexico. Second ranked areas would be southern Argentina and the North of Chile and then after that the project would have to be “a compelling opportunity” to get FVI into a different jurisdiction than those. The impression got by your author was that FVI will in all likelihood remain a Peru/Mexico company into the indefinite future, no matter how many new projects it picks up along the way. However Ganoza also gave some size guidance to any third party deal and said that a transaction that “changes the share structure in a material way is not a priority for us”. In other words, FVI isn’t looking for a bigger merger or fusion deal with peers.
For what it’s worth, when the other side of the coin was presented and Ganoza was asked whether he’d taken calls from companies interested in buying FVI, the answer was a categoric “no” and that FVI had had no merger conversations at all up to now.
San Jose construction news. Ganoza said that, “Construction has been launched and advancing well. We are on budget and on schedule...with no critical path delays”. So when asked when we can expect production at San José to begin the good surprises started to flow.
Your author: “When do you expect commissioning, when do you expect production day one?” Ganoza: “August of 2011.” YA: “August?” Ganoza: “Yes. That’s the date I have in my planner and it’s not moving. If it moves I will inform accordingly.” YA: “Ok, so are we talking about (initial production at) the pre-feas number of 750tpd or are we talking about 1000tpd?”
Ganoza: “1000 tonnes per day. We have approved a revised mine plan to start production at 1000tpd.”
So now you know. I then asked Ganoza about the ramp-up time to get to that 1000tpd throughput level and suggested that we’d expect a gradual ramp to that 1000tpd number by the end of 2011. This was immediately thrown back in my face. “Within three or four weeks” is how long Ganoza expects 1000tpd to be achieved on a steady state basis. In other words, the fourth quarter of 2011 will be a fully commercial production quarter.
The “go to 1000tpd” plan is simple because the mine plant is simpler, even simpler than Caylloma because there are just two lines of product (gold and silver) to produce doré bars (not greybar) instead of Caylloma’s three products (Zn conc, Pb conc, Cu conc). So the main issue in ramping to 1000tpd will be to get above ground stocks to cover one month’s supply before August. This, according to the company, is the lead item on critical path to starting production on time. The ramp is progressing right now at between 3m and 4m per day and the plan is to stockpile before August to allow sustained feed from day one. On the subject of critical path, the company reported that the ball mill is now on site and ready for installation.
As for ramping forward, it was tougher for him to give the timing for incremental stages between the initial 1000tpd throughput and the full capacity 1500tpd down the line, but Ganoza was confident on reaching full, 1500tpd capacity “within 24 months” of commissioning, which means by the third quarter of 2013. That, from the head of a company that always hit its target timelines at Caylloma, was a bullish statement, stronger than the mine plan put forward by the PFS and stronger than even the more optimistic scenarios from brokerages covering FVI. Quite frankly, when it comes to track record only a fool takes ‘the houses’ over Ganoza on this score. The social side of San José came up on more than one occasion but there’s nothing bad to report. Ganoza said that without being absolutely perfect the social relationships between locals and the company were in good stead (frankly, “good not perfect” is about optimum for a junior building a mine and if I hear “it’s wonderful fantastic couldn’t be better” in the same circumstances it’s infinitely more suspicious). Ganoza then went on to say that the “grey water” treatment plant is now 100% finished and the decision to move on that part of the project first was socially related as it has provided a lot of goodwill from locals towards what the company is doing. On this score, there are a new set of photos taken of latest developments at FVI Caylloma and they should be available next week on the FVI website, according to IR.
Nice teeth, nice tie, nice arty photo. Whatever happened to
grimy, dirty unkempt geologists, anyway?
As I mentioned yesterday I was mystified, even taking into account "The Venezuela Factor", that the very positive news release from Rusoro (RML.v) wasn't greeted with more enthusiasm by the market. So being a humble corner of cyberspace that doesn't mope around and prefers to actually do things, yesterday afternoon I got in contact with George Salamis, President of RML.v, and asked him a few questions about the PR (as having once done a longer interview with the dude and all that). Below is the Q&A I had with him. Enjoy.
George Salamis: The Choco 10 expansion scoping study means a lot to us and clearly defines our value to be unlocked. To me, an alternate headline for this morning’s press release would read: “Attention to all mining investors and gold-lovers: Projected NPV’s for Choco 10 alone shown to be triple our current market capitalization”. This isn’t fiction, this is fact. The outcome of this scoping study shows that the combination of an expanded Choco 10 mine and a fully developed Increible 6 gold deposit creates an immense value driving opportunity for our shareholders. These two deposits, together, are company-makers by anyone’s measure. Gold deposits capable of sustaining 500,000 ozs per year, at a relatively low forecasted operating cost and non-nosebleed capital expenditure levels, are extremely rare. There aren’t many large undeveloped gold deposits left on the planet that come with sub-$300 million construction price-tags, as anyone at Barrick, Gold Fields, Anglo Gold or Goldcorp would attest to.
IKN: Personally I found it very positive news, however market reaction was rather flat on Tuesday. Any thoughts about that?
GS: Indeed, this scoping study news was extremely positive; Net Present Values in the $450 million to $740 million range depending on gold prices, projected rates of return above 50%. All very positive news and certainly the Choco 10 expansion scoping study has presented the most economically robust forecast of any mining project that I’ve ever been a part of.
Someone said the other day that Rusoro had become the Rodney Dangerfield of the mining world, “….Can’t get no respect”! I had a good chuckle from this analogy. What I can say from experience is that once the magnitude of this scoping study news is allowed to simmer in the market, this perception will change.
One unnamed journalist was brave enough to mention Km88, Las Cristinas and our Choco 10 scoping study, in the same sentence no less, in a question to me this morning, as in “Your scoping results are good, but surely what you have at Choco 10 and Increible 6 doesn’t stack up to Crystallex’s Las Cristinas gold project”. Well surely it does stack up to Las Cristinas and any other undeveloped world-class ore-body. I reminded said misguided journalist that 1) on an annualized production basis, during our projected life-of-mine schedule, we are projected to produce a lot more gold – 2 to 3 times more - compared to what’s forecasted at Cristinas or any of the other Km88 gold deposits, 2) our estimated head-grades are easily twice that of Las Cristinas and 3) at Choco 10, we’d be expanding off of a mine that already exists and is successfully producing gold now, whereas Cristinas would involve a completely new build, from scratch, at about twice the CAPEX estimated compared to our Choco 10 expansion.
Don’t get me wrong, I think Las Cristinas is a great ore-body, also world-class. Crystallex’s management have done a great job of advancing it to feasibility as did Placer Dome before them (a shameful plug for my old alma mater who also did some excellent work down there). The mining world has this warped fascination with the trials and tribulations of Km88 and I guess it’s because of the 15 plus years of controversy and excessive turf battles surrounding these projects. It’s always frustrating to witness the investor focus on Km88 and related negativity, in contrast to the great things that we have done in the El Callao district at Choco and Increible (and Isidora) during the last year on the gold production and operational end; increasing gold production, lowering costs, many positive changes meriting positive attention.
IKN: Is the growth time schedule to reach 500,000oz Au production feasible right now?
GS:This time schedule is achievable, however we’d have to hit the mark, timewise, on everything that needs to be done in terms of feasibility, permitting and financing for the Choco 10 expansion to 500,000 ozs or more of annual production. This includes resource to reserve conversion by doing detailed in-fill drilling, new resource estimates, detailed engineering studies, environmental studies, etc. We have a lot on our plates and by spelling all this out in a few sentences, I am by no means trivializing the task at hand. Fortunately, Choco 10 is an existing mine located on a permitted mine site, thus we’d expect that permitting the mine and mill expansion would not involve any significant hurdles. And then there’s financing, whereby one could potentially envisage the inclusion of some debt financing, given that our aim is to produce a bankable feasibility study in the end of the day. One should expect that it would be a lot easier to finance a new mine expansion under management with a proven production track record, a proven track record in working successfully with relevant permitting authorities and an outfit who has the Venezuelan government as a significant partner at one of their other gold mines. Anyway, one step at a time Otto, first we start with the in-fill drilling campaign and then move on from there.
IKN: What of Venezuela? All the world is hearing about nationalizations, expropriated properties and companies etc. The general view is that Venezuela is running out of finances and will take over any foreign company that dares to make a profit. Does this concern you?
GS: This is not of concern to us, but it is of obvious concern to mining investors who attribute such a considerable discount to our stock, relative to other gold producers. This is sad really, because the Venezuelan government has been extremely cooperative with us, be it in the management of our 50/50 mining joint venture with them, Venrus, or in the permitting of new projects. When we have had minor disputes in the past with the government, we have always resolved them quickly and amicably. In the entire history of our existence, we cannot point to one incident where we feel the Venezuelan government has short changed Rusoro or have tried to seize assets from us. I can’t see it happening, ever. Can I state this any more categorically? We don’t see nationalization or expropriation as a significant risk for Rusoro and its shareholders. As I’ve said before the perception of political risk, for us, resides only in the market.
IKN: We know that "the Russian connection" is strong in Rusoro, especially with the recent additions of two more Russian nationals to the management team. The perception is also that Russians have an advantage in running a business in the Venezuela of Hugo Chávez. How much do you agree or disagree with that?
GS: The Russian connection is strong in Rusoro and, indeed, having Russians working side by side with our senior Venezuelan management is a definite advantage. In addition to the recent Russian executive management appointments, we employ a lot of very skilled Russian mining engineers, metallurgists and geologists on the ground in Venezuela, in addition to a few Cuban professionals. So “yes” Otto, I strongly agree. We would not have made the tremendous strides that we have in gold mining, in Venezuela, without this.
IKN: I was sent a report with a call recommending RML today that contained the following extract.
Rusoro today released the results of a Preliminary Assessment, also known in the mining industry as a Scoping Study, completed by top-tier mining consultant Micon International. The Study uses US$700/oz gold for its base case, which we will also use in our assumptions, as Rusoro receives a 15-17% discount to the world spot price from the Venezuelan government.
So the question is, is it true RML is paid at a discount to spot for gold produced?
GS: We do indeed sell our gold at a discount to spot gold rates as other producers, past and present, have done in Venezuela for the past several years. This discount is imposed on sales by the numerous licensed gold buying entities who we do business with in-country. Our audited financial statements show these discounts as a cost of sales. This is a fact of life for all of those who produce gold in Venezuela.
Juan Vegarra is the CEO of Vena Resources (VEM.to). As well as being a site sponsor, regular readers know that VEM.to is a junior mining company I’ve liked for a long time (long before the company started advertising here, in fact). So when given the chance to get this exclusive interview with Juan Vegarra over the weekend I jumped at it; this fascinating look at the world from the eyes of a junior mining CEO in the midst of the sector downturn is the result. Enjoy.
Otto Rock: Hello, Mr. Vegarra, thanks for agreeing to do this interview with IncaKolaNews.
Juan Vegarra: My pleasure, you know I have been reading your comments for several months and find your site one of the most instructive out there – keep up the great work.I hope you and your readers realize that there may be some issues that I may not be able to expand completely due to the legal restrictions, but I will be as transparent as possible.
Otto:Straight down to business: It’s been a rough time for junior resource stocks recently. How is Vena coping with the circumstances?
JV: Recently we put out a press release explaining how we are allocating our resources with some detail.Bottom line the financial meltdown has created a huge financial problem for ALL companies not just the mining sector.I look at my personal retirement account and this quarter was just nasty even though it is pretty well diversified.In particular with regards to Vena, the current situation has forced me to reassess some investments, delay others and look at my core team and had to let go of some great people whose projects made no sense continuing to invest until the market recovers again.Specifically;
1) Any kind of exploration in all those early stage projects (24 of them) will be put off indefinitely.
2) We are focused on getting the Azulcocha mine fully permitted (EIA and construction permits) AND increasing its resources by drilling underground and along Azulcocha West.The question about when we build the mill is still being debated, but frankly as long as Zinc stays at historically low levels makes no sense to spend millions to barely break even by milling high-grade ore.Like any business person, I would prefer to invest those precious dollars in projects where we can still see a nice return.
3) One of such projects is what we are doing with Sudamericana de Carbon (SDC).We haven’t announced much recently as we have been reviewing several projects that we want to purchase.More than 12 projects have been reviewed and we know which ones we want to purchase, so now it is a matter of the team closing some of those deals under favorable terms.We will of course have to drill some of these projects to comply with the exchange to confirm resources.Some of these projects are owned by small producers so we should be able to mine some anthracite and sell it to the local market.In fact we already have a well known steel manufacturer in Peru as a key client; we plan to expand our sales to this customer.
4) The Uranium exploration projects are being funded by Cameco.We still have another $5 million dedicated to drilling in the short term to delineate a significant resource. Finally…
5) The projects in Puno – Pucara (gold/copper) and Esquilache (gold/copper/silver) will be explored and exploited with as few incremental funds as possible.
Otto: Vena has plenty of different projects in the pipeline, but significantly they are all in Peru. Can you tell us why VEM only operates in Peru and what advantages that gives you?
JV: I am Peruvian by birth.Yes – I left Peru at a very early age to study in America, but my love for the country is perhaps stronger now than when I was growing up.Sounds strange but as an adult I have come to realize how precious its people and natural resources are.America has been great to me, but there is something about the magnetism of Peru that makes me to want to come back frequently.
From the business perspective, Peru is a rich mining country and still heavily under-explored. I know enough business and political people as well as friends and family that support my efforts, so why would I venture to a different country with mining laws that are not as clear and lack the richness Peru has?.Besides there is no match for Peruvian food anywhere!The business model we use at Vena Resources is to have a highly diversified portfolio of assets across all regions of Peru.If I wanted to invest in another country I would most likely work with a local mining expert and create another junior company.The chances of finding a large deposit in Peru over other countries are simply better by focusing in Peru given the large number of world class deposits already there.
Given the strong focus on Peru and understanding the financial market there well made me work with the Lima exchange people to create a junior sector in the BVL.So after months of efforts, Vena become the first Junior company listed in Lima – perhaps the best corporate decision I have made as the dual-listing allows Peruvian investors to invest in an exploration company focus on running Peruvian mining projects for the benefit of Peruvians (via employment, social responsibility etc).Today more than 35% of all outstanding shares are owned by Peruvian investors and growing every day.
Otto: What about disadvantages of Peru exposure? What are the things that make life more difficult for companies operating there, be that on a macro or company scale?
JV: Like any other developing country you find the same issues – corruption, bureaucracy, lack of knowledge of what exploration is all about amongst the indigenous communities.But, the actual investment environment is pro-mining and there is plenty of intellectual capital at a much lower cost that is highly efficient and professional than most countries.So yes you can write pages about what is wrong with this country, but the risks are significantly offset by the potential rewards.So the “Peru” factor is just another element you must take into consideration when analyzing your investment risk/reward profile.
Your readers may not know this, but Vena was created by 7 experienced engineers with MBAs and we reviewed this industry as a business case before even investing a single dollar.Standard MBA work leads us to create a vision for Vena that is very different from 95% of all exploration companies and the “Peru” factor was actually a positive factor from our research.As an example -- It is much easier to explore for Uranium in Peru than it is in the US.
Otto: If I’m not mistaken, your main projects are the Azulcocha zinc/lead/silver mine that is close to commissioning, the uranium projects in the South of Peru, a recently acquired coal project based in the North of the country and two polymetallic projects in the Puno region. Four very different projects. Can you give us an update on all of those projects, starting with Azulcocha where I believe you’re waiting on a final government permit to get production started?
JV: Allow me to expand a bit on what I said above – Azulcocha already has a measured resource capable of feeding a 500 tpd mill for 5 years.The orebody is open along strike and at depth, and significant funds are being invested by Glencore on the exploration project we call Azulcocha West, just 6 kilometers west of the mine.The internal scoping study we completed over 2 years ago, gave us the green light to purchase a mill and put the project in production.Two issues have caused us to re-evaluate our thinking here.First the significant decline in the price of Zinc (from US$2/lb to under US$0.50/lb in 12 months) makes the project economic by only milling high-grade ore (>15%) so we have decided to expand the resource underground.We are currently reviewing historical data as well as what we know from our drill programs with the goal of defining a new drill program to expand the high grade resources – couple those resources to whatever we may find on Azulcocha West and we can see better economics for building the mill.All the equipment and infrastructure investments have been completed, so it is a matter of getting permits and completing another drill program to expand resources before proceeding to the final stage and “expecting” zinc metal prices to recover in the short term.
Otto: What about the coal project?
JV: Very soon I will be able to share more details what we have been working on, but I gave you the general idea just now.We are about to purchase a group of concessions that have enough anthracite to feed the local market for at least 7 years.These resources are of course non 43-101 compliant, so we will need to do some drill work to comply with the TSX requirements, but the coal seams are so obvious that are currently being mined by small coal miners and it is very possible for us to scale-up the operation thus creating a nice cash flow stream to allow SDC to grow organically.
Otto: The VEM uranium project?
JV: This is perhaps the most significant exploration project for us currently.Its development is fully funded by Cameco so we expect to delineate millions of pounds of U308 over the next two years.The current drill program has significantly exceeded our expectation.We originally thought we might get a resource somewhere around 0.2% and it is closer to 0.4% on average.So our goal is to delineate several high-tonnage, low-grade systems that will feed a central mill somewhere in Puno.I would suggest you read about Cameco’s Inkai deposit in Asia to understand the economics of low-grade/high tonnage systems.
Otto: The polymetals projects at Pucará and Esquilache?
JV: Think of Pucara as a high-grade/low tonnage gold/copper system.Cheap mining costs make this project relatively economic even with these metals prices. Our development approach resembles what we did at Azulcocha.We will drift along the major veins, transporting rock to a nearby mill and making enough money to help us subsidize and perhaps make some money while developing the project.We cannot afford, under current market conditions, to invest heavily on this project as we have larger targets (e.g. Esquilache) but if we can find a way for Pucara to grow organically – why not?Very simple management decision that most other juniors would never take given their business model.
Esquilache is perhaps the most exciting exploration project we have. It is so much easier to explore right next to an old mine.Decades ago – geologists had no clue about Stockworks – Esquilache appears to have several Stockworks and some very significant vein structures.We are awaiting permits to drill this project.There are seven significant mineralized zones, we will drill the Mamacocha zone first and grow from there.
Otto: Can you tell us a little bit more about yourself, Mr. Vegarra? I understand that your background isn’t in the mining sector as such.
JV: I am an Electrical Engineer with an MBA and tons of advance management courses.I worked for Microsoft Corporation in the 1990s leading several teams of engineers in some of the most competitive fights against larger companies at the time.Although I am not a geologist or mining engineer, I know what makes engineers tick and know how to grow operations from the idea stage to significant contribution to the corporate P&L. Ask yourself how many Fortune 500 companies in the US are run by “experts in their field”- very few.
The key for start-ups like Vena is to have strong entrepreneurial skills, surround yourself with people that know a lot more than you on their core competencies and ask for advice.The rest is standard corporate management of human and financial resources.I feel strongly that my blended technical/business skills are better suited in times of crisis to navigate thru these tricky times.
Otto: Would you say that Vena Resources is lacking in deep mining knowledge compared to other junior mining companies?
JV: I have heard that criticism before. I personally don’t have a mining related degree, but my management team and the corporate board is heavily loaded with technical talent, so the key question to ask – can the Vena team pull it off?We have already shown that we can finance the company in very difficult times, we have already shown that we can work with partners 100 times larger than us in a win-win structure that is very protective of our shareholders.Finally you can compare the Vena chart to any other Zinc/Uranium producer/explorer and will see that even under those scenarios the stock price has declined less than most percentage wise.I am not trying to excuse myself or the performance of the stock price, simply pointing out comparables so people reading your site can make a proper evaluation of my team’s (and obviously my) performance.
Otto: Times might be tough for the industry right now but if we look forward, how do you see things shaping up? Is mining going to suffer through 2009 or is there reason to be optimistic about the next 12 months or so?
JV: Let me put my MBA hat to answer this question as I believe global macro-economic events will have more of an influence than anything a miner can do.The US FED is printing/borrowing money like no other time in history as it intends to battle a global recession caused by the financially leveraged world we lived until recently.This deleveraging will continue to cause pain to all industries as hedge funds liquidate positions and pension funds are stuck with non-liquid investments in their portfolios, thus forcing them to liquidate equity positions pushing stock prices to incredible low levels to comply with redemptions or cash calls.So it may take all of 2009 to clean up the global mess.
But as we all learned in business school there is always a bull-market somewhere.The question is – how is this global recession going to play in the metals market? Frankly I see the surge in the US dollar against other currencies to be the result of a temporary “flight to safety” more than anything else. The huge infusion of US dollars has at some point to lead to a devaluation of the US currency to the benefit first of precious metals and then to base metals.China has not stopped growing; yes its growth is slowing but it is still quite significant, and as metal prices force operators to shut down or reduced exploration investment to preserve cash or to mill high-grade ore that can only lead to lower supply and higher prices eventually across all metals.We all know how these cycles work, the question is – how long is it going to last?
Given my believe that precious metals will recover first; we are focusing on Pucara and Esquilache (mainly gold/silver).As base metals recover we will be ready with a fully permitted Azulcocha.Finally – energy needs will not slow down and the “drill-baby-drill” mantra will take years to significantly upset the supply/demand curves on the energy side, so Coal and Uranium will go back up in time (I hope) as we complete our resource delineation programs in both metals over the next two years.
Otto: I noticed an intriguing appointment to your board of directors this year. Could you tell us more about the Romaña-Letts family and why investors that may not know so much about the local Peruvian mining scene should be interested the recent link-up between Vena and that family?
JV: By now it should be clear to your readers what I learned from Bill Gates at Microsoft – “surround yourself with people whose core competency adds value to the enterprise” Roberto and his family are part of the Volcan group, perhaps the largest zinc/silver producer in Peru, and their contacts and knowledge of the Peruvian industry is a great asset for me.Roberto is young and aggressive so I expect to pick his brain and use him as a sounding board as to how Vena’s corporate moves may be perceived by the very tight network of Peruvian miners.
Otto: Of all the assets and projects on board at Vena, which one are you most excited about personally?
JV: Esquilache is by far the most intriguing asset from the exploration perspective.Every junior looks for a world class deposit, and Esquilache appears to have that potential.From the cash flow perspective I think the work we are doing with SDC on the coal side has the most potential in the short term.At the end, the most significant assets are the 30+ geologists that continue to find and advance interesting projects for all of us.
Otto: Thanks again for doing this interview, Mr. Vegarra. Do you have any parting words for readers?
JV: I thank you for letting me share some thoughts. It is hard to put a simple corporate strategy press release, so this format is more conducive to interaction allowing me to emote on how I truly feel about the future of Vena.We are facing some very difficult times, but we are not going to hide in a corner watching the world implode around us.God gave us brains to think strategically, and if it means that we must defer our investments and grow at a slower pace – so be it, but we plan to be around to fight another day. Thank you.
