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Peru’s Path to Modernity Creates Opportunity for Miners
By Doug Hadfield
Resource Intelligence
When assessing new potential investments for my portfolio, I often look for new companies that have a similar mix of qualities to other winners in my portfolio—or or to companies that have been in my portfolio in the past. When a company is acquired, bought, taken over, etc., the management team moves on. Many successful management teams actually move on together, at least in part. For example, after its $341 million sale to Argonaut Gold, Prodigy Gold’s management took almost no time off before moving on to take the reins at Sienna Gold (TSXV: SGP).
Prodigy’s ex-CEO, Brian Maher said about the move, “I wouldn’t have taken this on if I wasn’t 100% confident that we will be able to achieve a similar if not better level of success this time around.”
A closer look at the project is in order, but in this case one of the biggest differences between Prodigy’s success at Magino and Sienna’s Igor project is jurisdiction. The former is located in northern Ontario, which ranks in the top quartile in the Fraser Institute’s report on mining companies, and is generally considered better than Peru.
And yet, something is changing in Peru which bears reporting. It is both subtle and profound. Richard Webb, who is the former president of Peru’s Central Reserve Bank and also founder of the Instituto del Peru, in March published a study about the transformation taking place across rural Peru. The book, called Conexión y despegue rural, lauds the increase in annual growth rate of per capita rural income from 1.4% between 1900 and 1994 to 7.2% between 1994 and 2011. By comparison, the rate is 2.8% in Peru’s urban areas.
Why the groundbreaking improvement in rural incomes? Webb’s studies found that improvements in rural infrastructure and communications have diminished the relative impact of geographical isolation on the productivity of rural populations. Simply put, better roads, more cell phones and better internet connectivity have allowed more job opportunities for rural folk.
That’s not to say that paved roads are now found crisscrossing the country. It still takes four and a half hours to get from Trujillo to Sienna Gold’s Igor project, for example, a distance of just 175 km. Travel times are nevertheless decreasing substantially: In 2001 it took 8.8 hours for the average rural citizen to travel to the nearest city. Today that number has fallen to 4.4 hours. The number of new paved highways in Peru has increases annually by 550 km today—up from just 140 km per year in the 25 year period before 1995.
To get to the Igor project, for example, one travels northeast from the coastal city Trujillo through a number of small historic towns. The distance between Trujillo and Otuzco—which lies along the route to the project—is 75 km. Today it is a paved road that takes no more than an hour drive. A decade ago the road was not paved and the journey took three hours on a dry day. In the rain, it was often completely impassable.
Key to the shift in Peru’s rural areas has been continuous investment and reinvestment in infrastructure. It is a cycle that has paid off richly for the country. Foreign investment from mining and exploration companies, oil and gas companies and major infrastructure projects means billions of dollars in new spending across the country. Add to that the tax revenues brought in by a booming commodities market. The result, according to The Economist magazine, has been record public investment and “eight years of growth averaging 7% a year—faster than anywhere else in Latin America except (much smaller) Panama.”
Against this backdrop, small exploration projects like Sienna Gold’s Igor project have a much better opportunity to flourish. Maher, who speaks Spanish fluently, says the improving infrastructure has also notably changed the attitude of Peruvians toward mineral exploration projects.
“The vast majority of Peruvians we meet today do know the difference between modern mining projects and the illegal mining operations that have done damage to the environment in some places,” says Maher. “People know that a company like Sienna Gold brings with it jobs, sustainable development and better infrastructure. They know that that means better opportunities down the road not only for them, but also for their kids, who in many places can now can get to school in a fraction of the time it took them a decade ago—thanks to government spending from increased tax revenues or thanks to a mineral project that paved a road.”
With Sienna Gold now poised to raise up to $7 million in a private placement, the company will ramp up a new, more aggressive exploration program on the project.
Presently, the company is in the process of planning a 2013 drilling program, which Maher says, “could be as much as 20,000 metres of diamond drilling”, with the aim of releasing an updated resource estimate toward the end of the third quarter, or early in the fourth.
The existing resources on the project are notable as much for their current size as for the indicators that there is excellent room for growth.
The project has an initial resource of 730,000 ounces of gold equivalent (contained in 7,189K tonnes grading 1.94 g/t Au and 71.8 g/t Ag), but, Maher says, “more importantly we see this as a district scale exploration and development project with not just one structure but multiple parallel structures and adjacent structures which could develop into a significant resource and support an underground mining operation.”
The Callanquitas zone was discovered in 2008 with an intercept of 218.4 metres grading 0.6 g/t Au and 22.3 g/t Ag (1 g/t Au equivalent at today’s metal prices). The company followed up with more than 20,000 metres of drilling and was able to establish a steeply dipping resource body that remains open at depth. High grade intercepts range from a metre or so to, for example, 15.15 metres grading 4.26 g/t Au and 259.86 g/t Ag.
The project area also hosts numerous other known mineralized zones that warrant further exploration, including Domo, Tesoros, Portachuelo and some step out drilling in the Callanquitas zone that may well connect the Callanquitas and Portachuelo zones.
“Igor is located in the heart of the Peruvian Gold Belt,” Maher told Resource Intelligence. “It’s a classic Peruvian intermediate sulphide epithermal vein system. We know it extends for kilometres along strike and to great depths, and has the potential to host several million ounces of gold and silver mineralization. Our next task is to complete fundraising to continue an aggressive exploration plan.”
The team Maher brings with him from Prodigy Gold includes Maher as CEO; Tony Wood will once again run the finances as CFO; and the indomitable Kimberly Ann will take over the role of VP Corporate Development. Sienna Gold outgoing CEO John Rucci will stay on as chairman emeritus. Existing board member Jorge Benavides was appointed to the role of Chairman.
Kimberly Ann has been involved in raising almost $100 million in the past few years for a number or resource companies. Maher was able to raise $42.5 million to advance Prodigy’s Magino Mine project in a bought deal financing through a syndicate of underwriters was led by Casimir Capital Ltd. and Paradigm Capital in early 2012.
Maher says, “The next big catalyst for us will be completing at least 20,000 metres of drilling and putting the numbers to work for us. Based on what I’ve seen so far, there’s no doubt in my mind that we’ll be able to double this resource in the near term.”
The post Peru’s Path to Modernity Creates Opportunity for Miners appeared first on Midas Letter.
2013-04-19 16:46:22
Source: http://www.midasletter.com/2013/04/perus-path-to-modernity-creates-opportunity-for-miners/
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