Mining in South America - The Perfect Contrarian Investment?

By
Matt Myre
·
July 9, 2021

If you consider yourself a contrarian investor you should be looking at investing in South American mining companies. Specifically Chile, Peru, Argentina, Brazil and, for the sake of this conversation, we are going to include Mexico. These are not only historically large producers of gold, silver, copper, and iron ore, but continue to be significant producers. Some of the world's biggest mines are in these countries, whilst there still remains huge untapped potential for investors.

South America has a rich history of mining and metal exploration. Dating as far back as the Incan Empire and beyond, the underground riches of Peru and Bolivian silver were enough to bring European settlers from the Old World to the New World.

South America is one of the richest continents in terms of untapped, below-the-surface wealth. South America holds 20% of the world’s iron reserves, about a quarter of the world’s copper reserve, and the world’s largest silver reserve in Peru.

There’s a lot to like about the prospects of South American explorers, which is why we’re going to list six junior mining companies with interesting resumes that you might want to pay attention to.

Companies to Watch

Rio2 (TSX-V: RIO)

Focused in Northern Chile, Rio2 continues to work on its Fenix Gold Project.  It's a 5 Moz resource in M&I with an additional 1.4 Moz in inferred. It rates in the top-10 Gold discoveries in the last 10-years according to S&P Global. The project has all the hallmarks of 2 of the previous projects that management built in the last 10-years, being La Arena, and Shahuindo, the Rio Alto. We see the capability for them to do the same thing here.

While still early in the process, Rio2’s 2019 PFS indicated that the life of the mine is around 16 years and will create annual production of 85,000 oz of gold, totalling 1.37 Moz over the course of the project.

They project an after-tax NPV to be US$121 million discounted at 5%, plus an IRR of 27.4% using a base gold price of US$1,300/oz. Clearly, at today’s gold price the project is extremely attractive.

We expect news soon about how they intend to finance the project build. It’s a solid project with a management team that knows how to build mines. It’s not a case of ‘if’, it’s a case of ‘when’. An easy choice for us.

Silver Tiger Metals (TSX: SLVR)

While not in South America by definition, the Mexican El Tigre Mine District is home to Silver Tiger Metals, a Canada-based company conducting gold and silver exploration in Sonora, Mexico.

The CEO, Glenn Jessome, has a 25-year history in Mexico, in which he has been involved in the build of three large mines. They've also developed 2 other projects. The last one was sold to Agnico Eagle. He is also a business partner with Brad Langille, CEO of GoGold, who is a major shareholder of Silver Tiger Metals.

Silver Tiger Metals own 100% of 35 km in a region that first started to produce gold and silver in the late 1800s. The company has completed their 43-101 compliant resource estimate and is working towards a PEA as drilling continues.

Overall, Silver Tiger Metals estimates that indicated resources at the El Tigre mine stack up to about 661,000 in Au/Eq oz at 0.77g/t and inferred resources of 341,000 Au/Eq oz at 1.59g/t.

They’ve found mineralisation everywhere they drill. In January 2021, they found high-grade silver and gold mineralization including 3.0 meters of 1,310g/t AgEq.

The latest results came in May, where continued drilling at the Benjamin Vein provided and intersects of 1.3 meters grading 3,000.7g/t silver equivalent within 14.8 meters grading 462.6g/t silver equivalent.

Moving forward, Silver Tiger Metals is confident that drilling results will continue to bear fruit. They are a GoGold but 18 months behind. Expect to hear a lot more about this company as their drill results continue to deliver good grades and lots of contained silver.

If you like what you’ve seen at Gogold, you will like the way this story is building too.

GoGold Resources (TSX: GGD)

GoGold is a company that's been around for 10-years, with CEO Brad Languille at the helm as CEO for the last 6. GoGold is rare for a junior mining company, as it already has an operating mine. It's a large treatment facility, which (at today’s prices) produces $2M a month of free cash flow.

Having raised cash and a continually higher share price, Gogold is also funding a very large exploration development asset in Jalisco State, Mexico of 10,000 meters per month. Their team has been in Mexico for almost 25-years and have built 3 mines, and majorly refurbished the 4th mine.

During the course of those 25 years, the team has made some huge discoveries. The Ocampo district was sold to Carlos Slim for CAD$750M. They doubled the production of the El Cubo Mine (which they bought for CAD$20M) and sold it for CAD$375M.

Their current project: Los Ricos, is split into two projects, North and South, located about 25km apart. Infrastructure is already in place and the southern mine has proven to be fruitful thus far. Los Ricos North is in the exploration stage, with about 100 targets across 100,000 metres.

The CEO describes this as the best project he has worked on in his career. And we’d tend to agree with his view of the potential.

Just recently, the company released drill results at the Los Ricos North project. One of the holes intersected 61.3m of 285g/t AgEq, adding to previous positive results coming from the project.

But perhaps most intriguing about GoGold is that they have no debt and about US$73 million in cash, plus cash flow of around $2 million per month coming from their Parral project, which is funding exploration in Los Ricos.

Out of our list so far, GoGold has the potential to be one of the most significant South American mines to get built.

Serabi Gold (TSX: SBI)

Serabi Gold is a gold exploration and production company involved in the evaluation and development of gold deposits in Brazil. The company’s primary interests are its 100% owned Palito Mining Complex and the recently acquired Coringa Gold Project, both located in the Tapajos region of northern Brazil.  

Starting in 2012, the Palito mine is Serabi’s headliner project. Palito consists of a high-grade vein that was reported in a June 2012 PEA to potentially create US$11 million of annual post-tax cash flow over the course of eight years. Average mined grades over the current project life have posted a solid 90,000 tonnes of ore grading at 8.98g/t per year.

Serabi’s other project is the Coringa mine, which was acquired in 2017. The mine is accessible via a paved highway and gravel roads. It’s also considered a “carbon-copy” of the Palito project, according to Serabi’s management team. As of July 2017, measurements of the mine included 726,000 indicated tonnes of 8.36g/t gold and an inferred 1,301,000 tonnes of 4.32g/t gold.

Combined gold production from the Palito Mining Complex is currently approximately 40,000 ounces per annum, whilst the Coringa Project, when in production, is forecast to produce an average of 38,000 ounces per annum.

Serabi has a history of managing cash flow and strong balance sheets. Their liabilities are now limited, and shareholder equity stands at around GBP£45 million as of the Q3 2020 filing. Whilst mining in Brazil has been tough during covid, this team has found a way to continue being cash generative, and have a route to doubling their production numbers, and also funding exploration drilling of their large land package.

Give them time to show exploration potential and this one could be the real surprise of the bunch. Not to mention that it is a real take out target to be acquired by another company.

Cabral Gold (TSX: CBR)

Cabral Gold is a gold exploration company with an advanced gold project in Brazil, that is actually district scale. They already have 2 Gold deposits defined that have a 43-101 resources that are millions of ounces. Both of the deposits are open at depth, within an 8km radius of those 2 deposits, which are 5km apart.

There are 43 other targets and they’ve just identified a very large oxide blanket on top of 1 of the 2 deposits, and there may be others. There are 3 rigs running, so we expect quite a lot of news over the next few months.

It is located in the Tapajos region of Brazil, which is incidentally the site of the world's largest gold rush in history. This region produced 20-30 Moz during the 1980s. The project area was the largest historic Placer Gold camp.

With a focus on high-grade potential, Cabral indicates roughly 200,000 oz of gold and another 800,000 inferred, at the Cuiú Cuiú mine. The project also happens to be down the road (20 km) from Eldorado Gold's Tocantinzinho project that, you might know, has measured and indicated resources of 48.7 Mt at grades of 1.35 g/t gold and inferred resources of 2.4 Mt at 0.9 g/t gold.

Tesoro Resources (ASX: TSO)

Tesoro Resources is a Gold exploration and development company focused on their 85% owned El Zorro Gold project, located on the coast in the Northern part of Chile, only an hours air flight away from Santiago.

Since starting in 2017, Tesoro has gone after several drilling targets, some of which revealed promising 100 g/m and above gold intercepts. The latest assay happened to reveal several zones of gold mineralization at the Tenera East Target. Some hits posted results of 21.28 meters at 0.34g/t gold from 97.5 meters, including 4.5 meters at 1.14g/t gold from 105 meters.

The company was originally listed with a market cap of around $8 M, which has now increased to a $135 M market cap today. They are well funded with approximately AUD$20M in the bank. The company is drilling Ternera, getting it through Scoping and Feasibility and trying to get this project through development as quickly as possible.

This is another team of seasoned mine builders, who have around $3M of their own money invested.

Closing Thoughts

These are six junior mining companies that have caught our eye in South America. Solid management teams with a long and successful track record of making shareholders money is very important. These companies meet that criteria.

However, they may not suit your investment strategy, make sure to research these companies, review their balance sheets, look at the jurisdictional risk, and keep up to date on the latest news on these companies before making any investments.

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