Transcript: Marimaca Copper (MARI) - Cheaper Financing When Needed?

Morgan Leighton
November 8, 2021

Marimaca is a TSX-listed copper company.  The Company’s flagship asset is the Marimaca Copper Project in Chile’s Antofagasta region. It is the only copper discovery globally of the last five years and is a low risk project, with substantial exploration potential.

We Discuss:

0:00 – Company Overview

00:18 – Recent Reports, Expectations & Cost Reduction

03:30 – Analysis Benefits, Seeking Benefits & Measuring Companies

06:55 – Scale Consideration, Definite Shift, Infilling Campaign & Depth Extensions

10:23 – Outro

Hayden Locke: Hayden Locke, CEO of Marimaca Copper. We're developing the really unique Marimaca oxide project in Chile, it's a copper-oxide project. Very short timeline to delivery and really a standout in the copper development space, in our view. 

Matthew Gordon: Good to see you again. We saw each other quite recently; you were on a Copper Panel, with a couple of other folks on there, and you mentioned something to me and I want to talk to you about it. You put out a report today with the help of Wood MacKenzie. What does it tell us?

Hayden Locke: It's something that I've always thought about this project, that given the various benefits and the fact it is an SX-EW plant, and where it's located, that it was always going to be on a global scale, relatively low carbon intensity per ton of refined copper produced. We engaged Wood MacKenzie as an industry expert, to do an analysis of or project, using all PEA inputs, and the conclusion validates our viewpoint, that this is a potentially very low carbon intensity project. We can talk in detail about why we think that's important, but it really shows that if we get the energy mix right, which we believe we will be able to do, that we should be right down in the bottom of the carbon intensity curve per ton of refined copper produced. 

Matthew Gordon: I saw that and I do want to talk about the detail of it. A CEO said to me last week that they'd done something similar, it reduced the cost of their money. To me, I'm immediately attracted to that. Why did you do it? What do you expect to get out of it? What's the so-what bit? 

Hayden Locke: It's exactly the same mindset. What I've found in the various mining projects that I've taken through permitting, and it has changed quite significantly over the last 10 years, is that there is a heightened focus by the traditional lenders in this industry on mining projects with a specific focus on sustainability. And, obviously, with where the world is going; we're in the middle of COP26 here in the UK, carbon intensity and emissions become increasingly important. We had a view that it's going to be a key diligence point for any financing institutions and partners that we engage with when we go to build this project. 

Matthew Gordon: It has to be more than just a science project for you guys, and you go: we are low carbon. What do you mean by 'The institutions are looking at this and will look favourably upon it'? Why does it, for them, reduce the cost? What else can you use it for? Why does this put you above your peers?

Hayden Locke: If you look at the analysis, there is a pretty wide array of carbon intensities per ton of refined copper produced across the industry. The reason it's important is because all of the banks, the traditional project financing banks, but also the institutions, and you're seeing it more and more in the traditional money institutions, they are really focusing on your level of emissions. They are saying in some circumstances that they won't even lend to you if you have very emissions, so this is really important. We believe it will translate into a lower financing cost for us, but more importantly than that, it's almost becoming a prerequisite to have addressed these sorts of issues, if you are really going to finance a mining project. You have to have addressed sustainability, environmental frameworks, your engagement with stakeholders, and we see this as the next step in that framework. It hasn't been fully rolled out yet, but we're looking into the future, saying this is going to become very important, and if we can address it before we get to the financing steps it will make our life much easier at that stage. 

Matthew Gordon: It may save you money when you go to raise money on the CapEx side of things. Does it make things more expensive for you in terms of having to deliver in a certain way? 

Hayden Locke: No, that's the benefit of this analysis: it has shown us that we can connect to the national electricity grid, which is what was proposed in our PEA, and all of our engagement we've had with the energy producers in northern Chile is that they can confidently say when we do a PPA with them - a power purchase agreement - that they will be able to deliver us electrons that are effectively coming from renewable sources. It doesn't change our approach, it's a real value-add for us and a unique point for this project, which already has so many unique aspects. 

Matthew Gordon: Building a mine is tough, lots of moving parts. I want to make sure this isn't just another box-ticking exercise from a company. It makes nice headlines, nice PR, but it doesn't actually translate into anything. You're telling me that you potentially can get cheaper money as a result. It doesn't affect your operational costs. How else can you use this to you and your shareholders' benefit? 

Hayden Locke: In the longer term, and this is something that we covered in our panel discussion, I think everyone is of the mind that there will be a carbon tax come in at some point. Those groups that can trace back and show that the carbon intensity of the product they are delivering is at the low end of the spectrum, we believe it will translate into a premium product value. Therefore, it will be positive for our project. We can't quantify what that's going to be at this stage, but if you just run back of the envelope numbers, you will see that there are some copper companies or projects that are emitting 6t-8t carbon per ton of copper produced, whereas we're saying we're going to emit less than 1t copper, and you put a USD$200/t carbon tax on that, it becomes a meaningful premium that we should be able to achieve, relative to the more carbon-intensive mining operations.

We can't quantify it yet, but we're looking to the future and saying: we need to position ourselves for what might be coming and we're hopeful that will add value to us as a company.

Matthew Gordon: If a company like Wood-MacKenzie, and there are a lot of companies out there doing the same thing, selling this type of service to you guys is good news for them, but do you think it will become almost mandatory for all companies to do this? At which point you can then judge yourself in a very different way. I saw the charts in there in terms of where you sit - bottom decile, potentially, with the scope through emissions. Is that how we should measure companies going forward in terms of our investing? 

Hayden Locke: I think it's absolutely one thing that you have to consider because it talks to the executability of these projects. If you are looking at a project that has a requirement to have a large power plant sitting beside it, in order to get into production, you would start to question if that will be achievable in the new future we're facing as a mining industry. We think it's important. Is it massively important right now? Probably not, but this is part of our strategic positioning of the company as we move forward towards copper production. 

Matthew Gordon: In terms of your credibility, one of the things we've always talked about is how this project needs scale. You've always said that you think it's there, you've started to prove that can be the case. Does this report take into consideration the scaling up of what you are doing? Obviously, they will have started this a while ago, before you knew the potential of the project.

Hayden Locke: The benefits of this analysis shows that we can connect to the grid, so there will be no implications on whether or not we scale up this project at all by pursuing the strategy we are. We can take the same, or more, energy from the national grid. The benefit is that it comes from renewable sources, of which there are several developments in the Atacama region that we can potentially do direct purchase power agreements with.

Matthew Gordon: Given that you are starting to prove up what is quite a nice project, in the market now there are other companies who are struggling a little - perhaps ripe for some M&A activity. Is that now on the cards, given the traction you've managed to get over the past few months?

Hayden Locke: I think there has been a definite shift in the M&A activity in the base metals space. We talked a little bit about it on our panel discussion. We also have a view internally, we obviously have Greenstone as a significant majority shareholder in our company, who are a private equity point that at some point will need to have a liquidity event, we believe that this aspect of the project only improves the desirability of our project to large corporates. As you see, the announcements from Rio, investing USD$7.5BN, some big announcements, and, quite frankly, the grilling of Mark Cutifani at Anglo-American on his Scope 1, 2, 3 emissions, it is becoming an incredibly important aspect of the business development for these majors as they go forward. And it will limit some of the projects that they can buy if they're really rigid on their internal controls here, and so as a result, logically a project like Marimaca will be significantly more attractive because of that carbon intensity profile. 

Matthew Gordon: What next? 

Hayden Locke: We have a lot of work ongoing on the ground. We are infill drilling at the moment. We are most likely going to go into an infill campaign on those depths extensions, with the goal of putting out an updated resource next year. We've delayed the feasibility study as want to ensure we take the right scale into that study. We think those drill results will change the scale of this project, which is, as I always said, the one weakness we have is that is not of massive scale. It is still a very big project. It's really all hands to the pump to move the project towards the feasibility study kicking off next year. In parallel with that, permitting, water connections, obviously the electrical connections: doing that work so we will be in a position, once we have the answer from the feasibility study, to very quickly go into construction. As we discussed on the Panel, in the next 3-4 years, 2024-2025, there are not many new copper projects coming on, and we believe it's the perfect time to become the new copper producer in Chile and globally. 

Matthew Gordon: I appreciate your time. The Ford-MacKenzie report is well worth a read. It asks the right questions, and in your case, answers them for your project. Retail investors can have a read and work out what is important moving forward. Hayden, I appreciate your time.

Hayden Locke: Thanks, Matt.

To find out more, go to the Marimaca Copper website