Marimaca Copper (MARI) - Copper Player Aiming to Become World-Class

Marimaca Copper, founded in 2004, is a Canadian-based copper company. Copper has been gaining a lot of traction recently, and part of this has undoubtedly been driven by reflationary spending on industry and infrastructure to kickstart economies post the COVID-19 lockdown. Consuming 51% of global copper production in 2019, China is at the forefront of this.

With copper prices rising up to $6,700/t, there has been a lot of interest in copper mining companies from the market in recent months. This is especially true of Marimaca Copper; its share price has tripled in around 4-months. Marimaca's flagship project, the Marimaca Project, is based in Chile's Antofagasta Region. Some recent drill results demonstrated the potential of the project, but now the plans have changed a little. The exploration upside has become a main priority. Could this turn the project from good to world-class?

We Discuss:

1. 2:26 - Company Overview
2. 3:25 - Problems Hayden Has Been Appointed to Solve
3. 4:22 - Company Financials: Debts, Deals & Terms
4. 10:15 - PEA Results: A Look at Numbers & Metallurgy \
5. 14:14 - Business Plan: Agreements on Approach
6. 18:50 - Financing it All: Confident with Shareholder Support?
7. 21:13 - Chile as Jurisdiction: Challenges to Overcome
8. 22:43 - Geological Process vs News Flow: Choices for Growth
9. 25:52 - Extension of Option Payment: What Happened?
10. 28:05 - A Macro Look: Expectations for Copper Price

Matthew Gordon: Let's kick off with that one-minute overview and then we'll pick it up from there.

Hayden Locke: We're developing a Copper project in Northern Chile. A tier-one mining jurisdiction, very well known for the Copper industry. This is a really unique project. It's got very low capital cost to production and you know how much I love the low capital cost of reduction. One of the banes of our industry is that so many projects are so high capital cost. Then this one, we've got industry-leading low capital cost of production. It is also a very low-cost project in terms of operating costs across the life of mine. Even in today's prices and yes, Copper prices are up, but even in today's prices, this is going to be a mine, which is what I really like about it. The thing that really got me most excited about joining Marimaca is the exploration potential attached to it. We know we've got a great project. It underpins our valuation today, but the exploration potential around the project is absolutely enormous and we'll be looking at testing that in the coming months.

Matthew Gordon: Why have you been brought in? What's the problem you've been brought in to try and solve?

Hayden Locke: There's no real problem. It's just that the management team, the operational management team based in Santiago, Chile, with companies of our scale and our size we know that there's a strong need for a market-facing role. I'm here to get out in front of the market and tell the story and meet investors and organise the financing side of the business. But equally, the other side of it is, this project is, very unique, it's one of the new Copper discoveries made in the last five years. As you can imagine, there is quite a lot of strategic interest in this project. My background as an investment banker helps me on that side to understand the strategic rationale and how we are going to build our strategy to maximise value for shareholders.

Matthew Gordon: Can you just talk us through the financial numbers, please?

Hayden Locke: There's been a lot of restructuring that's gone on since I've been involved. I think it's important to point out that that debt that Greenstone converted was actually not anything to do with the Marimaca project itself. It was to do with another development-stage project. It was non-recourse to the company, but notwithstanding that, because we own the subsidiary, it was consolidated into our balance sheet. It caused a lot of confusion so, as a company, we made the decision to ask Greenstone to convert that debt and therefore take it off our balance sheet, which they gladly did.

Right now, in terms of actual debt, we have a working capital facility, which was provided by Greenstone to us when coronavirus hit, just to allow us to not have to raise equity capital at a very low price, which we were when the coronavirus pandemic started. That's a USD$6M facility that gets us right through to the end of the year. And then in terms of other debt or liabilities on the balance sheet, we have some option payments on our land remaining that need to be paid over the next 18-months. It comes to a little over USD$9M.

Matthew Gordon: There was USD$19.2M from your balance sheet with the Greenstone deal.. Did they want to convert? Or is it a case of you didn't have the financial wherewithal to be able to meet the terms and repay them, and in which case it was a reluctant conversion or was that, did they come gladly skipping into the project?

Hayden Locke: No, it wasn't a reluctant conversion. They were always intending on converting that debt into equity in the subsidiary co. It's relating to another project called the Berta project, so really it was non-core for the Marimaca company, as we see it, the new Marimaca, or as I'm talking about it, where we've rebranded it from Coro mining to Marimaca, our exclusive focus is really on the Marimaca project. Greenstone was very happy to convert that and then take that asset basically under their umbrella.

Matthew Gordon: They've taken what Nova and SCM, I think as well, Minera Beretta. Where are they as an equity holder in Marimaca? Where are they up to now?

Hayden Locke: They own about 24% of the head co of the list co. Prior to that, they owned about 58%, but they in-specie out a lot of those shares to their underlying LPs. Those shares are now in the hands of their LPs, which means those LPs have voting rights over those. Then there are the large shareholders, Tembo capital and other private equity.

Matthew Gordon: Both out of London. You did break down some of the other moving parts that are there, the other debt components. Just go over those again for me, I just want to understand how difficult they will be to manage.

Hayden Locke: We have a working capital facility, a total of USD$6M, which is a withdrawn about USD$4M. We have a bit under USD$2M left on the balance sheet for that, that's really to allow us to fund ourselves to the end of the year without needing to raise capital. I haven't had this discussion with Greenstone, but I assume the intention would be that Greenstone and Tembo would roll that working capital facility into any capital raise we do. In addition to that, there are option payments still do on the land at Marimaca, of which about USD$6M is due in the next 12-months from our last accounts and then USD$3.6M due post that.

Matthew Gordon: What are you going to do about it?

Hayden Locke: We'd obviously have to raise capital at some point and pay off those varieties of liabilities owing. The benefit we have is we have two large private equity funds that have basically been financing this business by themselves for the last couple of years. They are really keen to stand their ground. They see the value in the project. I don't think raising new capital is going to be an issue, but one of the things we are looking to address as a company is just the number of institutions we have on the register and the free float available to buy shares. It's probably one of the things that are holding us back, just that overall capital structure in terms of shares and where they're held.

Matthew Gordon: How are you going to address that?

Hayden Locke: Eventually we'll go out and raise capital from the market, I would expect.

Matthew Gordon: In terms of getting the balance right between institution and retail, how do you manage that?

Hayden Locke: We have a fairly reasonable chunk of shares in the hands of retail right now. At the moment, my job is really focused on getting out in front of institutions. And then we are pushing out towards more retail discussions. So that's through brokers, broker-dealers, platforms like this. We'll start doing more video format interviews and things to get out in front of the retail crowd. But what I found, which I found really interesting when I joined and started marketing the company is, very few institutions and the big institutions that are big players in this space, very few of them have heard the story. They kind of know a little bit about Coro and now Marimaca, or they've heard something, but when we actually present the story to them, they're like, this is not what I remember it being when we last met this company. There are a lot of groups that we can still meet and a lot of work that we can do on the marketing front.

Matthew Gordon: Your share price is up as high as it's been in 3.5 years. Obviously a very positive reaction to that. Do you want to remind the audience of some of the numbers that you've hit there?

Hayden Locke: It surprised us as a management team. We knew it was going to be an interesting project. Some of the highlights: preproduction capital cost of USD$285M with a capital intensity of about USD$7,000 p/t Copper cathode capacity. That's right down in the bottom quartile of capital intensity, which we know is so important in terms of having a good return on your invested capital on developing these projects. It's a 12-year life of mine, producing on average, over the life of mine, about 35-36,000t of Copper cathode. We have early-stage, upfront of 5 to 6-years of pretty much bang on 40,000 tons p/a Copper cathode.

Our C1 cash costs: bang in the middle of the second quarter. But the benefit of this project, which is an open-pit and then heap leach SFCW, is the sustaining capital to keep this project running is so much lower than what you would see for a huge sub-level block cave or something like that. Our All-in Sustaining cash Cost is right in the bottom quarter, which is what I always look for is; how much cash are we going to make from these businesses to manufacturing.

Matthew Gordon: Are you going to be hindered by what you see there? You talked about indications, but how much more work have you got to do?

Hayden Locke: That's actually a really good point because this PEA has been completed because there is inferred resource included in the mine plan. One of the things that struck me when I went down to Santiago and visited with the team was, they are well-advanced on many, many of the technical aspects of this project, including the metallurgical testing. There have already been three phases of metallurgical testing complete. The fourth phase is just about to be complete. And we had a call recently with one of our consultants, who's got 35 plus years’ experience. And he was saying, basically where we are now is pretty much at a level that would be bankable for any project finance banks coming in and looking at this. We've done a lot of work, really narrowing down how we'll process it, how much assets is going to be needed, what the leaching kinetics are like. In terms of the overall project, we're far more advanced in many aspects than a typical PEA. It's just that last sort of 35% of the resource not being in indicated that is the reason why this is still called a PEA.

On the processing side, on the metallurgical side, the first three phases, there are five distinct sub-zones of mineralisation and the dominant zones are the green oxides, your classic green oxides in this part of the world. And they tend to process exceptionally well on exposure to acid. They have higher acid solubilities and you tend to get up to those acids in your leach work fairly quickly. We're very confident on the recoveries in those areas and we've done quite a bit of test work on those areas. The remaining three mineral sub-zones had quite a bit of variability between them. That's part of phase 4 met testing that we're doing. Some of them have lower assets or liabilities, but in general, what we're seeing is a fairly good profile of leaching and a fairly high recovery of the total Copper content in our leaching tests work, which has done many columns, 1.5m columns.

We've done a huge amount of work and we're fairly comfortable with the assumptions in the PEA at this point.

Matthew Gordon: You've got a team of very technical people, you've got quite a reasonable-sized project. What's going on up here with you? What do you think the plan needs to be? What have you come together and agreed the plan is going forward for the build-out of this company, not necessarily in your mind, but for the company so that the market can actually appreciate the value that you're trying to create?

Hayden Locke: I think until we put out the announcement on the potential for sulphides at the Marimaca oxide deposits, the deep sulphide potential below the Marimaca oxide deposit, the intention was to go full ball forwards, to develop this project, move as quickly as we could to get it into production and get ourselves cash flowing. It is a mine that can be built and its fairly low execution risk. From my perspective, my skillset actually compliments the CEO, Louis Tondo’s skillset, exceptionally well. He's highly technical and a real mine builder. And I work more on the finance side. We actually have a great working relationship in terms of how we divide up what's going on in the company. I think what's changed a little bit is this potential exploration upside that we've seen. And we've seen enough that we think that there could be something game-changing for the company. We've had this actual debate this week with the board about what's our strategy going forward? How much are we going to devote to continuing to move the Marimaca project forward? How much are we going to devote to exploration? The conclusion we've come to is we need to continue to move Marimaca towards production because that's our primary asset and that underpins our valuation. It is also a very low execution risk project in the mining sense, in terms of its location, access to infrastructure, where it is in Chile, access to skills - all of those things that are required to successfully develop a mine are on our doorstep. From that perspective, it looks like a no-brainer from a development perspective. But we do really want to aggressively test the exploration potential around Marimaca. And we think there could be potential beyond Marimaca and some of the news that will eventually come out, we hope will show that there's going to be other targets for us to follow up on. It’s a mix.

Matthew Gordon: What have you come in and have you changed people's mind about how they should be approaching it? You're saying we can do both things concurrently. Is that the new news?

Hayden Locke:  I think we can do it concurrently; I would say it's definitely going to be bent towards testing the exploration potential as opposed to really hammering forward on the development of Marimaca. If I was to say, we've become more of an exploration focus in the coming 12-months, just because we see so much opportunity to potentially completely change the scale of this discovery and potentially beyond that. So more of an exploration focus, but still moving forward on the project.

Matthew Gordon: Why is the market going to react better to that than someone getting into production early?

Hayden Locke: I'll give you an example: if we drill out the deep sulphide and there's a really exciting and economically interesting project there, we will still develop the oxide project first because that makes sense. It's very much lower capital cost to get into production and then use your cash flows to then develop a sulphide project. If, however, we make another Marimaca-style oxide discovery somewhere else in our claims package, then that could conceivably completely change the scale of the operation and how we would approach the development of those assets. We would have to go back and redo all of that work. While we're keen to continue to move forward, we're also keen not to waste money and then have to go back to the start and redo that work. We'll be doing bits and pieces that still need to be done, but there will be definitely a focus on exploration.

Matthew Gordon: How do you finance all of that? Where are you at today? You've explained the debt situation, what is the cash situation and what do you need to spend to be able to deliver at your exploration program?

Hayden Locke: We have about USD$2M left of the money that we have drawn of that working capital facility and another USD$2M in liquidity - so call it USD$4M in liquidity. Obviously, not enough for us to go out and do all this work that we're talking about. Going back again, we have the benefit of having two large shareholders that will continue to write large cheques to continue to finance this project in terms of us moving forward. Financing is not going to be an issue for us. But the question is, what's the mix of the investors coming into that financing and who are we going to be speaking to? There's been quite a lot of interest thus far.

Matthew Gordon: Why do you say they'll write cheques? Have they committed to you that they will write you cheques?

Hayden Locke: I wouldn't say it's absolutely written in gold leaf commitment, but verbally - yes. Both of them have said that there's further money available to continue to push this project forward. Why do I say that? Because I think both groups see that at today's share price, this project is materially undervalued for what we have. They know, obviously, a lot more than the market does in terms of their knowledge of how advanced it is behind the scenes. And so, while it's undervalued, they'll continue to be excited to put money in.

Matthew Gordon:  Major shareholders have got more information than the rest of the market. Are they restricted in any way?

Hayden Locke: They are restricted in terms of their ability to buy and sell on the market. They found they have very tight restrictions in terms of blackout periods, all that sort of stuff. But I have pre-emptive rights in any capital raisings we do.

Matthew Gordon: Why is this so thinly traded at the moment?

Hayden Locke: We've got a lot of sticky shareholders, so outside of Greenstein and Tembo and their LPs, we've got another 15 shareholders that speak for a significant chunk, they're high net worths as a general rule. And they are very supportive shareholders, so we have a very small free flow realistically in terms of the market, which is something that we'll look to remedy when we go through the next phase of financing discussions.

Matthew Gordon: How are you finding working in Chile? There are some big players there too, but what was your experience?

Hayden Locke: The feedback with the groups that I've been speaking to, that's the question that they ask - what's going on in Chile? Talk to me about the social issues that are happening down there. And I had a long conversation with an advisor who talks about political and social advisory in Chile before I joined, just to get a sense of what's going on. There's been a change and there's certainly been a focus on, as there have been in many other countries around the world, in people who feel that they've not gotten as much of the pie as they would like to have, finding their voice. I think the Copper industry is incredibly important in Chile and everybody there recognises it. As a result, it tends to be business as usual. Some of the bigger mines have a few labour relations issues.

I think where we're located and what we're trying to do, it's a very small project relative to the big historical operations there. It's in a pro-mining area of Chile, there's no doubt about that. We're very close to Antofagasta, very close to Mejillones. As a general rule, the feedback across the board has been very strong, but we go in with our eyes open; every jurisdiction in the world comes with its challenges, and Chile is no different.

Matthew Gordon: IHow do you say, I need something for the market to kind of make the conversation a lot easier now and you can concurrently, or at some later stage, go chasing these massive sulphides? What's that conversation internally look like?

Hayden Locke: We're not really talking about what we're going to be presenting to the market per se. We're talking about a good process, a good geological process that we're going to follow. Sergio, our geologist is incredibly experienced and has found a lot of projects. Our focus is not on necessarily delivering news flow now to the market, but more focused on going through a good geological process to then identify targets that we'll follow up and drill. And either that'll provide the catalyst that we need, hopefully it'll be successful.

Matthew Gordon: Are you having that conversation internally? Are your needs slightly different from the geo team?

Hayden Locke: I think they're actually quite aligned because the lowest risk targets for us to drill will be the best sources of future news flow. If we have potential shallow scout drilling targets for oxides, fantastic – those will be prioritized. But you've still got to go through that first phase of geological work because there's nothing worse in geology than rushing. I've seen plenty of people who have missed their targets by rushing and not following a good geological process, a good gating process to understand what they're doing. We're trying to fight that. I've said it in meetings; with the magnetic anomaly, which is in a place where we think there's an alpha target below the oxides. The thought process is, well, let's just go bang a couple of drill holes in there and hope we get lucky. That's gambling and that's increasing your risk of not hitting. We are excited to go out and drill it, but we're tempering that enthusiasm by saying, we still need to go through the process. There are other things that we can do to focus in and reduce our risk that will provide some news flow. It might not be the high-value catalyst of an amazing result, but it will still be showing that we're narrowing down our targeting processing and getting our minds set on what we're actually going to go and drill.

Matthew Gordon: How disrupted has the business been versus how did you manage to negotiate those terms in terms of the extension on this option payment?

Hayden Locke: When we started cutting costs out of the business and when we started to talk to our partners, and they are our partners, hence why they agreed to the extension, we have a great working relationship with them. So that's the real reason that they agreed to take those extensions. They got a little bit of an interest payment on top of that. But when we started cutting costs out of the business, I don't think anyone had any idea how coronavirus was going to play out, it was completely unprecedented, and we were trading at USD$1.25. We were staring down the barrel, we just paid an option payment. We were staring down the barrel of having to raise money at a much lower price. And I can tell you, our shareholders would not have been happy about that. So that was the reason we went into cost-cutting mode.

Actually, when we look back, 2020 hindsight, we probably were too aggressive in the way we approached taking cost out of the business, but it was the right decision because as the board said on the call, we just have no idea what is going to play out here. Our job is to protect the capital structure and our current investors by doing whatever we can in the current environment. Actually, it hasn't been that badly impacted for us. One of the benefits we have is we're not in operations, so we don't have a huge team on site so it's very easy for us to bring people back. A lot of our work on the ground was desktop-based so it hasn't been anywhere near the impact that we thought, but we're still very thankful for our partners in Chile for allowing us those options payment extensions.

Matthew Gordon: What's your take on price?

Hayden Locke: I’m a Copper bull in the medium to long term. In the short term, again, what I thought the coronavirus impact was going to be didn’t quite play out as much as I thought. I thought there would be much more of a supply disruption, but when you look at the accounts of these Copper producers, they're still producing quite a lot of Copper, but then a surprising amount of demand coming back out of China, I'm hearing about them restocking and all of that sort of stuff. From a company perspective, we typically are not sitting there trying to forecast how high Copper is going to go, but we're looking at what happens if Copper goes back down to USD$2.50 or $2.60, around those levels. How does our business look at those levels? And can we still get this thing into production and can we still be a going concern? The great thing about the PEA that came out was it showed a USD$2.55 p/lb Copper, where we're still going to have an IRR north of 20%, which is just incredible in terms of ranking ourselves relative to our Copper peers. Medium to long-term bullish. Short term, I think I have as much idea as everybody else as to where it's going to go.

Matthew Gordon: Will you go and raise additional capital over and above your current plans? How big a part of the conversation is that each month at the board meetings?

Hayden Locke: It's definitely a general consensus of the board level that Copper is back and everyone's feeling a bit more excited about life now that we're back just about USD$3 p/lb, which is great. That certainly brings a sense of excitement about staffing up and getting ready for the next phase of development and going out and really putting those exploration dollars into the ground. The better way to do it is to talk about the feedback I'm getting from the institutional investors that I’m meeting, generally, the consensus across them is I've made a lot of money in Gold and now looking for the commodity that they think is going to be the next one to go. And Copper, is it, for everyone that I'm speaking to a Copper is very high up on the list on those commodities that they think is going to rerate. I don't know whether or not I can say that as clearly as they can, but that's the feedback that we're getting from the market.

Matthew Gordon: It could be a good week for you: BHP’s top three future commodities: Copper, Potash, and Nickel. A good week for you.

Hayden, thanks very much for coming on and filling us in with the story here. Like I say, it's new to us and I enjoyed listening to that. You've got a bit of work ahead of you for the rest of this year. Looking forward to catching up again soon, when you get some more data out of the market from that drilling, let us know.

Company Page: https://www.coromining.com/