Marimaca Copper (TSX-V: MARI) - Secure Water Supply is Good De-Risking Process

Marimaca Copper Corp. is a Canadian copper exploration company focused on exploring and developing new copper resources to supply an increasing global demand for this essential commodity. The company's flagship asset is the Marimaca Copper Project in Chile's Antofagasta region. It is the only copper discovery made globally within the last five years. It is a low-risk project that offers substantial exploration potential.

Merlin-Marr Johnson caught up with Nico Cookson, Head of Corporate Development, Marimaca Copper. Mr. Cookson started his career in mining investment banking, M&A (Mergers and Acquisitions), and corporate finance advisory. He moved into the principal investing arm in mining private equity focused solely on the equity side of the business in base metals and precious metals assets globally. Following this, he was responsible for project analysis, valuation, and return profiles on mining investments. He brings a wealth of past experience to Marimaca Copper. Mr. Cookson joined Marimaca in September 2021. He has significant experience in the mining sector across capital markets, principal investment, and advisory. Prior to joining Marimaca, he worked in mining-focused private equity and Appian Capital Advisory LLP and in mining investment banking at RBC Capital Markets.

Company Overview

Marimaca Copper (formerly known as Coro Mining Corp.) is a copper exploration and development company. It was founded in 2004 and is headquartered in Canada. The company is listed on the Toronto Stock Exchange (TSX-V: MARI). Compañía Minera Cielo Azul Ltda, Minera San Jorge S.A., Minera Coro Chile Limitada, Minera Rayrock Ltda., Machair Investment Ltd., Rising Star Copper Limited, and Sea To Sky Holdings Ltd. are the company's subsidiaries. The Marimaca Project has been one of northern Chile's most important copper oxide discoveries for over a decade. The company believes that it has the potential to be one of the best open-pit copper oxide projects globally.

Marimaca Copper is developing the Marimaca oxide project in Northern Chile. The company views this asset as a very unique and well-located development project with exceptional return on invested capital. Marimaca Copper has a small team that is detail-oriented on every aspect of the company and the project. The company has built an experienced team that is able to take advantage of the high-quality project. The company anticipates that it is well-positioned for 2023 as the project moves into a DFS (Definitive Feasibility Study), which will ultimately be followed by construction.

The Copper Market

In the last 10-11 months, the copper market pricing has been highly volatile, largely due to the volatility of the macro-financial flows. In terms of pricing, copper has decoupled from a highly supply-demand-driven market. On a long-term basis, the company continues to remain bullish towards the end of the decade. This is because the structural deficits in the copper markets have been further exacerbated by this year’s price declines. Marimaca Copper’s 2026-2026 production timeline aligns quite well with the expected future copper prices. The company expects to see some ongoing volatility in copper over the next 6-12 months, but over the long term, it isn’t worried about the copper pricing.

From a marginal cost of production perspective, there are assets out there that turn offline in the low $3 copper price environment. This has been the case for the majority of the second and third quarters in 2022. The supply estimates for a $3.75-$3.80 copper price for 2022 haven’t come true. In the short term, the supply is coming offline. As a result, the estimates for 2023-2024 are expected to be constrained even further by the low prices across the copper market in 2022. Additionally, the market has gone slightly risk-off this year in terms of equity dollars available for explorers and developers, which is a critical component to ensure that the development and supply pipelines are full.

When there’s a lack of exploration dollars flowing into the ground, there aren’t new discoveries. Marimaca Copper is lucky in this aspect as it is one of the only major copper discoveries in Latin America over the last decade. A lot of those dollars aren’t flowing back into the ground, hence the supply pipelines aren’t being filled up for longer-dated projects.

In the current market environment, it's harder to raise money for exploration, which results in companies constraining the funds that go into the ground as a risk-off strategy. When the equity valuations are crushed, companies don’t want to issue dilutive stock on the asset value, so the subsequent capital raise ends up being much smaller. It’s only when the metal prices drive the valuations to a reasonable level that juniors are able to raise money again. A 6-month drop in metal prices could potentially lead to a 12-18 month gap in exploration dollar spend.

Water Access

On 7th November 2022, Marimaca Copper announced an option agreement with a water supplier in the Bay of Mejillones, the nearest port town to the Marimaca Copper project, located at a 25km distance. This agreement was announced for the life of mine water supply for the Marimaca project. It serves as a precursor to the water supply agreement that the company will execute upon an FID (Final Investment Decision) on the project. This guarantees future volumes of seawater supply for the project that will originate from the Bay of Mejillones.

Marimaca Copper has positioned the project from a sustainability perspective. The project can operate by utilising seawater as process water. Groundwater is a highly sensitive issue in Chile right now. Based on the Wood Mackenzie numbers, 50% of the fresh water usage in Chile’s Atacama region is accounted for by the mining industry. Water is a critical component for acquiring project permits in the country. Marimaca is well-positioned as it does not need to rely on a fresh water source to get its project constructed and in operation. Partnering with power and water suppliers in the Bay of Mejillones removes the need to obtain a permit for seawater intake in the Bay. Currently, the company simply needs to get a pipeline route from the Bay to the project that is permitted by an easement. The option agreement guarantees that the project will operate with seawater for the life of the mine.

The SX-EW processing plant was acquired by Marimaca Copper in 2017. The plant uses hydrometallurgy, where the majority of the water usage gets accounted for in the heap leaching process. This would lead to collection ponds at Marimaca, where the seawater will be used and combined with the acid supply to irrigate the heap leaches. It is important to note that the SX-EW portion of the plant will require some fresh water usage. The plant has a small RO (Reverse Osmosis) element for a counter-current wash that will remove salt from the seawater and ensure that the company has fresh water for the SX-EW portion of the plant.

The majority of the process water is used in the front end, in the heap leaching process, and in the 5 phases of metallurgy, an extensive metallurgical program that Marimaca has completed to date. The company has already tested the seawater sourced from the Bay of Mejillones along with the fresh water. Seawater usage is precedented in Chile in the current environment. In fact, a lot of operations have either made the transition or are thinking about transitioning to seawater usage. Marimaca will be one of the new projects that are constructed solely with seawater.

Notably, using seawater actually serves as a benefit for the Marimaca copper project as the chloride is helpful in the leaching process, particularly when moving beyond the green oxides into secondary sulphide leaching. Essentially, the company benefits from using the seawater on top of the sustainability and ESG (Environmental, Social, and Governance) benefits that come with sourcing water directly from the sea. The sourcing partner also benefits from this as the water originates from the back end of the thermal power plants that are based in Mejillones.

The power stations use seawater as intake to cool the water for the station as opposed to retreating the water from a temperature perspective and pumping it back into the ocean. The provider diverts the water to Marimaca’s asset where it is recycled for use as process water. Nearby operations like the Sierra Gorda also source their water based on a similar framework from the Bay of Mejillones.

Many of the plants in the region operate on gas. These power plants have transitioned away from thermal coal usage. In the Bay of Mejillones, some of the power plants remain coal-powered, while others are gas-powered.

Permitting in Chile

According to Marimaca Copper, each project in Chile is unique in terms of permitting. The country is highly diverse in terms of project locations and the implications of the permitting process for each asset. Marimaca Copper benefits from being very well-positioned from a permitting perspective and in terms of the project’s execution risk. The asset is located in Coastal Cordillera. In recent times, there has been an increase in moving projects through the permitting process.

The industry is moving towards a world where sustainability needs to be a core focus. As a result, projects need to be governed with the appropriate oversight during the permitting process. Marimaca Copper is well-positioned from this perspective. The company is moving into a DFS and the permitting phase, both of which are critical paths for the project going forward. The company and its team are focused on preparing for the permitting submission in late 2023 and kicking off the DFS.

Interestingly, the company has already started with long lead items such as environmental baseline monitoring, along with flora and fauna studies that are monitored over multiple quarters. These studies have been ongoing ever since the 2020 PEA was published. There have been multiple iterations of the studies and the company has ensured that they stay up-to-date. The long lead time items that will support the 2023 permitting submissions are underway, and the baseline studies have been rolling through the year as the seasons pass.

Targets 2022 and Beyond

Following the release of the updated resource in October, the company saw a notable scale-up in the project’s overall size. The company now has a good idea of where the project sits from a scope perspective as it moves into the DFS study in terms of the scale of production coming out from the life of the mine.

The company anticipates that there will be a material step change in the PEA’s scale. It now has the overall framework in place, the underlying mineral resource, that will drive the study. This enables the company to start moving toward the engineering phases of the permitting submission. The company has the overall scale concept for the project almost locked down.

Upon the release of the 2020 PEA Study, the resource side of the study was catching up with the balance of the inputs that went into the study in terms of converting the inferred resource into M&I (Measured and Indicated). This was the main reason why the company called it a PEA because the inferred resource wasn’t drilled to a high enough density that would allow moving it into the M&I category. This has been the company focus for a large portion of 2022. It has an interim resource in place that was published back in September. By February 2023, the company intends on publishing an updated resource where most of the inferred resource will be moved into the M&I category. This could be used in mine planning for the DFS study.

The 2020 PEA was informed on the capital breakdown and the operating cost breakdown by budgeted quotes from providers to the PFS level. This data can be used for mine planning in the upcoming DFS. Under 43-101, the company was required to call it a PEA because the inferred resources were included in the mine plan. The company is confident in the study estimates. It has completed a number of option studies since 2020. The company intends to take it forward as it plans for the DFS.

The nature of the orebody from a geometric perspective is highly favourable to scaling up operations without dramatically changing the mining approach. The company has been successful in increasing its resource, which has obvious implications for the scale of the asset and the size of the plant that needs to be built. From a mining perspective, the company is still capturing most of the resources in a single, continuous pit. The phasing of the pit will be similar to the 2020 PEA because the orebody’s grade distribution on this new resource is similar to what the company saw back in 2019.

The first 5 years of the operations will largely be dominated by the higher-grade green oxide that’s located near the surface. The company will push back from that in a similar phasing to the PEA, albeit on a bigger scale. This would have implications for the plant design and area because the company would need to leach a lot more material compared to the PEA with the updated scale. From a mining perspective, the company benefits immensely from the nature and the geometry of the orebody that is located at the surface. The strip ratio continues to be very low, and the continuous nature of the mineralization enables the company to capture most of the resources in a single, continuous pit.

Pushing out the pit envelope will lead to a drop in the average and cut-off grades. As a result, the company would need to carry out new metallurgical test work to understand the behaviour of the lower-grade portion of the resource. The orebody is zoned to an extent. The green oxide zones are present at the core of the orebody, which is an essential portion of the pit. Moving into the peripheries of the orebody leads to a lower-grade halo of black oxides. Notably, the black oxide component of the orebody has been tested in every phase of the metallurgy so far. As a result, the company is relatively confident in its sample set as it heads toward a DFS.

Marimaca Copper anticipates that at this point, the metallurgical test work is bankable. The company will need to complete a few additional auxiliary studies including particle size distribution before the DFS. Given the robustness of the company’s metallurgical program thus far, particularly with phase 5 in terms of the industrial scale columns that were completed, it is relatively confident about the metallurgical performance across the asset’s various grade distributions.

The column tests have enabled the company to obtain a better understanding of leach kinetics and permeability flows in a simulated pad environment. A major portion of phase 5 comprised testing as close to an industrial scale as possible, which was included in the PEA in terms of the metallurgical design. This was confirmed through the company’s test work in phase 5. The company is currently finalising a few things including the optimization of the crushing size for permeability purposes ahead of the DFS. From a core geo-metallurgical perspective, the company has a highly-robust dataset moving into 2023.

Marimaca Copper intends to agglomerate before stacking, which will be achieved through acid and saltwater in the initial stages. In the later phases of the mine plan, the company will add salt to the saltwater and acid mix in order to optimise the recoveries on the lower enriched mix and the secondary sulphide zone.

The company’s cut-off data for the 2022 Mineral Resource Update was announced at the end of Q3 this year, about halfway through the 2022 program. The company captured all of the drilling that was targeted at growing the resource at depth. It is important to note that there is still about 20,000m of drilling that was completed in 2022, which wasn’t captured in the resource update. The majority of the infill drilling was done towards the northern end of the deposit. The company intends to capture the drill results in a new resource that is expected to be released in Q1, 2023. The company does not expect to see massive scale changes in the resource. It will largely be based around converting the existing inferred resource, which is about the same proportion as the previous resource. The inferred resource will be converted to M&I so that it can be used as a basis for the mine planning and reserve estimates going into the DFS. Marimaca Copper is looking to get all the engineering studies done for the DFS later in 2023, around Q4.

In 2022, Marimaca Copper made major strides in de-risking the project. The company anticipates that this will be the last drilling campaign needed for the Marimaca oxide deposit before heading into the DFS. The water option agreement is a landmark achievement for the team led by Laura Rich. Since water is a highly sensitive issue in Chile, the option agreement is a major step towards de-risking the project. Interestingly, the company has flexibility in the option agreement as it can scale up or down the water requirements based on the design perspective in the DFS. By the time the water supply agreement is executed, the company will be at the FID stage, where it will have the flexibility to increase or decrease the water supply based on the project’s requirements.

To find out more, go to the Marimaca website