Salazar Resources (SRL) - Low Risk Leverage to Large Copper Upside

Salazar Resources Ltd. is Ecuador's proven and trusted exploration company, focused on creating value and positive change through discovery, exploration, and development. The company’s wholly-owned deposits in Ecuador include Los Osos, Los Santos, Macara Mina, Rumiñagui, and Columbia.

Matt Gordon caught up with Merlin Marr-Johnson, Executive Vice President and Corporate Secretary, Salazar Resources. Merlin has over 25 years of experience in the minerals sector and has worked on projects located in South America, Africa, Central Asia, and Europe. His educational credentials include a Bachelor's degree in Geology from Manchester University and a Master's degree in Mineral Deposit Evaluation from the Royal School of Mines, Imperial College.

Company Overview

Salazar Resources is an exploration company founded in 2007, headquartered in Vancouver, Canada. The company is listed on the Toronto Stock Exchange (TSX-V: SRL), the OTC Markets (OTCQX: SRLZF), and the Frankfurt Stock Exchange (FSE: CCG). Exploruminahui S.A.,Perforaciones Andesdrill S.A., Mataje Columbia S.A., and Mariana S.A. Comador are the company's subsidiaries.

Salazar Resources is an exploration and development company based in Ecuador with Ecuadorian assets and a local team. The company is well-placed to identify new targets and secure ground in Ecuador. It aims to make the next great discovery in the country. The company has farmed out and has a fully carried 25% interest in the Curipamba project. Curipamba is a high grade copper-gold-zinc open pittable deposit that has recently been financed. The project is currently undergoing permitting and is expected to enter production within the next 2 years. Salazar does not have to contribute to funding at Curipamba and once the El Domo mine at Curipamba is in production Salazar will receive significant annual dividends. This cash flow of approximately $15 million for every full year of production will be used by Salazar Resources to invest in the exploration of its wholly-owned assets. 

Adventus Mining - The Operating Partner At Curipamba

As the operating and funding partner within the joint venture, Adventus Mining Corp. (Adventus) is responsible for financing El Domo into production. Adventus has recently raised C$30 M through a bought deal consisting of units comprising a share plus a half warrant. The equity capital raise was completed soon after Adventus Mining secured a total of $235.5M in debt and stream finance from Trafigura (debt) and Wheaton Precious Metals (stream). El Domo is now effectively fully funded to production.

The Joint venture company, Curimining, that is operating Curipambaa completed its Feasibility Study on El Domo in October 2021, and submitted its Environmental and Social Impact Assessment (ESIA) in November 2021. Curimining is currently applying to the government for the relevant permits to enable construction and then mining to proceed. In the event that permits are granted in 2022, construction will begin in 2023, with production commencing in 2024.

Salazar Resources’ retained NPV (Net Present Value) after financing is approximately 25% of the NPVs published in the feasibility study, which was US$423 M at October spot prices. The company estimates that once in production it will receive a dividend stream from operations approximately US$15 M on an annual basis. The open pit is forecast to operate for ten years, with a potential five extra years from an underground operation that is at an early stage of planning.

Fredy Salazar, CEO, Salazar Resources sits in Quito, which means that the company is in regular contact with the government. Maintaining relationships with the administration is important in countries like Ecuador and the feedback received so far is positive and dynamic. Salazar Resources noted that it recently had a meeting to discuss the permitting process for the tailings dam. These tailings storage facilities need to be properly engineered and audited the timeline for permitting ranges between 8-12 months. This is one of the most challenging environmental permits for the company. The company is looking to get fully permitted by the end of the year.

Salazar Resources Cash Position

Salazar Resources has a $45M current market cap. The company is currently trading at $35 and it has a carried interest that could be described as a non-operated Royalty that is worth about $105 M. The company is trading at 0.3 of its NPV. 

The company notes that it is currently trading at a significant discount to its peers with a funded high-grade open pit that is close to production. In an ideal scenario, the company anticipates that post the permitting process over the next year, the share price will appreciate during a rerate on the stock. The company is also looking to carry out exploration on its own 100% licence areas that always has the potential to make a discovery and deliver a classic exploration five-bagger or ten-bagger.

Drill Operations

Salazar Resources had 4 targets at its Rumiñagui deposit. 2 of these deposits were drilled in the previous year. The assay results from the drill program are pending, and the company is looking to publish these results once they are in.

It is currently focusing on the Santos deposit. The company hit multiple high-grade gold structures along with fantastic sheeting stockworks featuring copper and gold. The copper stockworks were over 200m, while the sheeted stockworks were close to 100m. Notably, a copper sheeted stockwork is the abundance of copper-rich minerals at-surface over wide thickness. The assay results for the Santos deposit are pending. The company is currently carrying out drill operations at this deposit.

The company is looking to drill through the 100m sheet stockwork and test the material underneath. It also has several bulk gold targets that need to be tested. It is planning a 3,000m drill program at Los Santos that has an estimated timeline of 3-4 months.

The Los Santos drill program is fully budgeted. The company is looking to employ 1-2 drill rigs at the deposit. As Adventus Mining is now financed, it is hiring drill rigs from Salazar Resources. The latter has 4 drill rigs in total. The company plans to employ 2 rigs for Los Santos and the other 2 for the joint work with Adventus Mining as it will generate revenue.

During the summer season, Salazar Resources is looking to drill the El Potro deposit, a fantastic porphyry that sticks out of the ground and down in the south. As per the company’s Chief Technical Geologist, the copper present at the deposit is disseminated into a regional quartz size that is present in large numbers.

The El Potro deposit is located 40km north of the Rio Blanco mine that is situated at the Peru border. The Rio Blanco mine features 1.2Bn tons at 0.7% copper. The structure of the Rio Blanco deposit is very similar to Salazar’s El Potro. The company is looking to replicate the success of the former with over a billion tons at nearly 2% copper. Due to the rainy season, the company won’t be able to drill at El Potro til September-October, making it a Q3-Q4 drill target.

Plans 2022 and Beyond

Salazar Resources is looking to demonstrate the potential of its 2 large projects outside of Adventus Mining as a way to obtain a breakout on its evaluation. To achieve this, the company is looking to carry out additional drilling.

It plans to aggressively drill at Los Santos in the first half of 2022. In the second half of the year, the company is looking to drill at El Potro. The company has multiple assets and opportunities that help fund drill operations at El Potro. The company anticipates that if it can demonstrate the potential for Los Santos over the next few months, it might lead to monetization and an appreciation in its share price.

The company believes that it can drive value through exploration. It is looking to drill 3,000m at Los Santos. The company originally published a news release on Los Santos back in December, however, it is still awaiting assay results from the high-prospect copper area. Despite the delays, the company has drilled holes underneath the copper stockwork, which appears to have 5% chalcopyrite and 2% bornite presence. Notably, chalcopyrite features one-third copper, while bornite is two-thirds copper. The company is looking to carry out estimates over the 100m intersection that feature strong copper grades running through.

Following a 3,000m-4,000m drill program at Los Santos, the company will publish a detailed drill program and make a financing decision. Following this, the company is looking to raise capital for drilling at El Potro which is planned for September-October 2022. 

M&A Considerations

Salazar Resources has 3 major assets that can be offloaded. The company can potentially sell its stake in the Curipamba project which has a $100M NPV. A 0.7% NPV would be a favourable deal for the company. It also has carried interests in the Adventus-Salazar Exploration Alliance, where it has 20% interest in Pijil and 20% in Santiago. The company also has a drilling company which is a sellable asset, however, this asset will be retained as the company seeks to drill El Potro and Los Santos deposits.

The company also has the Macara project, which is planned for drilling either in late 2022 or early 2023. The company has 2 additional licences where it has found another great deposit. It is looking to bring this deposit into its portfolio. Overall, the company has 3 big projects.

Salazar Resources believes that working on 3 huge projects on its own won’t be feasible. It is working on monetizing 1 or 2 of these assets. The company also has the flexibility to sell shares as an asset. Although, it isn’t looking to sell shares or carry out a huge capital raise at a massively diluted price.

Adventus Mining holds 80% ownership of the Pijili deposit, while Salazar Resources has a 20% stake. This deposit is a 3,246 hectares exploration licence within the Adventus-Salazar Exploration Alliance. Salazar Resources is open to offloading the Pijili deposit if it's a 100% acquisition, as it will lead to the monetization of the company’s assets. This would enable the company to invest the generated revenue for drilling its own projects. It is also open to discussing the possibility of functioning as a local partner for the project. It can charge a management fee and monetize the asset on the equity side without ownership.

There is also a possibility where an interested party is willing to spend exploration money on the asset. In this scenario, the party can utilise the company’s 2 drill rigs, which in turn, will fund the project’s exploration. In essence, Salazar Resources has several options when it comes to monetizing its assets.

To find out more, go to the Salazar Resources website