Salazar Resources (SRL) - Drilling Their Own Gold Copper Assets with C$6.5M Raise

Salazar Resources is Ecuador’s proven and trusted exploration company, focused on creating value and positive change through discovery, exploration and development. Its carried and wholly-owned work programs present multiple significant growth catalysts.  

We have spoken to Merlin Marr-Johnson, Exec. VP, Corp. Secretary of Salazar Resources twice in a short space of time. In our first conversation, we caught up with the company as a whole with a review of 2020 and the prospects of their portfolio going forward. The second interview came about following the announcement that Salazar has raised some money to accelerate the drilling programmes on their projects.

Company Overview 

Salazar Resources is a GSXD listed exploration company with a difference.  The difference being that the company has a carried interest in a high-grade asset that is coming to production and in Feasibility at the moment.  Salazar has a 25% stake that is fully carried so they don’t have to contribute to the capex.  The company receives income from advanced royalties and from management fees and they have a drilling subsidiary that provides income as well.  Salazar is an exploration company in Ecuador with a fantastic team and a great portfolio of 100% held licences that they’ll be drilling this year, plus the carried interest. 

2020 Review & the Situation in Ecuador

2020 was difficult for a lot of people in mining, it was very difficult in certain jurisdictions, whilst other people flourished due to the positive Gold price. Covid caused a few problems for Salazar but 2021 will be their busiest year yet.  They will be drilling 3, possibly 4 project areas and this is the first time that they will be drilling 3 or 4 projects in any one year since they listed 14 years ago. The share price at the start of 2020 was C$0.19 or C$0.20 and they started 2021 at C$0.35. 

In 2020, they started drilling their first project independent and outside of El Domo and outside of Curipamba.  It is the first 100% owned project that they’ve been drilling since El Domo was found in 2008. They have completed lots of physical work, preparation for drilling and mapping within their own portfolio of 100% held licences. There has been advancement in their own portfolio and the joint venture work with Adventus, which involved drilling and preparation and also starting the Feasibility Study.  Despite COVID, and with the retraction in the junior market, their share price has almost doubled and they were pretty busy during 2020. 

Taking Control: Catalysts for Share Price Growth 

The valuation of Salazar has shifted in line with their equity split on Curipamba, El Domo and a lot of the share price movement in the last year has been related to the 25% JV with Adventus. Adventus trade at 3 times the Salazar valuation at CAD$150M at the moment and Salazar is about C$50M.  Adventus has just committed to spending C$20M on the projects over the next 12 months in which Salazar is involved which is good news.  

Relationship with Adventus Mining & First Nations

Salazar gets a management fee for running the geology side of the Adventus project.  Adventus is driving the engineering and shaping the Feasibility Study, but Salazar manages the day to day work on the ground, in particular the community relations which are so critical in Ecuador.   

The Salazar team completes the drilling on the ground and can monitor the geology first-hand and oversee the relationships with the community which comes down to engagement at the local level, job creation and trust.  Salazar Resources offers employment, training and wealth creation in the local area. 

A big concern for Ecuadorians currently is economic and job security. There are only two mines operating in Ecuador, big commercial, industrial mines and they’re already one of the major contributors to the economy.  Both of the leading candidates in the forthcoming election have got an economic plan which is predicated on growth and activity which is dependent on the mining industry in their manifestos so are pro-mining.

Timeline for Advancements: Feasibility & Financing

The Feasibility Study for the Adventus project should be completed in Q3/21 and published in Q4/21. The drill results which have been published are impressive with very high grades. They have recently released results of 4.2m at 45% Copper equivalent, which is 19% Copper, 24g/t Gold and shows the high-grade assays within a high-grade asset. The resource will stay at 9Mt measured and indicated at 5% Copper equivalent, but these latest drill results are useful reminders that the deposit is one of the highest grade assets in the world. 

As the resource is 5% Copper equivalent in an open pit it is much easier to finance than if it was an underground resource.  

During 2021, Adventus will be working on an investment and exploitation agreement with the government which will be a legally binding arrangement which sets them on the right path to a mining permit.  The Feasibility Study will be completed to a standard where they will be able to take it straight into financing and then they aim to be in construction in 2022 and into 2023.

"Busiest Year on Record": Plans & Pace for 2021 

Salazar started drilling in September 2020 on their 100% owned projects and have 2 holes drilled in Los Osos, which are over 500m long with Sulphides from top to bottom and are now awaiting the assay results which they will publish as soon as possible. Los Osos is a very small, licensed area of only 229ha. They signed the La Santos license area late last year which is very close to Los Osos and adjacent to the Cangrejos licences held by Lumina Gold which is 2,200 hectares. La Santos brings more exploration potential within the area. 

Los Osos is in the Cangrejos area, which Salazar believes is one of the hottest areas in Ecuador for finding large systems.  If they can find a really high-grade core within Los Osos then that's fantastic.  But if Los Osos is low-grade like Cangrejos then they’re slightly boxed in which is why having La Santos to the East is good news because it gives the opportunity to fit a big deposit within the area. There is a field crew on the ground in La Santos, who are busy mapping and sampling, with the aim to start drilling in the second half of this year. 

Salazar has income from their drill rigs of about USD$2M and has about USD$1M in cash plus income from advanced royalties and management fees as well which will all go towards financing these projects in addition to the latest capital raise for the company.  

Expectations for the Assets & What to Look Forward to

Salazar is excited about their exploration potential within their portfolio. At Los Osos and La Santos there is a 2,440ha package in the heart of one of Ecuador's most mineralised districts.  Up in the north, they have Ruminahui which is a 1 hectare size with 1g/t to 2g/t Gold and half per cent Copper.  Ruminahui has stock work veining and is a classic territory which attracts a lot of interest and they plan to be drilling that in Q2/21. 

Then down in the south of the country, they’ve just completed a geophysical programme on Macara Mina which is a compact license area but it’s worth targeting DMS.  They have three high priority targets within four projects so are certain they will be able to get a top-up financing at the right price. 

Freddie Salazar has been lining up Ruminahui for 20 years to get drilling. It took him 15 years of dialogue with the local community to agree to Salazar coming into the area which was achieved in July last year.  Since then, they’ve mapped and sampled the whole area and have a new geological interpretation which is very exciting for the company. The community is completely on side and really supportive of Salazar working there and continuing their work towards starting drilling there in 2 or 3 months time.  

Capital raise for Salazar Resources

Salazar Resources recently announced that they have done a placement for 18.6M shares at $0.35 to bring in CAD$6.5M, or about USD$5M. 

Despite receiving income from drilling, advanced royalties, and their management fee with Adventus, Salazar decided that they needed more money to fund active drill programmes. They had their busiest year ever in 2020 and now have 3 projects to drill as soon as they can.

They’re drilling off Los Osos at the moment and will be drilling Ruminahui next and then La Santos and then onto Macara. As a general rule of thumb for exploration companies around the world, you can say that their drilling cost is around C$250/m to C$350/m in normal operating environments. With 3 projects coming up, the Phase 1 drill programme is about 3,000m from each one. Salazar has raised the money to accelerate their programme and be secure on the funding side.

Which is the flagship project?

Salazar would like to complete the Phase 1 drilling on all of their projects so that they can work out which one is the flagship project, and which ones would be suitable for a partnership and which one would be suitable for the company to keep.  Salazar wants to keep one project 100% owned, so that they can do a resource drill out as that is where the value growth comes for exploration stocks. 

The plan is to drill all three projects to understand the geologies fully before they start any negotiations or partnership deals and to decide which projects will need a bigger drill programme.  

Would it be better to concentrate on one project at a time?

The team at Salazar has made 8 out of the 10 discoveries of economic deposits in Ecuador and they have great community relations which is a critical factor in Ecuador.  Institutions are investing in Salazar Resources to make the next discovery which will drive value off the back of the growing value at El Domo.  These are all high grade, large scale targets that they will be drilling in 2021.  During the first phase of drilling in the next 12-months, they hope to discover which will be their flagship project. 

Allocating the capital for market reaction

The world is desperate for good Copper projects and the big Copper and Gold projects are in Ecuador. Everyone is talking about a shortage of supply in Copper and Gold so the strategy for Salazar is to make a big discovery at one of their projects. Salazar is keen to grow the value of the company further and have already had an increase in value from C$0.15 to C$0.30 and now C$0.35, and the market capitalisation is USD$35M at the moment. 

The company expects there will be gradual improvement in their share price over the next 12 months from the news that they are able to get the drilling programme started quickly on their 100% held exploration portfolio. 

Why should we invest in Salazar today?  

The Salazar story is growing in value and now the company has the drill rigs lined up firstly for Ruminahui, which is a Copper and Gold target, then Santos which is just east of Congrejos with 2,200ha and then down to Macara, just over the border from the huge and rich Tambogrande deposits.   

It was good to catch up with Salazar resources for an update of the busiest year on record and to hear their plans for their portfolio for 2021, followed by the interesting news of the capital raise for the company.  The Salazar story has always been intriguing for us and now has a lot of potential because this money will help them accelerate the delivery timeframe. We would like to hear news from Salazar more regularly, especially when the drilling results  start coming out to communicate those results to the market.  

To Find out more, go to the Salazar Resources website