Toll Milling Gold Stock in the Atico Valley in Peru
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Fidelity Minerals Corp. (TSXV:FMN; FSE:S5GM) is an emerging low-cost gold producer advancing its Cerro Dorado project to near-term gold production in Peru, and advancing the appraisal-stage Greater Las Huaquillas project.
Fidelity Minerals will execute on an owned mineral feed model to maintain maximal throughput on a small gold mill to create near-term cash flow, allowing the company to grow organically. The company will grow its supply through agreements and partnerships and acquire additional properties in the future.
Peru is a highly ranked Latin American leader in mined commodities and over 60 percent of its exports are generated by the mining sector. The Peruvian government encourages foreign investment by guaranteeing stable income tax regulation and dividend distribution. There are also no restrictions on the repatriation of earnings, currency exchange practices, the remittance of dividends, interest or royalties or international transfers of capital.
Peru has a long history of mining that has grown from, and been sustained in part by small scale, high grade production. Small mine operators contribute approximately 20 percent of all Peruvian gold production. The government has been regulating and formalizing small mining operations to better address concerns associated with the practice and to capitalize on + $300 million in lost taxes. Fidelity’s Cerro Dorado is permitted under a small mine / mill protocol (“IGAC”) that is no longer available to new entrants, providing the Company with an operational asset in a district where the time barriers for other entrants ensures that Cerro Dorado can enjoy leveraged access to ownable mineral feed in the well mineralized district.
Fidelity Minerals owns 100 percent of the Cerro Dorado Project, which hosts the Cerro Dorado mill and the Rey Salomon mine. A full service 45-person camp provides accommodation, catering, office and storage facilities, and In May & June 2018, Ausenco, an independent third-party Engineering Consultancy conducted a due diligence exercise, with report that validated the Fidelity Minerals’ plans (subject to certain conditions and assumptions) for the plant and made several recommendations to enhance mill efficiency and safety. The mill is currently capable of processing 60 tpd and will be upgraded to produce 115 tpd, and will include a new flotation circuit that will enable the processing of mineral sources that include copper or other base metal minerals.
Since 2012, the Rey Salomon mine has recorded sales of 1,675 tonnes grading 11.80 g/t gold. The on-standby mine is adjacent to the Cerro Dorado mill and is fully permitted.
In Peru, Fidelity Minerals has acquired the Greater Las Huaquillas (GLH) project, located in northern Peru on the border with Ecuador. Looking to rapidly expand the project, the company has agreed to acquire 100 percent of nine concessions measuring 3,800 hectares and 44.5 percent of nine concessions measuring 3,600 hectares.
In June 2018, Lions Bay Capital Inc. (TSXV:LBI) was approved to be a control person in the company by voting shareholders at Fidelity Minerals’ annual general meeting. Lions Bay is an activist investor in the resource and technology sectors. They are working with Fidelity Minerals to recapitalize the company and to execute a strategy that will allow the company to become a near-term gold producer with expansion opportunities.
Fidelity Minerals’ executive team is experienced in both the mining and financial sectors. Jose Luis Garcia Yrivarren, Fidelity Minerals’ VP Operations in Peru, was a former commercial manager and buyer for Peru’s largest private third party gold milling company. He brings an extensive network and has deep relationships with desirable mineral suppliers. Management and insiders, including Lions Bay, also notably own approximately 50 percent of company shares.
- Near-term precious metal milling production in mining-friendly Peru.
- Cerro Dorado plant with 60 tpd capacity.
- Permitted to expand current mill to 115 tpd and to install a +60 tpd flotation circuit.
- Toll mining provides multiple capital and risk averse advantages.
- Lions Bay Capital is a strategic shareholder in the company.
- Management and insiders, including Lions Bay, own approximately 50 percent of company shares.
Cerro Dorado Project
In January 2017, Fidelity Minerals acquired 100 percent ownership of the Cerro Dorado project from Chazel Capital Inc., which represented the private Peruvian company Cerro Dorado SAC. Fidelity Minerals also acquired the existing permits to operate the Rey Salomon gold mine and processing plant.
The Cerro Dorado project is located approximately 42 kilometers up the Atico Valley via highway. There are no communities within a 40 kilometer radius of the plant. However, the project hosts a full-service 45-person camp with accommodation, catering, office and storage facilities already on site. Much of the regional production contains high recovery characteristics, and coarse gold is uncommon in most mineral feed from the region.
There are numerous mining claims and small producers in the area, which provides ample opportunity to form joint venture partnerships in the Atico Valley and surrounding area. The closest toll milling centers are in Chala and Nazca, which are respectively 130 kilometers and 290 kilometers away, and no competitors are formally operating in the Atico Valley. Miners in the region would save approximately $25 to $40 per ton in transportation costs by using the Cerro Dorado plant..
The historic 500,000 ounce gold past producing Mina Calpa is located approximately eight kilometers northeast of the plant. Mina Calpa continues to produce mineral from artisanal development. Cerro Dorado’s proximity to Mina Calpa could offer business opportunities for both companies.
Cerro Dorado mill
The Cerro Dorado plant is capable of processing 45 tpd in its current state, but Fidelity Minerals has been granted a permit to expand the current processing center to handle 115 tpd and to include a new 60 tpd flotation circuit.
There is also an option to expand the mill’s processing to 360 tpd under a small mining permit. The proposed flotation circuit would make the sulphide-gold recovery process more efficient. The property is also hosts a permitted water well on site with an adequate supply.
The Ausenco report
In order to confirm the proposed business model for the project, Fidelity Minerals and Lions Bay chose Peruvian division of Ausenco to inspect and assess the plant in May and June, 2018.
The resulting independent due diligence report confirmed Fidelity Minerals confirming the pathway to operating and upgrading the Cerro Dorado plant to reach permitted capacity. Ausenco also made several recommendations, which include:
- Improved handling of certain monthly cost items (vehicle leases) in the cash flow model
- Reviewed & validated the plant restart CAPEX model
- Corroborated or corrected market price cost assumptions
- Plant found fit for purpose on completion of Company preparations plan
- Modifications to the tailing dam construction detail
- Improved CIL carbon flow and recovery scheme
- Improved detail to the HSEC improvements to the existing plant and generator installations
- Improved handling of monthly cost items, such as vehicle leases, in the cash flow model.
A reviewed and validated plant restart CAPEX model: some revisions on made on advice; and
- Recommendation re. Labour Market assumptions made
- Recommended increasing overall Contingency Allowances
Overall, Ausenco found the plant was fit for purpose subject to the proper completion and implementation of the company’s preparation plans.
Rey Salomon mine
The Rey Salomon mine is adjacent to the Cerro Dorado plant. Since 2012, the mine has recorded sales of 1,675 tonnes grading 11.80 g/t gold. The mine is a fully permitted underground mine and has been producing minerals up until May 2016. The Rey Salomon mine and adjoining 1,172 hectares of claims could provide the feedstock for the plant.
Underground mine development includes:
- 1,246 meters in 27 drifts;
- Approximately 317 meters in 14 audits;
- Approximately 400 meters in 18 raises; and
- Approximately 48 open mining faces.
The Rey Salomon mine requires further exploration as only five of the 32 identified veins have been developed.
Greater Las Huaquillas
The GLH project totals 7,400 hectares and is made up of nine wholly-owned concessions measuring 3,800 hectares and nine concessions measuring 3,600, of which Fidelity Minerals holds 44.5 percent. The latter make up the Core Las Huaquillas project, which is surrounded by the other 3,800 hectares. It sits in the northern region of Cajamarca, Peru, on the same assemblage of copper and gold belts that host the Namibija, Mirador, Junin, Chinapintza and Fruta del Norte deposits, among others.
The Fruta del Norte project, held by Lundin Gold (TSX:LUG), has an indicated resource estimate of 7.35 million ounces of gold and an inferred 2.13 million ounces of gold. The high-grade gold deposit also hosts probable reserves of 5.02 million ounces of gold grading 8.74 g/t and a life of mine forecast of 15 years, with first gold production expected in Q4 2019.
The GLH project sits in the Miocene Metallogenic belt (MMB), which extends over 900 kilometers through both Peru and Ecuador. Within this, the Core Las Huaquillas project hosts part of a caldera structure, which includes high and low sulphidation epithermal and mineralized porphyry systems.
Historical work conducted by past owners Sulliden Exploration included line cutting, geophysics, as well as soil, stream, rock, geochemical and geological surveys and 26 diamond drill holes covering 5,671 meters.
This exploration work uncovered major mineralized zones on the property with multiple deposit types. This includes epithermal gold-silver with low sulphidation, epithermal gold-silver-copper with high sulphidation, gold-silver-zinc-lead quartz stockwork and porphyry copper-molybdenum-gold systems.
Soil sampling and geophysics performed during 1997 and 1998 helped Sulliden uncover a 2.1-kilomteter structurally-controlled gold-silver anomalous corridor (Los Socavones), two porphyry copper-molybdenum-gold targets (Cementerio and San Antonio) and two epithermal gold-silver prospects (El Huabo and Las Huaquillas).
In 1998, it was estimated that a 500-meter section of the 2,200-meter Los Socavones zone hosts a geological resource of 6.57 million tonnes grading 2.12 g/t gold and 25.2 g/t silver. This is equivalent to 446,000 ounces of gold and 5.3 million ounces of silver at a 1.0 g/t gold cut-off. The resource is reported to be open at depth and along strike.
Ian Graham, B.Sc. (Hons), Geology — CEO & Director
Ian Graham is an accomplished mining professional with over 20 years of experience in the development and exploration of mineral deposits. Most of his experience was gained working for the major mining companies Rio Tinto and Anglo American. He was the former Chief Geologist with the Project Generation Group at Rio Tinto from an operating base in Vancouver.
Graham has been involved with evaluation and pre-development work on several projects in Canada and abroad including the Diavik Diamond Mine in the Northwest Territories in Canada, Resolution Copper in Arizona, Eagle Nickel in Michigan, Lakeview Nickel in Minnesota and Bunder Diamonds in India.
Prior to his work with Rio Tinto, Graham held exploration geologist roles with Anglo American. He graduated from the University of Natal (now KwaZulu Natal) in Durban, South Africa with a B.Sc. in Geology and Applied Geology in 1984 and B.Sc. (Hons) in Geology in 1985.
Luis F. Zapata — Executive Chairman
Previously, Luis Zapata was a Partner and the Head of Capital Markets at Seminario SAB, Peru’s largest independent brokerage firm. Prior to that, he was the Head of Latin America Institutional Equity Sales at Canaccord Genuity. Zapata has structured, financed or participated in over $500 million of equity raises for natural resources companies with a focus on connecting Latin American assets with Canadian and global public market financing and listing vehicles.
Zapata is a frequent media commentator on the resource sector in Peru and a dual Canadian/Peruvian citizen who is fluent in both English and Spanish.
Anthony Balic — CFO & Director
Anthony Balic is a Chartered Professional Accountant who has worked with publicly listed Canadian and US resource companies for the past 10 years. He is currently the CFO of Goldgroup Mining Inc. and he was part of the finance team that brought their Mexican gold mine into commercial production. Prior to this position, he was a Senior Manager at Deloitte LLP in Vancouver, where he specialized in assurance and advisory for publicly traded mining companies.
Jose Luis Garcia Yrivarren — General Manager Operations in Peru
Jose Luis Garcia Yrivarren was previously employed at Peru’s largest private gold processing company. The firm produced 79,966 ounces of gold in 2014 through its gold milling facility located in the Chala district. During his tenure, Yrivarren was responsible for the organization and formalization of mineral feed purchases as well as overseeing the business’ mineral supply chain, which is secured through satellite receiving stations dispersed among the established gold production districts in southern Peru.
In his former role, he assisted in achieving a 300 percent gold production increase, as well as improving average feed grade from 0.53 ounce per ton to 0.79 ounce per ton gold. Yrivarren also helped shorten the feed assay and mineral supply payment process, which reduced the wait time for miners and rendered the process more efficient and transparent.
Yrivarren was also responsible for helping miners through the formalization process. He helped maintain rigorous safety standards, which among other things reduced the average number of transport accidents from five per year to one per year during his tenure.
Yrivarren is a graduate of the University of San Martin (B.A. Econ) and holds a Diploma of Finance from ESAN, Peru’s most prestigious business school.
Bahay Ozcakmak — Executive Director
Corporate strategy expert with extensive experience, including CEO and director level roles in the energy and resource sectors. His recent experience has been with companies focused on cobalt, gold, lithium, nickel, potash and uranium projects. Currently, Ozcakmak is a director of several mining focused companies, including Consolidated Potash Corporation and executive director of Lions Bay Capital Inc., Fidelity Minerals’ largest shareholder.
Len de Melt
Len de Melt is widely recognized within the mining industry. He has been involved with 10 properties which became mines, including Hudbay’s Constancia copper mine in Peru, Homestake’s Golden Bear gold mine, Goldust’s Croiner gold mine, and BHP’s Ekati diamond mine. He has been Chairman of International Norsemont Ventures, which subsequently went through a name change and, in 2011 was sold to Hudbay Minerals for US$520 million. De Melt resigned as director and officer of Norsemont Mining in 2006.
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