Toll Milling Gold Stock in the Atico Valley in Peru
This Fidelity Minerals Corp. profile is part of a paid investor education campaign.*
Fidelity Minerals Corp. (TSXV:FMN,FWB:S5GM) is assembling a portfolio of high-quality mining assets in Peru through a strategic prospect generator (SPG) model. Under the model, Fidelity Minerals identifies and acquires appraisal-stage projects with near-term valuation catalysts that have the potential to provide high-impact M&A opportunities. The SPG model combines the advantages of a prospect generator, mine owner, royalty and streaming company to develop a business model that provides a greater chance of success at a lower cost with a materially enhanced risk-reward profile.
When acquiring new projects, the company looks to find properties with historical mineralization with grades greater than 2 g/t gold, attractive valuation to provide future flexibility, material scale to attract the attention of mid-tier and major players and has the ability to add value. Fidelity Minerals is not an exploration company and prefers to bring its new projects to the drill stage by sourcing and digesting historical data and applying modern exploration tools.
Once the company has brought the projects to a resource definition stage, Fidelity Minerals intends to farm-out its projects to mid-tier or major miners; however, the company intends to retain an NSR to capture future value and monetize its holdings. The company believes that this is a win-win opportunity for the major mining companies as their project pipelines have lacked growth options in recent years due to an under-investment in exploration and appraisal.
Fidelity Minerals is focused on developing its project pipeline in Peru, a highly-ranked Latin American leader in mined commodities, as it offers numerous advantages. For example, 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 and 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 over $300 million in lost taxes.
Of the company’s five projects, Fidelity Minerals’ focus is primarily placed on advancing Cerro Dorado towards production to create near-term cash flow, allowing the company to grow organically and capitalize on its SPG model. The project is permitted under a small mine and mill protocol that is no longer available to new entrants, providing the company with leveraged access to ownable mineral feed in a well mineralized district. The Cerro Dorado project hosts the Cerro Dorado mill and the Rey Salomon mine as well as a full-service 45-person camp which provides accommodation, catering, office and storage facilities.
In 2018, Ausenco conducted a due diligence exercise that validated Fidelity Minerals’ plans for the plant and made several recommendations to enhance the mill’s efficiency and safety. The mill is currently capable of processing 60 tonnes per day and can be upgraded to produce 115 tonnes per day. The plant is expected to include a new flotation circuit that allows for the processing of copper or other base metals.
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 fully-permitted.
Fidelity Minerals owns the Greater Las Huaquillas (GLH) project, located in northern Peru. The company is looking to rapidly expand the project and has acquired 100 percent of nine concessions measuring 3,800 hectares and 44.5 percent of nine concessions measuring 3,600 hectares.
As part of the company’s SPG model, Fidelity Minerals has also recently acquired three copper and gold properties in northern Peru: Porphyry Copper, Las Brujas and Cerro El Bronce. The company intends to conduct a detailed geological mapping and surface sampling program on each property to define the extent of the mineralization as well as their prospectivity.
In June 2018, Lions Bay Capital Inc. (TSXV:LBI), an activist investor in the resource and technology sectors, was approved to be a control person in the company at Fidelity Minerals’ annual general meeting. Lions Bay is working to recapitalize the company and to execute a strategy that allows Fidelity Minerals to become a near-term gold producer with expansion opportunities.
Fidelity Minerals’ executive team is experienced in both the mining and financial sectors. Fidelity Minerals VP Operations in Peru, Jose Luis Garcia Yrivarren, 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.
Fidelity Minerals Company Highlights
- Fidelity Minerals is using a SPG model to find appraisal-stage projects with near-term valuation catalysts that could provide high-impact M&A opportunities.
- Near-term precious metal milling production in mining-friendly Peru.
- Cerro Dorado plant with 60 tonne per day capacity.
- Permitted to expand current mill to 115 tonnes per day and install an over 60 tonne per day flotation circuit.
- Toll mining provides multiple capital and risk averse advantages.
- Fidelity Minerals has recently acquired three projects in northern Peru and intends to conduct initial exploration programs on the properties in the near term.
- 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 tonnes per day in its current state, but Fidelity Minerals has been granted a permit to expand the current processing center to handle 115 tonnes per day and to include a new 60 tonne per day flotation circuit.
There is also an option to expand the mill’s processing to 360 tonnes per day under a small mining permit. The proposed flotation circuit would make the sulphide-gold recovery process more efficient. The property also hosts a permitted water well on site with an adequate supply.
The 2018 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 and 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 regarding the labor market assumptions that were 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 was in production up until May 2016. The Rey Salomon mine and adjoining 1,172 hectares of claims could provide 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 hectares, 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 sulfidation 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 sulfidation, epithermal gold-silver-copper with high sulfidation, 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-kilometer 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.
Fidelity Minerals’ wholly-owned 1,200-hectare Porphyritic Copper project is located in an active mining and development district in La Libertad, northern Peru. The project hosts visible, near-surface copper mineralization as well as small-scale artisanal workings that are capable of producing small tonnages of gold-bearing ore. Fidelity Minerals believes that the project mineralization hosts similarities to Minera Milpo’s Magistral project, which has a mineral resource of 232 million tonnes of ore grading 0.55 percent copper, 0.05 percent molybdenum and 3.2 g/t silver.
A recent exploration program conducted at the Upper and Lower zones on the property identified similarities in the type of mineralization present at the two zones. The Upper and Lower zones are situated 4,000 meters apart and are adjacent to a major regional fault structure that’s over 60 kilometers long and associated with copper projects in the area.
Historical sampling at the project has returned grades between 0.36 percent and 0.66 percent copper at the Upper zone and grades over one percent copper at the Lower zone.
During its due diligence period, Fidelity Minerals identified additional prospective geological features that extend beyond the property boundaries. The company is currently in the process of acquiring additional adjoining concessions. In the meantime, Fidelity Minerals intends to conduct an initial exploration program comprised of detailed geological mapping and surface sampling to define the surface mineralization on the property.
Fidelity Minerals has acquired a 100 percent interest in the road accessible 1,900-hectare Las Brujas project located in the province of Cajamarca, Peru. The project is located within 10 kilometers of the La Zanja gold mine, 20 kilometers from the Tantahuatay epithermal gold-silver porphyry and 23 kilometers from the Cerro Corona copper-gold porphyry. The project resides in the Calipuy formation, which hosts the Yanacocha and Pierina gold deposits. Yanacocha is one of the largest heap leachable gold mines in the world, having produced over 50 million ounces of gold.
Anomalous gold values have been recovered from three zones where chip samples returned values of 1.5 g/t gold over 10 meters. Fidelity Minerals intends to conduct an initial exploration program comprised of detailed geological mapping and surface sampling to define the surface mineralization on the property.
Cerro El Bronce
Fidelity Minerals has acquired the 600-hectare wholly-owned Cerro El Bronce project in the Ancash province of Peru. The property is surrounded by concessions controlled by major gold mining companies, including Newmont Goldcorp (NYSE:NEM). The project features evidence of small-scale artisanal mining.
Historical exploration on the property identified a number of important copper minerals with peak copper values of up to 6.8 percent copper as well as eight mesothermal gold veins. Historical sampling at the Bronce vein returned peak values of 20.3 g/t gold and 41 g/t silver, with an average grade of 8.29 g/t gold and 7.78 g/t silver. Historical reports have delineated a relatively shallow high-grade gold resource in the areas of artisanal mining.
Fidelity Minerals intends to conduct an initial exploration program comprised of detailed geological mapping and surface sampling to define the surface mineralization on the property.
Fidelity Minerals’ Management Team
Bahay Ozcakmak — Executive Chairman
Bahay Ozcakmak is a corporate strategy expert with extensive M&A, business development and corporate restructuring experience with CEO and director-level roles in the energy and resources sectors. Currently, he is a director of several mining focused companies, including Activated Water Technologies, Consolidated Potash Corporation and Lions Bay Capital Inc., Fidelity Minerals Corp’s largest shareholder.
Ian Graham, B.Sc. (Hons), Geology — CEO and 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.
Anthony Balic — CFO and 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.
Luis F. Zapata – Director
Luis Zapata is the former Partner and Head of Capital Markets at Seminario SAB and former Head of Latin America Institutional Equity Sales at Canaccord Genuity. He has structured, financed or participated in over C$500 million of equity raises. He is a frequent media commentator on the resources sector in Peru as well as a dual Canadian-Peruvian citizen. He is fluent in English and Spanish and conversational Mandarin.
Jose Luis Garcia Yrivarren — General Manager of 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.
John Byrne – Advisor
John Byrne has 40 years of experience in the natural resource industry as a financial analyst, investor and mine developer. He formed Cambrian Mining Plc in 2002 with net assets of 1.4 million euros and before being acquired in 2008 had net assets of GBP$149 million. Byrne has been chairman and CEO of numerous successful resource companies, including Western Coal Corp., which was capitalized at less than C$1 million when he joined and was sold for C$3.3 billion in 2010. He is a founder of Lions Bay Capital, Fidelity Minerals’ largest shareholder.
Len de Melt – Advisor
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.
Greg Hall – Advisor
Greg Hall has 30 years of experience in advancing international exploration, development and mining ventures as well as all aspects of their structuring and finance. He is currently President of Water Street Assets and Director of Prophecy Development. Previously a director of Silvercorp Metals, China’s largest primary silver producer and one of the lowest-cost silver producers among its industry peers. Other former appointments include: Director at Haywood Securities, VP at Canaccord Genuity and Senior VP at Leede Jones Gable.
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