Avanco Resources: First Production on Track for Q1 2016 - 'and Debt Free'

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Avanco Resources (ASX:AVB) holds the Antas copper mine and the Pedra Branca project, both located in the world-class Carajás mineral province of Brazil. Avanco is on track to bring Antas into production in the first quarter of 2016. Revenues from Antas will help fund the construction of Pedra Branca.
Avanco recently completed grade control drilling at Antas North and the assay results successfully validated the existence of shallow, high-grade copper zones and enhanced the definition of high-grade gold zones within the stage 1 pit. Once in production, Antas is expected to produce approximately 12,000 tonnes per year of copper in the form of concentrates inclusive of approximately 7,000 tonnes per year of gold credits. By 2018, copper production is targeted at 15,000 tonnes per year.
The Investing News Network (INN) spoke with Managing Director Tony Polglase to get some insight into the drill results and to learn more about Avanco’s exciting projects in Carajás.

INN: Please give us some background on the Carajás mineral district. I understand it’s one of the richest copper regions in the world.
TP: The Carajás is a mineral district in the north of Brazil. It’s dominated by what’s called IOCG mineralization, or iron-oxide-copper-gold mineralization. It is considered a world-class mineral province. In fact, it has the highest composition of large-tonnage IOCG copper projects in the world, and also hosts the biggest iron ore projects in the world, all of which are owned by Vale (NYSE:VALE) at the moment.
So the Carajás is a very large, very rich multi-metal province, mainly known for iron ore and copper. The region will likely overtake Minas Gerais as the largest producing mineral province in Brazil. We’re sitting on the second-largest mineral tenement portfolio in Carajás, second only to Vale. Some of those areas are very prospective, and we’re only constrained at the moment by the amount of money we approve for exploration.
Avanco’s projects, although they are small compared with Vale’s, are much higher grade in terms of copper; therefore we’re hoping to specialize on the smaller high-grade deposits.
Perhaps I should have also mentioned that we’re lucky because operating within the Carajás we have access to very good infrastructure, and a trained and experienced workforce on hand. It does make this first project much, much easier than you’d expect in a normal junior to mid-tier copper developer situation, mainly because our costs and our implementation is made so much cheaper and easier because of the mining culture that already exists in the region.
INN: It sounds like you’re in a perfect place to reach your goal of becoming a mid-tier copper producer. Maybe you could talk a little bit about what your strategy is for reaching that goal? 
TP: What will help us get to that mid-tier status in this current market, I think, is maybe not so much the size of our first operation, but that we’re on track at the moment to deliver our first project on schedule and also on budget. Those two things are fairly unusual in this business globally, and to achieve that in Brazil, which has had some problems over the years, I think will be an indication that the company is well managed and very capable. And in this time of very negative news, a bright story will help us establish a good reputation.
That reputation will lead us into our second project, which is much bigger than our first one, and also to possibly developing relationships with majors in the region. I’m hoping that our first project, if it is delivered on time and on budget, as I said, in this difficult market, may set us apart from the crowd.
I do believe there are a lot of people out there in this negative market looking for positive news, looking for winners, people that can survive. And we’re hoping to be one of them. If we are, I think that could be a very good platform from which we can grow. This downturn will reverse at some point, and we should be well positioned with the credibility and good reputation to take advantage of the turnaround.
INN: Recently you released some fantastic assay results from your grade control drilling program at the Antas North copper mine. Could you please explain the purpose of this type of drill program and the importance of these results?
TP: Yes. The deposits that we’re focusing on are smaller higher-grade projects. Higher grade is necessary for this current market because it means lower production costs per unit of metal produced. And at this moment, with a low copper price, low cost is king because if you can’t keep costs low, you’re not a company anymore.
These grade control drill tests are important because they confirm the integrity of the high-grade nature of the ore — this helps reassure investors that the mine can deliver the high copper grades that the Antas project was designed and financed for. Successful results help to derisk a project by delivering a higher level of detail and confidence about an orebody. Sometimes when a mining company performs grade control drilling the results are lower than expected and the project doesn’t stack up. That wasn’t the case for us.
Not only is it encouraging to see the high-grade results repeated for these zones, but they also demonstrate a much higher level of confidence. They also show the potential for upside. Most importantly, those results underscore the validity of the reserve model going forward into production.
INN: Give us an update on where you’re at with advancing Antas toward production. Still on track to commence production in Q1 2016?
TP: Yes, we are on schedule and on budget. We see mechanical and electrical completion occurring during February, which puts us on schedule to start commissioning before the end of this quarter. And we expect to be ramping up shortly thereafter. We don’t expect to exceed budget, so things for the moment are looking fairly comfortable in that area. That said, mining is a risky business and the unexpected can happen — fortunately we have allocated a significant sum for contingency to mitigate such risk.
With our Antas project, we’ve built the project ourselves from an engineering viewpoint. We’re also managing the construction. This strategy has helped us to avoid a lot of expense that would otherwise be incurred by companies spending a huge amount of money on engineering companies. So by grasping the bull by the horns, we anticipate moving into production economically and quickly.

INN: I understand Antas is expected to be a low-cost mining operation. Can you talk more about the current economic model for the soon-to-be mine?
TP: Look, the economics of a mining operation today are probably more critical than they have been for the last five or six years. In terms of copper, the price is very low. Going forward, people are suggesting the price for this year could be as low as $1.80 a pound or could be as high as $2.30, with an average copper price possibly at about $2.
If you look at our presentation that we put out in December, you’ll see our best estimates of our operating costs at the moment are well below the lower level of $1.80.
I think we’re in a very good position to survive this copper downturn. We’re also in a very fortunate position because we don’t have any debt — we can afford to run the mine at a $1.60 copper price probably fairly comfortably. Not making a lot of money, but surviving fairly comfortably, which will allow us to reach the upturn in the copper price. If the price is due to go down to $1.80, there will be a lot of casualties along the way, which I feel will accelerate the return of a stronger copper price, and we’ll be ready to take advantage of it. It also puts us in a very good position to possibly look at other opportunities for Avanco along the way.
INN: Can you provide us with an update on the progress you’re making securing offtake contracts?
TP: The offtake agreement has been very long in the cooking. The competition for the Avanco material is fierce because the material is very low in arsenic, which makes it desirable to those trading groups that need to blend dirty concentrates from other producers worldwide.
There’s a lot of dirty concentrates still being produced in other parts of South America, and traders need to purchase ore material like ours needs to blend with those dirty concentrates. Otherwise, those dirty concentrates cannot be imported to China. So, these traders are prepared to pay a premium for the Avanco concentrates. Our focus is on pursuing a rigorous tendering process for offtake sales restricted to a three-year term. We believe pursuing this approach will benefit us by potentially saving us millions in treatment and refining costs.
INN: Switching gears to your other project, can you tell us more about what’s happening at Pedra Branca?
TP: At Pedra Branca we’re drilling the upper part of the eastern orebody, mainly to determine more precisely the best position for a box cut and the start of the portal for the ramp. Also, the underground engineering design is continuing and we’re establishing more infrastructure on the surface in terms of offices and communications.
Pedra Branca is another high-grade copper project within the same district as Antas. Current thinking includes starting small in the higher-grade eastern orebody, then looking to expand (if and when) to 35,000 tonnes per year of copper production plus gold credits. I can’t exactly say when we expect to start work on site, but any early construction will very likely be funded from cashflow out of Antas — we like our “no debt” status!
 
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article. 
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