Wednesday, June 24, 2015

Minera IRL Reports Year-End 2014 Financial Results and Announces Notice of Annual General Meeting


LIMA, PERU--(Marketwired - Jun 23, 2015) - Minera IRL Limited ("Minera IRL", or the "Company") (IRL.TO)(MIRL.L)(MIRL.L), has reported its financial results for the year ended 31 December 2014. The Company has also provided an update on its outlook for 2015 and announces the filing of its notice of annual general meeting.

2014 Highlights:


  • Gold sales of 23,654 ounces for revenues of $29.9 million.
  • Gross profit of $6.8 million.
  • Loss before tax from continuing operations of $7.0 million, which excludes the impact of the investment in the Don Nicolás joint venture.
  • After tax loss from continuing operations of $8.9 million.
  • After tax loss including discontinued operation of $43.4 million, or $0.19 per share.
  • Includes loss of $32.1 million on the sale of the Company's remaining interest in the Don Nicolás joint venture.
  • Cash balance of $3.8 million as at 31 December 2014.
  • Subsequent to year-end, entered into a $70 million bridge loan agreement with a Peruvian state-owned development and promotion bank, Corporación Financiera de Desarrollo S.A. ("COFIDE").

Operational Performance

Corihuarmi, Peru

  • Gold production from the Corihuarmi Gold Mine of 23,321 ounces.
  • Site cash operating costs of $705 per ounce produced.
  • Total cash operating costs of $874 per ounce sold.

Ollachea, Peru

  • Completed a mining optimization of the 2012 Ollachea Definitive Feasibility Study that reduced the estimated initial capital cost to $164.7 million from $177.5 million.
  • Received the Construction Permit, the final major government approval required to commence construction.
  • In June 2015, secured a $70 million Bridge Loan with COFIDE, the proceeds of which were used to repay the Macquarie Bank debt facility, make the final property payment due to Rio Tinto and will be used to advance initial aspects of the development of Ollachea.
  • The Company also signed a Mandate Letter with COFIDE to structure up to $240 million in debt to be used to replace the Bridge Loan and finance construction of Ollachea.

Don Nicolás, Argentina

  • The Company sold its remaining interest in the Don Nicolás joint venture for $10 million.

A summary of the key operating and financial measures for the three and twelve-month periods ended 31 December 2014 and 2013 is provided in Table 1 near the end of this press release.

Commenting on the 2014 financial results, Daryl Hodges, Minera IRL Limited's Executive Chairman, stated: "2014 presented a number of challenges that required important strategic decisions. The Company is now in a stronger position, significantly with the backing of COFIDE through the Bridge Loan and $240 million mandate, and we will work on advancing Minera IRL's key projects in an effort to create future shareholder value."

This press release should be read in conjunction with the Company's full Report & Accounts, including the Management's Discussion and Analysis ("MD&A") for the year ended 31 December 2014, which are available from the Company's website ( and on SEDAR (


During 2014, the Company completed 2,816m of exploration drilling in 45 drill holes at the Corihuarmi mine. The exploration program has defined additional material at the Laura and Cayhua zones. As a result of the exploration activities and evaluation, the Corihuarmi life of mine has been extended until early 2017 (from late 2015 at the beginning of 2014, prior to the exploration drilling). In 2015, the Company is forecasting gold production of 22,000 ounces (up from 20,000 ounces). Production is expected to come from the Laura and Cayhua zones, along with continued production from Susan, Diana, the Diana extension, plus nearby Scree Slope material, or claims acquired in January of 2015.

The 2015 Corihuarmi capital budget is $3.8 million, including $3.5 million for a heap leach pad and waste dump expansion that has already commenced. This expansion is to accommodate all of the material that is scheduled to be mined and stacked from late-2015 until early 2017 when mining operations are currently scheduled to cease. Exploration activities at Corihuarmi are expected to continue in 2015 to further extend the Corihuarmi mine life.

At 31 December 2014, the Company had a negative working capital balance of $26,919,000. Working capital being defined as current assets less current liabilities. Subsequent to 31 December 2014, the Company announced that it had secured a $70 million Bridge Loan with COFIDE. The Bridge Loan is expected to be the first component of a senior debt facility of up to $240 million to be led by COFIDE to develop the Company's Ollachea Gold Project.

The net proceeds from the Bridge Loan have been applied towards the repayment of the $30 million Macquarie Bank debt facility and the payment of $12 million of the $14.2 million outstanding to Rio Tinto under the Ollachea Mining Rights Transfer Contract, along with the $744,000 Share Hold Incentive Payment and accrued interest. The remaining $2.2 million outstanding has been converted into an unsecured promissory note payable by 31 December 2015, accruing interest at a rate of 7% per annum. The Company has the option of settling the $2.2 million promissory note with the issuance of Minera IRL ordinary shares or with cash. The issuance of ordinary shares to Rio Tinto for the settlement of some or all of the promissory note will require shareholder approval at the annual general meeting scheduled to be held on 27 August 2015.

The net proceeds from the Bridge Loan, after the payment of existing debt and financing fees, totalled $22.3 million, and will be used to advance many of the initial aspects of project development needed to commence major site construction on the Ollachea Gold Project once the senior debt facility is in place. This includes commencing the detailed engineering and design, recommencement of underground drilling at the Minapampa East zone, maintaining social and environmental programs and for general working capital purposes.

The Company has signed a letter of mandate with COFIDE to structure a senior debt facility for up to $240 million, under which the Bridge Loan is expected to be refinanced. The senior debt facility is expected to be in place by the end of 2015; however, the availability of the senior debt facility is not guaranteed and its terms, including the facility's size, are still to be negotiated. If the Company is not able to secure the senior debt facility it will not have the funds available to develop the Ollachea Gold Project and will be required to delay, scale back or eliminate various programs related to the Project. Additionally, an equity offering is expected to be required to supplement the senior debt facility in funding the development of the Ollachea Gold Project and for corporate and working capital purposes.

Additional information on the COFIDE Bridge Loan and mandate and other commitments and contingent liabilities that the Company has can be found in note 20, "Capital Commitments and Contingent Liabilities" and note 22, "Subsequent Events" in the Company financial statements for the year ended 31 December 2014.

Notice of Annual General Meeting

The Annual Meeting will commence at 11 am BST at Ordnance House, 31 Pier Road, St Helier, Jersey on Thursday, 27 August 2015. The Company had previously filed a Form 9A - Request for Extension for Financial Reporting/Annual Meeting with the Toronto Stock Exchange (the "TSX"), which has been approved by the TSX.

The record date for determining the holders of the Company's ordinary shares whom are entitled to notice of, and to vote at, the Annual Meeting will be 15 July 2015. The Notice of Meeting, Information Circular and Form of Proxy (the "AGM Materials") will be posted to shareholders by 22 July 2015. The AGM Materials are also available on SEDAR and the Company's website at

About Minera IRL Limited

Minera IRL Limited is an AIM, TSX and BVL listed precious metals mining and exploration company with operations in Latin America. Minera IRL is led by a management team with extensive operating experience in South America. In Peru, the Company operates the Corihuarmi Gold Mine, which continues to add cash flow and has untested potential, and with the financings described in this press release, is now poised to advance its flagship Ollachea Gold Project towards production.

For more information please visit

No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained in this news release.

Cautionary Statement on Forward-Looking Information

Certain information in this news release, including information about the Company's financial or operating performance and other statements expressing management's expectations or estimates of future events, performance and exploration and development programs or plans constitute "forward-looking statements". Forward-looking statements often, but not always, are identified by words such as "seek", "believe", "expect", "do not expect", "will", "will not", "intend", "estimate", "anticipate", "plan", "schedule" and similar expressions of a conditional or future oriented nature identify forward-looking statements. Forward-looking statements are, necessarily, based upon a number of estimates and assumptions. While considered by management to be reasonable in the context in which they are made, forward-looking statements are inherently subject to political, legal, regulatory, business and economic risks and competitive uncertainties and contingencies.

The Company cautions readers that forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause Minera IRL's actual financial results, future performance and results of exploration and development programs and plans to be materially different than those expected or estimated future results, performance or achievements and that forward-looking statements are not guarantees of future performance, results or achievements.

Forward-looking statements are made as of the date of this news release and Minera IRL assumes no obligation, except as may be required by law, to update or revise them to reflect new events or circumstances. Risks, uncertainties and contingencies and other factors that might cause actual performance to differ from forward-looking statements include, but are not limited to, any failure to obtain or complete project financing for the Ollachea Gold Project (including the Senior Debt Facility), changes in the price of precious metals and commodities, changes in the relative exchange rates of the US dollar against the Peruvian nuevo sol, interest rates, legislative, political, social or economic developments both within the countries in which the Company operates and in general, contests over title to property, the speculative nature of mineral exploration and development, operating or technical difficulties in connection with the Company's development or exploration programs, increasing costs as a result of inflation or scarcity of human resources and input materials or equipment. Known and unknown risks inherent in the mining business include potential uncertainties related to the title of mineral claims, the accuracy of mineral reserve and resource estimates, metallurgical recoveries, capital and operating costs and the future demand for minerals. For additional information, please consult the Company's most recently filed MD&A and Annual Information Form.

Qualified Persons

The preparation of the technical information contained herein was supervised by A.E. Olson, Consultant, FAusIMM, who is recognized as a Qualified Person for the purposes of National Instrument 43-101, and who has reviewed and approved the technical information in this press release.

The preparation of the technical resource information contained herein was supervised by Donald McIver, VP Exploration of the Company, MSc Exploration and Economic Geology, a Fellow of the Australian Institute of Mining and Metallurgy (FAusIMM), as well as the Society of Economic Geologists (FSEG), who is recognized as a Qualified Person for the purposes of National Instrument 43-101, and who has reviewed and approved the resource information in this press release.

Non-IFRS Measures

"Site operating cash costs" and "total cash costs" are non-IFRS measures that do not have a standardized meaning prescribed by GAAP or IFRS and may not be comparable to other similarly titled measures of other gold mining companies.

"Site operating cash costs" include costs such as mining, processing and administration, but are exclusive of royalties, workers' profit participation cost, depreciation, amortization, reclamation, capital, development, exploration and other non-site costs (transport and refining of metals, and community and environmental).These costs are then divided by ounces produced to arrive at "site cash operating costs per ounce".

"Total cash costs" includes "site operating cash costs" and reflects the cash operating costs allocated from in-process and doré inventory associated with ounce of gold in the period, plus applicable royalties, workers' profit participation cost, and other non-site costs (transport and refining of metals, and community and environmental). These costs are then divided by the ounces sold to arrive at "total cash costs per ounce sold".

These measures may vary from one period to another due to operating efficiencies, waste-to-ore ratios, grade of ore processed and gold recovery rates in the period.

Management believes this information is useful to investors because these measures are considered to be key indicators of a company's ability to generate operating earnings and cash flow from its mining operations. These measures are furnished to provide additional information and are non-GAAP and non-IFRS measures that do not have any standardized meaning prescribed by GAAP or IFRS. They should not be considered in isolation as a substitute for measures of performance prepared in accordance with IFRS, and are not necessarily indicative of operating costs presented under IFRS.

Table 1: Summary of Key Operational and Financial Measures

Data Three Month Period
Ended 31 December
  Twelve Month Period
Ended 31 December
2014   2013   2014   2013  
  Waste (tonnes) 77,228   76,034   291,609   286,588  
  Ore mined & stacked on heaps (tonnes) 656,387   633,495   2,660,039   2,375,630  
  Ore grade, mined and stacked (g/t gold) 0.34   0.39   0.32   0.45  
  Gold produced (ounces) 6,114   6,446   23,321   25,223  
  Gold sold (ounces) 6,166   6,184   23,654   25,220  
  Realized gold price ($ per ounce) 1,194   1,266   1,260   1,412  
  Site operating cash costs ($ per ounce) 1 638   684   705   677  
  Total cash costs ($ per ounce) 1 831   951   874   904  
  Revenue ($'000) 7,390   7,862   29,866   35,706  
  Gross profit ($'000) 1,688   612   6,765   7,402  
  Loss from continuing operations ($'000) (3,439 ) (16,058 ) (8,925 ) (18,114 )
  Loss after-tax ($'000) (4,844 ) (18,590 ) (43,363 ) (33,834 )
  Comprehensive loss ($'000) (4,844 ) (18,590 ) (43,363 ) (34,085 )
  Loss per share                
    Continuing operations (cents) (1.5 ) (8.8 ) (3.9 ) (10.4 )
    Discontinued operations (cents) (0.6 ) (1.4 ) (15.2 ) (9.1 )
1 - Refer to the Cautionary Non-GAAP and Non-IFRS Statements earlier in this release.

Table 2: Reconciliation of Non-IFRS Measures

    Three Month Period Ended
31 December
    Year Ended
31 December
  2014   2013     2014   2013
Cost of sales $ 5,702 $ 7,250   $ 23,101 $ 28,304
  Depreciation   576   1,369     2,418   5,496
Total cash costs $ 5,126 $ 5,881   $ 20,683 $ 22,808
Ounces of gold sold   6,166   6,184     23,654   25,220
Total cash costs per ounce sold $ 831/oz $ 951/oz   $ 874/oz $ 904/oz
Total cash costs $ 5,126 $ 5,881   $ 20,683 $ 22,808
  Workers' profit participation   83   (243 )   125   102
  Royalties and Special Mining Tax   294   313     1,192   1,573
  Community and environmental costs   708   1,279     2,602   3,513
  Other costs - Provisions, transport & refinery, inventory adjustment   142   120     322   534
Adjusted site cash operating costs $ 3,899 $ 4,412   $ 16,442 $ 17,086
Ounces of gold produced   6,114   6,446     23,321   25,223
Site cash operating costs per ounce $ 638/oz $ 684/oz   $ 705/oz $ 677/oz

Monday, June 8, 2015

Minera IRL Announces US$70 Million Bridge Loan and Mandate Letter for Up to US$240 Million for Ollachea Project Financing

LIMA, PERU--(Marketwired - Jun 8, 2015) - Minera IRL Limited ("Minera IRL", or the "Company") (IRL.TO)(MIRL.L)(MIRL.L), announces that it has arranged a US$70 million secured finance facility (the "Bridge Loan") structured by the Peruvian state-owned development and promotion bank, Corporación Financiera de Desarrollo S.A. ("COFIDE") and syndicated through Goldman Sachs Bank USA. The Bridge Loan is expected to be the first step towards a senior project credit finance facility of up to US$240 million, described in a Mandate Letter signed by COFIDE and Minera IRL ("Senior Project Debt Facility"). The Senior Project Debt Facility will be structured by COFIDE, in conjunction with Minera IRL, to build the Company's Ollachea gold project in the Puno Region, southern Peru ("Ollachea", or the "Ollachea Gold Project"). The Company has agreed to COFIDE's participation on the Minera IRL board of directors, subject to the required approvals.


  • The key terms of the Bridge Loan:
    • Interest rate: LIBOR plus 6.17%, payable quarterly in arrears
    • Term: 24 months
    • Structuring and Disbursement Commission of 2.25% along with a US$300,000 upfront fee, paid on the disbursement of the Bridge Loan
    • The Bridge Loan is expected to be repaid from the follow-on Senior Project Debt Facility, but is repayable at any point, subject to a 0.75% fee
  • The Company is applying the Bridge Loan funds towards consolidating debt and will apply net proceeds towards advancing the development of Ollachea as well as funding a limited resource expansion drilling campaign. Use of proceeds are expected to include:
    • Repayment of the Macquarie Bank debt facility
    • Final property payment to Rio Tinto
    • Commencing the detailed engineering and design of the Ollachea plant
    • Pre-construction project development work
    • Resource expansion drilling at the Minapampa Far East Zone at Ollachea
    • Continue its commitment to social and environmental programs
    • Financing and advisory expenses
    • General corporate expenses and working capital
  • The Company has signed a Mandate Letter with COFIDE to structure a Senior Project Debt Facility for up to US$240 million which includes retirement of the Bridge Loan.
  • Minera IRL expects to seek equity participants to reduce the amount of debt and leverage on the project to what the Company determines to be an acceptable level, and will include input from COFIDE and potential debt and equity providers.
  • It is expected that one or more financial institutions will be invited to participate in the Senior Project Debt Facility.
  • Although there can be no guarantee on the timing and terms, it is the intent of COFIDE and Minera IRL to have the Senior Project Debt Facility in place prior to the end of 2015.
  • The Bridge Loan is secured by the Ollachea Gold Project's assets, mining reserves, mining concessions and rights, guarantees from Minera IRL S.A., and a pledge of the shares of the Company's subsidiary Compañía Minera Kuri Kullu S.A., which owns 100% of the Ollachea Gold Project.
  • Specifics of the Macquarie debt repayment and Rio Tinto property payment include:
    • Repayment of US$30 million Macquarie Bank debt facility (plus accrued interest) and release of associated security.
    • Payment of US$12.9 million of the US$15.1 million outstanding to Rio Tinto, under the Ollachea Mining Rights Transfer Contract, and release of associated security. The remaining US$2.2 million outstanding has been be converted into an unsecured promissory note, accruing interest at a rate of 7% per annum, payable by 31 December 2015, either in cash or ordinary shares of Minera IRL, at the discretion of the Company (the "Agreement Regarding Payment").

Transaction Considerations

In addition to the Structuring and Disbursement commissions outlined above, Minera IRL has committed payments totalling US$2.6 million for services relating to legal assessment, technical and financial advisory. Likewise, the Company has granted 11.6 million options (exercisable for a year following the commencement of commercial production from the Ollachea Gold Project at an exercise price of C$0.20) and a 0.9% net smelter return over the Ollachea Gold Project. The Company has a right of first refusal on the sale of the royalty and can repurchase the royalty, at its option, up until the date that Minera announces final commissioning of the project.

Related Party Transaction

Under the AIM Rules, Rio Tinto is deemed to be a related party of Minera IRL due to its substantial shareholdings in the Company. As such, the Agreement Regarding Payment is deemed to be a related party transaction under the AIM Rules. The directors of Minera IRL consider, having consulted with the Company's Nominated Adviser, Canaccord Genuity Limited, that the terms of the Agreement Regarding Payment is fair and reasonable insofar as shareholders are concerned.

Commenting on the Ollachea financing package, Daryl Hodges, Minera IRL's Executive Chairman, stated, "This transaction is an important first step for Minera IRL and is the culmination of efforts of the Minera IRL team, working closely with COFIDE and its advisors. Minera IRL can now focus on taking final steps toward financing its flagship project to production. With support from COFIDE, the Company is in a much better position to arrange financing for Ollachea, build the project, deliver on its commitments to the local community to create jobs, wealth for the benefit of the region, and create new opportunity for its shareholders. We cannot neglect to mention that this was the dream of Courtney Chamberlain, whose untimely passing was felt by all."

Dr. Diego Benavides, Minera IRL's Interim CEO and Executive President of Minera IRL S.A., continued, "The financial backing from COFIDE is the result of over 18 months of discussions, comprehensive project evaluation, and due diligence by independent consultants. The support of COFIDE is an endorsement of the technical quality of our Ollachea Gold Project and its importance to the Ollachea Community and the Puno region. We now have the opportunity to focus on working with the Ollachea community, our true long-term partners, in developing an outstanding modern mining operation providing key economic benefits to the Puno region and, indeed, to Peru."

Mr. Jorge Ramos, General Manager of COFIDE, commented, "We are very pleased to be able to offer this financing package to Minera IRL. Ollachea represents an economically robust gold project and this is an excellent opportunity for COFIDE's first mine project financing. We have confidence that the Minera IRL team will ensure that the Ollachea Gold Project will be a great success, which will have important benefits for the Ollachea community and Peru."

Mr. Juan Luis Valeriano, President of the Community of Ollachea, stated, "After eight years of working in partnership with Minera IRL, indeed sharing a close friendship, we are glad that COFIDE, an institution of the Peruvian Government, is providing the financing for the development of the Ollachea mine. The new mine will provide long-term benefits to our local economy, especially towards job creation, social projects, and spin-off business opportunities for many of our citizens. Ollachea will also be Peru's first 'Partner Community' with a mining company with the community holding a 5% shareholding in the project."

Tuesday, May 26, 2015

Why Ricardo Carrión And Alberto Arispe Are Optimistic About Mining In Peru

By Kevin Michael Grace of The Gold Report

Despite headlines about deadly protests and the collapse of funding for juniors, Ricardo Carrión and Alberto Arispe of Kallpa Securities in Lima remain steadfastly optimistic about the future of mining in Peru. In this interview with The Gold Report, Arispe and Carrión highlight the mining-friendly government, the new production from many sources and point to several juicy projects that lack only the means to further unlock Peru's mineral riches.

The Gold Report: Canadian and Australian miners have realized a 25–30% premium due to the strong U.S. dollar. How has the U.S. dollar affected Peruvian miners?

Ricardo Carrión: Peruvian miners have realized a similar benefit due to currency exchange. This factor has resulted in lower costs for the Peruvian industry. In addition, miners have also benefited from lower prices in oil. But the question is has this cost reduction offset lower metal prices, and the answer is no. Lots of companies are still struggling with current market conditions.

TGR: How has the mining industry fared since President Ollanta Humala was elected in 2011?

Alberto Arispe: Humala ran in 2011 on a radical, antimarket platform. Presidential elections in Peru use the runoff system, so in order to win a majority in the second round of voting, he had to moderate his tone and make alliances with more moderate parties.

He then raised royalties and taxes on the mining industry. These were modest increases, however, made after much consultation with the industry. Given how radical Humala seemed at first, the industry was relieved. Since 2013, Humala's administration has become openly market friendly and has worked to solve the problems faced by, for instance, Newmont Mining Corp. (NMC:TSX; NEM:NYSE) over its Conga project.

TGR: The Peruvian government is more mining friendly, but what about the Peruvian people? Last month, several protestors were wounded and one was killed in the dispute over Southern Copper Corp.'s (SCCO:NYSE) Tia Maria mine.

AA: This is not a national problem. It is a more localized problem fomented by some NGOs, radicals and some politicians. Two or three big projects are having local difficulties, but many big projects are moving quickly to production without these difficulties. HudBay Minerals Inc.'s (HBM:TSX; HBM:NYSE) $1.8 billion ($1.8B) Constancia mine is almost finished. Next door, Las Bambas, a $5.2B project that MMG Ltd. (1208:HKSE) bought from Xstrata Plc (XTA:LSE), should be producing in 2016. Freeport-McMorRan Copper & Gold Inc.'s (FCX:NYSE) Cerro Verde copper mine is basically doubling its capacity. Peru's copper production will soon double from what it was in 2014.

TGR: President Humala is not eligible to run again in 2016. Is this a cause for concern?

AA: It's too early to worry about that. Let's see what the polls are saying at the start of next year. Right now, the leading candidates are very market friendly.

The main worries that Peruvian mining faces are lower gold, silver and copper prices and the collapse of financing for projects owned by juniors.

TGR: Will the dearth of financing lead to an increase in mergers and acquisitions?

RC: I already mentioned the Las Bambas takeover. It is rumored that Southern Peru Copper will make a move on Anglo American Plc's (AAUK:NASDAQ) large Quellaveco project. But this is only a rumor that was later denied by Southern Peru Copper.

Among the juniors, Indico Resources Ltd. (IDI:TSX.V) just got into an agreement for 70% of its Ocaña copper project to a private concern, Aruntani S.A.C., for $18.6 million ($18.6M). This is an interesting deal, which we have valued at about $0.10 per pound ($0.10/lb) of copper, which is high given current market conditions.

TGR: Which Canadian juniors are having legal problems with the Peruvian government?

RC: Bear Creek Mining Corp. (BCM:TSX.V) is running an arbitration process with the government of Peru over the license to operate the Santa Ana project, its 47 million ounce (47 Moz) silver project. Just to clarify, the government did not expropriate the project but revoked the license to operate in a border zone. All foreign companies need this permit to start a project. Barring a resolution, this dispute will be adjudicated in Washington, D.C., in September 2016. The legal experts will testify in favor of Bear Creek, but the decision to seize Santa Ana was a political one, and a decision to give it back would have political consequences.

I expect a good result for Bear Creek, perhaps by the end of 2015, which would be a good omen for the mining community in Peru. Santa Ana is an excellent project, with an after-tax net present value (NPV) of $80.2M and an internal rate of return (IRR) of 24.9%. Its capital expenditure (capex) is low, only $70.8M, and can start production very quickly.

TGR: How much of an overhang does Bear Creek suffer as a result of Santa Ana?

RC: When you analyze junior companies, you give higher valuations to those with good assets ready to start construction. In late 2010, Bear Creek shares were trading around $12. After the expropriation and the market crisis, shares fell to $1.05. Obviously the collapse in the silver price also affected Bear Creak heavily, along with many other companies in the industry.

TGR: Bear Creek has another Peruvian silver project, Corani. When will we get a feasibility study of that?

RC: Real soon. This will be an update of the 2011 feasibility. That showed a resource of 270 Moz silver, 3.1 billion pounds lead and 1.7 billion pounds zinc. It showed an initial capex of $574M, an after-tax NPV of $463 and a 17.6% IRR. The updated feasibility will adapt Corani to current market conditions and lower the capex.

TGR: Will Corani get financing?

RC: Bear Creek is talking to several parties and examining several strategies. There are various alternatives: streaming and offtake agreements, joint ventures (JVs). I'm pretty sure a combination of these will finance Corani.

TGR: Bear Creek's market cap is $112M. Is it a takeover target?

RC: Any small company with well-advanced projects—meaning good assets—could face hostile takeover attempts. Bear Creek is one example, Panoro Minerals Ltd. (PML:TSX.V: PZM:FSE; PML:BVL) is another.

TGR: Explain how the Peruvian government has regulated artisanal mining.

RC: There are two types of artisanal mining in Peru. There is flat-out illegal mining, which is often harmful to the environment. And there is also "informal" mining, which refers to miners seeking to fully regularize. The government has worked diligently to eliminate illegal mining and establish a process whereby all ore is processed by regulated mills. Progress is being made, but this will take some time.

TGR: Assuming that all or most of artisanal mining was regularized, how much bigger would the official mining industry become?

RC: We don't know exactly how large artisanal mining is, but it is big. I'll give you an example. Peru's main gold producer is not a company. It's a region called Madre de Dios where most of the gold produced comes from illegal and informal mining.

TGR: Has this new regulatory regime resulted in many companies processing artisanal ore on a tolling basis?

RC: Toll mining is growing everywhere in the world, not just in Peru. Mining companies are seeking lower risk, and processing ore presents lower risks than exploration and mining. Here in Peru, we have five or six TSX Venture-listed companies in tolling. Dynacor Gold Mines Inc. (DNG:TSX) has been doing this for a while, and it has been doing pretty well. The company has a market cap of $77M and processes in the range of 250–350 tons per day (250-350 tpd). Dynacor has one plant at Huanca and another on the way at Chala.

TGR: How much bigger will its operations be after Chala goes online?

RC: Dynacor is seeking to achieve 1,000 tpd and will become a very important player.

TGR: Dynacor also has a copper-gold exploration project, Tumipampa.

RC: When a tolling company reaches 1,000 tpd, it needs to secure a consistent supply of ore. This is Dynacor's plan for Tumipampa.

TGR: What are the margins for toll miners in Peru?

RC: It depends on where you are in Peru and what the grade is. Also, in order to keep the ore coming, toll miners must be fair with small miners. The industry standard is about 40–50% now, but that will probably fall over time to 35–40%.

TGR: What can you tell us about the other Peruvian toll miners?

RC: Inca One Gold Corp. (IO:TSX.V) has a good model and has built a 100 tpd plant. Equity financing was a problem, so the company elected to go with debentures and notes. It has $7–8M in debt, which it should be able to restructure in the near future. Inca One is in the middle now of a $1.5M convertible-loan financing, which will give it working capital. This is crucial for toll miners, because in order to build market share with small miners, you need to pay them quickly.

Standard Tolling Co. (TON:TSX.V) plans to achieve production in June with a plant processing 100–150 tpd. The company is fully financed and progressing very well. This story is similar to Inca One.

Anthem United Inc. (AFY:TSX.V) plans to begin processing this year. Its plant will cost around $10M. It's a big project, and the company intends to go immediately to 350 tpd. Processing above that level requires additional permitting. Anthem is also financing with debt.

Montan Mining Corp. (MNY:TSX.V) has an agreement to buy an already producing 150 tpd plant. It's a manageable deal in a nice location. Unlike its rivals, this company will have the capacity to process copper as well. This could be an excellent play.

Duran Ventures Inc. (DRV:TSX.V; DRV:BVL) has a location and basic permits but needs to invest $1–1.5M to build its plant from scratch. Construction is five to eight months away.

TGR: Duran has five exploration projects. Are they all on the back burner?

RC: Duran's long-term plan is to develop these projects, but first it needs cash flow, which is why it is going into tolling. Once cash flow is achieved, that money can be leveraged to pay for exploration.

TGR: Which Peruvian zinc producers are your favorites?

RC: There are two. The first is Trevali Mining Corp. (TV:TSX; TV:BVL; TREVF:OTCQX). It has the producing Santander mine in Peru and advanced-stage projects, Caribou and Stratmat, in New Brunswick in Canada. This is the only publicly traded zinc junior.

Caribou will begin production this quarter. Stepout assays from this project released in April included 5.08% zinc, 1.76% lead, 0.37% copper, 59 grams per ton (59 g/t) silver and 1.63 g/t gold over 50.9 meters. Canada will reveal Trevali's real value. In Peru, Trevali has an offtake agreement with Glencore International Plc (GLEN:LSE) but no such obligations in Canada.

TGR: And what is the other Peruvian zinc play you like?

RC: Sierra Metals Inc. (SMT:TSX) has Yauricocha in Peru, an extremely nice asset generating good cash flow. The company has two very good prospects in Mexico. Sierra has been flying under the radar because of liquidity problems, but I'm pretty sure the company will solve those problems. It published Mexico silver assays over 300 g/t in December, but few investors noticed that. It's hard to buy Sierra Metal shares, but it has good properties and also pays a divided.

TGR: Let's talk about other junior gold producers in the region.

RC: Luna Gold Corp. (LGC:TSX; LGC:BVL) has its asset in Brazil, but has many Peruvian investors. It was forced to suspend its Aurizona gold mine in Brazil because it was running out of mixed soft and hard saprolite ore. On May 8, the company announced a $30M financing with a fund called Pacific Road Resources, $20M debt, $10M equity. Luna also renegotiated its contract with Sandstorm Gold Ltd. (SSL:TSX.V), which previously held a streaming contract for the life of the mine: 17% of production at $400 per ounce ($400/oz). This has been replaced with a 3–5% net smelter royalty (NSR).

This is an excellent deal for the company as this will trigger more exploration work to improve the reserve calculation and restart the plant. There's still a big challenge to finance the expansion of the plant, but it is important to understand that there is already a sunk cost and it is only a matter of finding the necessary funding to have Luna up and running again—under a much better financial structure: the new deal with Sandstorm, a solid equity position and a debt with a better structure.

TGR: Which near-term junior gold producer do you follow?

RC: Lupaka Gold Corp. (LPK:TSX.V; LPK:BVL). It has the Invicta project, which is ready to produce gold at 10–15 g/t. This is a well-known asset in an excellent location near Lima. Lupaka does need a mill, however. It makes sense for it to get an agreement with an existing plant to process its ore while evaluating the construction of its own plant.

TGR: Let's discuss some other companies you follow.

RC: Minera IRL Ltd. (IRL:TSX; MIRL:LSE) invested over $40M in a project in Argentina. The company sold it for $10M, but given the conditions in Argentina, this was the best of a bad deal. In Peru, it has the 1 Moz Ollachea project. It's ready, but the capex is $164.7M, and that will be tough to raise for a company with a market cap of $20M. Doing it with equity would result in a tremendous dilution. Several financial institutions have told me they like Ollachea, so perhaps it will go ahead with a combination of equity, plus debt, plus a JV.

Panoro Minerals released a preliminary economic assessment (PEA) for its Cotabambas project last month. It forecasts annual production over 19 years of 143 Mlb copper, 88,000 oz (88 Koz) gold and 967 Koz silver at a cost of $1.26/lb copper, with credits. The after-tax NPV is $627.5M, and the initial capex is $1.38B. What is interesting about this is that there are nine targets, but the PEA focused on only one. I think this was a wise decision. From here on in, Cotabambas can only look better. But this is another company with a small market cap: $34M. This project needs about $40–50M to get to bankable feasibility.

TGR: Does it make sense for Panoro to bring on a JV partner or partners?

RC: It's a matter of valuation. It makes sense to bring in a JV partner based on the value of Cotabambas, not on Panoro's current market cap. It also matters who the JV partner is. If it's a well-known company with sufficient funding to develop a $1.38B project, that would be good.

TGR: What's the final company you wanted to discuss?

RC: Candente Copper Corp. (DNT:TSX; DNT:BVL) has the Cañariaco Norte deposit. This is another example of a company that is fighting with the market. Cañariaco is one of the most advanced junior copper projects in Peru. It's a big project, with a capex of $1.6B. Candente ran out of cash a year ago and is stuck in the middle of the feasibility study. The challenge for it is to go to the market to get $10M to complete it. I think the best way forward is to find a JV partner or sign a streaming contract. This project has faced social problems in the past, but we know that this region is not as difficult as it once was. Cañariaco is a nice project.

TGR: Despite the current financing problems for juniors, are you optimistic about their prospects in Peru for the rest of the decade?

RC: Absolutely. We are near the end of a cycle. I believe we will see a real recovery in the market starting in 2016.

TGR: Ricardo and Alberto, thank you for your time and your insights.

Ricardo Carrión is the managing director for capital markets and corporate finance for Kallpa Securities in Lima, Peru. He served as a senior analyst of Banco de Credito in the areas of corporate banking, corporate finance and capital markets and was an adviser to Lima's Stock Exchange. Carrión holds a bachelor's degree in business administration from Universidad de Lima with specialization in finance and capital markets.

Alberto Arispe is CEO of Kallpa Securities SAB, a Peruvian brokerage and boutique investment house. Previously, he was a vice president of emerging markets institutional equity sales at Fox-Pitt Kelton. Arispe has more than 18 years of experience in capital markets. He has a Master of Business Administration from the Stern School of Business at New York University and a bachelor's degree in economics from the Universidad Catolica del Peru. He is a professor of finance at Universidad de Lima.