-- Published: Monday, 24 February 2014 | Print | Disqus
Mining companies are always on the lookout for those elusive, overlooked properties that provide great potential and are on sale for the right price. Most come up short, but relative newcomer Atico Mining looks like it might have found just such a property in Colombia.
Since optioning into the El Roble project in 2011 the company has established that mineralization continues below the current mine workings, identified a number of promising exploration targets on the property, and most recently took control of the producing El Roble copper-gold mine itself. With that latest development Atico has gone in a few short years from being a newly-listed Venture company to mining producer in Colombia with room to grow.
It all started when still-private Atico signed a deal with a Colombian family for the option to buy 90% of the El Roble mine, sitting 145 km outside of Medellin. The copper-gold mine is a modest underground operation running at around 320 tonnes per day, using manual cut-and-fill stoping to mine out the mafic-type volcanogenic massive sulfide (VMS) mineralization. But Atico saw greater untapped potential.
As Fernando Ganoza, CEO of Atico explained by phone, the mine was owned by a Colombian family that only found itself in control of the mine after their Japanese partners pulled out of Colombia in 1997, apparently due to security fears. But the family, with interests in plantations and newspapers, did not have much mining expertise, and so they simply let the mine run without investing in its long-term productivity.
"The mine really had operational problems and challenges,” said Ganoza, pointing out that the mine was run closer to an artisanal operation, chasing grades with no long-term mine plan. “When we see that, all we see is an opportunity, an opportunity to generate value.”
In January 2011 in the height of the bull-run Atico signed on for US$2.25 million in option payments for 2011 and 2012, with the option to buy 90% of the property for US$14 million. (Ganoza said they purposefully left 10% in the hands of the influential Colombian family to keep a strong local ally on board). In March 2012 the company went public on the Venture when the index was already in its downward trend.
With financings getting tougher for everyone, that US$14 million payment loomed over the company. But the mining industry likes nothing more than proven management, and Atico delivers.
The Ganoza clan, who were also behind Fortuna Silver, started the company and there’s lots of crossover. Fernando Ganoza was previously project and country manager at Fortuna, while Atico’s President Jorge R. Ganoza was previously VP of operations at Fortuna. And the company’s board of directors counts two other Ganozas – Jorge A. Ganoza, current head of Fortuna, and Luis D. Ganoza, current CFO of Fortuna.
Rounding out Atico’s team are Thomas Kelly as chief operating officer with 35 years of experience including at Freeport-McMoRan Copper & Gold, and Joseph A. Salas as senior exploration manager, who was most recently in charge of Barrick Gold’s exploration work in Colombia.
Considering this extensive proven managerial background, when Atico needed to come up with the money, the market responded. In September 2013 the company bucked the trend among juniors by pulling in CDN$19.4 million through a combination of brokered and non-brokered financings, plus US$8 million in debt financing with Trafigura, a commodities trader.
That doesn’t mean the financings weren’t painful, with the company selling units at 45¢ each, almost the company’s all-time low, for about 43.2 million new units. The issuing came close to doubling the company’s total shares outstanding, now at 95.7 million shares out, plus 30 million warrants. The company is now owned almost half by institutional shareholders, with management controlling 18% and retail holding the remaining 33%.
But with the overhanging payment taken care of since September, Atico has been free to start developing El Roble and work towards generating cash flow and mine revenues.
For now the company is concentrating on modernizing the mine’s operations, including safety measures, while targeting a ramp-up from the current 320 tpd operation to around 650 tpd within the year. Along with increased mill capacity the ramp-up includes driving a new 5-meter by 5-meter adit to the new, deeper high-grade resources, and development of a new tailings facility. The scale up and modernization plan is projected to generate an increase of over four times the current metal production of 1,500 tonnes of copper and 2,000 oz of gold.
**New Level 1880 Adit at El Roble Mine
“The first three months are the most challenging,” Ganoza said of the transition, as the company re-trains workers who have been at the mine for over 20 years. But Ganoza says everything is moving according to plan.
The company will be mining from the new resources it established after a year of drilling. While it was limited in its underground drilling options, the company managed to establish the first NI 43-101 resource on the mine last year, announcing in June a resource of 1.58 million inferred tonnes grading 4.45% copper, 3.17 g/t gold, and 11.3 g/t silver, using a 0.72% cu eq. cutoff for 155 million lbs. copper and 161,000 oz. gold.
The resource was a major validation for the company, since there had been doubts as to whether the mineralization continued below the mine workings.
“We saw potential at the mine, contrary to popular belief” said Ganoza. “There’s no reason it couldn’t continue at depth.”
Eventually the company wants to scale up to a much larger 1,500 to 2,000 tpd facility, but that will require finding more deposits on the surrounding property. The company is hoping to prove right the old adage about VMS deposits – where there’s one there’s more – so it can feed an expanded operation.
"VMS is the best indicator for other VMSs,” said Ganoza. “A VMS surrounded by a large land package - that just sounded very interesting.”
The El Roble property covers about 6,700 ha, and Atico has spent the last three years surveying and mapping out a 10 km stratigraphic contact between basalt flows and pelagic sediments that control mineralization at the El Roble mine.
The company has identified 15 geochemical targets on this favorable contact, and only two have been drilled to date. Last year Atico tested the Archie target, the closest to the El Roble mine, but did not hit VMS mineralization.
Ganoza says that while the company didn’t hit what they were looking for, they did hit the black chert formation that hosts the VMS deposit, which Ganoza says shows they are still on the right track.
With Atico concentrating on ramping up El Roble, Ganoza expects have only a modest regional exploration program this year. The company should start a surface drill program around June or July, poking 3 to 4 holes in each of a few priority targets. The majority of the company’s drilling this year, about 5,000-metres worth, will be devoted to further proving up and exploring the resources at El Roble itself.
**Underground drilling at El Roble Mine
And while El Roble is the company’s only property for now, Atico is on the lookout for more of those overlooked, good-value copper-gold projects in Latin America.
When the company first launched Ganoza was intent on finding other deposits with that elusive mix of value and undiscovered potential, but that proved difficult.
“We started aggressively looking for other projects in 2011-12,” said Ganoza, “but valuations were just too high.”
Even with profits and metal prices falling, mine owners weren’t accepting the new reality, and were keeping prices high. So, coming up empty-handed, Atico devoted all its resources to gearing up El Roble.
Ganoza says that while he’s starting to see some intriguing assets come up for sale now, Atico’s resources, sitting at around US$8 million in cash as of November, are fairly tied up with El Roble for the next 6 to 8 months. But going forward Atico will certainly be on the hunt for the next El Roble.
**Floatation cells at El Roble mine’s processing facility
Atico has the key element which makes for a successful investment in gold miners and that is a solid and proven management team. They also have the next most important elements: a producing gold-copper mine with exploration upside, a low cost operation that positions the company to generate near term free cash flow and the potential to further expand the mill and mine.
El Roble is a high-grade mine with a long mine-life that gives the Atico team a solid foundation to grow from. They can position themselves to grow by making further selective accretive acquisitions in Latin America, when most companies are in a cost cutting, consolidation period. Atico is a very attractive investment at these levels and is setting itself up for anexciting 2014 and beyond. I am a shareholder and look forward to accumulating a larger position over the coming months.
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-- Published: Monday, 24 February 2014 | E-Mail | Print | Source: GoldSeek.com