VRIC Update I went to VRIC and had a chat with Nick Furber (CFO) and Ruben Geillibert (Controller. I probably spelled his name wrong). Here's some of the information I received from that visit:
Production (Past and Present)
- The Q4 500 TPD resource target was missed because one of the access tunnels (to a vein) didn't get cut to the right location. Something to do with a fault line that they had to go around, so they had to re-do that section of the access tunnel which is why 500 TPD resource grade in Q4 was missed and has been bumped to Q1.
- When I asked Nick what he expects Zaruma to be producing by Q4 2016 in terms of resource grade, he said that based on the new mine plan, "at least 600 TPD", implying they may expect more than that but are probably a little gun shy about setting expectations any higher than that. This is in-line with the public disclosures the company has made since missing on Q4 2015 500 TPD and with the new veins they are getting ready to exploit, I do understand why the company believes 600 TPD resource grade this year is doable.
- On Q4 2015 grades, Nick said the 50/50 waste rock to resource grade rock was a very loose estimate, probably more waste than resource grade. Ruben confirmed that the resource grade they were mining in Q4 was average approximately 7-8 gpt. Ruben said that is expected based on the mine plan for the parts of the veins currently being exploited.
- The development rock grades are very low. Shareholders from 2012-2013 will remember when the company was getting 4-5 gpt from waste/development/decline rock. Nick clarified that was mostly backfill from the old mine from a century ago. Right now the development rock they're mixing in is basically low-grade but mineralized rocks they're encountering in the vicinity of the resource grade that has to be mined in preparation for exploitation. Rather than eat the cost of disposal they'll mill it if it makes economic sense to do so.
- Nick was going based on memory, but he said he was fairly sure the company was now exploiting more than just Soroche and Matalanga, but in very low tonnage at the moment as they're still developing them for exploitation.
- Nick said the company employed more (handheld) drillers because they forsee the need to mine more narrow veins in the near-term future. (aka more resource grade). Given that cash flow is tight, one has to think that if they hired more people the company expects those people are going to be able to pay for themselves. So maybe the company will actually hit 500 TPD resource grade by the end of Q1. Here's to hoping!
Liquidity and Financing
- I told Nick that based on cash and AP from the Q3 financials and the Q4 Ozs sold released recently, I don't believe the company was bringing enough money in to pay all the bills. Nick and Ruben at different times responded to pointed questions on this front by saying that it is tight but being managed. Gold holding above $1,100/oz is going to help. They also confirmed no new financing was done to pay expenses.
- One of those questions I asked went like this:
"Who sells at this price in large volumes except someone who believes insolvency is coming? As the CFO, how confident are you that liquidity can be managed?
He responded immediately and confidently with "If the new mine plan I'm getting bears fruit I'm absolutely fine."
I said "That's assuming gold prices stay at $1,100?"
He responded, "$1,000. Right now we spend about $2 million dollars a month, so I mean once we get 500tpd, even if that's at 7 gpt that's almost $3 million dollars in gold so we're fine."
- Some random chatter about the cost containment measures they've taken. Nothing that you don't already know from the NRs, but at one point Ruben said "we cut X% of the workforce to reduce costs, but it's important for you to know that this will not affect mine development". Unless they cut people who stood around doing nothing all day or didn't work inside the mine (eg mechanics, janitors, etc) then there obviously would have been some impact to mine development, but based on the other information I received it's clear the impact to mine development was not significant.
- I asked about the company exploring possible loans from private Ecuadorian banks (for either cash flow or capital investment purposes), such as the 600k they got at a paltry 8% APR a couple of years ago. He said Ecuador's economic situation (being what it is due to oil) is making credit tight in country, so financing in Ecuador is difficult to obtain.
New Mine Plan, Mine Development and Decline Advancement
- Sometime in Q4 (I think? I didn't get an exact date from them, but it's recent) the company revised the mine plan. Nick said this was taking into account all of the new information they had gathered from experience at depth (underneath the old mine workings). There was a lot of confidence (misplaced or not, we'll find out) in the new mine plan. I heard about the new mine plan over and over.
- The main decline advancement has been approximately 7m per day with 1m on the vertical. Nick commented that they're really good at decline advancement now. He said they were horrible at it in the early days, but really good now.
- I dropped the "R" word (Rubicon) and Nick said the resource grades have been proven out to the estimates, without exception.
- Nick couldn't tell me exactly when the Tamayo vein would be significantly exploited, but he did confirm the NR statement that they have reached the vicinity of the vein with the decline in Q3 2015. It'll take time to build out the access tunnels to exploit it, but I'm guessing this vein is a big part of why the company is confident in reaching 500 TPD resource grade in Q1 and 600 TPD+ resource grade this year. Tamayo is a huge, very high grade vein.
- On the Abundancia Vein, Nick said he hasn't seen the latest update so this information may be a bit off, but he believed the decline is in the vicinity of the vein already. As has been the consistent experience to this point, the decline reaching the area of the vein does not mean it will be exploited immediately. They have to dig out the access tunnels, follow the veins, etc. I did get the sense that Abundancia also plays a part of the company's 2016 600+ TPD resource grade production plan. If the company has reached and is working to exploit both Tamayo and Abundancia... well these two veins represent nearly 25% of the gold ounces in the Zaruma resource estimate - the "mother lode" so to speak.
Tailings Facilities
- The new tailings facility, phase 1, is complete and paid for. I was shown a few pictures, including one that showed a truck unloading into the new tailings facility (which gave me a sense of scale). It is really deep. The company isn't really using this new tailings facility yet because the old one is not yet at capacity. The company's rough expectation is that, once they start utilizing Phase 1 of the new tailings facility it will last for 2-3 years. Phase 2 (not started yet) would extend the life of that tailings facility by a further 5-6 years.
Dynasty Gold Fields
- the access road to the Dynasty gold fields is already built and paid for.
- The company has looked at scenarios to initially exploit Dynasty on a 200tpd to 300tpd basis, focusing on a high-grade 5-6 gpt zone in the Dynasty gold fields.
- Naomi had mentioned in a past webcast that transport would cost 0.5gpt. That was probably the cost 1-way, but trucks have to drive back to get more rocks. Nick estimated it at probably 1 gpt in round-trip transport costs.
- Nick said there's no free capital to develop Dynasty right now and obviously can't say when the company might have the capital. But I got the sense it's a priority as soon as the money is available. Naomi had mentioned in the past that startup costs would probably be a 3-4 million and Nick gave me the same info.
Jerusalem
- Jerusalem on care and maintenance.
- The company is approached every now and again by interested parties that want to take out Jerusalem, but I got the sense they were being low-balled. They were also pretty clear Jerusalem was not for sale. When I asked if a JV is something they'd look at, they seemed to think they would consider a JV.