Attracted by some eye catching metal grades, a group of veteran mining executives are putting their heads together in a bid to develop a potentially-lucrative polymetallic project in Ecuador.
Bay Street financier Jonathan Goodman and his
Toachi Mining Inc. (
TSX: V.TIM,
RBNDF,
Forum) team were alerted to this opportunity when Laurence Curtis, a company founder and director, secured an option agreement in October 2015 to earn up to a 75% interest in the La Plata gold-copper-zinc volcanogenic massive sulphide deposit.
The property consists of two mining concessions, La Florida and Loma del Tigre, which cover 2,300 hectares and is located 85 kilometres southwest of the capital city of Quito. Total driving time in a four wheel light truck is about three hours from Quito.
Previous operators, including Cornerstone Capital Resources Inc. (TSX: V.CGP, CTNXF, Forum) outlined a “historic resource” of 914,000 tonnes, grading 8.01 grams gold, 88.29 grams silver, 5.01% copper, 6.71% zinc and 0.78% lead per tonne.
The property was also drilled by a Canadian company previously known as Cambior Inc. between 1996 and 2000.
But development was stalled for several years after the government of Ecuador imposed its infamous moratorium on exploration and mining in April, 2008, a move that prompted many foreign companies to either cut back on investment or sell their properties. Cornerstone declared force majeure and returned the property to the vendor Sultana Del Condor Minera S.A. in August, 2009.
What followed was a chill on mining investment that lasted for six years.
Mining companies only began tiptoeing back into the region in the last three years after the regulatory climate improved and the government agreed to relax a punitive windfall tax on its richest gold project, Lundin Gold Inc.’s (TSX: T.LUG, Forum) Fruta del Norte property.
Toachi Mining, previously known as Ferrum Americas Mining Inc., announced on October 28, 2015 that it had signed a letter of intent with Sultana Del Condor Minera, giving Toachi the option to earn between 60% and 75% in the La Plata project.
Ferrum was a shell company led by Curtis an economic geologist and geochemist, who has been in the mining industry for 40 years, including 10 spent as CEO of Australian gold producer Intrepid Mines Ltd.
To exercise the option to earn 60%, Toachi needed to make cash payments worth US$2 million and spend US$4 million on exploration. By earning a 60% interest, Toachi will have to right to fund the cost of a feasibility study over a 2-year period, allowing it to acquire another 5%.
That interest would rise to 70% if it raises less than US$60 million to build a mine. If the amount raised exceeds US$60 million, Toachi’s interest would rise to 75%.
In an interview with Stockhouse, Toachi Chief Executive Officer Nick Tintor made it clear that he and his colleagues were attracted by the high grades in Cornerstone’s estimates.
“The exceptional high grades at La Plata suggest a future mine will enjoy some very robust margins,’’ Tintor said.
Tintor, a geologist, was an editor at the Northern Miner newspaper during the Hemlo gold discoveries in the early 1980s and infamous Lac versus Corona trials. After leaving the Miner in 1989, he become involved in junior exploration management and was a Canada based vice-president of Moto Gold Mines Ltd. when the company was sold in 2009 to Randgold Resources for $578 million. Moto was a gold exploration and mining company with operations in the Democratic Republic of Congo.
Aside from the impressive grades, the La Plata project offers multiple advanced exploration targets defined by coincident geochemistry, geology, and geophysics, as well as an exploration database that includes records from 14,000 metres of drilling.
In a recent press release, Toachi said its exploration staff has identified more than 14 discrete exploration targets across the property concessions which extend for more than nine kilometres, attesting to the potential of this emerging district, the company said.
The son of legendary Bay Street Financier Ned Goodman, Jonathan Goodman has underlined his own confidence in the project by taking an 18% stake in Toachi through his private investment firm Metaform Investments Inc.
The La Plata project is located 15 kilometres from the Toachi River, which flows through the Andean foothills and provides water and immense power for hydro plants. It was a venue for small scale mining (open pit and underground) between 1975 and 1981.
“The geology is not unlike what you would see in parts of Canada,’’ Tintor said.
It is thought to be similar to VMS deposits in the Flin Flon area of Manitoba, as well as the La Ronde mine in Quebec, the flagship operation of Agnico-Eagle Mines Inc. (TSX: T.AEM, NYSE: AEM, Forum). As a result, the company felt that it had made a significant coup when Eberhard (Ebe) Scherkus recently agreed to join its board of directors.
Scherkus is one of Canada’s most prominent mining executives. He spent over 27 years with Agnico, serving as President and Chief Operator and Director from 2005 to 2012.
“It’s more validation of what we are trying to do,’’ Tintor said.
Toachi is planning to spend $4 million this year on exploration, with the aim of announcing NI 43-101-compliant resource estimate by August, 2017. It is also hoping to release a preliminary economic assessment by the fourth quarter of this year.
“We started this drill program last August, and by the end of this month (May 2017), we will have about 14,000 metres (of drilling) finished.If everything goes as planned, La Plata will be an economically robust underground mine with a few adits and a decline ramp, one that will create a small footprint with a production rate of about 500 to 600 tons per day. We would like to get to something that would support a minimum 10-year mine life,’’ Tintor said.
As Toachi has been focusing on confirming the work done by previous operators, it has yet to do much exploration beyond the boundaries of the historic resource.
However, as VMS deposits typically occur in clusters, the company will eventually get around to looking for more of them in the future.
Toachi’s entry into Ecuador follows forecasts that the country will become a hot spot for mineral exploration in the coming years.
According to BMI Research, that will be due to a combination of factors, including:
- A revised regulatory framework
- Significant gold and copper reserves.
- A policy of “inclusive agenda of development” that is expected to be carried over by the newly elected President Lenin Moreno.
The incoming administration is expected to support a pro mining development policy that was initiated by Moreno’s leftist predecessor Rafael Correa.
Under Correa, Ecuador relaxed the implementation of the 70% windfall tax on profits. It is now only applied after the firm has regained full capital investment and only if commodities reach pre-determined levels of $1,500 an ounce for gold and $8,818 a tonne for copper.
Another measure taken recently by Ecuador was the creation of a mining ministry. Prior to 2015, mining had previously been regulated by the oil and gas ministry.
BMI Research is part of the Fitch Group, which is majority owned by Hearst Corp.
Ecuador Mining Minister Javier Cordova told Mining.com recently that mistakes made in the past included applying legislation to the mining sector that was designed for the oil and gas industry.
The recent overhaul was triggered by the exit of Canada’s Kinross Gold Corp. (TSX: T.K, NYSE: KGC, Forum) after the company failed to reach a development agreement for the Fruta del Norte project, one of Latin America’s biggest undeveloped gold deposits.
Iamgold Corp. (TSX: T.IMG, NYSE: IAG, Forum) and International Minerals Corp. (which was swallowed in 2013 by its partner in two Peruvian projects) also sold projects and left the Andean nation.
The government hired consultants Wood Mackenzie to provide recommendations and swiftly implemented changes
One of the most notable changes was the standardization of the unpopular windfall profits tax, a 70% levy on excess profits. It only applies now after the mining company has recovered its full capital investment. With respect to Toachi and its La Plata project, the windfall tax would never apply as the project will fall under the so-called Medium Mining category.
This mining category, for projects operating between 300-1,000 tonnes per day, does not carry the windfall tax.
The net tax take has also been brought in line with other Latin American countries.
According to BMI Research, Ecuador expects mining investment to rise 360% in the next four years, with US$4 billion in mining investment anticipated by 2021.
Ecuador’s most important project – the Fruta del Norte -- is expected to produce 340,000 ounces of gold annually. The first production is expected in the first quarter of 2020.
Full Disclosure: Toachi Mining Inc.
is a paid client of Stockhouse Publishing.