Diavik property, Canada. Source: Rio TintoCopper stocks are on a tear this year, in no small part due to the rising price of copper as supply shortages and a surging demand boom converge to create some of the best conditions in recent history for stocks. While the current climate has been more than favourable for copper stocks, they have often had an advantage historically over gold and other precious metal stocks due to the red metal’s multiple industrial uses.
Producing iron ore, copper, diamonds, gold, and uranium, Rio Tinto is one of the largest mining companies in the world. The stock has doubled in the past year, reflecting the company’s return to near-full production capacity as well as a lifting of lockdown restrictions in the 35 countries it operates in globally.
With mining operations located in Peru and Mexico along with exploration operations in both those countries plus Chile, Southern Copper is one the largest integrated copper producers. The last year has seen SCCO stock soar 110%. Investors who have held the stock must be happy to see their positions double over the past 12 months.
As a junior mining company, Solaris Resources holds a large amount of potential. The company is focused on its flagship Warintza project in Ecuador, for which it has reported positive assay results as it continues to expand the project to adjacent sites. Investors seem to like the progress, because the stock is up over 1000% since the IPO less than a year ago.
This company operates large and long-term geographically diverse assets that hold reserves of copper, gold, and molybdenum. The company’s scale is used to maintain a dominant position in the market, using properties like the Grasberg mineral district Indonesia, which is one of the largest copper and gold deposits in the world, to fortify its balance sheet. FCX stock is up 370% in the past year, as investors continue to pile into this veteran mining company delivering year after year.
Mining companies exploring and producing base metals like copper usually have higher dividend yields than hedges against inflation like gold stocks. They are also generally better value as they sit cheaper in relation to earnings and cash flow. With a low P/E, copper stocks usually have less distance to fall if markets take a hit, and the upside is higher when the stock runs. With lower risk and higher potential reward, copper stocks are always in favour with the investing community for short, and long-term plays.
Short-term, copper should be able to benefit from the rising demand coming from increased battery production and clean energy storage solutions. The increase of electric car sales and the electrification of infrastructure and power grids around the world requires huge amounts of copper to transport and store the energy. Labour shortages and technical delays in some regions of the world have also contributed to a general slowdown in copper production, but as 2021 rolls on, the environment is looking strong for copper mining companies and their stocks.
Solaris Resources (TSX:SLS) (OTC:SLSSF) continues to forge ahead at its flagship Warintza project in Ecuador; maiden drilling has begun at its Warintza East site. Located approximately 1km east of Warintza Central, it is one of five main targets with a 7km x 5km cluster of porphyry targets at the property. With a similar expression at Warintza Central, Warintza East is set to become another fruitful exploration site for the company.
Solaris (TSX:SLS) (OTC:SLSSF) has also defined a major copper porphyry target at Yawi after continued processing of geophysical and geochemical data. This extends the strike length of the Warintza cluster of porphyry targets to 7km, a massive bump in the potential for the project. Listed below are some of the highlights from the recent results and accompanying press release:
The Warintza East site is the new frontier in the expanding Wartinza Project that continues to return positive assay results from its drill program. Located one kilometre east of the main Warintza Central site, East sits at a slightly lower elevation, with the target being defined by overlapping copper and molybdenum soil anomalies associated with an underlying high-conductivity anomaly. Warintza East’s first hold was collared in weathered porphyry uncovered by earthworks. The discovery was made during drilling platform construction.
Mining engineer Lennin Munoz, commenting on the beginning of drilling at Warintza East, said, “For me, this is driving a new era for Solaris. This reflects what you get when you are in a porphyry cluster area; your targets will come and come. The upside is clear in all directions. The byproducts trend in Yawi’s direction is confirmed with these anomalies.”
Additionally, Solaris (TSX:SLS) (OTC:SLSSF) has identified a high-potential target at Yawi through the processing of geophysical data covering the 5km strike of the Waintza porphyry cluster known at the time. The geophysical anomaly appears to be an elongated lobe on the easter boundary of the area. Once coverage was extended more to the east, stream sediment sampling has more than doubled the size of the anomaly, defined the target area, and created an exciting development for the future of the drill program. Yawi field crew are not completing additional sampling and reconnaissance work for confirmation and to select specific locations for initial drill testing.
Vice President of Exploration for Solaris Resources Jorge Fierro commented: “We are very excited to commence the first-ever drilling at Warintza East, targeting the third major copper porphyry discovery within this richly-endowed but underexplored property. In addition, further data processing has revealed a much more extensive porphyry target at Yawi than previously understood with additional sampling now underway.”
The commencement of maiden drilling on top of recent positive assay results from the Warintza Central site has continued to push the stock higher. Thirty-one holes have been drilled at the Warintza Central site, with promising results having been reported for 22 of those drill holes. The new first hole at Wartinza East (SLSE-01) now aims to explore the new anomaly that extends continuously from Warintza Central to the target in the east.
Figure 1 – Long Section of 3D Geophysics Looking Northeast
Note to Figure 1: Figure looks northeast and depicts high-conductivity geophysical anomaly (defined at 100 ohm-m) generated from 3D inversion of electromagnetic data, encompassing from left to right Warintza West, Central, East, and the Yawi target (Warintza South lies off image to south).
Figure 2 – Plan View
Junior mining companies are the prime drivers of new IPOs for the mining industry. The rewards for investing in these companies often far outweighs the risks, as getting in on the ground floor of a junior mining company can mean triple digit percentage point gains or more. Still, there are many questions on investors’ minds before they invest in a mining company, including the company’s plan for exploration, and how to evaluate whether the junior miner has a good chance of success.
Due diligence and risk management are just as essential when investing in junior mining companies, but factors as wide ranging as the strength of the management team and technical advisors, as well as the company’s ability to finance its exploration with a strong balance sheet, to the viability and potential of its chosen drill sites. Paying attention to the financials, operations, and the drill plan and results are all required to make better decisions when investing in junior mining companies. To get a better understanding of this potentially highly lucrative investment strategy, we spoke with Lennin Munoz, a geo engineer and mining industry veteran.
Mr. Munoz was able to provide us with some of his insights into why it is important to take a broad overall look of the company, as well as a detailed assessment of its drilling results and management philosophy.
Taking a deep dive into a junior mining company means going beyond the headlines and getting in the financials, and using critical analyses like NAV, IRR, CAPEX, and more to make an informed decision.
What are the critical analysis points you use to determine the strength and viability of a project?
Desirability, Viability, Feasibility and Sustainability. Inside the desirability angle for example if I look for a tier 1 or 2 deposit, I’ll definitely start with geology, for me the ORE BODY IS ALL! So good tonnage and grade is a key factor (e.g 1 Bt 1%Cu or 200 Mt 2g/t Au), then I analyze the viability of the project, for example, potential to be developed, metal production profile, CAPEX intensity, All in Sustaining Cost position in the cash cost curve. Then, I incorporate the feasibility perspective for example, mining methods, high grading programs in first years (payback), Geotech & hydrogeology, metallurgy, processing, tailings and water management, etc. This review helps me to complete my SWOT analysis, so at the end I include the sustainability framework to have a clear map of risks and opportunities, so I can at least measure which is my main risk and what the company is doing about it.
All of this process is summarized in a model where I define the metrics to rank investment opportunities, for example, NAV, IRR, payback, CAPEX, others. I like to calculate NAV/share since this is a comparable metric with the market value and I could make decisions according to my risk/reward ratio.
How important is the environment, social, and governmental (ESG) aspect for a junior mining company? How important is it for you as an investor, and are the companies doing this right changing views on the mining industry?
ESG is here and these important three letters are a must in any project valuation, for example, I use to review assets using a mining economics framework split in desirability, viability, feasibility, and sustainability (I used the Hutton model), is in this last point that ESG plays a key role, a decisive point that can determine any GO or No GO; my experience in the industry tells me that you can have the best skarn deposit, with a tremendous mine plan, already approved by your company’s board and be in a BFS stage, but without an environmental view, a social acceptance, will not fly. Or it can, but is this sustainable in the long term?
It’s difficult, will not be easy, net zero emissions as an example will be a very expensive initiative, but is here, I’ll try to be in Minexpo this September, I’ve reading very interesting material about new technologies in different vendors, thinking in carbon emissions, green energy, or any other idea aligned with the ESG framework.
Last but not least, and by the way I think the most important part, the social aspect, is that the industry is turning mindsets and thinking about how you can work in the same environment for mutual benefit. Learning from other’s mistakes through history is a very powerful tool in this sector. I think most of the developers are changing the strategy to implement a real social, and sustainable model.
Which companies are proving out those ESG commitments and critical analysis points the best right now?
Particularly, I really like what Solaris Resources (SLS.TO) is doing in Warintza, Ecuador. This is not an easy task, a lot of effort on the ground is required, and of course you need a tier 1 team to do that, a very skillful one that can understand what is happening and what are the needs of all the stakeholders. This level of envelopment is so incredible that Lasso and Arauz mentioned the project in public interviews, so the relevance of the project is across the country.
Let’s continue with what Anglo American (AAL.L) is doing, for example they are clear about the feasibility of 100% renewable energy for the Quellaveco Project; this is a very important greenfield development for Peru, first autonomous project, 100% renewable!
Another example is Vale (VALE), after Brumadinho in 2018 and all the facts down the road, they are turning to dry stacking tailings facilities, we are at an inflection point about waste management. Going to dry stacking is not cheap but thinking in long term and safety for stakeholders as a crucial factor to put the project in the feasibility side, could be invaluable.
Which mining jurisdictions do you feel are providing the strongest advantage for junior mining companies right now?
I like stable jurisdictions like the USA or Canada, my gold positions for example are there but I think more work on the permitting front should be improved.
I like what Ecuador is doing now, when you listen to a president (Lasso) talking about mineral resources development plans for the long term? They want to be a main exporter of commodities, like Chile or Peru.
I like Chile too, but this situation about the mining tax program proposal should be solved ASAP. In the same line, Peru, I think we’ll be good, we need to work more on the ESG front and establish long term plans to develop greenfield projects, but without a social view, it will be difficult. I like these countries but for sure stability is needed.
With copper’s coming supercycle, should the industry be concerned about supply/demand dynamics?
No, we are in a middle of a stock/global consumption rate amber alerts, but this is driven as a consequence of lower production rates from previous periods, I think big players will join the party during 2021 and 2022 and the price will correct – I expect a pullback in base metals in the next quarters, I expect a support range of $3.5 – $4.0/lb in the long term as new consensus. However, if we consider the current stress scenario in LATAM I’d say that if in the short term the situation in Peru and Chile is not solved, copper prices can expect a lot of volatility without precedents.
How might this tailwind play out in the short/long-term?
In my experience this situation is split in 2 channels, short term, where operations are printing cash at these prices, and operations in the early stage can be more flexible to run high grading programs, at the end the ones sitted in the first quartile of the cost curve like Southern are having a good year.
In the long term, the increase in copper price assumption has a direct impact in the cutoff calculation, this item is used to define the mineral reserves or in practical terms, the profitable ore, the lower cutoff, the higher reserves inventory you have (if the modifying factors allows this upgrade), so, if you present an annual information format (AIF) with additional reserves, it’s very probable you submit in parallel an update technical report (e.g NI 43 101) and therefore your valuation will be different, you expect to see an extension of the life of mine, more metal production, potential upsides, etc.
So it sounds like a positive environment for junior copper mining companies exploring over the next decade?
Absolutely, let’s take the long term explanation bove, marginal projects at $3/lb can be considered now in the development pipeline at these prices, which will depend on metrics but yes, upside is at hand.
Which companies/metals are on your watchlist or your prime investment candidates?
I like asymmetrical investments, and I think junior companies can provide that. Right now, a junior copper company is my favorite one. I like the “cost opportunistic” view, so if one thing is good, why gamble on things you don’t know? I think speculation is part of the markets but in my portfolio or watchlist, at least I consider companies where I can understand what they are doing, but if I can calculate the NAV under my method, that is a place where I will wait patiently.
This junior copper mining company has driven forward recently with positive assay results, the expansion of drill holes at its flagship Warintza Project in Ecuador, and stock growth generating massive investor value.
The stock’s uninterrupted climb has been pushed along since the company went public last year by strong results and the addition of drill holes. The company’s expansion to its Warintza East with the first drill hole is contributing to the optimism around the company, and Solaris (SLS.TO) is number one on Mr. Munoz’s mining stock picks.
Anglo American’s (AAL.L) Quellavaco mine in Peru is a shining beacon of what a new copper mine can be, and the site is one of the largest undeveloped copper deposits in the world. It’s commitment to operating with ESG principles at the forefront of the project’s philosophy means that Quellavaco is, according to Mr. Munoz, a “very important greenfield development for Peru, first autonomous project, 100% renewable!
With one of the best mining jurisdictions in the world, Peru affords Anglo American the perfect opportunity to develop this massive project while keeping it cost and energy-efficient.
Vale’s (VALE) commitment to improving the maintenance and safety of its dams gives it a unique advantage in the industry right now. The company’s plans to increase the share of dry processing in its production to 70% by 2023 will allow it to reduce the use of dams in its operations.
By investing in the implementation of dry stacking disposal technology, this initiative shows that we “are at an inflection point about waste management, “said Mr. Munoz. “Going to dry stacking is not cheap but thinking in long term and safety for stakeholders as a crucial factor to put the project in the feasibility side, could be invaluable.”
Mining companies are some of the biggest and most productive economic machines in the world. Mining produces important minerals and metals that are essential to the smooth functioning of society. Without mining, there would be no technology, no buildings, no electricity, and no global economy. For most, mining brings to mind some misconceptions about the industry and how it operates. It’s time to explore some of the positive effects of mining and get into the transformatively powerful effects of responsible mining around the world.
The Maricunga and La Coipa mines, located in the Atacama Desert approximately 4,000 metres above sea level, are some of the driest places on earth. Like everywhere else, water is critical to the ecosystems and wetlands that play host to wildlife including vicuna, flamingo, and guanaco. To ensure those habitats can thrive, Kinross Gold Corporation has implemented measures to improve the area’s water efficiency.
In 2011, the company installed 100-metre lines of wooden snow fencing. The fencing’s goal is to ensure that snowmelt infiltration into the groundwater is more efficient. This is helping to bring meaningful contribution to the local water supply. On top of that, Kinross and the Chilean National Irrigation Commission are exploring a joint research project. The project will investigate and test the snow harvesting tactic for potential use in other water-stress areas of Chile. The mining company is contributing resources and people to the job, and making a serious contribution to the country and the regions they operate in beyond the jobs and economic stimulus that their projects create.
Golden Star Resources (TSX:GSC) has been a busy member of the Ghanaian community, particularly when it comes to healthcare. The company provides National Health Insurance Scheme coverage for every single employee as well as their immediate families. Golden Star was the winner of the PDAC 2018 Environmental and Social Responsibility Award, so it may come as no surprise that the company goes far beyond what is asked. The company has upgraded local clinic to provide services to all of its employees, and even built a health centre at Nsadweso, an Outpatients Department at the Prestea Government Hospital, nurses quarters at Bogoso, a mini-clinic at Brakwaline, and a community health post a Bondaye.
On top of all of the health infrastructure development Golden Star Resources (TSX:GSC) is doing, the company is also a supporter of Project C.U.R.E.. The project has delivered 29 containers of medical equipment, serving over 18 million people since 2003. Golden Star is a great example of how healthcare and wellbeing are integral to positive contributions for stakeholder communities and a company’s employees.
Mining companies often need to operate in remote locations, where they are usually responsible for building and maintaining infrastructure and other services. Companies can be a powerful partner in these areas. Solaris Resources (TSX:SLS), a copper mining company with significant operations at its flagship Warintza Project in Ecuador, was exactly the kind of community partner needed in times of trouble for one 10-year-old patient.
When a child became ill and needed an emergency evacuation to a hospital in the border community of Banderas, near Peru, Solaris allowed for the air transfer of that child immediately and helped coordinate the rest of the transfer once the helicopter landed at Edmundo Carvajal airport in Macas. Since the location was so difficult to access, a helicopter was the only option, and Solaris (TSX:SLS) was able to coordinate the transport quickly, demonstrating that a powerful community partner from the mining industry could make a major difference in the lives of all stakeholders.
A statement from the Integrated Security Service and Lenin Moreno, Ecuadorian president at the time, read, “The work coordinated between security forces, citizens, and private enterprise made it possible to provide assistance at the right moment.”
While it may not always be obvious what private industry and communities can accomplish together, the results are clear. When government, citizens, and private enterprises in the mining industry come together for a common purpose, the industry is able to consistently demonstrate its ability to step up to the plate and hit home runs.
Vancouver-based Solaris Resources (TSX:SLS) is hitting a regular stride as the company continues to report positive assay results, expands its drill holes at its flagship Warintza Project, and continues to see strong stock growth.
Yesterday saw Canaccord Genuity analyst Michael Pettingell maintain a Buy rating for Solaris Resources (TSX:SLS) with a price target of C$12.50. As of May 27 12:16 EST, that target has already been broken.
The stock has seen a steady, uninterrupted climb as it moves from strength to strength. With a strong balance sheet, the company has been able to move forward on all of its projects, with a particular emphasis on its Warintza Project in Ecuador. The project has seen strong results, and has reported for 22 of 31 holes drilled so far at the site.
The company continues to expand the project, and has begun with its first drill hole at Warintza East, sitting east of the Warintza Central site. The target has returned positive results already, and the stock is reflecting the optimism the results are setting. As more results are reported, the trend is likely to continue and possibly accelerate. The stock is also a value play considering the current trendline that could see it rise to $25 or higher.
As Solaris (TSX:SLS) continues to set new all-time highs, investors might be wondering when they should get in. However, it’s clear from the chart that any moment since the first day of trading would have been a good time to buy.
Solaris Resources (TSX:SLS) has released new assay results from new drill holes at the company’s Warintza Project in south-eastern Ecuador. The company announced results from three additional drill holes at Warintza Central, for a total of 31 holes drilled at the site. Results have been reported for 22 of them, with results looking very promising:
Solaris has ventured into its new site, Warintza East with the first hole (SLSE-01) being collared in weathered porphyry stockwork mineralization. The mineralization was first discovered by earthworks during drilling platform construction.
The target located at the site is defined by overlapping and molybdenum anomalies that hold similar values to Wartinza Central. With approximately 1,200 m in diameter, the high-conductivity anomaly extends continuously from Warintza Central to the target in the east.
Figure 1 – Long Section of 3D Geophysics Looking Northeast
Note to Figure 1: Figure looks northeast and depicts high-conductivity geophysical anomaly (defined at 100 ohm-m) generated from 3D inversion of electromagnetic data, encompassing from left to right Warintza West, Central, East and the newly-discovered Yawi target (Warintza South lies off image to south).
Figure 2 – Long Section of Warintza Central Drilling Looking Southeast
Figure 3 – Plan View
Foran Mining Corp. (TSXV:FOM) (OTCQX:FMCXF) has announced that Fairfax Financial Holdings Limited has entered into a letter agreement for a CA$100 million investment in Foran Mining Corp. (TSXV:FOM) (OTCQX:FMCXF) in exchange for common shares, non-voting common shares, and warrants. Divided into multiple tranches, the deal will allow Foran Mining Corp. (TSXV:FOM) (OTCQX:FMCXF) to rapidly advance its McIlvenna Bay project and centralized mill for the Hanson Lake district.
The company has been eyeing exploration in the district as it continues to expand operations in the region. The letter highlights that the funding will also enable investment in key technological and operational research and equipment and general corporate purposes.
The significant private placement is a decisive vote of confidence in the company and its business model and will be subscribed in two tranches:
Foran shareholders know that the advantages the company holds are numerous including its 100% owned McIlvenna Bay deposits and the broader Hanson Lake district. Foran Mining Corp. (TSXV:FOM) (OTCQX:FMCXF) plans to build the world’s first carbon-neutral copper mine. The company has stiff competition, though, with companies like Solaris Resources (TSX:SLS.TO) and Rio Tinto (NYSE:RIO) setting carbon-neutral goals for their projects as well.
For now, the expansion of its exploration efforts and current projects could continue to deliver substantial shareholder value, and efforts should be significantly strengthened by Fairfax’s global network of business partners. Foran Mining Corp. (TSXV:FOM) (OTCQX:FMCXF) has strong established ties with banking partners to support the exploration of potential ESG products; the goal of these initiatives is to enhance the overall investment return for all stakeholders, from shareholders to the communities in which the company operates.
The financing is still subject to TSX Venture Exchange approval and Foran Mining Corp. (TSXV:FOM) (OTCQX:FMCXF) shareholder approvals, plus some other standard closing procedures. For now, Fairfax will not be granted any Foran Mining Corp. (TSXV:FOM) (OTCQX:FMCXF) board seats as part of the deal.
The world continues to watch the mining industry for signs of a serious commitment to the decarbonisation efforts sweeping the global economy. Company after company continues to put their effort and money where their mouth is. The latest company to jump onto the net-zero train is Ivanhoe Mines (TSX:IVN), committing to net-zero greenhouse gas emissions at its Kamoa-Kakula Copper Mine.
The company’s CEO, Robert Friedland, will be speaking today at the 2021 Goldman Sachs Copper Day and made the announcement before his speech.
The mine is expected to be the world’s highest-grade major copper mine and should begin producing its first copper concentrates soon. The Phase 1 mining rate is expected to be 3.8 million tonnes per year, with an approximate feed grade of more than 6%. Phase 2 should see a ramp-up to 7.6 million tonnes per year, and with the proposed expansion to 19 million tonnes, Kamoa-Kakula could end up being the world’s second-largest copper mining complex.
The company’s ambitions don’t stop at production. The way Ivanhoe plans to mine is focused on support from a green electricity grid and a plan to reduce the use of fossil fuels until the net-zero emissions goal is reached. Electric, hybrid, and even hydrogen technologies are proposed for trucks and transportation. While the upfront investment will cut into the cash on Ivanhoe’s balance sheet, the costs down the road from reduced fuel costs, lower ventilation costs, and even lower health and safety costs as the healthier and cleaner technologies pose less of a risk to workers will more than make up for those initial investments.
The Canadian company is not just following but leading the way when it comes to large-scale net zero emissions projects. Its Kamoa-Kakula copper discoveries in the Democratic Republic of Congo (DRC) have opened the opportunity for the project to become one of the world’s largest and make the company one of the world’s largest copper producers.
Pushed along by the Paris climate agreement and the Canadian government’s initiatives in reducing emissions to zero by 2050, copper mining companies like Ivanhoe (TSX:IVN), Solaris Resources (SLS.TO), and Glencore (LON:GLEN) are pledging their efforts to the critical cause. This is not just because of the ethical and environmental benefits, but because investors also demand these commitments now. Without a plan for the environmental, social, and governmental (ESG) principles in the planning stages of projects, investors may be hesitant to commit capital.
Ecuador’s election on April 11th ushered in a new era for the mining industry. The country’s new president Guillermo Lasso won the runoff with 52.5% of the vote, and opposition leader Andrew Arauz conceded defeat. Both candidates were mining-friendly options for the nation that holds some of the richest copper and gold deposits in the world.
The country has been a supporter and profitable ground for mining companies to operate in, giving mining companies wide latitude for their operations while ensuring that consultation and standards are upheld at every stage. Going forward, the mining industry will need to keep those environmental principles at the forefront of their operations, as countries like Ecuador and their new president Lasso are promoting open policies for boosting investment in the private sector while balancing environmental responsibility.
The government at both the federal and local levels is consulted regularly for mining projects because of the consultation needed for projects operating with the approval of local communities. The need to protect the land they work in and ensure the safety of the local communities is paramount to a long-term partnership in the modern mining environment. Ecuador has been a solid and reliable partner in this sense, providing mediation between opposition groups and the companies that bring jobs and economic growth to the region.
Proposals relating to mining within Lasso’s government plan framework include:
As the pandemic slowed the country’s economic growth, Lasso will look to the mining industry to support the recovery over the coming years. 46% of Ecuador’s Foreign Direct Investment from 2017 to 2020 was generated from the mining industry. A significant portion of GDP comes from the sector, giving Lasso a clear direction for where to focus efforts.
Mining in Ecuador accounts for a large portion of the direct and indirect jobs in the country and is one of the most critical sectors for the country. It was one of the few that grew in 2020, as the pandemic shut down most economic activity. Simultaneously, the president has pledged that the sector must grow responsibly, as he considers illegal mining to be the greatest threat to economic development and environmental protection. Despite the pandemic and rising death toll, mining companies continue to operate unhindered by restrictions as the industry pushes forward on exploration, discovery, and production.
To accomplish his economic goals while preserving environmental integrity for the miners in the region, Lasso has tried to establish an open dialogue with environmental groups and indigenous Ecuadorans. The goal is for the government and miners to work in tandem with those groups to ensure respect for their culture and their customs.
The industry has little to worry about in the way of obstruction or barriers, as the president has also said he would like to appoint a Minister of Environment and Water who is open to and will support the use of non-renewable natural resources. The mission to protect Ecuador’s natural beauty and the local communities will be balanced with the mission to maintain and grow a flourishing mining industry.
It seems the new president even has a favourite partner for the sector, touting the Warintza Project in an interview on national television in early April before the election. A visit to the project should be coming imminently, as the potential of the project to be a key production source is massive.
The company taking the charge for the project is Solaris Resources, a Canadian copper mining company. Solaris has begun exploration at the site and plans to start drilling at Warintza East and South this quarter. The company has follow-up discovery drilling planned at the Warintza West site as well, with maiden drilling at Yawi and the Caya gold anomaly in the second half of the year.
Three additional holes at Warintza Central are bearing out high-mineralization results, with the highest grades starting at the surface. Solaris’ recent press release highlighted some of the progress made on the project:
Having a new president in office and a willingness to push forward at full speed for the mining industry, Ecuador is sure to be a reliable and robust partner for miners like Solaris over the coming years.
With the lifting of restrictions on drilling and more discoveries at Warintza, a global economy heating up after the freeze of COVID-19, and a deposit-rich region, the future is looking very bright for miners in Ecuador.
The Paris climate goals and the transition away from fossil fuels toward electrification are set to create an unprecedented surge in copper demand, according to Goldman Sachs’s new report on copper. The global investment bank is forecasting a long-term supply gap of 8.2 million tonnes of the metal by 2030, “twice the size of the gap that triggered the bull market in copper in the early 2000s.” This would be the “highest on record” and would set the tone for the 2020s making this period the strongest phase of volume growth in global copper demand in history.
The world isn’t just moving away from fossil fuels, but it is actively working on reducing and reversing some of the warming effects of greenhouse gases. The impact of climate change costs the global economy hundreds of billions of dollars. Investing in clean technologies is the antidote. The investment in technologies like carbon capture and storage technology, renewable energy, and electrification of everything from cars to manufacturing means that copper will have a critical role to play in this new economy.
The centrality of the red metal makes it a critical component for strategic investments both from private businesses and governments. The countries willing to invest in the infrastructure and support for mining companies now will have profits coming in steadily over the next decade. Some have even called copper a national security issue due to its strategic value.
The high value, current under-investment, and lack of tier one mines makes it a potentially destabilizing force as many countries classify certain metals as strategic. For context, one only needs to look at history.
The wars of the past 50 years have been fought for several reasons, but one of the prime motivators for conflicts in the Middle East was oil. Winning the war meant rebuilding the infrastructure in the region and therefore gaining a foothold in the supply. This was highly valuable to foreign countries and the mining companies extracting these extremely strategic resources.
The countries with abundant copper deposits sitting within their borders may ultimately come to realize that the global demand and urgency of the commodity will drive its importance for the largest economies in the world. As the scramble continues and even accelerates as demand multiplies, those countries may find themselves standing between powerful corporate interests and the governments fighting to secure the supply required for their needs. A shortage of copper would mean a fierce fight for the material that is certain to play a significant role in the large and developed economies accelerating toward net-zero emissions right now. With most countries targeting 2050 for this goal, copper’s demand will likely grow fastest in the first half of the century and continue into the second. By the middle of the century, it will be necessary for a plethora of manufacturing, products, and energy supply and storage.
Each of these functions could easily fit under the national security blanket, pushing countries to nationalize supply or even move aggressively, as happened during the Iraq wars. The good news is that copper mining companies are exploring and developing those projects now and are setting themselves up to be right in the middle of this boom, taking advantage of a supercycle that will drive profits for decades.
Goldman’s prediction that the copper price would reach $6.80 per pound by 2025 is a significantly bigger statement, demonstrating that the investment bank believes that copper will not need to wait until 2050 to see new peaks in demand spiking regularly. According to their recent report, prices will also spike regularly, breaking highs and setting new records within as little as four years from now. This past February, copper hit a multi-year high, foreshadowing a sliver of what is to come.
The authors of the report, Nicholas Snowdon, Daniel Sharp, and Jeffrey Curries estimate that demand from electrification “will grow nearly 600% to 5.4Mt (million tonnes) in our base case and 900% to 8.7Mt in the case of hyper adoption of green technologies” by 2030. In the conservative base case, copper miners would see a massive demand to be filled surge faster than current production and production plans can accommodate. In the case of “hyper adoption of green technologies,” the world is likely to see a problematic copper shortage that is certain to push the price higher and faster.
The authors continued: “Crucially, the copper market as it currently stands is not prepared for this demanding environment. The market is already tight as pandemic stimulus (particularly in China) has supported a resurgence in demand, set against stagnant supply conditions. Moreover, a decade of poor returns and ESG concerns have curtailed investment in future supply growth, bringing the market the closest it’s ever been to peak supply.”
The report forecasts a copper price of US$15,000 per tonne by 2025, up from today’s price of around $9,000 per tonne today. To get a sense of the trend, the report included estimates of the average price by year:
The culmination in 2025 at $15,000 would mean huge profits for miners as well as a need for new greenfield project approvals.
The demand driving the copper price stems from three main drivers of green copper (copper mined cleanly):
Goldman estimates a 2021 sales volume of 5.1 million EVs in 2021, with that number rising to 31.51 million in 2030. Just to meet that demand, current copper production might need to double or triple. Including charging units (of which Goldman estimate 30 million will be installed by 2030), accessories, batteries, and other power storage needs, copper demand seems to be almost incalculable. Conservative estimates make it seem like production is far behind, and the top end of the range requires unprecedented investment in the industry for new projects.
Right now, the copper market is not prepared for this demand. The massive copper deposits to be found in the Andean Copper Belt, being discovered and explored by miners like Solaris Resources, EcuaCorriente, and SolGold are set to become some of the most valuable projects in a high-value copper region.
Some analysts disagree with the borderline alarmist analysis in the report, with opinions often coming down on the side of caution where prices are concerned. According to TD Securities, “Commodity demand is being supported by a weakening dollar amid a consolidation in U.S. interest rates and fiery risk appetite. Demand continues to pick up, but as the world exits the pandemic and begins to ramp up production, “…metals supply risk is likely to subside from here, adding some pressure to industrial metals prices.”
It seems that for now, there is no perfect consensus as to where the copper market might end up. While demand is guaranteed to increase, the scale of supply risks and production worries are still speculative and do not add up to a definitive answer on where the balance lies. There will no doubt be an imbalance as demand outstrips supply for the next decade, but analysts are still split on how big that gap might be. In either of Goldman’s scenarios, the situation seems quite dire, with the price ending up in the stratosphere. TD Securities seems to temper that outlook somewhat, without disputing the key point here that copper prices are set to rise no matter what.
No matter which side of the spectrum you might fall, the next decade is sure to be a wild ride for everyone with a piece of this cake, and is guaranteed to bring a sugar high for decades to follow.
Copper miners are always looking for more. More ore, more mines, and more copper to refine and get to the market. The demand for copper is growing at such a fast clip that companies can’t keep up, so ‘more’ is the only word that matters now. For that, they need to go to the regions they are most likely to find the valuable red metal. One location is promising to deliver the copper necessary to meet the incredible demand over the coming decades.
Northwestern South America, including Colombia, Ecuador, Peru, and Northern Chile is host to some of the richest copper deposits in the world. The area’s geology is among the earth’s most richly mineralized, making it an exciting area choice for the companies that are just testing the surface of hugely prospective sedimentary copper basins in those countries. This mineral-rich piece of prime mining real estate is referred to as the Andean Copper Belt.
The 2500-kilometre mineralized arc formed during the Lower Paleozoic eric around 300 million years ago. This mineral-rich multi-country zone has been sitting dormant for millions of years, and now copper miners are able to benefit from this region to help meet the current and coming copper boom.
What’s impressive is that initial exploration of sedimentary basins in Colombia, Ecuador, and Peru might be the tip of giant icebergs of sediment-hosted copper-silver deposits sitting underneath. If the theory is proved, it would mean billions of pounds of copper and hundreds of millions of ounces of silver lay hidden just beneath the land in the Andean Copper Belt. Copper miners could be working on and extracting copper from the region for hundreds of years, and the work still wouldn’t be finished.
Exploration efforts are expanding quickly in countries like Ecuador at mines like Warintza, and while the pandemic may have slowed progress in 2020 a little, copper demand hasn’t. Mining companies in the area like Solaris Resources will be in a position to fill that demand as it increases over the next few years and into the coming decades.
Ocean basins composed of porous materials such as sandstone, limestone, and black shale area where copper deposits are formed. The copper and other minerals travel up and become trapped in the rock layers. This mineral deposition is different from a copper porphyry deposit, which is ultimately formed when a block of molten-rock magma cools. The magma might come from underground or aboveground volcanoes, or simply the earth’s crust as it is pushed upward over time.
The cooling then leads to a separation of dissolved metals into distinct zones of copper, molybdenum, gold, tin, zinc, and lead. By the time humans are ready to mine it, it has been sitting in the earth for millions of years, waiting for a capable miner prepared to put it to good use.
Copper porphyries are often visualized as a bag of flour, with millions of grains of rice (copper and other minerals). They are spread across a large area. Sedimentary copper deposits are much more concentrated, sitting underground on top of each other like a stack of books.
For miners operating in the Andean Copper Belt, both types present a wealth of minerals. The exploration and production efforts of the companies in the region are exciting and lucrative. Anyone paying attention to the area and the metal that is fast becoming one of the most valuable should pay attention to any and all progress on this front.
Ecuador in particular is positioning itself as a mining-friendly partner to Western mining companies. According to government officials, the mining industry could represent up to 4% of the country’s GDP this year, up from 1.6% in 2018.
To accomplish this, Ecuador has opened the market to more business-friendly regulations in order to attract foreign capital. This has brought strong development partners in the private sector from countries like Canada, China, and the United States.
Lundin Gold is in the basin but does not expect to encroach on copper miner’s territory as their work is focused on the Fruta Del Norte gold mine in Ecuador. The company sent off its first industrial-scale exports of gold from the mine in December 2019, and despite a slight slowdown in 2020, is still producing regularly. The project and the company also have the support of a mining-friendly government that is ensuring Ecuador is a substantial mining partner.
EcuaCorriente owns the Mirador copper mine. The company is a subsidiary of Tongling Nonferrous Metals Group and China Railway Construction. The mine has estimated reserves of 3.2 million tons of copper, 3.4 million ounces of gold, and 27.1 million ounces of silver. The first copper exports from the company left the country in July 2019. EcuaCorriente has been a great test case for how profitable exploration and discovery efforts can be in the region.
Fulfilling the abundant promise of the Andean Copper Belt, Solaris Resources has made a significant new discovery at its Warintza copper project in southeast Ecuador. A geophysical study revealed a much more extensive porphyry system than anticipated, sparking a drill rig expansion that saw the rig count double from 6 to 12. Early results are promising, and the company will have its hands full in 2021, expanding the project and starting production soon after.
Solaris will have a grid for Warintza that includes clean, low-cost electric power and the ability to get supplies in and out of the site easily due to well-developed infrastructure. Ecuador’s abundant supply of freshwater eases the company’s work significantly as well. As a result, capital costs for the project will be much lower than average.
As drill results continue to come in and the company moves from discovery to production, their flagship Warintza project in this piece of prime copper real estate is set to be the launchpad for years and decades of significant results.
It sure looks good when public companies have a lot of volume from individual investors, institutions, and large funds on the open market. It proves that the company has something of interest to many groups and that they see their investment as a source of profit or return in the future. Confidence is key here, and that’s a good thing.
What happens if an insider at the company is a significant buyer and insiders control a majority of the shares? Any news of insiders buying up more shares of the company they manage or own is a signal that not only are current operations delivering good value, but that future plans will equate to more.
The recent news that Equinox Gold, the company from which Solaris Resources was born, sold Solaris shares and Warrants to Augusta Investments and another strategic shareholder for up to C$132.5 million was one of those signals. Corporate and insider ownership now accounts for almost 70% of its share structure, giving shareholders and future investors confidence that the people running the show have solid plans for the present and future of the company. Of particular note is the potential for significant porphyry discoveries at the Warintza Project in the coming year and years ahead.
TD Securities sent out a research note about the buying noting that Augusta founder and chairman Richard Warke purchased 7 million units of Solaris from Equinox at C$8.25, a stake totalling C$57.5 million. According to Bloomberg, this makes Solaris the leader by amount when it comes to insider buying in the materials sector (past 12 months). On top of that, Mr. Warke has purchased approximately C$57 million in open market transactions. Looking at the chart since the company went public 8 months ago will give you a clear picture of why.
Since becoming a public company, it has only risen every month, and it seems poised to keep going. TD’s 12-month target price is C$13, but based on the trend since becoming a public company, this seems conservative. Mr. Warke’s buying spree comes on the heels of a 1000% return since the IPO last year, and it’s no wonder management and other insiders love owning the stock. Clearly, they see that the future has the potential to build on the success of the past.
Mining companies often have their hands full with multiple projects spanning locations in different regions, countries, and sometimes continents. This can create complications for operations, but if the company has the right management and operational experience, having a variety of projects on the go at the same time can be a serious benefit.
Typically driven by low commodity prices, large mining companies are beginning to shift away from project diversification to focus on their best projects to increase competitiveness. By doing this, many companies believe that it will allow them to compete more effectively in specific sectors and make the most of what they have. While this can be effective for some, having a range of projects complementing each other, while maintaining focus on one or two flagship projects has proven to be a successful format for others.
Having a portfolio of projects is also necessary so that holdings are sufficiently diversified and exploration does not have to stop when one project is not moving forward. While it is good to have many projects, focus is also necessary for the proper and effective execution of any mining strategy. For a company like Solaris Resources operating in the Americas, a diversification strategy has been beneficial for their exploration and production efforts, but they have been able to balance this with a particular focus on one mine.
The Warintza Mine in Ecuador discovered by David Lowell has been the flagship project for Solaris since its inception, and exploration and development has been focused on there for some time now. With the news of the added drill holes and capacity coming, the company is preparing to double down on that success while bringing out the best in the work being done there with ESG principles and particular zero-carbon project planning.
The emphasis on consultation, local employment, educational practices, and ESG principles has made Warintza not just the flagship of the Solaris portfolio, but an example in the industry of how things can be done the right way while ensuring stakeholder success at every level. Prior to beginning work on the site, thorough consultation was done with the Shuar Nations of Warints and Yawi, to establish trust and transparency from the outset. In any long-term effort, starting off on the right foot is essential. This consultation process ensured that the project would get off to a good start while maintaining open communication with the local community. Transparency was also ensured by acquiring full permitting, and no Administrative Silence was allowed.
Considering the diversity and robust mining infrastructure, Ecuador is perfectly placed to complement the company’s work and extensive employment opportunities have been extended in the local and surrounding communities. The project is bringing jobs to the area while making everyone feel good about the work they are doing. The result is a community that understands the impacts and benefits of the project, was involved with the planning, and is able to directly benefit from its success. This win-win approach is not just good messaging, but part of the operational ethos of the company for the project, and has helped the company deliver transparency, education, and inclusion from the start.
The mine itself was discovered by David Lowell in 2000 but was largely dormant since 2001. At the time, Ecuador was a frontier jurisdiction with no commercial mining industry. Things began to change in 2014 when the government shifted its policy in the wake of the collapse of the oil sector to encourage mineral development. The change was fuelled by Lundin Gold acquiring the Fruta del Norte project, 45 km south of Warintza, and developing it in a socially and environmentally responsible manner. This improved sentiment toward mining development and created conditions for Solaris to successfully restart a dialogue with the communities surrounding its Warintza Project in 2018. After extensive dialogue with local and surrounding communities, the root causes of conflict were resolved, and by mid-2019, an innovative CSR program was instituted. By the time 2020 rolled around, the company had signed an Impact and Benefits Agreement with community stakeholders after a government-sponsored prior consultation process, and Solaris Resources was able to restart exploration on the project in earnest.
When tracking the company’s progress, it might be helpful to do so by following the trajectory of the stock over the past 8 months. After listing as a spin-out of Equinox Gold, Solaris’ mission began to explore and develop the Warintza Project in Ecuador. Once results started to come in, a pattern began to emerge:
Contrary to the common narrative of many miners that list and consistently lose value as their discovery efforts return less than expected or nothing, the company’s story appears to be the exact opposite based on the eight-month period they have been a public company.
The project has turned out exceptionally well for the company, and last month Solaris made it clear that it wants to expand on the success it has had so far by doubling the rig count and beginning to drill new holes, all while maintaining that commitment to the community and the ESG principles the project was planned with. The company’s press release highlighted some of the recent impressive results from the 20,200 metres that have been drilled so far at the mine:
Each project has built on the success of the last, and as they expand, each step continues to pour more fuel into a tank driving the company from one milestone to the next. Not only do they stand to benefit from the expansion of the project, but from all of the future compounded gains from the Warintza mine. Drilling thus far has generated significant value for the company and stakeholders involved at every level, and with more drilling to come, one has to assume that the compounded results of that work will reflect positively on the company and stock for the foreseeable future and beyond. Lately, the stock has been balancing between $8 and $10, but with this range being tested frequently with changes of 10% or more in a single daily session, it seems investors are ready for a price above $20 or $30 now.
With the recent insider-buying activity from Solaris Chairman Richard Warke and a management team that has invested over $100M in less than a year in both private placements and on the open market, the Solaris story is proving to be a powerful one. The company has seen its share price reflect its significant progress in a very short amount of time, and it seems that the potential for moving forward is also driving much of the vigour from investors.
The company’s current market cap sits at just below $1 billion, and any breakthrough could mark a psychological shift in how the company is perceived as a result of the value generated by the Warintza project in particular. Solaris has ongoing discovery drilling that is aimed at discovery potential in 2021, meaning big news for the company may lie ahead with any discoveries this year. The Warintza Project has proved that the company’s efforts are being well-spent in the past year and that work has taken the company further than ever before.
Although progress has been made, with the expansion of the project and the focus on expanding at the same time, the company may be looking at future valuations several times greater than current levels only taking into account current rates of return. If the new drill holes and discovery plans continue at this pace or better yet accelerate, the future of the project and the company will be very bright indeed.
The company’s focus on the Warintza mine continues to pay off, and so expansion is in the works for six new rigs by mid-2021. 25 holes comprising 20,200 metres drilled are producing reported results for 16 of the holes so far, also included in the latest press release. Here are a few of the highlights from the release:
Source: Solaris Resources
The company continues to push forward and the focus on the Warintza mine is still paying off. As new holes are drilled and new rigs are installed, capacity and production stand to increase. With the added capabilities of the additional holes, 2021 reports are sure to both impress and please investors, both current and future.
The Warintza mine in Ecuador has been a focus for the company from the start, and the expansion shows how committed the company is to the success of the project. Backing it up is the news of the expansion of the drill holes, and the doubling of the rig count by the middle of the year.
Solaris’ commitment to increasing the value of the mine brings to mind the potential down the road for generating a profitable sale to another company. Rio Tinto’s 2018 sale of 40% of its stake in the Grasberg mine (the second-largest copper operation in the world) on the island of New Guinea was a taste of what is possible when a productive and valuable project is developed well. Selling its 40% stake to PT Indonesia Asahan Aluminum for USD 3.5 billion gave the company a massive influx of capital and an incredible return for investors in the stock.
As the mine develops and more resources are both poured into the project and extracted from it, Solaris will benefit from the dual tailwinds of their investment and the rising price of copper. 2021 is sure to be a productive year for the company’s flagship project.
Solaris Resources had a big day yesterday (March 17th), as the share price shot up in the final hours of trading. As volume rapidly increased, anyone holding the stock saw their position become over 9% more valuable almost instantly. With volume being far outside the average range, we are beginning to see the Solaris team’s efforts bear fruit as investors expand their appetite for the stock.
Jacqueline Wagenaar, Vice President of Investor Relations for the company, commented, “We believe the increase in share price performance is the market reflecting a lack of sellers and ongoing buying demand from recognition of the outstanding drill results from the Warintza copper project in south-eastern Ecuador, in a structural bull market for copper where new projects are scarce.”
The signal this sends to anyone watching the stock is that investors have more confidence than ever in their new projects like the Warintza mine in Ecuador, and prospects in the immediate and distant future will continue to propel earnings far above their current positions. While the stock is pricier than it was a day ago, if the confidence implicit in yesterday’s buying remains steady, the stock will remain a great buy no matter what the price is.
Any pullback will be seen as a buying opportunity from now on, and with the added attention, Solaris will have no trouble convincing the street that portfolios will be well served with some SLS in it.
2020 saw some of the most complicated operating conditions for the mining industry ever, but the subsequent economic recovery brought important and profitable changes for one particular new listing on the Toronto Stock Exchange. While Solaris is not new to the industry, the listing on the TSX is, and they couldn’t have timed it better. With copper prices rising, the decarbonization and electrification movements gathering speed, and a flood of new money in the markets, Solaris couldn’t have picked a better time to become a public company.
Copper mining has been fraught with worry over an impending shortage, which Solaris has hedged against with a portfolio of exploration properties picked by the late David Lowell. The former Solaris consultant and strategic partner was known as the greatest copper explorer in the past century. Lowell helped develop the porphyry copper deposit model alongside John Guilbert in the early 1960s. This model is still dominant today and is implemented for something like 60% of the world’s copper supply. The company started with the best and is in just the right position to make their projects shine with a red tinge.
Solaris’s portfolio includes projects in Ecuador, Peru, Chile, and Mexico. As projects get off the ground and start to expand, the market has noticed the ambition of the company and management to scale up quickly. The potential scale of the projects is hard to find these days, as most of the newer generations of projects are a fraction of the size of the projects in the existing supply base.
The company has shown not only promise, but proven success and a stable track record to make it a good investment. The share price has grown significantly since its market debut in mid-2020 but remains a value buy because of the massive potential of its projects. Solaris currently remains focused on its flagship project, the Warintza Mine in Ecuador. This rich mine is a high-grade open-pit resource with a 5km by 5km cluster of outcropping copper porphyries. Of course, this copper project will remain the focus but there is also untested gold potential waiting in the wings.
Solaris is managed by Augusta Group, an incredible value-creating company that boasts annual returns of up to 308% (from the Solaris IPO and subsequent gains in the stock price) in 2020 on current projects, and returns of up to 12,960% on past sold projects. Having such a reliable and profitable partner gives Solaris the advantage they need to pull ahead in the sector. Their strong strategies and valuable projects paired with the formidable management both internally and from Augusta Group gives them the instant advantage over competitors even though they have only been a public company for less than a year.
The company is worth keeping on a watchlist for the growth and discovery potential, and investors have already begun paying attention to this aspect of the business. Investor appetite has not waned since the 2020 IPO, and as activity continues to pick up and production scales up, the stock will continue to be a good buy even as the price doubles or triples. The value of a sub-$10 stock with the potential for scale on so many exclusive and lucrative projects should not be overlooked, and so far investors have been rewarded by their eagerness to own a piece of this company. Trading around $7 at the time of writing, it is within an affordable range for investors across the spectrum from retail to institutional, and is likely only the beginning of a steady climb upward.
Solaris’s willingness and large-scale commitment to responsible and sustainable mining, while serving the communities it operates in, the health and safety of its people and the environment means that it will also benefit from investors’ increased appetite for clean energy, and the decarbonization trend sweeping the industry. With the recent announcement out of Ottawa that Canada is aiming to achieve net zero emissions by 2050, industries are ramping up their efforts to achieve those goals both at home and abroad. The appeal of a company taking care of their people, the environment, and their bottom line all at the same time is now a necessary selling point for any mining company today and in the future. Solaris is already ahead of the curve and is being rewarded for those commitments.
As more news and reporting are sure to come down the pipeline, we will make sure you can stay updated about all of it right here on MiningFeeds.
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