Categories: Base Metals
Topics: General Base Metals

Latin Metals (TSX-V: LMS)(OTC: LMSQF) CEO Keith Henderson on Moxico Resources Option Agreement Regarding on Esperanza and Huachi Projects, San Juan Province, Argentina

 

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the president and CEO of Latin Metals, Mr. Keith Henderson. Keith, it is great to have you back on. We were overdue for an update. We were overdue for news. I know you've been working diligently behind the scenes to secure the kind of deal that you just secured on the Esperanza and Huachi projects in San Juan Province, Argentina. Congratulations. It's structured very well. There's layers to it. I'll let you provide the context and the partner, which is just as important, right?

Keith Henderson: Yeah. Well, obviously great to catch up. It's been a while, as you said. Yeah, let's just jump into it. Two aspects of Esperanza. Firstly, it's a fairly advanced project and anyone that's familiar with the company will know about it. It's one where we pulled out some spectacular drill results quite a few years ago. We subsequently optioned it to another issuer, and for various reasons that didn't go too well, and that issuer didn't manage to get permits in place.

So we've now got what we think is probably the perfect partner. I'm delighted to have these guys because they're a private company and I think private companies are just a pleasure to deal with. They spend money in a different kind of way because it's not publicly raised money and with the best will in the world, some public companies just don't spend money sensibly and these guys spend money like it's coming out of their own pockets.

They're delighted with the opportunity to work at Esperanza. They've given us a really great deal that reflects the true quality of the project, I think, and it's really... As a private company and as a producing company, they certainly have the financial capability to take this forward. As the last financial statements of the company that they shared with me, which was the end of last year, they had 46 million US in the bank.

They had about the same sitting in inventory at their mine in Zambia, and since then they've been going great. So they're really expanding their operations in Zambia. They're looking at expanding into other countries including Argentina, and they're really on a really big growth curve. So great company, very exciting company. Ultimately, I think a company that might well end up being listed in the US in about a year and a half to two years time, but that's down the line for them. In the meantime, they want to be getting stock in Esperanza and taking the project forward.

The deal for us is pretty much perfect. I'm delighted with it. It took a while to negotiate. So it's basically a two-step deal. The first step is a typical option agreement where they can earn up to 75%. That brings some interesting terms to us. We get cash over the term, which is 2.77 million US dollars, including 350,000 US dollars, which was an upfront payment and has been paid. They also pay the underlying option holders. Esperanza and the neighboring Huachi property, which are part of this deal, are both held under option. So over the course of the option, they would have to pay $4.6 million US in cash to those owners. But most importantly for me, and I think for people who like to invest in this kind of company, it's 65,000 meters of drilling and that doesn't have a specific number or investment attached to it. But we know that if you assume something like 500 US dollars per meter, it's about 33 million US dollars of investment.

They also have to deliver a series of 43-101 reports. So as they go through the option, they'll be delivering first a resource, secondly a PEA. But then ultimately, in order to exercise the option, they have to deliver a bankable feasibility study, which in reality means they probably have to drill even more than 65,000 meters. They have to pay for a bankable feasibility study. It's likely to be a $5 million exercise. So we're looking an investment from Moxico to get to 75%, which is 45 million US dollars, or 60 million Canadian.

And then part two of this deal is a little unusual, but I think very interesting. One of the dilemmas that prospect generators have when they get into these deals, and I mean specifically things like Esperanza where it's a really big porphyry project, it's potentially a very big discovery and potentially very expensive. So now we get to these points where we've optioned out, we are down to 25%. What do we do next? Do we stay in the deal or do we just dilute down to a royalty?

In a big project, it's an important decision because the capital side of this would be very expensive. So the way we've set this up is Moxico we know if they've made a big discovery, we want to get a hundred percent control, so we've set it up so that they have an option to get just that. And to get that, they'd have to pay us 10 million US dollars cash or 2 cents per pound of the resources that have been defined in the feasibility study.

That second part is to protect us in case there's a really, really great discovery here. If it's 500 million pounds, that is 10 million pounds at that rate, but if it's a billion pound copper deposit, we get $20 million for the 25%. And then we go to the royalty, which honestly is probably the decision that we would've made anyway in most cases, so it's like we're getting paid to go to the royalty. So I really like the structure. It's really perfect for us for a really large scale project like this, and this partner, I think, is going to do really good things for us here and really test the potential of this project.

Gerardo Del Real: I have to admit that the structure of this deal is unique, and I really, really like the fact that you'll be able to retain that 2% NSR because with a private company that already has assets in production, that’s spending private money, that obviously has a sense of urgency to capture the sweet part of this copper bull market that we're coming into. That 2% NSR on top of the 10 million and on top of the other cash payments made to Latin Metals, both through the option period and as a result of them securing the project, they take care of the 4.6 million US obligation to the underlying owners of the projects. But on top of that, that 2% NSR has the potential to be really, really lucrative. Can you touch on that briefly?

Keith Henderson: Well, it's largely where prospect generators might end up in most cases anyway. There's always a case for getting bought out completely, and most of our deals, like the deal we have with Anglo Gold, that's kind of the hope that we would have. We know that Anglo Gold on the projects that they've optioned from us, have very, very high expectations, and we know that if they're successful, they're not going to want there to be a junior partner like Latin Metals.

So there's always the big ticket win where you think, "Well, we are going to get taken out here if this thing works." But it's hard to plan for those, and so I always plan for the royalty as well. And I think that in the absence of the very big win happening, these royalties on project after project, if you get successive discoveries and these things start to go, eventually this company becomes so valuable, and the value comes before the project comes. It's not just the revenue that you get from it. It's the perceived revenue. And if things are discovered and they're moving forward and you've got a royalty, you start to see some of that value in your market cap, and I think that's going to be really good for us.

Gerardo Del Real: I couldn't agree more. I am looking forward to having you on on a more consistent basis. I know there are other projects and bits of news that I assume you are working on, so I'm looking forward to updates there. I most definitely do not want to steal the shine from this deal, so I think it's a perfect place to kind of table the conversation. Anything else to add to that, Keith?

Keith Henderson: Just that we closed the financing, I guess. We announced the financing, we closed the financing. There was seven business days between the announcement and the closing. It was heavily oversubscribed. So I'm really starting to feel like there's a good market out there, and I think that companies like us that have real projects and real plans and the tendency to execute on them, we're getting supported and I'm just really happy about all of that. So's great to have some money in. It's great to be back in business. And yeah, we'll hopefully have a lot to update you on over the next little while. I've got a news release plan as I always do, and quarter four looks great, so it's just as soon as I can execute on these news releases, hopefully we can catch up again and cover some of that as well.

Gerardo Del Real: Good work. I suspect the market has a pretty serious re-rating to do as it relates to Latin Metals once they start understanding the structure of the deal and the longevity that it provides Latin Metals shareholders. Thanks again, Keith.

Keith Henderson: Okay, great. Thanks a million. Cheers.

Gerardo Del Real: All right, cheers.

Click here to see more from Latin Metals