This week, I had the pleasure of catching up with Doug Ramshaw, President and Director of Minera Alamos, Inc. We talked about the company’s 2020 vision and what we can hope to look for in the coming year. I first met Doug at the John Tumazos Very Independent Conference over the summer last year. Prior to that, we had mutually followed each other on Twitter (@dougcan) and exchanged mining pleasantries. Back then, Minera Alamos was on my watch list, trading at around .12 cents Canadian. I took that opportunity to get to know more about him and the investment proposition at hand. I came out of the meeting learning a great deal about his character and experience. Particularly, his style of under-promising and overdelivering as well as his transparent and committed work ethic. But another strong trait was his selfless way of redirecting any credit that may have been thrown at his direction towards the rest of the team — Darren and company. If that was not enough, knowing he was aligned with the shareholders helped check all the boxes in the investment process. As they say, the rest is history. Since then the stock is up well over 100% and has outperformed the majority of its peer group, including GDXJ.
The general flow of the conversation was focused on these primary themes:
(1) Santana Construction and Budget
(2) Exploration and Resource Update
(4) La Fortuna
From a construction standpoint at Santana, things are just about getting started as everyone returns from the holidays. We can think of the timeline broken down into 5-key areas. The January to February period will be for tree clearing in the pad/pond area. From February to March, the company will be focused on plant foundation and from February through April sitework on pads, ponds and road. The April to June period will focus on the installation of pumps and piping while the May to July period will be for installation of liner pad/ponds. These 5-key milestones could then be used as a focal point to communicating construction updates, which would potentially be every 6 weeks or thereabouts. If everything goes according to plan, mining activities could commence by late 3rd quarter with the first pour happening sometime in early 4th quarter. From a budgeting standpoint, the estimates (in USD) are $2M for pad; $1M for pond and related; $1M for plant; $1M for general site work; $1M for general infrastructure; and $1M for mine preparation. As far as the treasury is concerned, all seems to be in order. The equity piece of the recently completed construction finance deal (https://www.mineraalamos.com/site/assets/files/3937/2019_12_06_santana_royalty_final.pdf) should close shortly, which would put the cash at around $8M. The $5M from the royalty would come in at the end of February following the disinterested shareholder vote.
As construction is happening, exploration at Santana is also taking place. The hope is that there will be exploration updates every 3 weeks or so once the first update is provided, which could come on or around the Vancouver Resource Investment Conference. Their inaugural 43-101 will be released sometime around the end of the first quarter or during the second quarter. One of the value-enhancing drivers is the potential upside to the resource at Santana, particularly whether the 3 zones connect to form one larger 900m development target. The focus currently is to develop the initial pits and continue exploration work to find new zones. The gaps will be drilled in due course. While there is still a lot of work to de done in this regard, the exploration work can only really surprise to the upside thus having a nice little optionality embedded into the overarching value proposition.
During our conversation, we also talked about managing through the rainy season and about security. The takeaway here was that they are thoughtfully thinking about these operational items, among others, and will properly manage through to address them. For example, with respects to the rainy season, which will likely not be an issue this year due to timing, they will use evaporators to deal with the excess water. The rainy season down there can be characterized as intermittent down pours when they come as opposed to what I am typically used to seeing, which is spring rain that never stops. On the security front, plans are being put in place, but details are still to be ironed out. It is important to point out that dore will not be produced on site, which mitigates the risk materially. Also, if Doug is comfortable, I will not lose any sleep over it.
Finally, on La Fortuna, I was quickly reminded that Santana will be the proxy and that the focal point is there at this time. I don’t disagree. Getting Santana right and La Fortuna will be the 1+1 that equals 3 or 4 kind of outcome. The curiosity in me could not withhold, however, since the term Fortuna ties back to fortune and the personification of luck. Anyway, from a permit standpoint, the expectation is to receive sometime in the first half of 2020. As respects to financing, the idea is for a debt and royalty package sometime late in the year to take care of the capital cost with a construction decision around year end. Ultimately, Santana is the bridge to unlock further value from La Fortuna. We are fortunate enough to have this all playing out in the next 12-months.
I would like to thank Doug for his time and all the best in 2020.
Refer to prior Minera Alamos writeup for more details: https://economicalpha.blog/2019/09/24/minera-alamos-update/
Disclaimer and Disclosures:
I own the stock. Therefore, I have an inherent bias.
I am not a certified investment professional. Assume everything I say herein is wrong. In fact, I am wrong more often than right. Do your own due diligence and consult with your own investment advisor. Do not buy or sell on anything contained herein.
I did not receive any compensation for this blog post. I did not receive any compensation from the company mentioned.
The content contained herein is strictly my opinion only. I do not warrant to the accuracy of the content or whether this is a suitable investment and disclaim any responsibility.