Metminco spikes on a successful drill in Columbia, but can momentum continue?
A set of successful drilling results propelled Metminco into the spotlight last week, with investors finally taking notice of the stock following a period of weakness brought on by a rights issue earlier this year. The Columbia-focused firm’s shares have come off slightly again after hitting 0.45p on Friday, but could there now be enough momentum in place to warrant a punt on the potential on offer across the company’s portfolio?
What is it?
Metminco is an exploration and mining player with a portfolio of gold and copper exploration projects in Colombia and Chile. In March, the business hired experienced geologist Kevin Wilson as its executive chairman and underwent a strategic shift away from mine development and onto exploration. Specifically, it aimed to demonstrate the potential of its Colombian gold exploration assets and undertook efforts to reduce operating costs & financial liabilities and divest non-core assets. It also refinanced itself through an AUD$5.6m rights issue in April, which, after paying off creditors, left it with around A$3m to launch a high-impact exploration programme.
The firm’s primary focus is its Quinchia Gold Portfolio, located in Colombia’s Middle Cauca Belt. Quinchia contains the Miraflores Project, which has measured and indicated mineral resources of 840,000 oz Au and 825,000oz Ag. It also includes an undrilled prospect called Chuscal, where Metminco is in discussions with current owner AngloGold Ashanti to formalise a farm-in/JV agreement. Chuscal is a significant gold porphyry target that features a large, undrilled gold geochemical anomaly.
The big news last week occurred at another Quinchia prospect called Tesorito, where Metminco has been carrying out a 1,500m diamond drilling program since June, with the hope of identifying a gold porphyry system. Shares soared 15pc after it announced that its latest drill results point towards Tesorito being a mineralised porphyry with higher grade gold mineralisation.
Metminco will now design a program of drilling to both scope the known high-grade mineralisation at surface and investigate potential repetitions of the high-grade zone within the broader intrusive porphyry complex. It will also examine the depth potential of mineralised porphyry by considering a deep drill hole to test the depth extension of the high-grade gold zone into what is thought to be higher grade base metals at depth.
Importantly, Tesorito occurs just 800m southeast of Miraflores. As a result, Metminco said the new targets could significantly impact on the positive Feasibility Study at Miraflores. As Wilson put it:
‘We are very excited by the results of this drilling. It demonstrates that there is potential for the Company’s 880koz Resource at Miraflores to be complemented by this near surface mineralised target at the Tesorito porphyry, only 800m to the southeast. Importantly, any near surface, higher grade gold mineralisation delineated at Tesorito has the potential to materially improve the economics of the Miraflores feasibility study through an integrated development plan, sharing mine and process infrastructure. In addition, we have additional targets at Chuscal and Dosquebrados requiring follow-up, all within a potential radius of operation for a centralised plant.’
The news at Tesorito broke a long spell of weakness for Metminco, which began in March when the firm carried out a rights issue and has continued since. Shares have come back down to 0.4p since hitting 0.45p on the day of the announcement. However, there is an argument to be made that the news triggered some momentum, with trading volumes increasing significantly over the last few days, as can be seen in the chart below:
With that in mind, it could be worth considering the potential short-term value triggers across the firm’s portfolio. It now plans to carry out more work at Tesorito and expects to carry out exploration drilling at Chuscal later in the year, once negotiations have completed. Importantly, it will also continue permitting work for at Miraflores, where it expects its plan of action to be approved by the Colombian Mining Agency next year.
There is also an argument to be made that, with a market cap of £3.4m and a cash balance of AUD$1.7m (c.£950,000) at 30 June 2018 was, Metminco could soon look highly undervalued. Indeed, a DFS at Miraflores put production at 45koz per year for 9.5 years, giving it an NPV(8) of $72m and all-in sustaining costs of $643/oz at $1,300oz gold. The recent results at Tesorito could enhance this even further.
What’s more, although its assets are all early stage at the moment, the Cauca Belt, where Metminco’s assets are based, hosts more than 60Moz gold. It is also home to many large gold porphyries, including AngloGold’s large 28.3Moz La Colosa deposit, and its 21Moz AuEq Quebradona deposit. It is hard not to get drawn into Metminco at its current price when its neighbours have enjoyed this level of success.
As always with exploration plays, none of this is guaranteed. Furthermore, although the Metminco cash balance might represent a large portion of its current market cap, it is likely to have to raise at some point if it is to bring its assets to a stage where they can be sold or developed.
All-in-all, it will be interesting to see where the firm goes following the interest sparked by last week’s news. Given the historical success enjoyed in its area of operation, Metminco could begin to really attract the market’s attention if it continues to unveil positive updates.
Ram Venkat, non-executive director at Metminco Ltd tells Proactive they’ve submitted a plan of works to the Colombian Mining Agency for the Miraflores gold project. (Jan 2018)
The author does not hold shares but may have been remunerated