Minera IRL (LON:MIRL) has been quite categorical in recent regulatory news filings: the next set of financial results will be lodged with the Canadian exchange on or before June 30.
Those results will be closely scrutinised by shareholders still waiting on news of potential financing for Minera’s key asset, the Ollachea gold project in Peru, and anxious to know what the future holds for the company following the death of founding director Courtney Chamberlain earlier this year.
Understandably the death of Courtney knocked the company’s communications to the market sideways. He wasn’t just the architect of Minera as a company – he was the main promoter of it too. His passing was a sad loss to the industry, not to mention Minera itself.
Because now is as crucial a time as any in the company’s history. Financing talks for Ollachea have been ongoing for more than a year now and have overshot so many deadlines that Courtney was becoming very hesitant to put another date on any successful outcome being achieved.
But one thing that Courtney was sure of was that no matter how long it took Ollachea would get financed.
He pointed to several factors about the project to support his case. The idea is that Ollachea can be constructed for an up-front capital cost of around US$177mln and that it is likely to produce around 930,000 ounces of gold over a nine year life at an average cash cost of around US$507 per ounce.
Even allowing for recent weakness in the gold price and for the addition of general and administrative costs, there’s clearly plenty of margin on offer.
The post-tax internal rate of return rings in at 24.4%, using the current gold price, with the net present value at US$144mln.
Any strengthening in the gold price would have a correspondingly positive effect on those numbers, such that US$1,400 gold bumps the internal rate of return (IRR) up to almost 32% and takes the net present value (NPV) up to US$253 million.
These are numbers that are worth conjuring with, even allowing that Peru hasn’t always been the best of mining jurisdictions - some majors, including Anglo and Newmont have come seriously unstuck from a community and social relations perspective.
But Minera has never faced any issues like that. The local community at Ollachea have always been supportive, and the only issue that the company has faced at its other Peruvian project, the small Corihuarmi mine high up in the Andes mountains, has been a single instance of banditry.
Having said all that though it is true to say that the momentum for the development of Ollachea was somewhat dissipated by the collapse in the mining markets, and in particular the collapse in the gold mining markets from about 2011.
In the face of equity market scepticism Minera IRL optimised its feasibility study for Ollachea in 2014, allowing Courtney to enter into negotiations with even greater confidence. Production from Corihuarmi has also helped Minera. It may only be running at around 23,000 ounces a year and it will never be a company maker. But the cash flow does allow the company to pay its way to a certain extent and to keep the lights on.
In the past it’s also meant that Minera has been less likely to get squeezed into making a deal on Ollachea that it doesn’t want, diluting shareholders more than necessary or even entering into some form of equity finance facility.
But even allowing for the cushioning effect of Corihuarmi the challenges facing new interim chief executive Dr Diego Benavides are significant.
Back in December of 2014 the company stated that it had US$5.3mln in the bank and that this would be more than enough to see it through the final stretch of the Ollachea financing negotiations, which were likely to be concluded in the first quarter of 2015.
What no-one foresaw was Courtney’s untimely passing in April, or his need to take a leave of absence in March. Following that development Minera then announced at the beginning of April that cash had dropped to US$1mln but that there was also now an agreement in place for a short-term US$2mln credit facility.
The financing for Ollachea is now expected to be complete by the end of the second quarter. All being well, that will allow for the refinancing of old debt, a hefty injection of capital into the company, and a full-on drive towards development.
In the December 2014 announcement the company talked of first production at Ollachea by the end of 2016. Thus far the transition in management looks like involving a slippage in that schedule by a quarter, meaning that first production could be on track for the early part of 2017.
If the company is able to provide a clear path to production when it puts its results out in a few weeks time, then the shares could really bounce.