Nobis Group takes stake in Adventus in Ecuador

One of Ecuador’s largest private conglomerates — with investments in everything from deepwater ports to real estate and agriculture — has chosen Adventus Mining (TSXV: ADZN; US-OTC: ADVZF) and its Curipamba polymetallic project as its first investment in the country’s mining sector.

“They are a highly respected business group who have a keen eye for value and growth across many sectors,” says Christian Kargl-Simard, president and CEO of Adventus, in an interview. “We’re talking about a company that employs thousands of Ecuadorians with a vested interest in the continuing economic development of Ecuador.”

The Nobis Group, known in Ecuador as Consorcio Nobis, is taking a 9.9% stake in Adventus — subscribing for $7.38 million of the company’s latest private placement that’s raising a total of $12.1 million at 87.6¢ per share.

Nobis is a one-third owner in a US$1.2-billion, deepwater port under construction with one of the world’s largest port operators, DP World, at Posorja, 70 km from the major port city of Guayaquil at the delta of the Guayas River. Nobis is also one of the country’s largest agricultural conglomerates and its largest ethanol producer from sugarcane products. It owns and operates energy plants, and its private and commercial real estate empire includes malls, hotels, resorts and apartment buildings.

“This is their first mining investment — they’ve been looking for three years to find the right partner — and they are going to work closely with us to build a Canadian-Ecuadorian mining company,” Kargl-Simard says. “And of course, they bring a lot of intangible benefits to us in addition to cash, and that would be highlighted by their reputation in the country … introductions to additional investors and stakeholders in Ecuador, as well as potential for new projects and joint ventures on mining projects.”

Nobis’ executive director, Roberto Dunn, will be nominated to the Adventus board of directors.

The private group joins Adventus’ existing strategic shareholders, Altius Minerals (TSX: ALS), Greenstone Resources LP, Resource Capital Funds and Wheaton Precious Metals (TSX: WPM; NYSE: WPM).

News of the investment follows the May 2 preliminary economic assessment (PEA) and updated resource estimate for Curipamba’s El Domo volcanogenic-massive-sulphide deposit in the provinces of Bolivar and Los Rios, 20 km from the Pan-American highway and a two-and-a-half-hour drive from the port city of Guayaquil.

The PEA outlines an open-pit mine life of 16 years with an underground component in years 10 to 15. Average annual production would be 19,000 tonnes copper-equivalent.

Most of the current resource lies within 40 to 80 metres of surface. About 45% of the value of the project is copper, 40% is gold and 15% is zinc.

The study estimates US$185 million in initial capital costs and US$105-million, life-of-mine sustaining capital costs. Payback could take two years, based on metal prices of US$3.15 per lb. copper, US$1,350 per oz. gold, US$1.15 per lb. zinc, US$18 per oz. silver and US$1 per lb. lead.

The project’s after-tax net present value at an 8% discount rate comes to US$288 million, the post-tax internal rate of return to 40%, and total post-tax cash flow over the first six years could reach US$449 million.

“Some people have thought this project was small, but we have about 10 million tonnes of resource that is of exceptional grade,” Kargl-Simard says, noting that the life-of-mine copper-equivalent grade over 15 years is a projected 4.9%. “This makes it one of the highest-grade, undeveloped copper projects in the world, and the PEA highlights the impact of high grade on the free-cash flow.”

He also notes that the 1,750-tonne-per-day project’s C1 cash costs of US96¢ per lb. copper equivalent are at the bottom quartile of cash costs, adding that given the deposit’s big precious metals component, a stream could be a large part of funding for construction.

“The PEA sets an appropriate technical and economic baseline for our stakeholders,” Kargl-Simard says. “Of course, these studies are rarely a catalyst for the share price, but it’s a strong base for us going forward.”

The company incorporates all recent infill drilling in 2018 into the PEA, and El Domo currently hosts measured and indicated resources of 8.9 million tonnes grading 2% copper, 0.28% lead, 2.93% zinc, 2.56 grams gold per tonne and 51 grams silver per tonne. Inferred resources stand at 1.3 million tonnes averaging 1.52% copper, 0.20% lead, 2.25% zinc, 1.83 grams gold and 42 grams silver. Of the 8.9 million measured and indicated tonnes, 7.1 million are in the pit-constrained resource.

Adventus will complete a feasibility study and environmental impact assessment in the second half of next year. If its environmental assessment gets approved in the fourth quarter of 2021, construction would take a year, meaning commercial production could begin in the first quarter of 2023.

The Curipamba polymetallic project in Ecuador, where Adventus Zinc is earning a 75% interest from Salazar Resources. Credit: Adventus Zinc.

“That’s as fast as we can push it, and partly driven by the Ecuadorian and Latin American experience of our growing project execution team” Kargl-Simard says. “We are closely watching the progress of both the Fruta del Norte and Mirador projects in Ecuador, which are expected to begin production this year. The modern projects, their respective construction teams and the many service providers provide future opportunities for Adventus to apply the many lessons learned in-country.”

Adventus is earning a 75% stake in the project from Salazar Resources (TSXV: SRL). Under the option agreement signed in September 2017, Adventus will spend US$25 million on exploration and development over five years. It has spent US$12 million.

The El Domo deposit is hosted in a juvenile volcanic-magmatic arc of the Paleocene-Eocene Macuchi Terrane. Sulphide mineralization is principally located at the contact between a felsic volcanic dome and overlying volcaniclastic strata, and is generally flat-lying. It has been traced for 800 metres north to south, and between 350 and 500 metres east to west.

As far as mining jurisdictions are concerned, Kargl-Simard describes the federal government in Ecuador as “staunchly supportive of a new, modern sector that will contribute to the country’s economic development for decades.

“They’ve done a great job of marketing the country to international mining companies and investors, with a current refocus on strengthening the constitutional court.”

Indeed, not all companies have had an easy time developing projects there, and success and failure, like in many places, can hinge on where the project is located. INV Metals’ (TSX: INV) Loma Larga underground project, for instance, has found opposition from nearby communities, and in March, the company said it is evaluating whether it needs to relocate processing and tailings facilities planned for the site.

Loma Larga is in Azuay province, 30 km southwest of the city of Cuenca. The centre of the historic city is listed as a Unesco World Heritage site and is popular with tourists.

“In Ecuador, the national government controls the mineral resources, and it’s their decision on permitting a project — that is the law — but practically speaking, there have been non-governmental organizations, anti-development groups, etc., who have been trying to use regional courts to … find loopholes in the system,” he says.

“Every community has the right to consultations, but the challenge is how consultations are completed and balanced with laws and national government directives,” he adds. “The national government needs to work closely with regional governments and project communities to streamline the laws and processes around consultation.”

As far as social licence at Curipamba is concerned, Adventus “has not cut any corners,” he says.

“We have the benefit and continuity of working with our Ecuadorian partner Salazar Resources, who have been contributing members of our communities for over a decade. We continue to spend significant time and resources on social and community efforts to appropriately manage the expectations and changes that a modern mining operation will bring.”

To that end, the investment in the company from Nobis Group should also help win support. In support of their various businesses, the family owned conglomerate runs the Nobis Foundation, which provides assistance to poorer populations in rural areas, and also works on issues — such as women’s rights — and assists women in getting into the workforce.

“Nobis believes mining is set to become a major driver of economic development in Ecuador, and believes the time to invest in the sector is now.”

Over the last year, Adventus’ shares have traded within a range of 66¢ and $1.16 per share and last traded at 90¢ apiece. The company has 71 million shares outstanding for a $64-million market capitalization.