Trip heightens analysts’ enthusiasm for Chile

Demonstrating the practical advantages of mining in countries like Chile and Brazil is never an easy undertaking for the Canadian companies operating there. The logistics of transporting visiting analysts to remote operations in exotic locales and exposing them to harsh and unfamiliar climatic conditions are such that even the likes of Placer Dome (TSE) and LAC Minerals only rarely organize these expeditions. But a window of opportunity was opened recently when Placer Dome teamed up with LAC and TVX Gold (TSE) to show 20 of North America’s most influential mining analysts just exactly what they are doing there.

Earl Dunlop, Placer Dome’s manager of investor relations, said he wanted to get analysts down to Chile before summer had ended and work crews started commissioning the $250-million plant at the La Coipa gold-copper mine near Copiapo in central Chile.

The 6-day road show, which began in Santiago, March 17, included a stop at Bond Gold’s El Indio gold-copper mine where new processing facilities should enable the 65% owned LAC subsidiary to produce almost 220,000 oz. gold and 28,984 tons copper this year. The touring party also had the option to visit heap leach gold projects held by Dayton Developments (VSE) and Bema Gold (TSE) and to accompany TVX Executive Vice-President Ian Telfer on a tour of the company’s Brazilian mines.

By all accounts the expedition was a challenging one even for TVX, which has hosted 12 such trips in the past six years. A scheduled tour of TVX’s Crixas mine in Brazil was cancelled due to heavy rainfall. One analyst, who asked not to be identified, suffered severe breathing problems while attempting to reach Bema Gold’s Refugio gold project at an altitude of 16,000 ft. “He literally freaked out,” said one observer.

But analysts and company representatives interviewed recently by IThe Northern Miner say they welcomed opportunity to see for themselves a country now regarded as a hot spot for gold exploration.

“The potential has only just been scratched,” said Michael Jalonen, a precious metals analyst with Midland Walwyn Capital in Toronto, who was paying his first visit to Chile.

He and other analysts like the fact that Chile has apparently given up on its “socialist experiment,” which ended with the assassination of President Salvador Allende in 1973. Although the new government under Patricio Aylwin could interrupt the status quo established by his predecessor General Augusto Pinochet, inflation is down to 17% and the country (from the standpoint of mining companies) is prospering.

“Who can say that operating a mine in Chile is any more risky than operating a mine in Quebec given the political situation in Quebec,” said Bunting Warburg of Toronto’s Electa Aust.

Having been the world’s top copper producer since 1903, Chile has an abundance of experienced miners and an impressive infrastructure that makes it relatively easy for foreign companies to operate there.

In a bid to attract foreign investment, companies like Placer Dome are being offered very favorable terms including a 35% withholding tax on dividends remitted to them by their Chilean subsidiaries. That compares with 48% in Ontario and British Columbia.

With inflation running at 1,700%, Brazil is considered more risky even though TVX has had considerable success there.

But Chile and Brazil are a long way from head offices in Canada and the difficulties are obvious. In order to finance construction at La Coipa, Placer Dome had to purchase $158-million worth of political risk insurance from multi-lateral agencies and provide commercial lenders with completion of construction guarantees.

The fact that Canadian banks are required to make provisions for loans made for projects in Chile is also expected to present considerable difficulties to Bema as it attempts to raise $75 million for development of its 50% owned Refugio project.

Nevertheless, the move to Chile is obviously paying off for the senior companies and even though analysts doubt that Bema can obtain financing they are convinced that if Bema can’t mine Refugio someone else will.

Analysts with a head for heights were able to visit the Refugio project because it is just 40 miles from La Coipa, the first stop on the Chilean tour.

Located in the Andes Mountains, 13,000 ft. above sea level, La Coipa is held by Compania Minera Mantos de Oro, a Chilean company owned equally by Placer Dome and TVX. After a 2-hour bus ride from Copiapo, analysts were able to see the mine just before operator Placer Dome begins commissioning a new 16,500-ton-per-day plant.

When the huge facility is up and running, La Coipa is expected to produce 175,000 oz. gold and 16 million oz. silver annually at an average cash cost of US$178 per oz. Reserves in two orebodies stand at 56.8 million tons of average grade 0.046 oz. gold and 1.9 oz. silver per ton. “The changes resulting from the company’s $250-million investment are quite astounding,” said Pierre Lassonde, senior vice-president, at Toronto-based Beutel Goodman & Co.

A prolific traveller, Lassonde visited the mine site two years ago when it was an 1,100-ton-per-day operation.

Those that braved the trip to Refugio say the risks posed by the severe winter and current gold prices (US$360 per oz. when this article was prepared) and the deposit’s low grade are very great. But Bema President Clive Johnson said he has heard all of this before; and with a feasibility study expected this week, he hopes to obtain both the necessary financing and future development. “We are not attempting to do anything that hasn’t been done at similar altitudes by other companies,” he said.

Bema subsidiary Minera Bema Gold Chile Limitada has successfully earned a 50% stake in the project. With preliminary reserves standing at 237 million tons, grading 0.026 oz. gold (at a cutoff grade of 0.015 oz.), Bema is aiming to bring on a heap leach gold mine capable of producing 225,000 oz. annually.

Further down the Chilean coastline near La Serena, Bond Gold is putting the finishing touches to mill expansion at the El Indio operation where gold production is scheduled to rise slightly from 1990 levels.

Bond owns 83% of the El Indio mining complex though a subsidiary while the remaining 17% is distributed among several Chilean shareholders. Situated in the Andes Mountains about 300 miles north of Santiago, the complex consists of three underground and five open pit mines, a concentrator, plant and heap leach facilities.

Bond has spent $3.8 million to increase the crushing capacity within the mill and with a third 50,000-ton-per-year roaster in place, Bond work crews can roast all of the El Indio concentrates on site. The $4 million spent on exploration last year should allow for the inclusion of one million ounces of mineralization in the resource category, he said.

“The increased efficiencies should lead to a 15% decline in operating costs in 1991 to US$125 per oz.,” says Jalonen in a recent research report.

The proximity of Dayton Developments’ wholly owned Andacollo gold project to La Serena and the relatively comfortable altitude of 3,000 ft. above sea level bodes will for the future of the project, says Lassonde.

“The site is dotted with gopher holes left behind by previous mining activity and furnaces predate the Incas,” he said.

Dayton’s Chilean affiliate has essentially been looking for the micron gold mineralization that the old timers couldn’t see or mine. A feasibility study tabled recently by Bechtel Corp. indicates that at a mining rate of 12,000 tons per day, Dayton’s Chilean subsidiary should produce 109,500 tons per year profitably during the first five years in operation.

Minable reserves on the 2,147-acre property now stand at 22.8 million tons of grade 0.036 oz. gold per ton.

In his dual role as a senior-vice president at Beutel Goodman and president of royalty specialist of Euro-Nevada Mining (TSE), Lassonde says he wouldn’t hesitate to invest in Chile if the right opportunity came along. However, he says the chances of outsiders picking up royalties in Chile are limite
d by the fact that properties are usually held by rich Chileans with lots of experience in the business.

With the other analysts are also enthusiastic about the investment potential, they say the trip was valuable because it enhanced their ability to answer questions posed by clients and mining shareholders. “Institutions can take me more seriously for having been there,” said Jalonen.