Odin Mining to buy 
Ecuador Gold and Copper

In a friendly all-share deal that knits together assets in southern Ecuador, Odin Mining and Exploration (TSXV: ODN), a junior that counts mining entrepreneur Ross Beaty as its largest shareholder, is acquiring Ecuador Gold and Copper (TSXV: EGX), whose Condor project contains millions of ounces of gold and is just 25 km south of Lundin Gold’s (TSX: LUG: US-OTC: LUG) Fruta del Norte project, one of the largest and highest grade undeveloped gold projects in the world.

Ecuador Gold and Copper’s concessions in southeastern Ecuador — containing six deposits — are also situated 50 km south of the Mirador copper-gold project, one of the few new sizeable copper projects in the world nearing production. Mirador, formerly owned by EcuaCorriente, is now owned by a China’s CRCC-Tongguan Investment, a joint venture between Tongling Nonferrous Metals Group and China Railway Construction Corporation.

Over the last two decades, US$50 million has been spent on exploration across Ecuador Gold and Copper’s 82.8 sq. km property, says Heye Daun, the company’s president and CEO, who joined the management team about a year ago “to breathe new life and fresh vision into the company, restart exploration work and find a strategic partner,” which has culminated in the transaction with Odin Mining.

The core shack at Ecuador Gold and Copper’s Condor gold-silver project in Ecuador. Credit: Odin Mining.

“We have proved up 8 million oz. gold resources but now, in order to take them to the next level, we need a partner with serious technical and financial capacity, and we found that with Odin Mining,” he says in an interview, noting that Odin’s management team stems from Beaty’s Lumina Copper group of companies. “Odin has the Lumina expertise — as well as the financial capacity and technical ability — that’s going to be brought to bear on these projects, and that’s what these projects need. That’s the rationale for this deal.”

Condor’s flagship asset, Santa Barbara, is a gold-copper porphyry deposit that contains most of the resources that have been defined so far at the project. In addition to Santa Barbara, Condor hosts copper-molybdenum porphyry mineralization at the El Hito deposit; intermediate sulphidation epithermal gold-bearing diatremes, volcaniclastics and breccia bodies at the Los Cuyes, Emma and Soledad deposits; and the intermediate sulphidation, narrow-vein epithermal system in the Chinapintza deposit, north of Santa Barbara. (Chinapintza was discovered by TVX Gold, a mining company founded by Brazilian former billionaire Eike Batista.)

Excluding Chinapintza, the Condor project has an indicated resource of 447.3 million tonnes grading 0.55 gram gold per tonne for 8 million oz. gold and an inferred resource of 197.6 million tonnes grading 0.40 gram gold for 2.6 million oz. gold.

Marshall Koval, Odin Mining’s president and CEO, tells The Northern Miner in an interview that in addition to the resources already defined at Condor, the geology of the area offers a lot of upside.

“There is significant exploration potential within the property that they control,” he says. “Over the last several years they haven’t been able to do much in the way of exploration, so one of the things we’re looking at is completing a review of all the geological potential of the property and focus on additional exploration. We will continue to do some work on Santa Barbara as well.

“We’re really good at porphyry copper deposits, and the fact that there are porphyry targets means we’re really comfortable with the geology,” he continues, adding that Odin’s vice-president of exploration and development, Diego Benalcazar, used to be involved in the Condor project before Ecuador Gold and Copper’s ownership. “He knows this property very well, so we’re pretty comfortable with it.”

In addition to a management team with deep experience, Odin brings to the table an operating history in Ecuador dating to 1987. In 1994, the company identified the Cangrejos area in the Andean foothills of El Oro province in southwestern Ecuador as the source of the Biron alluvial gold deposit, which produced 69,000 oz. gold. Its Cangrejos project is 30 km southeast of the port city of Machala and 40 km from Puerto Bolivar, a deepwater commercial port.

Meanwhile, Ecuador Gold and Copper’s flagship Santa Barbara deposit, which the company also discovered itself, is sometimes compared with AngloGold Ashanti’s (NYSE: AU) La Colosa gold project in Colombia, Daun says. La Colosa, AngloGold’s largest greenfield discovery, sits in the Andean region of Tolima, 14 km from the town of Catamarca.

“La Colosa has received hundreds of millions of dollars of investment and the project now has what I believe is 24 million oz. of low-grade gold resource, and it’s defined as a world-class copper-gold deposit,” Daun says. “Some people say Santa Barbara has the potential to be another La Colosa.”

But of course that will require more time and money, and is an exercise the Namibian-born mining engineer is well qualified for. The former president and co-founder of Auryx Gold Corp. co-led that company through the initial public offering process, successive capital raising and project development, culminating in the $160-million sale to B2Gold (TSX: BTO; NYSE-MKT: BTG). The first 10 years of his career were spent building and operating mines in Africa for the likes of Rio Tinto (LSE: RIO), AngloGold and Gold Fields. He also has experience in mining project finance and portfolio management with Nedbank and Old Mutual.

“Most porphyry deposits require heavy capital investment in exploration and development,” he says. “That form of capital investment is not easily raised by a junior. Odin has the fundraising ability to take these projects to the next level, so it made perfect sense.”

Ecuador Gold and Copper says it has a deep pool of support in Ecuador from long-term and patient investors. “EGX has a controlling group of Ecuadorean shareholders with deep and well-established local relationships,” Daun says. “They are local investors who have been funding the company throughout the recent mining downturn, with a lot of commitment and long-term vision.”

As for investing in Ecuador, he says, the government hopes to emulate Colombia’s success in attracting foreign investment into its mining sector and is taking steps to improve its regulations. (The government has hired Wood Mackenzie to advise on mining law reforms to attract investment to mining sector, and Ecuadorian President Rafael Correa has expressed support for developing the country’s mining  industry.)

“Over the last decade Colombia has attracted large amounts of money into mining — some say at least US$30 billion — and it’s been one of the outstanding stars for foreign direct investment in South America,” Daun says. “Ecuador recognizes this, and they’re trying to put in place the right fiscal and regulatory framework to attract similar quantums of investment.”

In April, Ecuador opened up new mining concessions to foreign investment for the first time, he notes. “Everybody says it’s a rapidly improving jurisdiction and we can back up what Lundin has been saying publicly, which is that the government has become supportive and done everything it can to rectify what had previously been considered a difficult jurisdiction for foreign mining companies.”

Odin Mining’s Koval, agrees. “We’re way more comfortable with Ecuador since they improved the fiscal regime and the Ministry of Mines and Energy has done a good job to help bring the investment climate forward,” he says. “Ecuador is coming along, and hopefully they’ll continue to make these improvements.”

Under the terms of the statutory plan of arrangement, Odin shareholders would own 65% of the company and shareholders of Ecuador Gold and Copper would own 35%. On a fully diluted basis, the transaction represents a premium to Ecuador Gold and Copper’s shareholders of 89%, based on the company’s 20-day, volume-weighted average share price. If approved, Odin would have 204 million shares outstanding and 211 shares on a fully diluted basis. Odin would have a $198-million market capitalization based on the company’s closing share price on Aug. 2.