How big could the Lagoa Salgada zinc and base metals project in Portugal eventually become?
That’s the intriguing question being raised by a succession of drill results that have come out from the joint venture partners working up the project, Mineral & Financial Investments Ltd (LON:MAFL) and Ascendant Resources Ltd (TSE:ASND).
The latest intercept, which comes from the middle of the project, returned grades of 1.33% copper equivalent over a chunky 201 metres.
The hole is significant in its own right, but there’s more to it than just the grade.
First off, the location of this intercept is critical, because it lies between separate areas of known mineralisation. The aspiration nurtured by both Mineral & Financial and Ascendant has been that if these areas of mineralisation could somehow be connected then what previously looked like a 12mln tonne deposit might be transformed into one closer to 30mln tonnes.
You can make a mine in Portugal with 12mln tonnes of zinc ore, but you can certainly make a much richer one with 30mln tonnes.
What’s more, the style of mineralisation in the recent intercept has ramifications for the economics of any future development. The Aljustrel operation nearby - one of the richest zinc and base metals projects in Portugal and the go-to mine for comparisons - mines zinc when the zinc price is high, but switches its emphasis to copper when zinc prices weaken.
And it’s beginning to look like that that may now be an option for Lagoa Salgada too.
Of course, it’s early days on the development path. But what’s been noticeable since Mineral and Financial invited Ascendant to farm in to the project has been the enthusiasm with which Ascendant has got down to work.
The drilling programme has been going hell for leather. A new resource update is due out within a matter of weeks, and a preliminary economic assessment is likely to follow on not far behind.
At this stage this latest copper-rich intercept is unlikely to feature prominently in either. But it certainly does set out a direction of travel for the future.
Bear in mind, after all, that the previous resource booked almost eight million tonnes of ore in the measured and indicated category, so there is already a significant platform upon which to build. Metallurgical results too, have been satisfactory. To date it looks as though the Lagoa Salgada ore has similar characteristics to Aljustrel, which bodes well.
All of which ought to give considerable satisfaction to Mineral & Financial shareholders, since they aren’t going to be asked to stump up a single penny more to further the project.
On the contrary, if Ascendant wants to continue, then there’ll be US$500,000 coming into the Mineral & Financial coffers in late December, and two further payments of US$1mln each in 2020 and 2021, followed by a further payment of US$2.5mln when the project moves to the bankable feasibility stage.
At that point Ascendant will own 80% of local operating subsidiary Redcorp Empreedimentos Mineiros Lda, with Mineral & Financial retaining its net interest free-carried into production.
So, thanks to a judicious bit of deal making a year or so ago, Lagoa Salgada has become an asset that should create value for Mineral & Financial for years to come.
“We never have to write another cheque for this project,” says Mineral and Financial chairman Jacques Vaillancourt.
Always cautious, though, he does set out the obvious caveat: “everything is contingent on the global economic performance.”
After all, zinc hasn’t done particularly well of late, so the copper in the most recent drilling results is welcome.
But in any case Mineral & Financial has more strings to its bow than just Lagoa Salgada. It has a portfolio of medium and long-term investments weighted 28% to precious metals, 48% to base metals and 16% to energy.
Perhaps of more significance to UK-based investors, the company’s portfolio has less than 3% exposure to sterling and so represents a good opportunity for investors wishing to avoid the ongoing Brexit chaos.
More deals may be on the cards too.
As at the last NAV update the company had over £400,000 in the bank, and there’s that $500,000 coming in in December, plus the possibility of taking profits on some short-term positions.
To that end, it’s worth noting that on-market investments in Barrick, Newmont and Alamos have done well, and that the company continues to be active in seeking out investments in a variety of jurisdictions.
It even holds a significant stake in Ascendant, which it added to in June, a purchase that speaks of a confidence in the future of which investors would do well to take note.