Avanco Resources’ Tony Polglase in Proactive Q&A Sessions™ Thursday, March 03, 2016 by Proactive Investors
Avanco Resources is developing two high grade copper projects within one of the best-endowed mineral districts in the world Avanco Resources (ASX:AVB) is developing two high grade copper projects within one of the best-endowed mineral districts in the world, the prolific Carajas mining region of Brazil.
These projects include the 2.5% copper Antas open pit mine where plant commissioning has commenced and the Pedra Branca underground development project, where a decline ramp is proposed to access 18.6 million tonnes at 2.45% copper for ~450,000 tonnes of copper metal.
The financially strong and debt free company is targeting transition to a >40,000 tonnes per annum producer of copper (plus gold credits) with production beginning this year
We are joined exclusively by Avanco Resources managing director, Tony Polglase, in Proactive Q&A Sessions™.
PROACTIVE INVESTORS: Welcome Tony.
First of all, what is the strategy behind Avanco’s decision to focus on Brazil and the Carajas region?
Tony Polglase: Brazil has a long history of mining, a clear legal framework and long established mining law, is easily accessible with a large population and workforce, and has numerous under-developed and under-explored mineral provinces within what is the largest country in South America.
The Carajas is almost certainly the most well-endowed mineral province in Brazil, and through circumstance has almost entirely been held by Vale SA, particularly in the period from discovery in the 1960s through to 1990s after Vale ceased to be a state owned miner and was listed on the NYSE in 1986.
A handful of other majors have passed through the Carajas province over the decades and in every case have made significant discoveries, most of which were then later dealt to Vale through one mechanism or another.
Even now, Vale still controls by far the largest position in the Carajas, with Avanco a distant second.
Probably the only other publically listed company active in the province is Codelco. Beyond this, there are numerous local companies and small holdings, and although difficult to gain a foothold in the Carajas, this was how Avanco was able to enter the space, with the help of well-known mining legal firm FFA Legal.
Avanco’s intent has always been to focus on copper, with the Carajas being the ideal target. It is probably host to highest number and density of IOCG (iron oxide copper gold) deposits globally.
Vale operates 2 large copper-gold mines locally, the Sossego mine and the world-class Salobo mine, while it has more than a dozen undeveloped IOCG deposits in its portfolio, including Furnas, Paulo Afonso, Cristalino, Tarzan, 118, Serra Sul, Igarape Bahia, Pojuca, Gameleira, Grota Funda, Burrachudo, Santa Lucia.
The Carajas is also home to Vale’s largest, high grade Iron ore mines, including the Serra Sul (S11D) mine (under construction), and numerous other past producing and undeveloped deposit across an incredible array of commodities, including:
I think in summary it is easy to say that the Carajas is one of the most incredible mineral provinces in the world, and due to its controlled history and tightly held land positions, it is still relatively unrecognised on the global stage.
Suffice to say, Avanco is very happy to be in the Carajas and sharing it with so few well known neighbours.
This view is vindicated by the large, high grade copper resource portfolio Avanco has amassed in only the last 5 years, with our first mine already in the commissioning stage, and a second much larger copper-gold project ready for advancement.
Can you explain the logistical and geological advantages of operating in the Carajas region?
Tony Polglase: As touched on above, Vale is the major influence in the province and has been operating mines across numerous commodities in the Carajas for several decades.
Continual development of infrastructure by both Vale and the Government during this time has provided a network of bitumen roads, an airport with daily flights to numerous capital cities, and the busy, full service mining town of Parauapebas (Brazil’s “Kalgoorlie”) at its epicentre (population of ~250,000), which has a readily available deep pool of skilled workers.
How has integration of local expertise enhanced the company’s business plan in Brazil?
Tony Polglase: Undoubtedly, in fact it would be fair to say when looking at the key parts of our business that the vast majority of the company is Brazilian, and we have integrated ourselves, our thinking and our own brand of economics into this.
For example, at the Antas mine we have only 2 foreign technical specialists in the entire technical and management team.
The design, engineering and construction at the mine is carried out entirely by Brazilian companies, and their results speak for themselves. Not only their safety record, but being on time and on budget, accomplishing what could only be achieved by those with local knowledge and in country presence and experience.
Portuguese is the spoken language at the mine and in all our offices. We have 7 directors, 2 are Brazilian nationals, 5 reside in Brazil or are permanently based here, and all 5 of these speak fluent Portuguese.
Integrating ourselves and committing ourselves to Brazil has certainly been a key factor and a core part of business. If success is to be found it will be achieved here, and not from the luxury of a corporate office in another country
What other examples of teamwork and partnership have been critical in reaching the production stage at Antas, and how have these experiences illustrated the strengths of the Avanco business model?
Tony Polglase: Avanco formed a partnership on day one with local mining law experts FFA Legal, and the principal/owner, Luis Azevedo has been a director of the company for several years now. This partnership provided the land position in the Carajas from which Avanco discovered the Antas deposit (now a mine).
During the downturn at the beginning of the GFC we were able to pick up a highly experienced exploration manager, Antonio Madalosso (just retired) with not only ~40 years of experience, but with experience and training in companies such as Western Mining and Codelco, and with notable exploration success.
Add to that our current Exploration Manager, Jailson Araujo who we picked up 5 years ago and was Xstrata’s most senior Brazilian geologist and credited with the discovery of our Pedra Branca deposit.
We now have a team of Brazilian nationals with nearly 100 years of local exploration experience working with our Exploration Director, Simon Mottram who is based permanently in Brazil.
Simon brought to the team the missing link, a background in economic geology and project development, as well as his own string of exploration successes. This partnership yielded the Antas deposit discovery within months of inception.
The implementation of the mine is another key example, led by Operations Director Wayne Phillips who is a Brazilian national with over 30 years experience.
He brought together an entire team of highly motivated and highly accomplished individuals from across Brazil to make up the owners construction team, including Jose Mauro principal of Senic Engineering who leads the construction and has many successful builds across Brazil, and Landi Borges (TMF implementation and commissioning) who started his engineering career as one of the first in the Carajas.
Add to this other local talent such as Otavio Monteiro, our Resident Mine Manger, and we not only have a depth of management experience rarely seen in a company this size, but also a company that is genuinely integrated with and operating in Brazil.
What potential is there for synergies across the Avanco portfolio in Brazil in the long term?
Tony Polglase: In the near term the potential synergies in the Carajas are fairly evident, as multiple operations led by a growing centralised team based in the Carajas are capable of achieving and managing multiple objectives. The Carajas has the endowment potential to continually feed this group, and certainly the potential to reach into the long term.
One only needs to look at Vale who have been in the Carajas for over 40 years and even now are bringing on-stream operations that are continually better than previous ones.
The Antas mine was launched on a modest size but high grade reserve with a 7-year mine life. This achieved a low capex fast start up. However, from the outset we also had underground potential and other resources close by, which will play a role in the future at the mine.
Seven years is only the start-up scenario; we picture the mine continuing far beyond this, even as things stand now.
Our Stage 2 – Pedra Branca project is likely to begin with a longer mine life, again utilising only part of what we already know to be present with a focus on grade and low capex tailored to whatever the copper price of the day may be.
Again, internally within the group we envisage this mine operating for decades when we consider the resources present and the untapped upside.
Lastly, copper & gold endowment in Brazil is not just limited to the Carajas, and there is no reason to discount that we may spread further within Brazil as the potential does exist.
What is your outlook on copper markets as Avanco’s producing assets come on stream?
Tony Polglase: Our view on copper markets is not a primary focus for us, as we have never seen ourselves as speculators/promoters or experts in this area; rather we are producers. We see the copper price as being driven by the market and our role is move with these trends.
We believe this works with our business strategy, which has always been focused primarily on grade and modest to medium sized deposits (grade has always been king after all), with the flexibility for low capex fast start-ups and/or staged expansions that can be managed fluidly with market movements.
In execution of this business model, we should be discovering and developing assets that by the nature of their grade and capex/opex requirements are always in the lowest quartile of the production cost curve globally and thus offer the most resilience to the copper price of the day.
Pedra Branca is another good example of our principals in play.
Most importantly for us it has grade, and this then lends itself to being more resistant to copper price fluctuations and more amenable to different implementation strategies, even strategies that can be more innovative.
As we speak we are furthering studies on a new alternative to fast track the project further, with a start-up option that has a capex requirement potentially low enough that it could possibly be funded internally.
Again with the benefit of high grade, these types of options are available to us.
We focus on 1st quartile economics and can bring these projects online now, and ultimately in the long term these projects are perfectly placed to move with the market rather than wait on the market.
Expansion plans can be activated very quickly when operations are already in production and profitable at the copper price of the day.
What should investors interpret from Avanco’s story of acquisition and development in Brazil? How has this business-building process reflected on the investment merits of the company?
Tony Polglase: Avanco started life with a board of highly experienced technical experts in their fields, proven operators and developers. The aim was always to become a mining company, rather than the value add or prospector model.
That board still exists today, as we see ourselves transitioning to a mining company. We have always aspired to become a mid-tier mining company, and that hunger still burns fiercely.
The choice to build Avanco’s base in Brazil has provided dividends in growth, and will continue to do so in the current market environment.
While so many juniors have lost most of their market value, Avanco has held up well, and the metrics of our projects still remain relatively unscathed.
We have and will continue to bring our projects on-stream, realise value now while still shaping the company for the future and preserving value going forward.
It is this combination of technical factors and a focus in Brazil that make Avanco one of a very small group of companies that is in construction and development mode, while others have gone into hibernation or ceased to exist.
In conclusion I believe investors looking for quality assets driven by a winning team with the right type of track record, in company with a long term story and a history of stability, would be hard pressed to ignore the Avanco story.
It has solid foundations and pragmatic business approach. These things reflect directly on the investment merits, as we are showing to investors here and now in the current market conditions.
Finally, what are the next steps at Antas that investors can look forward to?
Tony Polglase: In the very near term we will see the completion of commissioning, and the move to around 12,000tpa of copper and ~7,000oz of gold production.
In the medium term we already have expansion plans on the table for Antas, which the board is examining, and we continue to move forward with studies for Pedra Branca.
At the much larger Pedra Branca project we are examining a number of development options including starting small and expanding as and when the market improves.
The later approach is less capital intensive and focusses on better grade and improves economics.
This strategy will potentially expand our production output in the near term and have Avanco well positioned to expand Pedra Branca as the copper price improves.
Our exploration/development team is diamond drilling at Pedra Branca at present, to further this strategy as a priority.
I know the board will continue to innovate and drive for value and this is what our shareholders expect. We are aligned with their expectations and we seek to continue our success through 2016 and beyond.
PROACTIVE INVESTORS: Thank-you Tony.
AVB Price at posting:
7.7¢ Sentiment: Buy Disclosure: Held
