AVANCO ROYALTY CONTRACT (1.4%)
In July 2014, the Company signed a binding royalty agreement with Avanco Resources, a
contractual royalty covering its exploration licenses within the world-class mineral district
of Carajas in Brazil. An investment of US$12 million was made in return for Net Smelter
Return (net revenue after deductions for freight, smelter and refining charges) royalty
payments comprising 2% on copper, 25% on gold and 2% on all other metals that will be
produced from their Antas North and Pedra Branca licences. In addition, there will be a flat
2% royalty over all metals produced from any other discoveries within Avanco’s licence area
as at the time of the agreement.
Given the development style nature of the royalty, drawdown was conditional on Avanco
achieving a number of milestones (achieved in 1H 2015) to in turn de-risk the Company’s
royalty exposure. These conditions included the publication of a JORC compliant reserve
statement, the receipt of a mining licence for Stage 1 and securing debt financing for
the project.
We are pleased to announce that during the first half of 2016, Avanco successfully
ramped-up its Antas Copper Project, producing 3,720t of copper and 2,611oz of gold, with
the Company earning royalty revenue of £478,000 during the period. Avanco subsequently
declared commercial production on 1 July 2016, targeting production of ~12,000t of copper
in concentrate and 7,000oz of gold in 2016.
[16] BLACKROCK WORLD MINING TRUST PLC
Investment manager’s report continued
As noted at the Annual General Meeting in April 2016, we visited the asset to assess how
ramp-up was progressing, as well as attending the official opening. Overall, we have been
very pleased with the development, construction and ramp-up of the asset with project
capital expenditure coming in under budget in both Brazilian reals and in US dollars. Grade
reconciliation has been good, with the focus now on reducing costs as production ramps up.
The team has designed plant capacity well in excess of the planned operating rate which
gives them flexibility to meet operational guidance, as well as expand in the future where
they are targeting 15,000t of copper in concentrate by 2018. The company remains in a very
strong position with no debt and a net cash position of ~US$20 million.
The next key focus for the company is their second project, Pedra Branca. In June Avanco
provided an updated resource for the Pedra Branca East orebody of 10.5mt at 2.8% Cu and
0.7g/t gold, making it significantly larger than Antas North. Avanco is currently moving
forward with a development plan for Pedra Branca, with a ‘decision to mine’ to be made in
the second half of 2016. To validate the assumptions on geology, ground conditions and
mining method, Avanco is targeting a low capital expenditure, pre-commercial development
of Pedra Branca. During this pre-commercial phase, ore from Pedra Branca will be trucked
to the Antas mine utilising the excess capacity to further increase production which will be
beneficial for the royalty.
AVB Price at posting:
5.0¢ Sentiment: Buy Disclosure: Held
