Junior miner scraps for viability in difficult environment

The end of commodity super-cycle has affected the world’s biggest miners and raised questions on the viability of the industry, but in South America an industry veteran is trying to do something few others are attempting: build a new mine.

Ioannis Tsitos has worked in the mining industry for nearly three decades and before venturing out on his own, spent 19 years with BHP Billiton – the world’s largest miner. But not he is doing something different as the President and Director of Goldsource, a Canadian resource company that has recently achieved production at its Eagle Mountain Gold Project in Guyana, South America.

From South Africa to Canada, Tsitos has navigated an industry in the midst of a massive reorientation after years of debt-fueled mining expansions succumbed to the end of the commodities go-go days.

Shuttered mines, bloated balance sheets and empty cubicles have replaced unbridled optimism, but the issues have also trickled down to junior miners who are also facing difficulties acquiring capital for new projects.

“I come from the biggest miner [BHP Billiton] I have seen multi-billion dollar projects getting exposed to a lot of risks very rapidly and the deployment of capital is very, very important,” Tsitos said in an interview with FastMarkets.

Tsitos said since 2008 changes in the banking sector have transformed the mining sector into a high-risk industry. He has assembled a small, loyal team that he believes is necessary for junior miners to achieve profitability because there are so many potential pitfalls when you don’t have millions in capital to help offset issues.

“With no explorations, you will not find big mines, you will not find new mines. So therefore, people tend to go for lower grades,” he said. “I do see a case where even junior miners will be forced to develop sub-economic or projects that are just on the line of being economically.”

SMALL MINES, SAME ISSUES

Though the operation is smaller, Goldsource had faced similar obstacles that plague the industry and force investors to reevaluate their outlooks.

Notably heavy rains in July and August delayed the the delivery of a 40-tonne truck, slowing production and delays forced the company to downgrade its previous total gold production estimate to 1,400-2,100 ounces from 3,600 ounces for 2016.

The truck was delivered earlier this month and Tsitos sees the latest challenge is part of the dynamic of opening and operating a new mine. Goldsource will also introduce a second night shift during Q3 and are adding a small sluice box – designed to capture coarse gold – during the same time period.

“Developing a mine on a shoe-string budget approach [is a complicated business],” Tsitos said. “Small delays of a month or a quarter are very, very common in this industry.”

MOVING FORWARD

Since July 1, the company has poured 38 ounces of gold and sold 37 ounces for an average price of $1,336 per ounce. It’s a healthy profit for the company with operating costs of $500-$600 per ounce of gold, but Tsitos doesn’t concern himself with the wild fluctuations in the world’s preferred safe-haven asset.

“This is the only parameter or number that I don’t control,” he said. “As long as I control my operative costs and all the rest of the costs in general, then I have no problem when bad mouths were talking about gold at a $1,000.”

Looking ahead, with global central bankers unable to generate steady growth or a modicum of inflation, he sees prices rising. Even in the US, the Federal Reserve was unable to raise rates yesterday despite a healthy labour market. In developed countries, market participants are expecting interest rates to remain low for the next few years, especially in Europe and Japan.

“We have been blessed to have somehow to put a small to medium-sized mine into production at the right time because I do thing the gold price will improve or will stay robust in the range at the moment, because at this range we will make a significant profit margin,” Tsitos concluded.

(Editing by Tom Jennemann)

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