Palisade Research - Tue, Aug 9, 2016

Dwarfs Standing On The Shoulder Of Giants - Latin American Minerals (TSXV:LAT)

countryside red earth mining trench pic

Dwarfs standing on the shoulders of giants, or nanos gigantum humeris insidentes, means to discover the truth by building on previous discoveries. This phrase cannot be truer than the story of Latin American Minerals, a company that has had both incredible success and disastrous missteps. However, has been experiencing a renaissance under the guidance of new management, and is ready to stand on the shoulder of giants and prove that it is on the heels of the next district scale, world-class deposit.

LAT recently began work on its gold processing plant at the Independencia mine, a legacy asset that will produce 3,600 ounces per year or $1.5 million in free cash flow, all of which will be put back into the ground in pursuit of the elephant deposit. Latin American Minerals' gold project area consists of a staggering 15,020 hectares and is analogous to district plays like Anglo Ashanti's 6 million ounce, Cerro Vanguardia, and Goldcorp's 4.5 million ounce, Cerro Negro.

three mining maps

We first wrote up Latin American Minerals back on March 23, 2016, and since then management has fulfilled all its promises and then some. In fact, LAT's stock price is up almost 300% and has attracted resource behemoth, Eric Sprott, to the table. Mr. Sprott now personally owns 37.3% of Latin American Minerals, and has stated that he has a long-term view of this investment and is looking to either accumulate more shares on the open market or via future private placements. This is an incredible endorsement for LAT and testament that there is still significant upside left.

V.LAT Latin American Minerals 1-year price chart

For those who are not familiar with Latin American Minerals, the story is quite simple. The company was founded in 2006 and to date has risen over $20 million to explore and develop its assets in Paraguay. While Paraguay has proven itself as a pro-mining and business-friendly jurisdiction, it is still a relatively untouched mining frontier. The company was built around a prolific artisanal gold district called Paso Yobai, which includes the 10 kilometer Discovery Trend and the 14.8 kilometer X-Mile Trend.

Paso Yobai Gold Project geo maps
Source: Corporate Presentation

The Paso Yobai Gold Project is an advanced exploration prospect: the project has 18,690 soil samples, 28 mechanical exploration trenches, and 1,000 meters of continuous bulk-sampling excavation. LAT has also collected significant geophysical data, including 1,100 line-kilometers of detailed ground magnetometer surveys, 106 line-kilometers of CSAMT surveys, and 55 line-kilometers of induced polarization/resistivity surveys. Furthermore, LAT has drilled 84 drill holes and 11,367 meters of diamond drilling.

Latin America Minerals' costly past mistake occurred in the Discovery Trend, at its first discovery, Independencia. LAT opted to cease exploring its other acreage to prove up its initial finding to fast-track itself to gold production

In February 2012, LAT began mineral extraction and open pit bulk-sampling over the Discovery Trend corridor. The company simply jumped the gun and built a mine with no resource. Furthermore, the company chose to heap leach, the absolute wrong choice due to material composition of the project and the subtropical climate of Paraguay. The operation was burning through cash faster than it was pouring gold, and when it was all said and done, LAT became a victim of its own haughtiness and the bear market.

Enter Basil Botha and Michael Hepworth, who were appointed to the board in late August 2015 and set the wheels in motion to run Latin American Minerals the 'right way'. Basil Botha was appointed the Chairman and CEO in February 2016, and has recently raised C$3.6 million to reconfigure the gold plant, and to once again explore LAT's prolific acreage. Let's see what he is working with.

Discovery Trend

Independencia mine pic
Independencia mine located in the Discovery Trend, Source: Corporate Website

The Discovery Trend is a well delineated structural/fault corridor, hosting an emplaced mineralized mafic dyke complex with gold occurrences from surface to a depth of over 100 meters. Over 2.8 kilometers of this trend represent the Independencia Mine, where a bulk sample has revealed that mineralisation is coincidentally associated with extensive mafic dyke emplacement along the Discovery Trend structural complex; this is a common association seen in many major gold producing areas around the world.

These dykes have elongated zones of wide-spread gold mineralization that are interspersed with high-grade shoots loaded with coarse gold. This is because the dykes are more brittle than the surrounding sediments, and tend to crack more aggressively which leads to fluid pathways. This also provides a strong chemical contrast allowing for gold bearing solutions to neutralize and precipitate gold in veins. The mineral assemblages and style of the veins themselves appear be a result of epithermal source fluids. This basically means that at some depth below all of this gold, there may be a porphyry source.

The Trend was confirmed by the bulk sampling program that covered 1,000 meters and to depths of 33 meters. Mineralization consists of narrow veinlets containing coarse gold, typically 2 to 10 meters long and 0.05 to 1 meter wide shoots of high-grade mineralization that average 3 g/t, but include individual shoots with grades exceeding 100 g/t.

The shoots are surrounded by lower grade halos or stringer/alteration zones that average 0.5 to 1.0 g/t. The ratio between these low grade halos to higher grade tonnage is around 10 to 1, meaning the halos combined with the shoots, could allow for a potential low to moderate grade, large-tonnage style resource along the Discovery Trend. In short, this target has open-pit potential, a big footprint, and lots of juicy high-grade, jewelry boxes.

In addition to confirming the trend and mineralization, the bulk sampling program also established that the Discovery Trend and shoots are more continuous than originally thought during exploratory drilling. Furthermore, the gold grade increases with depth in the first 100 meters below surface.

The Trend remains open to the northwest of the Independencia Mine and at depth, and Latin American Minerals plans on to continue extending and deepening the current open pit. CSAMT geophysical imaging has delineated resistive drill targets below 250 meters in depth, and there are plans to drill these targets during the next campaign, in addition to other targets along the trend.

Discovery Trend - Independencia Mine

Independencia mine concentrator plant during construction in 2011 pic
Independencia mine concentrator plant during construction in 2011, Source: Corporate Website

As mentioned earlier, mining began in February 2012, but the plant is undergoing an overhaul to increase throughput and improve recovery rates. LAT pulled no punches and hired top-tier mining consultants, John T. Boyd Company, to double the throughput and increase production to 300 ounces per month or 3,600 ounces per year. The reconfiguration of the plant will allow LAT to process low-grade ore that was once considered uneconomic, including 85,000 tonnes of tailings (0.84 g/t) and 180,000 tonnes of low grade stockpiles (0.48 g/t).

John T. Boyd Company will be implementing numerous changes to the existing plant, including: washing of slimes; screen separation of coarse material for additional milling; gravity recovery of coarse gold; and vat leach recovery of remnant fine gold. These changes should be in affect by the end of October and will increase plant capacity to 30 tonnes per hour. This will be a significant catalyst and LAT plans on putting almost all of the cash flow back into the ground. Let's not forget, Latin American Minerals is an exploration play above all.

X-Mile Trend

map showing the X-Mile and Discovery Trends

The X-Mile Trend is located 3.5 kilometers northeast of the Discovery Trend and is 14.8 kilometers long. Unlike the Discovery Trend, X-Mile does not appear to be hosted by steeply-dipping mineralized mafic dykes. However, mapping, drilling and geophysics indicate that X-Mile has a strong structural control component along a regional fault complex/corridor. Coincident gold anomalies and mineral assemblages suggest the upper system is of a low-sulfidation epithermal environment.

CSAMT survey data indicates that mineralization on surface along the X-Trend is attributed to sediment-hosted, structurally-controlled epithermal veining. However, at depth imply large resistive zones at the interface between sediments and volcanic sequences along the fault, this could mean large breccia style zones or quartz flooding. Latin American Minerals will be testing these concepts along the X-Mile Trend in the coming drill campaign beginning in September.

geo map showing targets in the X-Mile Trend
Targets in the X-Mile Trend include: Moroti, Tacuru, Cresta, Ycua, and Kaaguy, Source: Corporate Presentation

Each of the targets is between 1 to 4.5 kilometers, with some exploration work already done at Tacuru. In fact, the 12 initial drill holes and 1,712 meters at Tacuru all intersected gold, including 94.6 g/t over 2.6 meters at 34 meters depth, and 107.7 g/t over 3.3 meters at 80 meters. Latin America's reconnaissance shows multiple targets at a new structure at Tacuru, which is still open at depth and laterally.

Tacuru trench pic
Tacuru trench, TRT-1, averaged 3.8 gtt gold over 30.55 meters

Latin American Minerals - The Next District Scale Gold Play

Current Price: C$0.37
Shares Outstanding: 67.0 million
Market Capitalization: C$27.8 million
52-Week Range: C$0.05 - C$0.48
Cash: ~C$3.6 million
Total Liabilities: C$1.7 million

Latin American Minerals has ~C$3.6 million cash in the treasury and a very clean capital structure with only 39.1 million shares outstanding. As mentioned previously, Eric Sprott now owns 25 million shares or 37.3% of the shares outstanding, with insiders owning another 4.6%. Basil and company have laid out a very clear path to growth, and this will begin with ramping up production and cash flow at the Independencia Mine. With all-in sustaining cash costs estimated to in the neighbourhood of US$850 per ounce, the Independencia Mine is expected to produce ~US$1.5 million in cash flow per year.

Concurrently, a much awaited drill program will also commence, and of truly holds what we believe it does, will really get the stock moving. Basil plans on drilling 10,000 meters in September, with 4,400 meters dedicated to test targets at depth and the remainder in the X-Mile Trend. LAT will also be conducting an auger program to identify additional saprolite targets within the permitted area. As LAT's acreage is proven up, we believe the company will be able to attract the interest of a major player for a joint-venture or option agreement. This will be an enormous catalyst for LAT; the company has just too much acreage to explore and develop on its own.

For these reasons listed, Latin American Minerals is one of the largest holdings in our portfolio. We have met Basil and Michael numerous times and they have fulfilled every goal thus far, and was able to circumvent a more expensive streaming deal they had on the table by bringing in investors that believe in the story just as much as they do. LAT recapitalized at the right time and is ready to finally unlock significant shareholder value.

Palisade Global Investments Limited holds shares of Latin American Minerals. We receive either monetary or securities compensation for our services. We stand to benefit from any volume this write-up may generate. The information contained in such write-ups is not intended as individual investment advice and is not designed to meet your personal financial situation. Information contained in this report is obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The opinions expressed in this report are those of Palisade Global Investments and are subject to change without notice. The information in this report may become outdated and there is no obligation to update any such information. Do your own due diligence.

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