Stephan Bogner | Jun 13, 2012 04:50PM ET
Latin America continues to be the most popular destination for exploration investments in the world. According to the latest “World Exploration Trends” by the Metals Economics Group, 25% of total exploration investments worldwide were headed to Latin America in 2011 (in contrast to 10% in 2003), whereas 15% of all spending worldwide went to 3 countries: 1. Mexico (6%), 2. Chile (5%) and 3. Peru (4%).
Still 'Unexplored'
Most near-surface deposits in other regions of the world with traditional sound mining jurisdictions have already been discovered and are increasingly being depleted thanks to technological advances in exploration and mining since the 1970s. Many of the largest deposits worldwide are being brought into production in Latin America these days, yet Latin America is still considered as being relatively underexplored, because its laws were not favorable for foreign companies in the past. During the last decade, a drastic change in politics and attitude toward foreign mining companies has occurred in Latin America with the result that most exploration funds are now flowing there continuously. Peru, Chile and Mexico rank among the three mining-friendliest countries in Latin America (according to the Fraser Institute) and the Top-10 in the world. While the frameworks and jurisdictions for exploration and mining are worsening in many other regions (e.g. Australia or China), Latin America is increasingly improving its regulations. Peru is ranked third in the world in terms of gold, silver, copper and zinc reserves, yet from a mining standpoint, only 15% of the country has been explored leaving immense potential for future discoveries.
Already, Peru has experienced 10 years of consecutive economic growth and ranks as one of the fastest growing economies in the world (in 2006-2009, GDP grew on average 9% per year) in hand with one of the lowest inflation rates in Latin America. This is mainly due to Peru being the largest silver producer in the world, the third largest in copper and zinc, the fourth largest in lead and the sixth largest gold miner. The government looks favourably on foreign mining investments as a method of helping to finance the countrys development. The credit rating agencies Standard & Poors, DBRS, Moodys and Fitch have all given the country “Investment Grade” status. In 2009, mineral exports made up 61% of export revenue. Peru has signed Free Trade Agreements with China, Canada, USA and other countries and has executed more than 30 international investor agreements which effectively protect investors.
Peru Does Mining
In no other Latin American country does mining represent the main engine of the economy as is the case with Peru. Exports from the mining sector total some $30 billion, out of which around $10 billion is earned from gold and $7 billion from silver exports. With an output of 170 tons in 2010, Peru ranks as the worlds sixth largest gold producer. Illegal mining accounts for around 25% of that output, with a strong tendency that it will shift to foreign companies as mining regulations are increasingly tightened by the Peruvian government (for the benefit of sound/regulated mining). The third largest gold producer, USA, mined 210 tons in 2010, whereas #2 Australia had an output of 255 tons and China 345 tons -- which translates into Peru having a realistic chance of ranking among the 3 largest gold producers in the near future as a production increase of around 25% is solely required to achieve this.
Reuters reported shortly thereafter: “Thousands of Peruvians marched in support of the countrys biggest-ever mining project yesterday, a day after the government implemented emergency powers to control an anti-mining protest in the south that turned deadly. The rally in the northern region of Cajamarca in favour of Newmont Minings $4.8 billion Conga project praised the economic benefits of mining, a contrast to demonstrations in Cusco against Xstratas Tintaya mine in which two people were killed. Conga has gold deposits worth about $15 billionOSK ), which discovered >10 million gold ounces in Canada and is now worth >$3 billion. We also follow Woods, because he regularly writes good readable articles in his blog about global economies, stock markets, resource stocks and countries like Peru, where he, as the CEO & President of SSM, manages the development of some high-grade near-surface silver veins into a small mine within a relatively short time. Together with Blais, both have 35 years of experience in managing mining operations and in financing public companies. As we know them from Osisko times, we also know them as having access to a handpicked international network of private and institutional investors, banks and brokers. During the last few years, they have installed an uniquely experienced Peruvian team consisting of a Mining Engineer, a Mining Geologist and a well-established General Manager all of whom have extensive experience in working with international and Peruvian mining companies. Together, they have access to a crucial network rich in local knowledge and experience in bringing deposits into production without much hassle.
Base Metals
Currently, its flagship is the Carolay polymetallic silver property, where advanced exploration drilling is taking place during 2012. The mineralization found on Carolay and the adjacent Marañon sector fits into the model of hydrothermal polymetallic and feeder vein systems with “mantos” (metasomatic replacement zones rich in base metals like zinc, lead, gold, silver and copper) and is similar to that found in the highly prolific Coeur DAlene silver district in Idaho, which historically has produced more silver than any other silver district in the USA.
The company's NI43-101 Technical Report for Carolay, which now totals 5,784 ha, demonstrates a mineable grade of 269 g/t silver. A new vein, Carolay 4, has recently been discovered and surface samples taken from its 13 meter length show 352 g/t silver, whereas one sample returned 4,674 g/t silver. There are also indications of a disseminated copper ore body on the property, potentially porphyry style. Porphyry deposits are the single largest source of copper in the world and can also be major sources of silver and gold.
Former 'Artisanal' Mining Sites
Carolay is located near the village of Ushnobal in La Libertad. Low-volume artisanal silver mining had taken place at Carolay during the 1870s. The previous titleholder had insufficient capital to fund further exploration. After a thorough evaluation process and negotiations, SSM took possession of the property.
Economic grades of silver have been found in the samples taken for the NI43-101 report on Carolay, such as 269 g/t silver, 0.9% zinc, 0.8% lead, and 0.3% copper. The mineralization found on the Carolay property and the adjacent Marañon sector fits into the model of polymetallic and feeder veins and is similar to that found in the Coeur DAlene silver district. On May 30, SSM released the assays from the first drill hole intersecting a high-grade vein with 151 g/t silver for almost half a meter. Further assays from the ongoing drill program will be released any time now plus providing the stock with a regular news-flow potentially confirming the extension of such veins and discovering new zones of high-grade mineralization.
SSMs ability to find and acquire properties like Carolay stems from the network it has established in Peru through decades of working in-country and through the relationships that its Peruvian staff have made after a combined 48 years working for major Peruvian and multinational companies. This ability provides the company with an advantage that few others can meet.
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The above editorial is not to be construed as an investment advice, consultation, or even recommendation to buy, sell or even hold any kind of securities or financial instruments of the above mentioned companies, any other company, market or physical commodity. The author was not paid or remunerated by the above mentioned companies. The author does not hold any securities of the above mentioned companies, but may initiate purchases of SSM after 72 h of the above publication.
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