Thread by @BambroughKevin

Today $SRHI completed its move to the TSX.V and I thought I’d share some exploration and production thoughts I’ve had as I’ve gone through the technical reports and discussed the asset with my mining contacts and why I think it’s the cheapest #copper producer and explorer around

From the technical report there is in excess of 100 occurances appear similar on their land holdings #copper #exploration #10bagger

Vale was responsible for nearly all the historical drilling and it as totally concentrated on the two deposits that were quickly discovered in the very early days of Vale’s exploration of Tres Valles. #copper #buymore

So exploration land holding is 115,000+ acres or +46,000 hectares and we should consider how big that is. Vale did an airborne survey 91km in length not sure if that’s the full linear length of the exploration land but if it is then it would be 5km wide to get to that acreage

Either way 115k acres is equal to more than 20km x 20km or 14 miles x 14 miles (for you Americans) just trying to help you all picture the immense size. It’s also barely ever seen exploration drilling and has barely been drilled in the last decade. #copper

So why did Vale not aggressively drill more of the $srhi property? Well it’s simple they are a massive entity focused mostly on iron ore and have history of operating as pseudo government entity. This little mtv project was part of strategic to add diversity to its production

Consider it’s a $100 bln plus company with 75k employees. They made a decision to explore Tres Valle in Chile. They invested funds to do airborne and started drilling. They quickly had enough success with two deposits that they made the decision to permit and develop

The thinking was they have enough known in this valley to get started so let’s build a mine and then use the cashflow from the initial deposit to fund production and exploration growth. It’s plainly obvious that the Tres Valle land holdings will contain many mines.

Valle being so large and focused outside copper doesn’t think like juniors. It has the money to allocate to projects and just simply wasn’t concerned about drilling up billions of lbs in Chile just to show the market like junior like $mari is.

It’s just wouldn’t matter much at all to Valles market cap and they instead focused on building a initial footprint on this huge land package, start production and funnel cash flow into local exploration and expansion. Only problem is the #copper price didn’t cooperate

And when the iron price collapsed Vale sold off all sorts of assets. Various non-core metals, lumber and coal.

Enter the local Chilean partners and $srhi and mtv was purchased and the plan to get production up and running was continued. I believe barely any drilling done since

So, I have a very high degree of confidence that with exploration drilling this land package will be able to grow into the billions of lbs of copper. Only 10 percent explored and the resource is 440mln lbs. Perhaps I’m being juvenile with this math but 9 times is 4bln lbs

+100 #copper occurrences said to look similar to the $srhi 2 producing deposits +70 with artisanal mining. So, we need only 20 percent to work out to get to 4bln lbs. There is simply no doubt that there will be many billions of lbs discovered and mined on the $srhi property.

The exploration value upside could easily match $mari with ~$500mm cap.

So know let’s look at the #copper production profile emerging for $srhi.v

The Don Gabriel open pit is operating and producing now and the Papomono underground is forecasted to ramp up to full production by year end or early in q1 of 2022.

Testing confirms that copper recoveries will improve with Papomono ore once in operation.

There is no doubt the Papomono ore body is quality as it’s been extensively drilled. The operation is being developed by a very skilled team with extensive block cave mining experience.

Block cave mining has significant upfront costs but is by far the cheapest underground mining operation with costs approaching that of open pit mining

Block cave: A decline is created down to the bottom of the ore body and flat production zone is created under the ore

This production zone contains many horizontal shafts called draw zones and typically a crusher is placed in the lower production zone along with a conveyor to transport the ore to surface (all very straight forward)

When starting up the mine the ore body is drilled from below and blasted to fracture the ore so it crumbles down into the extraction draw point shafts. After the initial work is all complete and miners begin pulling the crumbled ore from the draw points

The ore body continues to naturally crumble from its own close weight and the weight of the over burden above it. This continually replenishes the draw points and continues for life of the deposit. So, now how do we determine if the mine will operate well or not?

There’s definitely a sweet spot for optimal block cave mining economics and it really has everything to do with the ore bodies characteristics. You want the ore to crumble as naturally as possible and not create too many large rocks. Typically don’t want boulders in excess of 2m

If the ore body is too ‘chunky’ then ‘hang ups’ develop to frequently. This is when large pieces of the ore body. Typically more than 2m wide get jammed together and need to be drilled and or blasted to break them up so they drop into the shafts production draw points

Typically all block cave mining operations have hang ups and the miners work to relieve them when they happen. Based on the drilling of the deposit and the working for the mining engineering team it’s determined early on if the ore body is suitable for this method

Obviously that work was done and the expert mining team believe the ore body will perform. I take a bit of comfort in reading that when drilling the deposit they had to only use diamond drilling cause RC (reverse circulation) drilling wasn’t viable due to contamination.

Why is that important? Well RC drilling is cheaper and so preferred if it works and Vale determined that contamination was occurring and that meant the the ore body was basically too crumbly which I believe is very good sign for the block caving operations prospects

The ore body was crumbling away and excess material surrounding the drill head was being pulled to the surface when RC drilling was attempted. This prevents getting a true reading of the core samples and why diamond drilling was required to cleanly bring up core samples.

So, at least in my opinion the block cave mining operation should perform with a decent level of success. If the ore behaves as expected and crumbles nicely then the production level will be hit. I expect that it’s also a little conservatively planned and I will explore that

But the bottom line is that either the ore crumbles nicely into the draw points better than expected with less hang ups, as expected or worse than expected with more hang ups. If better the mining cost falls. If worse the mining cost rises.

#copper production cost forecast for $srhi is in the ~$1.60-1.70/lb range from Popomono deposit. The ore extraction cost is just part of that over all costs and will fluctuate with hang ups etc. But the key is to build up a supply of ore on the surface

So they meet the heap leaching demands and keep the operation well fed with ore. Now with $4.50/lb copper we don’t need ~$1.65/lb costs. I’d be happy with $2.50/lb in the first full year of production and $2 margin on the 80 percent unhedged 34mtpa say 20mln lbs net to $srhi

20mln x $2 = $40mln free cashflow on a $40mm market cap. 2023. Hopefully remains unhedged and production goes well enough to lower costs sub $2 and we are talking $70-80mm with a decent copper price.

Lots of money to drill :) and pay down debt.

Speaking of debt. It’s always scary when debt to equity is around 1. When I started loading up on $pdn debt to equity was 1 and many were scared to buy it. Many well known market commentators cautioned against it with concern about the debt and timing. Well. 5x later...

And a raise from $200mm raise from Canaccord at nearly $1bln cap and the debt was gone.
$srhi will name change to something with “Copper” in June. Will be ramping production into year end and be out marketing. I’m also in the process of briefing some letter writers on it

Once the stock is properly valued the debt won’t be much of a concern anymore. (This should be a +$200mln cap stock today imho)

They will have the flexibility to raise funds if they wish to drill aggressive and show the market the billions of lbs it would highly value

Exploration drilling will be done on the +100 plus #copper occurrences either through cash flow from the mine, future raise when properly valued or perhaps though a JV or royalty agreement. I’ve already reached out to some in that area to encourage them to have a look

With copper testing its all time high I believe that there will be considerable options to fund exploration drilling soon.

In summary. Cheapest producer I can find, huge exploration given zero value currently. #copper $srhi.v #10bagger #investing #fomo #letsparty

I’d love to see some coverage from some brokers (perhaps some that will want to raise them $20mm in a few months? How about a $2.50-3.00/sh target price to get started! #wakeup

I bought a little at 81c wanted to be the first to print the 52 week high :)