Very Interesting Project in Bolivia BAC's 98% owned Bolivian subsidiary Empresa Minera Ambiental BacTech S.A. ("EMABSA"), has signed an Association Contract with Corporacin Minera de Bolivia ("COMIBOL"), the state mining company of Bolivia. The ten-year contract calls for the environmental remediation and restoration of the "Antigua" tailings and an option on the "Nuevo" tailings, both situated at the Telamayu mill site. The agreement envisions three phases the first phase focused on the completion of a technical study on the 600,000 tonne Antigua tails. Included in the study will be the drilling of a grid of 10 metre holes that will provide information for a NI 43-101 study. In addition, tailings material will be used in metallurgical studies to determine the optimal flow chart for the proposed plant. Engineering of the plant will be conducted by Bumigeme Inc. of Montreal, Canada. The second phase will be the construction of a processing plant that will create concentrates of silver, tin and copper using conventional processing. There will be contributions from gravity separation, flotation concentration, and copper precipitation from water creating the final products leaving site. The final stage is the commercialization of the plant which is expected to be completed within the next 12 to 15 months. To date, the Company has conducted its own preliminary study on the tailings from material provided by COMIBOL. Approximately four years ago, COMIBOL collected some 2,000 bags of material at 1 metre intervals from 4 separate holes dug to the bottom of the tailings. BacTech engaged SGS Bolivia S.A. to take samples from each bag to create a 250 tonne representative sample for assay and early flotation work. The work was carried out at PRA Inspectorate Labs in Vancouver and confirmed the reported grades provided earlier by COMIBOL. The tailing contain high levels of silver (8.8 oz/tonne), copper (2.24%), and commercial quantities of tin (1.5%). Previous Assays Silver g/mt 275.0, Gold g/mt 0.24, Tin % 1.57, Antimony % 0.95, Copper % 2.24 Bismuth % 0.56 THE BIG KICKER HERE !!! It is understood that the mill processed head grades of 9,300 grams per tonne (300 opt) silver, which provides an explanation for the high silver grades left in the tailing. It seems that the high grade copper (2.24%) is a result of no effort to capture the metal during processing of zinc, silver and tin. There are mines in production today with one third this grade. Commercial quantities of Tin. The Antigua tailing is 600,000 tonnes. Value of the Copper 1 tonne = 2204.62 lbs .0224 x 2204.62 = 49.38 lbs of copper / tonne 49.38 x 600,000 = 29,628,000 lbs of copper in the 600,000 tonnes of tailing. Copper Price is $2.1546/lb USD 29,628,000 pounds of copper @ 2.1546/lb = $63,836,488 Value of the Silver 275 g/mt 31.1 g in a troy ounce 275/31.1 = 8.84 ounces /mt 600,000 x 8.84 = 5,304,000 ounces Silver Price is $17.52 / oz USD $17.52 x 5,304,000 = $92,926,080 Value of the Tin 1 tonne = 2204.62 lbs Tin grade is 1.57% .0157 x 2204.62 = 34.61 lbs / tonne Tin Price is $9.16/ lb USD 34.61 x 600,000 = 20,766,000 lbs of Tin @$9.16/lb = $190,216,560 Value of the Gold o.24 g/mt 0.24 x 600,000 = 144,000 g of gold 31.1 g in a troy ounce 144,000/31.1 = 4630 ounces of gold Gold Price is $1257.60 4630 x 1257.60 = $5,822,688 Value of the Antimony 1 tonne = 2204.62 lbs Antimony grade is 0.95% .0095 x 600,000 = 5700 tonnes Antimony Price is $7742/mt 5700 x $7742 = $44,129,400 Value of the Bismuth 1 tonne = 2204.62 lbs Bismuth grade is 0.56% .0056 x 2204.62 = 12.34 lbs/ tonne 12.34 x 600,000 = 7,404,000 lbs of Bismuth Bismuth Price is $12.40/lb USD $12.40 x 7,404,000 = $91,809,600 Total Combined Value = $488.74 Million Using Recovery Avg. 50% = $244.37 Million “This agreement provides BacTech with a soft entry into the Bolivian market. The combination of low capex, multiple metals for recovery and a strong partner in COMIBOL, provides a great stepping stone for additional environmental reclamation projects in partnership with COMIBOL in the future. Under the terms of the agreement, the Company receives 100% of the cash flow in the initial 18 months or until the project financing debt is repaid, whichever comes first," said Ross Orr, President and CEO of BacTech. There is considerable infrastructure at the mill site including power, rail, a mill housing and a local workforce. The Telamayu mill has processed ores from the surrounding mines for over 70 years, with the Antigua and Nuevo tailings created from the operation. The existing infrastructure should lead to reduced capital costs. The Nuevo tailings are considerably larger (more than 6.5 times larger), estimated to be approximately 4 million tonnes, but contain lower grades than Antigua. At some point in the future, BacTech will conduct an evaluation and an economic study to determine the viability of the Nuevo tailings also. Telamayu is NOT a bioleach plant but a simple gravity/flotation circuit. In essence, BAC went after a project that had high-grade metal and low Capex. Therefore payback should be quick.
Bullish on BacTech Environmental By Ben Kramer-Miller 1 month agoNo Comments Home / Free Articles / Bullish on BacTech Environmental We continue to like companies focused on processing and tailings, especially if they intend to operate on a very small scale and if they are using proven technologies. These companies will have lower capital costs and shorter timelines to production than their peers. Meanwhile, the market ignores them because resource investors are used to looking at resource estimates and the lofty NPVs generated by extrapolating, on paper, large deposits into mines. A non-producing tailings/processing company that proposes a $5-$20 million facility and a project NPV of <$50 million is not going to get nearly as much market attention as a company like, say, Novagold, which has a multi-million ounce deposit and a multi-billion dollar NPV. But when we look at costs, timeline to production, permitting/technical risks…etc. the small plant model is quite attractive, especially when the model is repeatable. Overview of BacTech BacTech Environmental (CSE: BAC) (BCCEF) is our latest recommendation in this spirit. The company specializes in bioleaching for arsenic-rich refractory gold-bearing ore. Bioleaching more generally uses bacteria to “eat” or to oxidize metal sulfides (in the case of BacTech’s gold projects it is gold-bearing arsenopyrite). The desired metal is liberated and can be concentrated/purified using conventional methods. Bioleaching achieves two important things that conventional refractory-ore processing methods cannot. The first is that bioleaching can generate a stable form of arsenic called ferric arsenate that is safe for disposal. This is a big deal because smelters have to limit the arsenic concentration in the concentrates they accept because there are restrictions in the amounts of arsenic gas that they can release into the atmosphere. High grade gold ore that is rich in arsenic is therefore a target market for BacTech. The second is that bioleaching plants can be small, whereas the alternative–high pressure leaching–requires impeccable grades and/or economics of scale to be efficient. This makes bioleaching attractive for small projects such as processing concentrate that comes from artisanal mining. The recent push in several Latin American countries to rein in their artisanal (illegal) mining industries means that there will likely be greater need for those with the capability to process refractory ore on a small scale, namely BacTech. BacTech Environmental hasn’t just done bioleaching in a lab: its predecessor corporation–BacTech Mining–has successfully developed bioleach plants that should be very similar to the one currently under consideration, the latter being somewhat smaller. BacTech Environmental owns the licensing right to the technology that has been used to develop small bioleaching facilities that have been operated, or that continue to operate, profitably. Thus there is virtually no technological uncertainty: the hurdles BacTech must face are financial and logistical (i.e. it must raise money, source feedstocks and market its final product). To make this absolutely crystal clear there are no black boxes here! There is a crucial distinction between BacTech and bioleaching vs. some of the other “exotic” processing technologies we’ve criticized in the past, such as molecular recognition technology as applied to the rare earth industry by Ucore. BacTech is looking to apply bioleaching to freeing gold from refractory ore–something it has done in the past. Ucore, meanwhile, wants to take a technology that has been used to separate out PGMs–very high value metals–and reapply it to the rare earth industry where prices are 2-3 magnitudes lower and where metallurgy is notoriously complicated. Ucore’s partner IBC has had success with MRT, but not in the particular applications being discussed (thereby making the proposition much more risky). The key is that BacTech is repeating a process almost exactly the same way as it did when it had success in the past. BacTech is uniquely positioned considering its small size and its expertise in bioleaching, although it is not exclusively looking at bioleaching opportunities. The company is willing to pursue small projects, and its management closely monitors tailings opportunities more generally, even if they are projects that use more conventional technologies such as flotation and gravity separation. There are two projects in particular that the company has been considering for some time. The first is a bioleaching project in Ecuador: BacTech would buy concentrate from flotation companies who buy ore from artisanal miners. The second is a tin-copper-silver gravity/flotation tailings project in Bolivia. Both projects are inexpensive to develop, economic even at lower metal prices, and offer solutions to environmental problems on governments’ radars. Furthermore, both offer the potential for expansion: there are multiple flotation concentrate producers in Ecuador buying arsenic/gold-rich sulfide ore from artisanal miners, and there are other tailings sources in Bolivia similar to the Telamayu Project–the one BacTech has been developing for the past two years. BacTech has even more potential than this, as both businesses (tailings cleanup/processing and toll processing) are repeatable in several locations. Illegal artisanal mining is rampant throughout Latin America, and these governments want to rein in (i.e. tax and regulate) the industry. Readers are probably familiar with this development in Peru, and the fact that this paved the way for Dynacor (TSX: DNG) (DNGDF), which has built a similar business except that it only processes oxide ore. BacTech could build an economic moat with its unique capabilities in small-scale refractory ore processing. This means that BacTech has the potential to grow into quite a large company even if it operates small projects. Investment Thesis BacTech has a business plan that comes with lower cost and timeline risks than resource investors typically face. Instead of needing 9-figures BacTech will need at most $10 million for the projects under consideration–both the more advanced ones and almost certainly those in their initial stages. It will not have to spend years drilling, delineating an ore body, or engineering a mine. The company’s most advanced project can be in production for $5 million in less than a year, while generating a triple-digit internal rate of return. But because the company doesn’t follow the conventional model of finding a massive deposit and building a large mine (or selling out to a major) resource investors overlook it. As a result BacTech currently trades with a market capitalization of ~C$3 million. It is apparent that there is a valuation disparity that is worth exploiting. It is difficult to value BacTech in the same way we would a resource company considering it doesn’t have resources. It will put out a resource estimate on its Telamayu Project, but the resultant economic metrics don’t reflect its true potential and leaves us with a barely visible ~$15 million NPV estimate and a ~5-year “mine life.” The Ecuador bioleach project is dependent on artisanal miners who hardly have the resources to develop resource estimates or production timelines, and the NPV estimate on the initially considered feed source is a mere $13 million on $10 million in capex. These initial sources and project value estimates are just the tip of the iceberg, since both projects can be expanded and repeated. The extent to which this is feasible isn’t clear, but as we will see in individual project discussions it is substantial relative to BacTech’s current valuation, even when we consider the likelihood of shareholder dilution as an inevitable consequence of project financing. Project repeatability and moat potential are rarely things we come across in the resource space because most resource investments are deposits that are unique, while very few companies are in a position to exploit a unique technological advantage in the resource space except in unusual circumstances (e.g. in the case of some specialty materials or niche applications of specialty technologies). We believe that there is a reasonable chance that BacTech can bring out the value in these attributes long-term, while near-term it can generate cash-flow–albeit on a small scale–from its easy-to-implement advanced projects. BacTech also meets our more general investment criteria such as high insider ownership (~20%) and the employment of qualified personnel. A Note on BacTech’s History We suspect that investors will wonder why the company doesn’t generate any revenues if bioleaching is commercially proven and has been implemented by the same group. BacTech Environmental was spun out from BacTech Mining, which is the corporate entity that has actually implemented bioleaching on a commercial scale. BacTech Environmental has the right to utilize the technology but not to the profits generated by existing facilities. BacTech Environmental also has many people in common such as CEO Ross Orr and chemical engineer Paul Miller. Business Strategy Geared To Counteract Risk BacTech is currently in the process of finding and defining the scope of projects. We could liken this to exploration work in the more traditional resource development model, though it is less about delineating a resource and more about developing access to one. Despite the relatively small size of BacTech’s projects the company wants to have local partners in all of its projects, as it believes that this mitigates the risks of operating in what are perceived to be unfavorable jurisdictions. Ecuador and Bolivia have terrible reputations as mining jurisdictions as issues have arisen with asset confiscation, taxation, and the local labor force. Nevertheless, they have various incentives pushing them to welcome BacTech, namely the potential environmental benefits. More generally other resource companies may follow BacTech into Ecuador or Bolivia should it be successful in doing business in these “risky” jurisdictions. Ecuador Bioleaching Project The company’s specialty is in bioleaching, and it has successfully developed three bioleaching plants. Bioleaching is a niche technology that is extremely effective in freeing gold and accompanying base metals from refractory ore on a small scale. The bacteria oxidize refractory ore, thereby releasing gold, which can then be recovered using conventional technology. Environmentally hazardous arsenic is stabilized in a ferric arsenate that is safe for disposal. This makes BacTech a perfect fit for artisanal miners in Ecuador who mine ore that is high in arsenic. The technology typically works best on a smaller scale, which is why BacTech is targeting the concentrates produced by flotation plants that are fed by artisanal miners. Artisanal miners typically recover very little gold given the difficulty of freeing gold from refractory ore. It is easier and more profitable for them to sell their ore, which contains a few grams of gold per tonne, to existing flotation plants, who in turn float the ore so that a high-grade concentrate (60+ gpt. in the case of the concentrate BacTech is considering) can be further refined. BacTech must deal with the flotation plant operators who will sell them concentrate which it will then upgrade for final refining into exchange-grade gold by a smelter. The first bioleaching plant on the company’s agenda will be in Ecuador with concentrates from the flotation plant expected to run at ~2+ opt of gold with a small silver credit. The company will buy ore from concentration plants at an agreed-upon percentage of the ore’s value. Float plants, who until recently sold their concentrates to Chinese processors, are used to getting 50% of the gold value in the ore. BacTech assumes 66% in its numbers in order to demonstrate that it can offer a superior alternative. Meanwhile this still leaves plenty of room for profit–operating costs are estimated to be ~$115/oz. This means that even if gold falls to $600/oz. the company can generate cash-flow ($400/oz. for the ore, $115/oz. for processing, leaving $85/oz. profit). Should there be by-products in the concentrate (as was the case with silver in the assayed material), then the metal will be a credit to BacTech. Going forward BacTech needs to form relationships with Ecuadorian flotation operators, assay samples provided by these potential partners and then perform metallurgical test-work on these samples. The company is tentatively working with an individual who does business with several flotation plants who are potential partners, so it is well on its way to completing the first step towards making a construction decision. If, based on this data and the company’s past technical experience in bioleaching, management decides that the ore can be processed economically then the company will move forward with the aforementioned plant and sign an agreement with the float plants. Long-term this has the potential to expand considering that there are numerous flotation plants in Ecuador who produce high-arsenic gold-rich sulfide ore, most of which was shipped to China until recently. The concept can also be implemented outside of Ecuador. Note the success of Dynacor in Peru, which acted to rein in its artisanal mining industry a few years before Ecuador did. While Dynacor is working with oxide ore, which is easier to process, it is also working with technology that is easy to implement and repeat by a large number of individuals and companies in the industry. This means that BacTech may have even more potential than Dynacor, given that it has a proven technology that only it has implemented. This gives BacTech moat potential that cannot be replicated by oxide-ore processing companies or by most resource companies more generally. Economic moats are extremely rare in resource investing, and deserve premium valuations once implemented. Bolivia—Telamayu This is the perfect starter project for BacTech given it is extremely small and simple. The tailings at Telamayu are rich in silver (~275 gpt), copper (2.24%) and tin (1.5%). The current plan is to develop a gravity and flotation processing plant that produces separate silver and tin concentrates, both of which will contain copper. The project will cost just $5 million to bring into production and will generate ~$27 million in operating cash-flow per year for 4.8 years. BacTech would be a minority partner (45%) in a JV with the Bolivian government (current Bolivian law), and it would be responsible for raising the full capex, although it will receive 100% of the cash flow until it recovers the investment or 18 months, whichever comes first. The Company believes the investment will be repaid within 12 months and that it can generate a triple-digit IRR at current market prices. The company has recently begun a drill program, described here. It is incredibly small compared to typical drill programs, and because the material has already been mined the drilling on a per-meter basis should be considerably less expensive than typical hard rock drilling. We are looking forward to the results so that we have a better idea as to the project’s economics, and so the market will have something tangible to grasp when attempting to evaluate the investment opportunity. Risks The primary risk to BacTech shareholders is the company’s lack of visibility and difficulty in finding financing. We’ve already mentioned that companies with business models such as BacTech’s often fail to reach resource investors, who are focused on the more traditional “explore-develop-produce” model. The small scale of BacTech’s proposed projects also means that the company could have a difficult time attracting larger investors. The company’s lack of visibility could exacerbate other risks such as timeline-risk. We’ve already mentioned political risk and the mitigating factors that benefit BacTech that would likely not apply to most companies looking to do business in Bolivia or Ecuador. Finally, and this is a risk to all processing companies, BacTech is buying, rather than mining/producing, ore/concentrate. This means that there is an element of counterparty risk that is not common in the resource space. A flotation plant operator might find higher bidders for its concentrate or it may decide to process the con itself (BacTech loses out (at least for a while) even if the flotation company does this and fails). BacTech can mitigate these risks by forming good relationships with governments and concentrate producers, or by putting certain guarantees in its contracts, but there are inherent advantages to owning the resource even if we believe these are outweighed by the benefits of purchasing material for processing. The Bottom Line BacTech is developing small projects that will implement proven technologies. These projects are all low-cost both on an absolute basis and relative to their potential revenues and cash-flows. As a result we believe that they are low-risk projects that can act as starting sources for rapid future expansion into other, similar projects. BacTech is also uniquely positioned to be able to work with, and not against, governments and locals, who will perceive BacTech as an environmentally friendly company that is cleaning up mine waste and reducing the amount of arsenic and mercury that is released into the environment. Traditional mining companies may claim that they are working with politicians and locals, but we note that these groups will be forced to balance the environmental damage (or at least the public perception of this) with the economic benefit of a new mine as a source of tax revenue and quality jobs. Relatively speaking, BacTech’s position is an enviable one, though markets have this backwards. The company has begun to get some traction, likely as a result of the above mentioned article, but shares remain very inexpensive. The combined post-tax NPV of the two advanced projects is ~$35 million or ~12X higher than the company’s current valuation. This means that the market believes there is a low chance of even one of these projects getting up and running as expected–<10%. This seems low considering the relative ease with which BacTech should be able to get its projects up and running, especially when we consider the repeatability of both of the two more advanced projects. The value of this is potentially enormous, as we’ve seen with the success of Dynacor, whose market capitalization is C$100 million. BacTech’s potential, as we’ve seen, is even greater considering the moat potential of using bioleaching to process refractory ore. Disclosure: Ben holds no shares in the companies mentioned in this article. He has no business relationship with BacTech Environmental. He is not a registered investment advisor and the preceding reflects his opinion only. Category: Free Articles Tags: BCCEF, CSE: BAC, DNGDF, TSX: DNG
