Interview with John Thornton and Craig Dalziel

Interview with John Thornton, Chief consulting Engineer, and Craig Dalziel, CEO of Oroco Resource Corp.

Part 1 – Interview with Craig Dalziel

Mariusz Skonieczny –  The whole situation about the legals is kind of confusing. People think that Oroco is fighting to get ownership of Santo Tomas. This is completely untrue. Please elaborate more on this?

Craig Dalziel:  There is no question that the title issues can be confusing.  One of the reasons for this circumstance is that we have had to initiate several strategies concurrently in order to satisfy firstly ourselves, then the regulators, and now the investment community.  In certain respects, our strategies have required Oroco and its acquisition target, Altamura Copper Corp., to keep certain facts confidential in order to more effectively implement those strategies.  This, of course, has made the disclosure process more complicated and therefore confusing to a degree.  However, the facts are that Altamura holds a controlling interest in the contractual owner of the Santo Tomas concessions, Xochipala Gold, while also holding a fifty percent ownership interest in the registered owner, Compania Minera Ruero, with an option to acquire the other fifty percent interest in that entity.  It is the obstruction to the registration of the title transfer to Xochipala Gold which is the remaining legal issue.  As I stated to you previously, we are highly confident that a favourable resolution to this issue is a matter of time, and not an uncertainty of outcome.

Mariusz Skonieczny – Let me make sure I got this right. We already own the asset (more specifically we own a controlling interest in the asset). The asset is registered in Entity A, which we own. We are trying to transfer the ownership from Entity A to Entity B, which we also own. The fraudulent judgment which was obtained 3 years ago simply prevents an ownership transfer from Entity A to Entity B. This judgment has nothing to do with Oroco not owning the asset. Oroco owns the asset. Also, for three years, this judgment has not progressed anywhere. It only caused nuisance. Am I right?

Craig Dalziel:  In part, as you will have understood from my previous response.  However, it is very important to note the following:  The fraudulently obtained judgement which you have referenced is the specific impediment to a title transfer which is necessary to a better and more succinct definition of the present ownership of the Santo Tomas concessions.  With that transfer completed, Oroco would then be in position to exercise its option to acquire Altamura Copper Corp. and outright control of the entire Santo Tomas project.  As an interesting side note to this situation, I find it to be highly conspicuous that the parties associated with the impeding judgement, Aztec Copper Inc, an Arizona corporation, and its affiliates, have remained silent throughout this process and without any visible objection to being constantly described as the perpetrators of a fraudulent claim. 

Mariusz Skonieczny – When do you think the matter will get resolved?

Craig Dalziel:  One of the difficulties in dealing with a situation like this is determining how best to manage the expectations of the investment community.  Therefore, instead of trying to provide a definitive time frame to resolution, we have tried to demonstrate a progression of success which is intended to support a continuous build-up of project value within the context of the overall plan.

Part 2 – Interview with John Thornton –

Mariusz Skonieczny: John you have been involved with Santo Tomas for more than 20 years. You also worked on other major copper deposits. How would you describe Santo Tomas in comparison to other copper projects?

John Thornton:  I’ve had the good fortune to work on a lot of the world’s largest porphyry copper deposits and producers. I’ll pick just two, with instructive similarities to Santo Tomas; both of the projects are large porphyry copper deposits with crush, grind and floatation plants with concentrate shipped to other locations for smelting and refining.

In the 1990s I was Chief Consulting Mining Engineer at the Bajo de la Alumbrera project in Argentina for Adolph Lundin’s company Musto International. BDA went on to become the ninth largest copper producer in the world for a time. Starting in 1999, I worked on the complete re-evaluation of the Cananea Mine belonging to Grupo Mexico, for their planning to increase production from 80,000 TPD to 180,000 TPD. Cananea is a part of the same orogenic trend as the Santo Tomas deposit, and is fairly close to Santo Tomas, and Cananea is considered one of the top producers of copper in the world and is still one of the largest copper deposits in the world.  It has been in production for over a century with current remaining reserves that rank in the top echelon of copper deposits.

My involvement in those projects has included geological modeling and determination, mine and road design, expansion feasibilities and operational open pit mine planning, and production scheduling.

When the stars align for a large deposit, all major characteristics must get at least a passing grade. Size, grade, strip ratio, metallurgy, political jurisdiction and access to infrastructure each need to be favorable, and this is the case with Canaea, BDA and Santo Tomas.

In regards to infrastructure, it plays a very important role in operations that mine, move and process several tens of millions of tons of ore and waste every year, and when access to infrastructure is as good as it is at Santo Tomas, CAPEX and OPEX savings are realized. The project sits at a low elevation, with excellent access to low cost power and water from the Huites Dam, and nearby road network and the deep-water port of Topolobampo.

In short, what is known about Santo Tomas suggests it shares the traits of a great many of those projects I’ve worked on that became successful mines and are still operational:  it meets the test on all major characteristics required for successful development, and at this stage I see no hurdles to its successful development.

Mariusz Skonieczny: Based on my research, I learned that previous drilling at Santo Tomas was extensive enough to establish a substantial resource and support several advanced level engineering studies and a Prefeasibility Study completed in 1994 by Bateman Engineering Inc, that included your resource estimate, and mine design and schedule. Yet, the limits of the deposit are still unknown, correct? In other words, even though there is already a lot of value in the ground, the exploration potential has only slightly been touched. Can you elaborate more on this and why past drilling might have been cut short?

John Thornton: We have data on 89 holes that have been put into Santo Tomas by two companies. There was additional drilling by two other well-known Mexican mining companies, who both developed mineral inventories of the deposits, but the data was never a digital file when their options were dropped and the results remain unknown -except for remarks that they were very much in line with what Asarco had found.

Drilling to date is an excellent start and has established Santo Tomas as a very large copper resource. It was enough drill data to have completed a resource determination and together with the metallurgical test work from Mountain States Research and Development Int. (“MSRDI”) and the rest of the work completed by me and my colleagues at Mintec, a Prefeasibility Economic Study in 1994. Nevertheless, the deposit contains a great deal of un-drilled additional potential.

Santo Tomas is already a very large copper deposit, probably larger than BDA, and the mineralization remains open north and south of the known deposits and also down dip to the west. The South Deposit remains under-drilled, with tremendous potential for expansion. Many kilometers of strike length remain to be tested. About half the holes that pierced the ore body ended in ore and the original resource calculation didn’t include estimates below sea level, so, there is a great deal of obvious additional potential at Santo Tomas.

Santo Tomas has an ‘evaluated’ close to a billion tons of Measured and Indicated material above a 0.15% sulfide copper cut-off grade containing about 7.0 billion pounds of copper, with another 900 million metric tons of inferred ore awaiting development within and just below the conceptual M&I open pit.  The project also contains significant gold silver and excellent molybdenum as potentially recoverable by-products, that were insufficiently studied in the 1990s.

The Laramide trend, extending from south of Santo Tomas into Arizona and upwards into Nevada and Utah, hosts some of the world’s largest copper resources. This cordillera is no stranger to multi-billion tonne porphyry copper deposits.

The exploration program by Exall was cut short by a collapse in copper prices in the mid-1990s, to levels that in real terms represented Century lows, and subsequent to that and after copper prices recovered and made new highs in the 2000s, the legal problems that Oroco has worked to resolve precluded any significant exploration.

Mariusz Skonieczny – In the context of your areas of expertise – the assessment and planning of major mining operations – do you think the timing is right for exploration and development of Santo Tomas, and if so, do changes in the industry since you first studied the project favor its development?

John Thornton – A lot has changed in the mining industry since I first worked on Santo Tomas starting in 1992, and those changes will be to the advantage of the project.

Tools now available to the industry allow us to better see into the ground and to manage data in much more effective and efficient ways.

The tremendous advances in computers have allowed many bright people to develop software for geological modeling and mine planning and especially in the production scheduling that allow us to model and evaluate enormous deposits that used to require scores of engineers using manual methods.  The historical data generated by past exploration at Santo Tomas has now been tested and evaluated with today’s software, supported by Hexagon’s Mine Sight, to suggest a copper deposit that may be among the industry’s largest.

We started identifying the potential size of mining Santo Tomas in 1992 when we modeled the project and reported some billion metric tons of suggested resource.  The software we used, Medsystem, was advanced from most of the world’s software mine planning modeling methods. To stay in the forefront, many modeling methodologies were developed along the way, including solids modeling from wire screen meshes for geological models, additional metallurgical modeling of the sampled and treated core to give more precise recoveries of the mined material  for determination of the optimal plant processing equipment for construction, production recoveries for economic purposes, more precise methods for various pit slope modeling during the design phases with road and pit design, and of course very complex production scheduling of complex ores for optimization purposes and economic planning and reporting. Advances of computers and software have sped up evaluations, made support of planning needs less expensive, and made it easier and quicker to show people what we have done than when I started with Santo Tomas some 28 years ago.

The use of modern technology such as the mineral remote sensing tools Oroco has employed at Santo Tomas and preliminary modeling suggests the surface expression of the eastern edge of the copper mineralization along strike stretches Santo Tomas 11 kilometers north to south, well beyond what was previously understood.  We can now see, from a significant large-scale computer enhanced view of the surface of Santo Tomas, the possible connection between the Bahurachi copper project (bought by Jinchuan Resources from Tyler Resources of Canada for approximately $205 million in 2006) and Santo Tomas, several km to the South.

The Cordillera these deposits are situated within hosts some of the largest deposits of that structure such as Cananea and Caridad operated by Grupo in Mexico, and the big copper complexes such as Morenci, Twin Buttes and Sierrita in Southern Arizona and Bingham Canyon in Utah, some of the largest copper resources in the world.

Using new technology, we now can see additional drill targets in areas that were undetected with older manual methods. This will greatly assist Oroco in defining and expanding the potential Santo Tomas resource, and to do so more effectively and efficiently than in the past.

Changes in the realities of the copper mining industry – exploring, mining and consuming – in the last 25 years have been dramatic, and I think the present era will be looked at as a major inflection point. A dramatic drop in the pace of both new copper discoveries and the development of new resources at existing operations, and no less a dramatic increase in copper consumption and forecasts of even greater levels of copper use, suggest the dramatic rise in copper prices in the first decade of this century is here to stay and perhaps will even continue. Projects such as Santo Tomas will be able to plan more effectively with higher degrees of confidence in an environment of higher profitability and levels of cash flows, especially with the use of more technically improved processing equipment.  As the shrinking stock of undeveloped copper projects start to go into production over the next decade, without new discoveries to replenish copper resources, or technological changes to allow the exploitation of currently uneconomic copper resources, the balance of supply and demand will increasingly start to tighten and move prices even higher.

The decline of available new copper production is manifested in a dramatic drop in average grades being mined worldwide since the 1990s, whether it’s at aging major mines or at newly developed mines. And at many of the world’s aging major mines there is a shift away from exhausted open pit operations, to smaller and more expensive underground mining operations. The obvious result will just serve to support higher prices for copper in the future.

As a relatively low cost, open pit operation, and much closer to the average grades currently being mined worldwide and the reserve grade of undeveloped projects, Santo Tomas should get considerably more attention from the mining industry than it might have 25 years ago.

As important as these technological and fundamental changes are, no less important is the owner, Oroco, and their actions and abilities [Editor – Oroco’s ownership is subject to the approval by shareholders of the acquisition of Altamura, the terms of which were announced on Oct. 9, and the resolution of legal title issues]. I’ve been retired for a number of years, and was only interested to return to active evaluation through drilling and modeling if it would be to work with a team I trust, who can support a robust effort, and who had resolved the thorny legal issues that have dogged Santo Tomas’ ownership for most of the past two decades. I’ll very pleased to find the team Oroco has assembled appears to be excellent; committed, technically capable, and appearing to be very close to definitively resolving the legal issues and restoring clean legal title at Santo Tomas.

 

 

 

About Mariusz Skonieczny 333 Articles
Mariusz Skonieczny is the founder of Classic Value Investors.