We have been following Inca One Gold (IO.V) for more than 18 months now and have seen this company develop from an exploration-focused company to a toll milling company. In the summer of last year, Inca One acquired the Chala One processing facility in Peru and it successfully started test-milling gold ore later that year.

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The progress

The successful test milling allowed Inca One to raise $5.5M in debt earlier this year and the money has been used to purchase two 50 tonnes per day ball mills to upgrade the plant capacity to 100 tonnes per day from the previous 20-25 tonnes per day.
As Inca One wants to be one of Peru’s leading toll milling companies, it immediately upgraded the entire processing facility. A double fence has been constructed (to improve the safety) and to ensure the ore suppliers get a fair price, Inca One is also installing its own scale which will make it easier to weigh the trucks of the ore vendors.

Both ball mills have been delivered to the Chala mill site and they are being installed as we speak. The first ball mill should be up and running in early December and the second should follow shortly thereafter and we anticipate both ball mills to be fully operational before year’s end. The hot commissioning of the new ball mills will be the final stage of the transformation which will fourfold Inca One’s throughput.

What to expect in 2015?

We are expecting the ramp-up period to take approximately a quarter. This could go much faster but only very few operations don’t encounter teething problems. We expect Inca One to reach its steady state 100 tonnes per day throughput rate before the end of Q1 and Q2 2015 should be its first full quarter of ‘commercial’ production.

Inca One obviously will need to purchase ore to process and it has announced earlier this quarter it had secured an additional mill feed of 350 tonnes per month, gradually increasing to 1000 tonnes per month. As the total throughput of both mills will be 3,000 tonnes per month, in excess of 30% of the total capacity of the Chala plant is already been spoken for. On top of that, more ore will be sourced from other small-scale mining companies. As the test milling has started again and as there’s a readily available stockpile at the mill site of 500 tonnes at an average grade of 0.8 ounces of gold per tonne, Inca One should have enough ore to get through this year and new ore deliveries are anticipated once the scale is up and running.

As Inca One is targeting ore with an average grade of 0.8 ounces of gold per tonne, the daily gold production at 100 tonnes per day and a recovery rate of 90% (which is conservative as we anticipate a higher recovery rate) is expected to be 70-75 ounces. If we’d extrapolate the operating margin of competitor Dynacor Gold (DNG.TO) of $200-225/oz, Inca One should be able to generate $14,000-17,000 per day in operating cash flow. This equates to $4.8-$5.9M using 340-345 full operating days per year.

The ongoing capital expenditures will be minimal, so we would expect the majority of the operating cash flow to be transformed into free cash flow which could support further expansion plans. Keep in mind our estimates are relatively conservative and we wouldn’t be surprised to see Inca One outperform our expectations. Once the Chala processing facility will have reached its steady state output, we will obviously update our expectations and narrow down our guidance. Please keep in mind these are our personal back of the envelope calculations and this is not an official guidance issued by Inca One.


Inca One is in the final stages and should be free cash flow positive in H1 2015. The next steps will be to successfully install both ball mills and ramp up the throughput to the desired level of 100 tonnes per day. We will visit the company’s Chala processing facility in December and will release an extensive site visit report afterwards.

If Edward Kelly and his team continue to successfully execute the Inca One business plan, the company’s share price won’t stay at these levels for much longer.

Disclosure: Inca One Resources Corp. is a sponsoring company. Please see our disclaimer for current positions.

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