Lupaka Gold (LPK.TO) has been working non-stop to move its Invicta project in Peru ahead towards production in Q1 2015 and has recently completed a major milestone. Earlier in December, the company announced that the Ministry of Mines had granted the mining license for the Invicta project. In this update we’ll discuss the importance of the license and which steps are still needed to bring the project back into production.
The importance of this mining license
The receipt of the mining license obviously was a very important achievement for Lupaka Gold as it’s a certificate which is absolutely needed to bring the poly-metallic Invicta project back into production. Fortunately for the company, the review period for this mining license was rather short as the ministry of mines still had a federal EIA permit on the property.
Having received this license, Lupaka will now be able to fine tune its time line towards production and it will be able to finalize discussions with contractors to finish the road upgrade and get the mine ready for production again. That should be relatively inexpensive as the last time we visited the Invicta project, the production-sized adit was very well maintained and the mine looked turnkey ready. That’s why Lupaka will be able to bring the mine back into production for a modest capital expenditure of just $2.5M.
There are obviously still some issues the company will need to overcome with the main task being to sign an agreement with one of the local communities as fast as possible. When we were in Peru in December we coincidentally met an engineer which used to work at the Invicta project before Lupaka Gold gained control and he was still convinced it’s a great project but the local communities need to be convinced first.
The next few steps for Lupaka Gold are quite straightforward. It needs to secure a mine operation certificate from the same ministry of mines (so that shouldn’t be too difficult), and a permit to be allowed to use explosives. According to the company, these are expected within the next 8 weeks, so Invicta should have received all paperwork by the end of February 2015.
Another important piece of the puzzle will be to find a suitable mill where the Invicta ore could be processed. According to the Lupaka management team the recent metallurgical test results have narrowed down the amount of potential mills in the area. As the gold-equivalent grade of Invicta isn’t sky-high, the mill is required to be within a certain radius from the project to avoid high trucking expenses. We expect the company to announce a deal with a nearby mill early in 2015 and this should further remove uncertainty from the market.
The financial position
As of at the end of September, Lupaka Gold had a working capital position of roughly C$2.2M and it’s not unlikely the company will have to secure additional funding to complete the reopening of the Invicta project and to bridge the gap between the production restart and being cash flow positive.
We have had numerous chats with CFO Darryl Jones and even though Lupaka seems to be preferring issuing additional equity over sourcing debt funding, the company seems to be open for a ‘creative’ funding package which could for instance include a copper offtake agreement. We’d obviously prefer the company to avoid issuing any new shares as the dilution factor would be quite high at the current abysmal share price. A C$2M financing would result in the company having to issue at least 20 million shares with an additional 10 or 20 million warrants attached.
This also emphasizes Lupaka’s low market capitalization which is now less than C$10M which is ridiculously low.
Lupaka is still ticking all the boxes and seems to be on track to indeed being able to reopen the Invicta mine in the first quarter of 2015. Eric Edwards and his team can’t sit on their hands just yet but there’s considerable progress being made.
Invicta won’t be a cash cow at a production rate of just 300 tonnes per day, but it should generate sufficient cash flow for the company to continue to work in Peru instead of ceasing all activities like other junior mining companies during this severe downturn.
Disclosure: Lupaka Gold is a sponsoring company. Please see our disclaimer for current positions.