Nativo Resources focussed on early cashflow from Peru gold projects

Towards the end of last year, first revenues were generated by Boku, a joint venture company that owns the Tesoro gold mine in southern Peru and in which Nativo Resources (NTVO)Follow | NTVO holds a 50% interest. 

At this stage, the numbers aren’t astronomical, and the initial production was only from surface stockpiles rather than the mine itself. 

But it was a portent of what’s to come. 

The underground mining operation at Tesoro subsequently got underway in mid-December, and 42 tonnes of ore was shipped and sold to a local processing plant. 

What’s more, this material showed highly attractive grades – an average of 15.6 grams per tonne, but with grades in some areas running as high as 63 grams. 

This is encouraging stuff, and with Tesoro now subject to a combination of ramp-up and expansion, as a second shaft is brought into operation, it ought to turn into a nifty little operation.

The cashflow from Tesoro will be used to support the next stage in Nativo’s plans – the creation of a portfolio of gold ore processing plants and  Tailings retreatment projects around northern Peru.

Many of these projects have already been identified and, once combined, will amount to a steady income stream for the company.

How quickly all that will happen remains a key question for Nativo to answer, and freak weather events, like the unheard-of rainfall in Arequipa, haven’t helped.

But the direction of travel is clear.

Cashflow is coming. And when it comes, it ought to build on itself.

This is how London-listed junior mining companies always used to be put together, before the intervention of the Chinese Supercycle all those years ago turned everybody silly. 

The idea is that a small amount of cash gets generated, which can in turn be used to keep the company afloat at home and to generate new opportunities on the ground.

The difference with Nativo is that you won’t, at least at this stage, hear much about exploration.

This is not a company that’s looking to plough cashflow into moose pasture.

“Our plan is to generate early cash from primary mining,” says Nativo’s non-executive chairman Christian Yates. “And then longer-term to undertake the re-processing of tailings projects.”

According to Yates, the company has identified five million tonnes of tailings for potential transactions, all within a hundred kilometres of each other. 

And the timing for transactions of this sort is serendipitous. Ten years ago, tailings re-cycling or re-treatment was usually considered marginal at best, although some small-scale operators in Peru have been at it for years. But with precious metals prices soaring away in the wake of covid and President Trump’s inauguration, the value of the metal in these old discarded piles of rock has suddenly sky-rocketed. 

It makes sense, at last, for bigger players to get involved.

And Nativo finds itself in a sweet spot. It can engage with small-time operators who already have processing experience, and thus avoid many of the tricky technical issues that tailings re-treatment can present to the newcomer. But it can also bring more firepower to bear on bigger projects, meaning that more money comes onto the table for everyone.

According to Yates, one of Peru’s top geologists, working for Nativo as a consultant, is very enthusiastic about the opportunities that tailings present.

So, that’s the vision.

How will it all actually shake out?

First things first, this isn’t a company that thinks it will be able to run before it can walk. Its initial production targets are fairly modest, and its early growth plans are modest too.

As it stands, production is likely to run at between one and five kilograms of gold per month. Over time, as Tesoro expands, the aspiration is to boost that up to between 10 and 15 kilograms, and then further out, to between 30 and 50 kilograms.

There are aspirations, too, to bring plant on stream within four-to-six months, thus allowing the company to retain the 30% it’s currently giving away in toll-treatment charges. 

And a new mine at Morrocota, not far from Tesoro, will be brought on stream in about three-to-four months’ time. 

Meanwhile, in the background, the last of the Echo Energy issues will be attended to. Expect an announcement on debt re-scheduling later in the year, as legacy Swiss investors wake up publicly to the new opportunities in Peru. 

By that time, production at the mines ought to have stabilized, the processing plant should be up and running, some or all of the tailings deals ought to be signed off, and the company moving towards making a final investment decision on the first tailings development. 

Exploration? Not in this company. There’s too much else to do.