Rise of the Phoenix
Telson Resources revives two high-potential working gold mines in Mexico
By: Tony Wanless
If Phoenix Rising isn’t the symbol for Vancouver and Mexico-based Telson Resources Inc. (TSX.V: TSN), it soon should be. After a near-death experience only a few years ago, the Vancouver-based junior is poised to roar back into investors’ sights.
Phoenix rising could also describe the ancient precious metal itself. After a period of shunning by investors enthralled with technology and internet plays, gold seems to be coming back in favour — just in time for Telson to capitalize on the return of the age old favourite.
The company has recently maneuvered the revival of two moribund mines in Mexico’s Durango and Guerrero states. Both are expected to be in full production within a year.
Telson’s timing is fortuitous. To put it mildly, gold has not exactly been an investor darling in recent years, simply because over-supply and resulting low prices ensured that most raw gold lodged in world mountains stayed there. At the same time, investors’ new romance with technology and modernized retail strategies, which overwhelmed the primary gold markets in China and India, likely could mean they are also now re-embracing their first love.
Hardest hit by the pullback were junior mining companies, like Telson, that were most responsible for finding new gold hidden in the mountains of the world. While large gold companies managed to survive via the outflow from their existing mines, juniors who find and develop the majority of new mines have generally had to sit on the sidelines. However, recently-reviving demand has brightened the faces of some producers.
Today, Telson is well-placed to take advantage of growth in investor interest. It recently acquired the Guerrero mine, which was closed by its former owner in early 2015, and reactivated its Durango Project, a former mine that saw very limited production many years ago. Telson has recently started processing ore and concentrates from both. In fact, it was the production of rich gold and base-metal ore from the Durango mine that has helped fund the reopening of mining operations at the Guerrero mine.
In a sense, the Telson initiative has come at just the right time — a resurgence in the mining industry being fueled by rising metal prices in both precious and base metals. In fact, Telson’s projects are both polymetallic mines markedly benefiting from historically high gold and zinc prices, and quickly recovering silver, lead and copper prices. All of these commodities will be products of Telson’s production from both of its mines.
BMI believes that Mexico’s mining industry value is set to increase from $15.7 billion in 2016 to $17.8 billion by 2020, averaging 3.3 per cent growth annually because it is recovering from the worldwide slump, and continues to be a top producer of gold and silver, as well as many other commodities, including zinc, manganese, graphite, lead, and copper.
This is especially relevant to Telson’s Tahuehueto Project, a 7,492 hectares gold, silver and base metal epithermal mineral deposit with 487k ounces of gold and 8.4 million ounces of silver, plus base metals in its measured and indicated resources, which lies within the prolific Sierra Madre mineral belt, an area that hosts a series of historic and producing mines, and most of Mexico’s active exploration and development projects.
However, a combination of low metal prices, a lack of investor interest in mining in general, and the inability of the junior mining sector to access capital, all contributed to the perilous state of the mining industry through 2013 to 2016, and kept Telson and its projects near death for several years.
“By 2015,” Ralph Shearing, Director and President at Telson, recalls, “Telson was a company ready to die. The stock price was down to half a penny, and there was no money to be raised for exploration, let alone to fund sustaining costs to even keep the doors of the office open.”
But a hallelujah moment then arrived. Working his connections, Shearing was eventually introduced to a Mexican group which reasoned that prices would likely soon rise, and so were looking for a play in which to invest. The group is led by José Antonio Berlanga Balderas, a highly respected mining and metallurgical engineer in Mexico with over 37 years of experience in evaluation, design, planning, engineering, construction and operation of Mexican mining operations.
This Mexican group purchased a majority ownership in the company via a CAD $3.5 million equity funding, plus made available an approximately CAD$10 million debt facility, which allowed Telson’s newly organized management team to advance the Durango Mine from advanced exploration into development and initial production.
Last January, 2017, a newly-released pre-feasibility study for the Durango, Tahuehueto Project, predicted production of gold, silver, lead, copper and zinc within concentrates from a 550 tpd underground mining operation. The report provided robust economics on the project, including a post-tax IRR of 36 per cent and an NPV using an 8 per cent discount of US$77 million with a 21-year mine life.
Under CEO José Antonio Berlanga’s initiative, Telson has commenced the mining of high-grade ore, and is advancing the pre-feasibility with onsite underground development and the purchase of most of the required milling processing equipment. The mining effort is averaging around 150 tonnes per day with toll mill processing generating cash proceeds of approximately US$1.5 million each month. Telson intends to start the construction of its own mineral processing facility on site as soon as it secures the construction funding.
With the support of funding from its major shareholder, the newly invigorated Telson group quickly took possession of the Campo Morado Mine in nearby Guerrero state at a sales price of US$20 million. The mine halted production in early 2015. In its last year however, it mined and processed 657,000 tonnes of ore, producing 48,000 tonnes of Zn concentrate & 29,000 tonnes of Cu concentrates.
To date, Telson management has raised an additional US$5 million of operating capital debt through an Offtake and Prepayment Agreement with Trafigura, one of the largest physical commodities trading groups in the world, which has allowed the restart of operations at Campo Morado.
It was a shrewd purchase because not only did it support Telson’s renewed focus, it propelled the company from a tiny junior developer into an almost immediate junior if producer that perhaps will be classified as an intermediate producer within it first full year of production.
The Campo Morado Mine purchase also included fully fitted-out infrastructure that includes installations, processing plant, underground development and mobile mining equipment capable of producing 2,500 tpd, and boasts substantial drilled out mineral deposits of 14.7 million tonnes of measured and indicated resources containing gold, silver and base metal hosted within concessions covering 12,045 hectares.
Today, Shearing has reason to gloat — once almost in the depths of despair, he is now looking at two robust mines that will soon be producing thousands of ounces of gold and silver, plus tonnes of base metals.
But there is more. His company, which to date has been using another company’s mill to process its Durango Mine ore, is also planning to build a US$32 million mill at the Tahuehueto Mine site to process ore. Capital costs are now down to $20–22 million and the company is in negotiation to secure loan funding of $15 million. Telson expects to have the funding in place within the next two months, and then to start construction on its own mill, which Telson is projecting to be completed by the 3rd quarter of next year.
Shearing has no doubt about the turnaround process, which not only saved the mines, but revitalized them and the company.
“Everyone thought no one could fix this,” he says, “but our balance sheet went from $3 million to over $200 million in the past quarter. Also, we have forged a strong relationship with our funding partners, and with the communities where the mines are located. The key here is Mexican ownership and experienced Mexican management that know how to operate very well within their own country. Everyone should think about that and look at what this new management team has accomplished for Telson shareholders since their entry a very short time ago.”