Marv was on Wall Street. He was there to explain why his company, International Consolidated Minerals, would make a great investment. Addressing the hedge fund manager across the table he began to describe the task of reviving a large Peruvian mining operation. ‘We have a drilling programme under way now,’ he said, ‘to prove up the extent of the resource. We are aiming to bring the mine back into production next year, and to complete a bankable feasibility study within the next six months.’
‘Hold on a moment,’ interrupted the hedgie. ‘Did you say six months? Why – I have never held a stock for more than thirty days!’
It is depressing, isn’t it, that the financial world appears to be in the grip of these ignorant fools. But Marv and his partner Greg are persevering nonetheless. It was Greg Smith that I met in London. He is Executive Chairman of ICM, while Marvin Pelley is the Chief Operating Officer. Greg had quite a story to tell, a story that might not have appealed to a hedge fund manger with the attention span of a gnat, but certainly interested me.
Let’s wind the clock back to the 1980s, and go to Peru. At that time a mining operation at the village of Pachapaqui, up in the mountains of the Andes, was being run by General Ganoza. It was on a small scale, and such were the low levels of metal prices back then that Ganoza kept the silver and copper but chucked away the zinc and lead. Then hyper-inflation visited Peru, crippling the country’s economy. Ganoza could not survive and took himself and his money to Panama, leaving behind a string of debts.
The ownership of the mine reverted to the government, which then sold it to a now defunct Canadian company called Plata Peru. It did little, barely keeping the mine running and falling well behind in its payments to suppliers and employees. This was the unpromising situation that met Greg Smith when he was invited to take a look view in 2005.
What Smith saw was a mine of huge potential in the same geological region that supports, close by, massive mining operations at Cerro de Pasco, Milpo Atacocha, and Antamina. He saw an ore body containing zinc, silver, lead and copper that could be dug from the side of the mountain without the need for underground workings. He saw all the necessary infrastructure of this established mining region. He saw water to provide hydro-electric power. And he saw a Peruvian government that knows how mineral wealth has transformed the country’s economy and needs no persuading to encourage new mining ventures. So Smith set about raising funds.
International Consolidated Minerals : A mining chief
He spent $5m on the complicated but all-important task of establishing ownership of the mine. He settled debts with suppliers and he paid the workers. ‘They had not received a pay cheque for four years,’ he told me. ‘They got drunk for a week – until their wives got hold of the money.’
Smith is a popular man in Pachapaqui. He has provided the villagers with paint for their roofs and with free electricity from the hydro plant. ‘The lights are never off,’ he chuckled. He has provided work and a pension scheme. And he has paid for the rebuilding of the village church.
So Smith is now a mining chief. It is in the blood. His great great grandfather built the largest silver mine in Mexico. His grandfather was a gold miner in California. Smith went to mining college but when he graduated there were no jobs in mining. So he became an investment banker and built a reputation as a man with an eye for good deal.
He is sure that he has struck one at Pachapaqui. Ten days ago he announced that ICM’s drilling campaign had so far identified fifteen million gross tonnes of mineral resources. But this could be just the tip of the iceberg. Back in 2006 an independent report said that the mine could be capable of producing 70 million tonnes of metal – at today’s prices that would be worth an astonishing $14bn. But even this could be a conservative estimate. Because what has really excited Smith and his team is the discovery of a skarn rock formation that could be the same as that which supports, on the other side of the mountain and just 40 kms away, the giant Antamina mine, owned jointly by BHP Billiton, Noranda, Teck Comico and Mitsubishi.
Antamina is the world’s third largest source of copper and zinc and its daily production rate of 70,000 tons of ore dwarfs the plans of ICM, which is hoping to resume mining operations this year with a target rate of 1,500 tons per day, rising to 3,000-4,500 tons by 2010. Even that, according to the estimates of broker Charles Stanley is sufficient to deliver a 2010 profit of some £30m, in relation to which ICM is presently valued at £130m. But if ICM really has a second Antamina then one thing is for sure. Smith will make a fortune. But, unlike that hedge fund manager who scorned the story, he is not planning to splash it about. A spot of fly-fishing is what he has in mind. Otherwise he says, ‘I might just give it all away.’
Regards,
Tom Bulford
for The Penny Sleuth
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