Update on Minera IRL and Ollachea

Those who have followed the trials and tribulations surrounding Peruvian junior gold miner, Minera IRL, which owns the existing Corihuarmi gold mine in Peru and the hugely prospective Ollachea gold project in the same country will be thankful that the ongoing saga may be coming to a successful end for the company.  The company is now now led by Diego Benavides – a long time director and champion of the company and who has an excellent relationship with the community around the Ollachea project whose goodwill will be an important factor in the development of a mine there.

Minera IRL is focused primarily on gold. The shares of the company are listed on the Lima Stock Exchange in Peru ( Bolsa de Valores Lima) (BVL:MIRL) and the Canadian Securities Exchange. (CSE:MIRL). The Company is in discussion with a London-based financial adviser, to help explore the options for re-listing the company in London and then advising and assisting with the listing process. (Minera IRL used to have an LSE AIM listing until it got mired in some seemingly unsavoury moves to try and wrest control by some Canadian/Peruvian individuals following the untimely death of company co-founder and driving force, Courtney Chamberlain.

Now, Minera IRL is led by a tightly knit team of experienced mining executives, engineers and geologists.

The company operates the Corihuarmi gold mine in the high Andes of central Peru, which has been in continuous production since the first quarter of 2008 but is eking out its final days as reserves are depleted, but is still producing a little over 5,000 ounces of gold a year.

Minera IRL’s flagship project is Ollachea, an advanced gold development project with high potential for reserve and resource expansion located in southern Peru. An Optimization Study to the 2012 Definitive Feasibility Study was completed in the second quarter of 2014, which outlined the presence of a robust underground mining operation. A drilling program of approximately 5,200 meters has been completed in the Minapampa Far East zone.

The company has been granted all of the significant environmental, social and construction approvals needed to build the Ollachea Gold Mine.  However the decisions necessary to move ahead were stymied by an ongoing dispute with Peruvian bank COFIDE which now seems to have ended in Minera IRL’s favour which would allow it to go ahead with the Ollachea development at last.

I am indebted to blog site Inca Kola News for keeping me up to date with the latest developments in reporting as follows:

“On Friday at 11:27pm the tribunal arbitrating on the case between Minera IRL (MIRL.cse) and quasi-State bank COFIDE over the fate of the Ollachea project and the U$70m bridge loan forwarded by COFIDE to the mining company published its verdict on the case. You can read it here. The need-to-know is:
  • The tribunal has found in favour of Minera IRL and against COFIDE
  • COFIDE has been ordered to pay U$18.75m in damages, plus another U$13.96m in loss of earnings. 
  • The tribunal also struck off all interest payments due on the U$70m bridge loan due as from July 17th, which I believe comes to around U$16m. 
  • Along with another small award, the total award package comes to just over U$50m
This is a massive win for Minera IRL, be in no doubt. Just the U$32m cash award is around U$0.14 per share (C$0.17). The whole package is worth around USD 22c/share with the interest write-off included. Plus of course IRL can now get on, fund and build its mine.” 
The Ollachea Project

Minera IRL acquired an option for the Ollachea project and began exploration fieldwork in 2008. The project is located in Peru‘s southern Puno district about 250 kilometers north of Lake Titicaca, on the eastern escarpment of the Andes.

Studies demonstrated the feasibility of a low-cost underground mining operation and Minera IRL is advancing with engineering studies. A large reserve base has been delineated and on-going drilling continues to produce promising results.

Logistically, the project benefits from easy access via the new Interoceanic Highway and it has a guaranteed electricity source from the nearby San Gaban hydroelectric station. There is abundant water. The Peruvian government has approved the project‘s environmental impact study and permits for construction.

The project has strong support from local communities, in both the direct and indirect areas of influence. The Ollachea mine project is expected to become an important source of employment in the area.

The company also signed an unprecedented 30-year surface rights agreement in 2012 and as part of that long-term agreement, the Community of Ollachea will earn a 5% participation interest in the mine once it begins commercial production.

Minera IRL EGM Fiasco

On Thursday the Board of Minera IRL Ltd – the existing parent company of the Peruvian operating subsidiaries Minera IRL SA and Minera Kurri Kullu SA – presided over an Extraordinary General Meeting (EGM) – held in Toronto although the company is registered in Jersey, Channel Islands – to consider a vote to completely replace the Board of Directors with a new slate made up with some top Latin American experienced mining figures, bankers and lawyers.  By several accounts (unsubstantiated by the parent company I should add though), the votes counted were enormously in favour of replacing the existing Board with the new slate, but by invoking a technicality the validity of the vote has been set aside pending a new EGM to be held within 3 weeks.

The battle for control of Minera IRL, which operates the small Corihuarmi gold mine which generates positive cash flow and is nearing the end of its life, and is developing the far bigger Ollachea gold mining project, has to say the least been bitter with innuendo after innuendo being put out about Diego Benavides, who currently controls both Peruvian operating subsidiaries and who would presumably be the new CEO if the new Board is voted in.  Indeed the Board of Minera IRL Ltd has even gone so far  as to try to initiate criminal proceedings in Peru over the financial deal with Peruvian bank, COFIDE, which had been fully approved by the full board at the time.  The impression gained by outsiders was that this move was both without foundation, and entirely aimed at trying to muddy the waters re Benavides ahead of the EGM vote and thereby convince some shareholders to vote in favour of the current board – a move which seems to have failed completely.

But back to the decision by current Minera IRL Ltd chairman, Jaime Pinto – who appears himself to be under criminal investigation by the Peruvian Government – to suspend the EGM without an official vote count.  Here’s how London broker/investment bankers SP Angel views this fiasco:

“Minera IRL EGM adjourned despite Rebels holding >90% of votes, questions over handful of shares
• The chairman yesterday adjourned the Minera EGM.  We are told the adjournment was over potential irregularities over a handful of shares.
• Diego Benavides and his supporters are now forced to wait till the next EGM which can be called at any time but no later than 17 December.
• Long suffering shareholders must now wait, while the company is effectively paralysed, racking up costs at a time when, we believe >90% of the shares have been cast in support of sacking the entire board.  Do Turkeys ever vote for Christmas?  We hope these turkeys get a proper roasting by shareholders when this is all said and done.
• In a further twist:  we are also told that a key shareholder has agreed to buy Rio Tinto’s 19% stake and is seeking to be elected to the board
Conclusion:   Do Turkeys ever vote for Christmas?  We hope these turkeys get a proper roasting by shareholders when this is all said and done.
* SP Angel analysts are expressing their own views and opinions in this analysis.  SP Angel has no corporate connection with Minera IRL or its subsidiaries.  SP Angel holds no shares in Minera IRL and does not have any current financial arrangements with the company.”

For longer standing – and hugely outspoken – comment on the whole Minera IRL control saga it is well worth reading a Latin American mining focused blog called Inca Kola News, the author of which certainly does not mince his words.  He has put out a series of anti-current Minera IRL board comments which focuses on totally countering the various anti-Benavides and anti-new Board statements which have been disseminated by the parent company.

In a nutshell, the Minera IRL dispute followed on from the death of company co-founder (with Benavides), Courtney Chamberlain.  Under the original Chamberlain/Benavides control the former was chairman of the parent company and the latter of the Peruvian operating subsidiaries.  Thus Peruvian national Benavides was responsible for building the very positive relationships with the Ollachea community, without whose support the proposed new mine would not go ahead, and also negotiating the key loan agreement with COFIDE.  The work with the Ollachea Community has been widely seen as the ideal model for mining companies to utilise in Peru where community support is so important.

With Chamberlain’s death, board member Daryl Hodges, assumed executive control and reports suggest he then tried to dismantle many of the old relationships with the Peruvian end of the business.  The motivation behind these moves is perhaps more uncertain, but presumably a huge clash of personalities between Hodges and Benavides as to who should take the company forward precipitated much of the unpleasantness which has since ensued.  This culminated in a vote to remove Hodges from the Board (with around 90% supporting the decision to remove him and thus of executive responsibility for the company)  However the Benavides led rebels believe Hodges may still be pulling the strings over control of the company and its decisions.

With Hodges off the Board, the remaining directors co-opted Pinto as the new chairman – he has never been voted onto the Board – and the anti-Benavides campaign continued.

So there we have it.  The EGM vote suspension is a total fiasco and is put down to some irregularities with some of the votes in terms of Ontario securities legislation – here its should perhaps be noted that Minera IRL Ltd. – the parent company – is not actually a Canadian company and the TSX is one of three exchanges on which it is quoted with shareholders virtually split between the three (LSE AIM, TSX, and Lima) as we are given to understand it. Shares are currently suspended effectively awaiting the outcome of the new EGM.

The Board statement on the adjournment of the EGM is as follows: “Information was brought to the attention of the Board early on the morning of the meeting suggesting that there may have been irregularities in the way the vote for the EGM was conducted. As Chair of the EGM, it is my responsibility to determine the validity of the votes cast by proxy or in person. I have received evidence of a potential violation of Ontario securities laws as a result of which a substantial proportion of the votes cast by proxy, significant enough in number to alter the outcome of the matters to be decided at the EGM, were cast on behalf of persons who do not have a corresponding economic interest in the future of the Company. Given the significance of the decisions made at the EGM to the future of this Company and my duties both to the Company and to the meeting, I therefore felt that I was unable to rule on the validity of the votes in question without conducting a proper investigation.”

To an outsider it does appear that this has been another tactic to delay the inevitable or perhaps lead to a change in the votes cast, but for Minera IRL shareholders it is yet another kick in the teeth in terms of additional costs which a smallish mining company in the gold space can ill afford – particularly in the current gold price environment.  We see it as just a postponement of the inevitable, with the only way for the company to move ahead as a potentially much more significant gold miner in the future is to put the proposed new Board in place and take it from there.  However it is possible that perhaps the existing Board may somehow manage to disqualify sufficient of the votes cast to alter the decision in their favour with the help of its Canadian law firm Fasken Martineau looking at legal technicalities.  If it does so, in our view it would be a tragic miscarriage of justice.

To us it seems pretty obvious that relationships between the existing Board and executive management of the parent company with the Ollachea Community and COFIDE are somewhat more than fragile, whereas Benavides’ relationships with these remain strong.  And without COFIDE and the Ollachea community behind it, the company is unlikely to be able to move ahead with the mine on which its whole future depends.  We don’t see that the interests of the shareholders could be served better than the new Board to be appointed if Minera IRL is to have a future as a significant gold miner in Peru.