Luminex Resources is a Ross Beaty-Funded 4M Gold Oz Developer with CEO Marshall Koval

Mining entrepreneur Ross Beaty owns 19.9% of Luminex Resources which is a spin-out of Lumina Gold Corp. In this interview, Luminex CEO Marshall Koval provides an overview of Luminex’s investment value proposition and why he believes the company is currently undervalued. Luminex is exploring and advancing its 4M ounce Condor gold deposit as well as enjoying the benefit of having BHP and Anglo American create value for shareholders by spending up to US$100M on its projects through earn-in agreements.

0:15 Introduction

3:08 Lumina Group’s rationale for having same managers over multiple companies

6:17 Discussing Ecuador as a mining jurisdiction

10:25 Condor 4M gold oz deposit but only C$44M market cap?

12:38 Condor project overview and upcoming catalysts

15:01 More sunk costs spent on Condor than current Luminex market cap

17:36 Condor project burn rate

18:00 Luminex owns 90% of Condor project

19:20 Moving Condor project forward in 2020

20:37 BHP and Anglo American committed up to US$100M to explore Luminex projects

23:05 Recapping reasons to invest in Luminex Resources   TSXV:LR   OTC:LUMIF


Bill Powers: Marshall, it’s a pleasure to have you on the show for the first time and it’s kind of unique that you’re the CEO of more than one company. Perhaps we could start off with you sharing, what is the rationale with the Lumina Group of why you would put the same managers over different companies?

Marshall Koval: Hey Bill, it’s a pleasure to be with you today and greetings to your listeners. Yeah, so let me just kind of backtrack a hair and just talk about the history of the Lumina Group and where I’ve been. I joined Ross Beaty in 2004 and been involved in all of the Lumina Copper stories, and then we went into Ecuador in sort of 2013, 2014 believing that Ecuador would turn around, and it’s some of the most highly perspective exploration ground in the world for copper and gold deposits, large scale porphyry and such. We started off with Lumina Gold in 2014. We did a transaction where we acquired Odin Mining, and that became our vehicle in Ecuador. Subsequently, we acquired … sort of in 2016 timeframe, we acquired Ecuador Gold and Copper, which had the Condor Project, which is one of the key assets that we have in the spin-out within Luminex. And then when the country opened up the concession system, sort of in 2016, 2017, we had quite a bit of information.

We had a senior Ecuadorian geologist, Diego Benalcazar, who’s the president of Luminex Resources and we went out and acquired a lot of copper projects and gold prospective projects in the concession system. We had that all in Lumina Gold, and then about 2018, we had advanced our Cangrejos Project in Lumina Gold to the point where it was a development project, and to prepare that for the Lumina Group business model to add value and then divest, we spun all of the other remaining assets, the Condor Project, all of our copper early stage projects out into Luminex. And then for continuity’s sake, we continued on with the same management team. Diego got promoted to president, so he handles a lot of that aspect of the company. And I run the company. I have been involved in putting together exploration programs at the Condor Project, which we can get into in a bit.

And then also was involved in negotiating joint venture agreements with BHP on our Tarqui project and Anglo American on our Pegasus A and B projects. The rationale was more to do with the continuity of the management team and to preserve sort of the approach that we take with the Lumina Group. And then if you look at splitting time, I’m spending about 50% of my time on both of the companies at this stage.

Bill: Your projects are in Ecuador and after I did my last interview with Scott Hicks regarding Lumina Gold Corp., nobody objected to the project, the company, how it’s run, the pedigree management. The only concerns that I had were coming back to me through feedback was regarding the jurisdiction of Ecuador and concerns that unless the sovereign like Zijing Mining comes in, that they can make sure the government doesn’t take their asset. Some investors, North American investors, were concerned about Ecuador as a mining jurisdiction moving forward. What would you say to those investors with those concerns?

Marshall: I think obviously those concerns have a lot to do with the history primarily in the oil and gas sector in the country, but I think during the Correa government, you had a leftist populous government who sort of in 2008 timeframe had basically shut down the mining sector and relied on oil as revenues to run the government. They had budgeted about a hundred dollar oil to run the country. So basically fast forward, oil went down sort of in the 2013, 2014 timeframe. Ecuador realized it needed foreign investment still under the Correa government and he … Correa brought in Wood Mackenzie to help reform the mining code. The mining code at the time prior was pretty punitive. It was set up more like an oil and gas regime where you had windfall profit tax, high royalties, high tax rates.

Wood Mackenzie helped them really turn that around, and so from 2014 to 2016, there were a couple major events that happened. The concession system reopened that had been shut down in 2008 by Correa. Lumina Gold, we were awarded 32 perspective concessions at that timeframe, so that’s a lot of the projects that are in Luminex right now, the copper exploration projects. And then in 2016, Lundin Gold signed an agreement with the government and they had a work around on the windfall profit tax and such, but that allowed them to move forward and build food to Fruta del Norte. And then sort of 2018 timeframe, the government continued to improve the fiscal regime, eliminated the windfall profit tax, lowered the NSR range from … It used to be 5 to 8 percent royalty to the government down to 3 to 8 percent. And now really, what’s happening now and going forward is two major large scale projects have been put in place in Ecuador, put into production, that being Fruta del Norte in Mirador, and Mirador’s a large copper, gold porphyry and Fruta del Norte is an underground gold mine.

As these projects go and develop, there were over $2 billion invested in capital costs between those two projects. That’ll be how the country goes. And I think probably the biggest test for Ecuador as a viable foreign investment jurisdiction, is all of the major companies that have come into the country sort of in the last three or four days. That being BHP, Anglo, Newcrest, Fortescue, Dundee Precious Metals, Southern Copper, Codelco, Wheaton Precious Metals. I think there’s a comfort that the political, fiscal regime and the destination as a foreign investment area has really changed. And I think that should give a lot of investors comfort and as Fruta and Mirador continue to succeed over the next few quarters, it just adds more merit to Ecuador becoming a viable mining jurisdiction.

Bill: Your market cap right now, as we speak, is only $44 million Canadian, yet your key project that you’ve mentioned already, the Condor Project has at least 4 million ounces of gold and there’s a new discovery also there and a new resource come in. That’s quite a discount. Would you attribute the 4 million ounces with only $44 million market cap primarily to what could be called the Ecuador discount?

Marshall: Yeah. And if I look at that in the context of … We did a lot of work on this and to prove it up in Lumina Gold, and we looked at the developer peer group of Lumina Gold and I think this carries over for Luminex as well. But if you look at P/NAV valuations and you look at SolGold, Adventus, Cornerstone, INV metals, Salazar Resources, all with development projects in Ecuador. They’re trading at about 0.27 multiple to P/NAV, and if you look at Western world gold developers, Osisko, Sabina, Great Bear, Liberty, Integra, those guys, they’re sort of trading at 0.59. I take that alone right there. It kind of gives you an idea of the Ecuador discount, and I think that’ll continue to improve. Now having said that, Lundin is, now that they’re in production, they’re trading a slightly over a 1.0, probably between that and a 1.1, P/NAV ratio. As time goes on, I think that should improve in the country, but it’s an opportunity for investors. I think if you look at the Condor example alone, without considering the BHP and the Anglo American JVs that we have, and considering this new camp zone discovery at Condor where we have 40 meters, 4.8 gram per ton of gold, and quite a few holes into it now, we’re really undervalued as a company, so it creates an investment opportunity.

Bill: Let’s start with the fundamental value. We mentioned the 4 million ounces of gold. Give us a overview of the Condor Project and what are some of the catalysts upcoming for it?

Marshall: Condor is in the Eastern part of Ecuador, Southeastern part. It’s about 35 kilometers south of Fruta del Norte, and then about 50 kilometers north of Fruta is Mirador. It’s in one of the most highly mineralized trends within Ecuador. There’s a lot of … Within this neighborhood, there’s quite a few companies with concessions. SolGold, Fortescue, Lundin, Newcrest, so there’s a lot of activity there. Probably one of the most highly mineralized areas within Ecuador, and what we had at the Condor, as you mentioned earlier, we had 4 million ounces roughly of gold, some of it indicated, probably about a third of it, and then two thirds inferred. Between the Santa Barbara deposit to the South, and then what we’re calling Condor to the North, and Condor itself, to the North is sort of a epithermal gold area, whereas Santa Barbara is a gold copper porphyry.

And we’ve made a major discovery up in the Condor area where we have the new camp zone, and the camp zone, we’ve got about 29 holes into it now. We’ve released, I believe, 25 holes to date, and we’ve got some really wide intercepts, near surface directly under our camp, and basically we’re getting sort of 20 to 30 meter intercepts, true width of four to six grams per ton. And then this was over a strike length of about a 1.1 kilometers and down dip about 800 kilometers to date. And it pinches and swells in some areas, but most of the intercepts of a true width of over three meters up to 30 meters. And we believe that the resource estimate we’re currently working on now will be out by the end of this quarter, and hopefully that’ll show a dramatic change in the Condor project and it’ll be a catalyst for a further share price valuation.

Bill: And I’m looking at your presentation, U.S. $40 million has been spent on this project from 1993 through 2016, and that’s more money than the current market capitalization of the entire company right now.

Marshall: Yeah, and that’s part of the ironic part of all this, and I think it leads back to the valuation issue and the opportunity issue. And I think on top of that, when you look at sort of porphyry copper potential within the company, we have quite a few projects. We’ve got a JV with BHP on our Tarqui Project. It’s about a 5,000 hector project where they have to spend 42 million over six years to earn 60%, and that’s been our most prospective copper discovery that we’ve made within Luminex. And they can spend an additional $40 million to get to 70% and we anticipate them being drilling in the second half of 2020. Throw that on top of the Condor Project valuation, and then on top of that even is our JV with Anglo American on our Pegasus Projects, where they have to spend $57.3 million over seven years to earn 60%. And then they can earn an additional 10% by carrying us to a production decision, and they’ve done quite a bit of work and they’ve identified several potential drill targets and hopefully they’ll be drilling in the second half of this year.

If you add that all up, the market isn’t giving us the sort of value that we would expect. If you add up what’s been spent to date, our discovery at the camp zone and these JVs, so we’re continuing to get the message out. We believe it’s a good investment opportunity. I think part of that, you could see this last financing we did where we raised $10 million in December. Ross Beaty took his ownership up to 19.9%. We’ve got good Ecuadorian entrepreneurial group involved in the company as well. They control about 8.6%. Route one of fund out of the U.S. Has about 8.5%. And in the management and the board have about 6.7%. We’ve got really good investors support. We have the ability to raise money, and capital and advance and de-risk these projects. We’re continuing to do that as we go forward.

Bill: What would be your burn rate for this year working on the Condor project?

Marshall: Right now, we have two drill rigs in the field and basically our drilling just in the Condor zone, so we’re probably just shy of sort of a million a month, and a lot of that depends on the drilling success, how we continue to move forward there. Also at the Condor project, it’s 90% owned by Luminex, and then could you explain the 10% that’s owned by the pension fund for Ecuador’s armed forces personnel? They were the previous owner of the Condor Project, and basically their 10% ownership is … And not all concessions of the Condor Project, but it is within the areas most mineralized.

Bill: Is this a private pension fund or is it public, and if it is public, I guess what’s behind my questioning is, could that help move the project forward, because they obviously would want to reap the rewards of a successful project?

Marshall: Yeah, we’ve had several discussions with them and they’re supportive of the project and their ownership came in quite a few years back because the projects on the border with Peru, the project area, so that was acquired from them by previous companies. I would say them having them involved, being the pension fund for the military, is a positive aspect for the project.

Bill: And you have an upcoming, updated resource, I understand, at the Condor Project, and then would a PEA be out this year too?

Marshall: Yeah. So what we’ve done so far is drill holes, number 1 through 25, which have been press-released. That’ll form the basis of the resource estimate that we’re doing on the camp zone, and we haven’t done additional drilling on the other areas to update those resources, but it’ll be a maiden resource at the camp zone. And we’ve started metallurgical test work on the camp zone as well. So if we see, as we anticipate, a pretty good resource coming out, we’ll start to look at developing a project description and we would start to move forward towards a PEA, but at this time I don’t have a firm schedule on when and if we would move forward.

Bill: What’s the drilling costs in Ecuador in Canadian dollars per meter?

Marshall: Well, most of the costs are all in U.S. dollars there, so depending on what you have to do in the depth that you’re drilling, we’re seeing costs sort of between 150 and 200 dollars a meter.

Bill: And that’s including the assay costs?

Marshall: Assay’s probably in the $25 a meter range.

Bill: All right. So we have the exploration upside and the advancement there at the Condor Project. And then you mentioned already your earn-in with BHP. As investors are looking at Luminex for the first time, would the selling points, so to speak, here be that somebody else is going to be spending money in order to create value for shareholders?

Marshall: Yeah, basically that’s correct. If you look at it, assuming that BHP and Anglo continue to move forward and get to their first phase earn in period, they will have spent $100 million between 2018 and 2025. And they have the option to earn both of them an additional 10% in the case of Anglo to a production decision. In the case of BHP, an additional 10%, which would take them to 70% by spending $40 million more, which basically gets you through a feasibility study. And they both have a little bit different approach. Like BHP is after a single specific target, our Tarqui Project where we identified an area about three kilometers by five kilometers in length with some of the highest grade copper that we’ve seen on any of our projects, sort of plus 1% copper and rock outcrop at the surface, and so they’ve done geophysics work and they’re doing geologic work to firm up a drill target.

Whereas Anglo American has our largest land package, it’s about 67,000 hectors, and Anglo American is looking for a district scale type play where they’ve identified multiple porphyry copper deposits. We identified some of them initially and they’ve discovered additional areas that are highly prospective, and they’re looking for district sort of scale play there. And if you look at a hundred million dollars committed between those partners to advance exploration and then you go back to the valuation of Luminex, I think we’re severely undervalued.

Bill: The company’s website is It trades in Toronto. You can find information under the ticker L-R and on the OTC in the States under the ticker, L-U-M-I-F. And as we conclude, Marshall, what final thoughts would you like to leave with the investors listening to us?

Marshall: It’s the reasons to invest. I think if you look at Condor, we have the new discovery, high-grade discovery at the camp zone. It’s likely going to be an underground target. There is a bit of it close to the surface. We’ll have a catalyst in Q1 2020. We’ll have a resource estimate out and then we’re continuing with metallurgy and we’re moving towards a PEA. In addition to the camp zone, there’s about 1.4 million ounces in the indicated category and 2.5 million in the inferred category, on the property as well. As I’ve been talking about earlier, the earn-in agreements with two tier 1 copper companies, Anglo and BHP. And with Luminex, we have an additional, we really didn’t talk about this, additional 25,000 hectors and we’re doing exploration work primarily on our early stage grassroots sort of copper projects.

Our Cascas project we are moving forward ourselves. It’s got a good gold anomaly there besides the copper. And then I guess finally, you’re investing in a team with a consistent history of exploring, discovering, de-risking, monetizing assets. That’s the history of the Lumina Group itself. And we have a highly aligned team. There’s about 25% ownership between management and Ross, and we’re highly-aligned with investors. I think with that, it’s a good investment thesis and Ecuador is emerging as a important exploration destination and mining destination in 2020.

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