(MENAFN- ProactiveInvestors) “We’re a good example for a company in bear market territory” says Tim Coughlin chief executive of ().
Why Because Royal Road has shown itself nimble enough to do deals in spite of strong headwinds in terms of sentiment and commodities pricing and able to cut its cloth according to market conditions.
“We had to ask ourselves what does this market want out of little companies like ours” says Coughlin.
“And the answer was: it wants high grade no-brainer ore deposits.”
Accordingly the company has now entered into a binding letter of intent to acquire two new projects in Colombia.
The first La Golondrina is a high-grade producing gold mine in Colombia currently producing on a small scale but which the company hopes it can expand significantly.
It will be acquired via small up-front payments and the granting of royalties once production has been expanded and capital expenditure paid back.
The second the El Alacran project is a much larger proposition and due diligence is ongoing.
But if the project meets expectations and what’s termed in the Royal Road literature as “acceptable financing” is available then the company believes this is a project that’s capable of delivering over $50mln per year in pre-tax cash flow.
But business is all about the art of the possible and short-term the focus will now move to La Golondrina.
In the process the emphasis will shift away from Turkey where Royal Road had until last month been exclusively focused on its Gömeç gold project.
What will happen to that project now
The answer to that question has yet to be decided according to Coughlin although there’s clearly plenty of value to be had there.
Drill results delivered over the summer showed intercepts running with continuous mineralisation through more than 100 metres of rock.
The grade is good too but probably not high enough to support a small start-up operation. Gömeç needs to be big to be economic and as such looks a little bit beyond the powers of Royal Road right now.
“We spent about US$1.2mln there” says Coughlin. “We brought it a long way. But it’s going to require a lot of money and La Golondrina will require significantly less.”
In other words in a market like this you’ve got to make choices – smaller but more bankable cashflow or cashflow from a larger but less easily financeable project
With that in mind Royal Road is now weighing up its options. When it’s put to him that the company could sell its interest but retain a royalty Coughlin concedes that that might make sense.
But more than that he cannot say at this stage.
Instead he’s eager to underscore the rationale for moving Royal Road to a more Colombian focus.
A key reason is that Coughlin knows Colombia.
“I was last there in 2005” he says. “I helped take AngloGold to Colombia and was there between 2001 and 2005. Colombia was a big part of my professional life for a long time.”
More to the point it’s very prospective.
Within the past 12 years more than 50mln ounces of gold has been discovered in Colombia and that’s just what’s been reported.
As is often the way with small scale South American mines local knowledge often counts for more than formal reporting standards as long as operations remain small scale.
And that’s broadly what’s going on at La Golondrina too. There is currently small scale mining on two levels at the project which leads Coughlin to a certain level of confidence about the project’s ability to produce early cash flow.
There are ounces in the ground and they are coming out.
So far so good.
The plan now is to take the operations up a notch or two.
Accordingly Royal Road is in the process of completing a fundraising that so far has boosted overall cash resources to C$1.3mln.
“The plan is to ensure we’ve got enough capital to move La Golondrina along” says Coughlin.
“We’ll get underground channel samples underway survey the tunnels and then set up for drilling.”
And then it will be on to the task of defining the plus million or so ounces the company believes might be present at Golondrina.
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