Pampa Metals; 8 properties / 59K ha, in best copper porphyry spot in the world

Copper (“Cu”) has been a strong performer even as gold & silver have slumped from the summer of 2020. In addition to Cu’s growing use in EVs, electric grids, telecom/5G Wireless, energy storage systems & renewable power plants, it has been newly recognized for being naturally antimicrobial, meaning that up to 99.9% of all bacteria & viruses die soon after settling on Cu surfaces.

This has potentially significant implications for frequently touched surfaces in healthcare, retail, entertainment, home & public transportation settings.

Cu is not easily replaceable, especially on a large-scale & quickly. Silver is far too expensive… the only real competing conductor is aluminum “Al”. But, each conductors in an electrical system has a built-in resistivity, meaning that part of the electrical energy carried on a circuit dissipates as heat.

Differences in resistivity across metals is critically important. When considering same diameter Al vs. Cu, it must be noted that Al suffers ~1.6x as much electrical loss as Cu. Therefore, Al is a less efficient conductor and leads to the generation of more carbon emissions.

Even if Al were to be more commonly substituted for Cu, its price would rise, possibly by a lot. As it stands, Al is roughly one-third the price of Cu. If it made sense to use more of it, we would already be doing so by now.

Pampa Metals (CSE: PM) / (OTCQB: PMMCF) is a junior mining company exploring for Cu in the country that’s been the largest producer of the metal for half a century – Chile. The Company reported drill results on September 28th that are being ignored by the market, possibly creating a buying opportunity in the shares.

Here’s the thing with drill programs coming from tiny market cap companies. Shareholders want blockbuster hits right away. They fear repeated equity raises will be necessary to fund never-ending drilling.

True, small companies can’t afford to drill, drill, drill, but when the prospects are as promising as Pampa’s, there’s plenty of reason for optimism. Unlike a number of much larger Cu juniors, Pampa’s Enterprise Value {market cap + debt – cash} is just C$12.5M.

Pampa did not deliver bonanza grades, but shareholders got the next best thing — clearer line of sight to two Cu porphyry systems in the single best Cu porphyry jurisdiction in the world.

Readers should want meaningful exposure to Cu juniors, but only in fairly safe jurisdictions. Note{some of the largest existing & future Cu mines are in Indonesia, Russia, the DRC, Zambia, Pakistan, Mongolia, China & Panama}.

The most important source of primary Cu is from a type of mineral deposit known as a porphyry, which provides ~60% of the world’s Cu, a significant amount of its gold, and nearly all the world’s molybdenum.

Porphyries are large, bulk tonnage, low-grade deposits. They can be hundred(s) of millions, or even a billion+ Metric tonnes (“Mt”) in size, grading 0.20% to > 2.0% Cu Note: {drilling >0.40% [Cu only], if not too deep, with 100+ meter intercepts, is considered very good}.

Management says they’re on the fringes of two porphyries on 1 of 8 100%-controlled properties covering 59,000 ha. Seven widely-spaced, (at least a km apart) RC drill holes totaling 1,956 m were drilled last summer over the 6,600-ha Redondo Veronica (“RV”) project in N. Chile. The deepest hole was 385 m, average depth 279 m.

Two of eight properties are subject to option & JV agreements with gold producer Austral Gold to earn up to an 80% interest. That means 4 of 8 properties are being actively explored.

From the Sept. 28th press release,

“Results from a wide-spaced RC drill program together with geological, geochemical & geophysical data, consistently point to deep mineralization at Cerro Redondo North & Redondo Southwest. Drill testing at Cerro Redondo North returned the best geochemical results to date, at relatively shallow levels, but deeper drilling is required to test the indicative source porphyry.

Clear indications of deep porphyry systems were found at two targets; Cerro Redondo North (CRN”) & Redondo Southwest (RSW”). In management’s view, they have found two systems, but unless they see potentially economic grades across sufficiently wide intercepts, they will not use the word, “discovery.

Finding a Cu system is great, especially one under cover, but to be economic it must have a favorable mix of depth, size, grade & continuity. Pampa’s team needs to hit some 100-meter intervals of 0.40% Cu. The team is making plans to follow up at CRN and/or RSW with deeper holes (800-1,000 m each) in Q1 2022.

The technical team is pleased with drill results to date. While the market does not (yet) appreciate them, giant Cu producers in northern Chile do. My contact at Pampa is not at liberty to disclose which public and/or private Majors Pampa is speaking with, but the universe of players there is impressive….

Codelco, Antofagasta, BHP, Freeport McMoRan, KGHM, Anglo American, Teck Resources, Groupo Mexico, Rio Tinto, Newmont, Barrick, Glencore, Kinross, Yamana, Capstone Mining, Lundin Mining….

This suggests juniors like Pampa Metals will be handsomely rewarded if they can delineate one or more sizable Cu porphyry deposit(s). Importantly, management need not carry projects all the way to production. They could farm out properties or form JVs.

Some of Pampa’s properties could become valuable satellite deposits to nearby Majors who control processing facilities. How many satellite deposits might be hosted across eight properties / 59,000 hectares? It’s early days, but the team thinks they have at least two….

Major companies with multi-billion dollar valuations can easily afford to pay tens of millions for deposits with good grade. Yet, Pampa is valued at C$12.5M. One nice-sized deposit alone could be worth well more than that to a Major.

Readers might be wondering why Majors in Chile should care about small or even medium-sized deposits, don’t they have their own properties to explore / develop? Majors have pipelines of projects assembled over the past few decades when long-term Cu price assumptions were roughly US$2.25-US$3.25/lb.

However, in a long-term Cu bull market scenario, prices could average twice that, in which case Majors will want to expand pipelines to produce more metal. Moreover, in bull markets, Majors are better positioned to take on more risk (earlier-stage projects).

Copper is perhaps the only metal to benefit from ALL of the following; 1] giant new infrastructure programs, 2] wires / cables / motors / transformers from new energy plants (with renewable energy 5-6x more Cu-intensive), 3] paradigm shift to electrified transportation (incl. massive buildout of Cu-intensive charging systems), 4] incremental power demand from the, “Internet of Things,” 5] new & replacement electric grid / telecom infrastructure incl. wireless towers & 5G network base stations, and 6] electrifying Africa — by the end of the century, 4 of the 10 largest megacities on earth are predicted to be in Africa.

Why don’t Majors simply stake more ground and explore themselves? Time is money and managerial resources are stretched. For a Major, it’s well worth > C$12.5M to jumpstart the process by skipping 1-2 years of staking, permitting, exploration, studies, fieldwork & initial drilling to get where Pampa is today.

In many gold / Cu districts there are perhaps 20-40 juniors competing for the attention of just a few Majors. In northern Chile there are fewer than 10 high-quality Cu-heavy juniors with valuations under C$50M, but a dozen Majors actively looking to grow.

Consider Chilean junior Josemaria Resources. It has a full Feasibility-stage project showing an after-tax NPV(8%) of $1.5B using $3.00/lb. Cu. However, if a Major were to take over, they could develop it faster with less operating risk. Instead of an 8% discount factor, 5% or 6% would be justified.

Instead of $3.00/lb. Cu, at $4.20/lb. I extrapolate the [NPV(6%)] to be ~$5.7 billion. The IRR would increase from 15.4% to ~37.8%. That’s why Josemaria has a market cap of C$425M.

Or, consider PEA-stage Chilean peer Marimaca Copper. At $4.20/lb.Cu, it’s after-tax NPV(5.5%) would be ~$1.5B vs. upfront cap-ex of just $285M. Marimaca’s market cap is C$334M.

Admittedly, Pampa is much earlier stage than Josemaria & Marimaca, but it has eight properties spread across 59,000 hectares upon which to find the next multi-billion pound Cu porphyry deposit in northern Chile.

Imagine the upside potential for Pampa Metals (CSE: PM) / (OTCQB: PMMCF) under any of these scenarios; 1] Cu rises just 15% from $4.349/lb. to $5.00/lb., 2] Marimaca or Josemaria get acquired by a Major, 3] Pampa farms out more properties, meaningfully lowering its cash burn rate. In any of these cases I believe that Pampa’s stock could soar.

In fact, I suspect Pampa’s share price would do quite well if any south American junior were to be acquired, companies like Solgold (Ecuador), Filo Mining (Chile/Argentina), Solaris (Ecuador). M&A will prove the substantial value of well-positioned juniors — serving as call options on Cu — in an emerging bull market.

Disclosures / Disclaimers: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Pampa Metals, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Pampa Metals are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.

At the time this article was posted, Pampa Metals is an advertiser on [ER] and Peter Epstein owned shares in the Company.

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