For years, Ecuador was a difficult place for mining companies to operate, with restrictive regulations and a government stonewalling new investments…until now. The country is making a major effort to improve investment in the region, and some very promising deposits are finally being explored and mined. The situation is akin to marijuana legalization in the West, where previously closed countries like Canada and the U.S. have opened up to this emerging industry. Pot stocks have boomed as a result, and Ecuadorian miners could see a similar dynamic. Lucky Minerals (LJ) is an undiscovered junior in the region with a promising concession near one of the biggest mineral finds of the last twenty years. That deposit, the Fruta Del Norte mine, was valued at $1.2 billion in an acquisition. Lucky Minerals is beginning exploration work, and it could be set to rise as the results materialize this summer. A similar company in the area is already worth 6X as much.
NEW YORK, NY / ACCESSWIRE / August 9, 2018 / Ecuador, long left for dead by the mining exploration industry, may be coming off a multi-decade bottom in terms of mining investment attractiveness. Critical changes to the government have re-opened this mining ghost town to investment from majors and minors alike, and this region, plus the companies that are exploring there, could be about to go through a major boom.
The apt analogy is the marijuana industry in Canada and the companies that service this new and growing market. This entire sector has benefitted over the last few years as parts of the U.S. have opened up recreational and medical marijuana use, and finally as Canada has officially legalized the substance. The Hydropothecary Corporation (TSX:HEXO.TO) and Aphria Inc. (OTCQB:APHQF) for example, have gained substantially in the last 5 years as the legalization of marijuana has moved slowly along the bureaucratic trail.
We’ve identified one up-and-coming explorer with rights to a promising concession in southern Ecuador. Critically, this concession is just 40 km away from one of the biggest gold discoveries of the last twenty years – which sent its parent stock from $0.60 to $40.00 within a few months as drilling confirmed the initial discovery work. Lucky Minerals (LJ) only recently acquired this concession, and the shares could look very similar with the right findings. They’re doing initial exploration work this summer, and the first mineral indicators from this neglected region could light LJ up for mining investors.
Ecuador Back In Business For Miners, Could Be Next Major Mineral Region
Ecuador had, for years, been a sore spot for major gold and mineral miners. Under a restrictive government administration, the country implemented a number of barriers to entry for both mineral discovery and extraction: a 70% windfall tax, for instance, and a restriction on the number of concessions a single company could hold.
The timing, in the early 2000’s, couldn’t have been much worse for one of the biggest discovery success stories of the last 30 years: that of the Fruta Del Norte deposit in southern Ecuador. This find, with a 43-101 inferred resource calculation of 13.7 million ounces, sent shares in the little Aurelian (then a public company) ripping as high as $40, from $0.60! Further exploration then culminated in a $1.2 billion acquisition by Kinross (K) (KGC)!
Unfortunately, the initial discovery went south for Kinross when all exploration in the country was halted by presidential decree, and the company sold the project to Lundin Gold (TSX:LUG.TO) for $240 million in 2014. In March of 2018, Lundin completed a massive $400 million financing to complete the Fruta Del Norte project, which will begin production in 2019.
But now, Ecuador is coming back online with a new president and more open administration committed to investment in the country. President Lenin Moreno has been trying hard to make the country more business-friendly, including plans to increase mining investments by 360% in the next four years as the government creates a stand-alone mining ministry. According to BMI Research, the Ecuadorian mining sector will see its value increase to $7.9 billion by 2021.
You can see this is working already:one of the hottest stories in the junior mining sector last year was SolGold (TSX:SOLG.TO) and its Cascabel property, a copper/gold deposit in the northwest region of Ecuador.
Lucky May Have A Major Resource On Their Hands With Nearby Fortuna
Southern Ecuador is home to a prolific mineral belt, and Lucky Minerals’ Fortuna claim is just 40km from Fruta Del Norte. This is a 550 sq. km concession situated on a similar N-NE-trending geological structure, and it is newly acquired from a private company that sat on the concession with no modern exploration for the last 10 years despite discoveries being made in the area surrounding. The decision to acquire Fortuna was made by Lucky’s new board of directors and technical team following a restructuring in 2016 and 2017, and the Fortuna project is their top priority.
It’s a perfect project for discovery work by Lucky, having received no modern exploration or drilling despite similarities to other major deposits in the area, like Fruta Del Norte and the nearby Mirador. The Fortuna property has considerable potential for gold and porphyry mineralized systems, and Lucky is doing initial exploration efforts this summer. Detailed mapping, sampling and assaying of 4 targeted areas will be undertaken starting in mid-July.
This field program will be followed by an airborne magnetic geophysical survey in September to complement previous satellite imagery and identify and prioritize additional targets in all 12 of the Fortuna concessions. This is quite similar to the process that Aurelian went through before the Fruta discovery.
How Lucky Shares (LJ) Could Rally From $0.15 to $0.90
There is, in fact, a case to be made that Lucky Minerals is already considerably undervalued. The closest peer company developing a similar concession in the region is called Aurania Resources (TSX:ARU.TO). Their flagship asset, The Lost Cities Cutucu Project, is located in the eastern foothills of the Andes mountain range of southeastern Ecuador. Aurania is being valued by public market investors at a $65 million market capitalization ($2.00 share price) based primarily on this promising asset.
Undiscovered Lucky Minerals, meanwhile, has remained at a market valuation of just $11 million, despite similar rights and discovery timelines. These are both early exploration efforts…the difference is that investors are familiar with what Aurania is sitting on. For Lucky Minerals, it could just be a matter of seeing early exploration results before their market value looks similar. At $65 million, like Aurania, LJ would be a $0.90 stock, from only $0.15 today, or a 6X return. That would be quite fruitful for early investors as LJ begins exploration this summer.
As with most junior miners, Lucky is a high-risk play, and investors should be aware of the potential downside should the company fail to secure proper financing, or if Fortuna is a dud. Development stage mining stocks can offer big upside but also can go to zero if things don’t work out as management expects.
Much like marijuana investments before the steady move towards Western legalization, as Ecuador comes back online it appears that new investors may be buying in at “the bottom” for this left-for-dead region. LJ has a great risk-to-reward, in our opinion, based on both upside potential in the long-run, and the possibility for near-term price action as exploration begins. Considering Ecuador’s geography, similarities to a couple of the world’s most prolific mining countries, and lack of modern exploration activity, Ecuador may hold some of the world’s last major untapped mineral opportunities, and it could quickly become a fruitful contrarian bet.
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