José Antonio Berlanga
Telson Resources
View from the Top

Making the Jump From Exploration to Production

Wed, 10/18/2017 - 15:15

Q: How has the exploration segment of the mining sector in Mexico developed since the 2014 fiscal reforms?

A: The fiscal reforms certainly had an impact on exploration in the country, especially the clause that established exploration expenses were not a cost and therefore were not tax deductible. Foreign companies in particular no longer view exploration as an investment but rather as an expense, with no guarantee of returns.

Without overlooking its importance and good intention, the implementation of the Mining Fund also affected the country’s exploration sector, since investment was made less competitive and attractive. Initially this fund was created to support the specific communities where the mines were situated but unfortunately it was decided that these funds would be assigned to the federation, state and municipalities. This means that only a small percentage or none of these resources arrive in the communities with mining activities. These communities may be even more affected since SEDATU, which is in charge of assigning the funds, has requested a percentage of the money for its operation.

However, mining companies continue to invest in the country and strongly support the communities in which we operate, independent of the obligations imposed on us. We recognize their importance and we have faith that the authorities will act to minimize the aforementioned implications for the communities.

Q: What are the challenges you face as a Canadian junior mining company working in Mexico?

A: The main challenge is in the excessive regulation, which is becoming ever stricter, driving up prices and making exploration and development slower and slower. This is only exacerbated by the negative perception of the mining sector perpetuated by the media and by the lack of certainty in mining legislation. Although it has improved greatly, we still have significant infrastructure, service and safety deficiencies, which requires higher investment, costs and time to develop a project.

Q: What impact will the CA$10.5 million credit line have on the Tahuehueto project?

A: Financing is a challenge for mining companies. Despite having a solid project, it is difficult to attract investment to the country. Locally, it is extremely difficult to get a bank to offer financing for exploration or development of a mining project. We secured a significant line of credit from our investors, which will allow us to continue with the development of Tahuehueto and bring it into production in 2017. The first resources from this credit line were used to carry out a prefeasibility study (PFS) with an independent company in accordance with the Canadian norm 43-101. We expect this study to be ready at the end of November. We were also able to carry out an industrial test on 3,500 tons of mineral. We are about to conclude this stage with excellent results in terms of the ore quality, the sales of which we expect to make us self-sustainable. We are in a position to approve the construction of Tahuehueto and take it into production.

Q: How will you ensure the project continues to receive enough financing to bring it into production?

A: We are working with service and machinery providers, opening lines of credit to obtain equipment, work camps, and all other components we will require. We are also about to close an agreement with an energy company, which will install and operate a generation plant for the project and will provide us with energy at a competitive price.

We are fortunate enough to have a very high-quality project and an experienced team to develop and operate it, which has instilled our investors with confidence and has facilitated our financing. We are optimistic that Tahuehueto will be in operation at the end of 2017, and we aim to produce 150,000 tons of mineral and more than 40,000 gold equivalent ounces per year.