Max Resource’s Inks Earn-In Deal With Freeport-McMoRan – Richard Mills

2024.06.04

For many juniors, the goal is to find a deposit that’s good enough to attract a major who will acquire the asset. Another pathway is for the junior to partner with a larger company. Earn-ins and joint venture agreements (JVs) help juniors to gain access to the financial and technical resources needed to explore the deposit further, and eventually build the mine.

Max Resource Executes Earn-In Agreement with Freeport-McMoRan Exploration Corporation for the Cesar Copper-Silver Project

On May 13, Max Resource Corp (TSXV:MAX, OTC:MXROF, Frankfurt:M1D2) entered into an Earn-In Agreement (EIA) with Freeport-McMoRan Exploration Corporation, an affiliate of Freeport-McMoRan Inc. regarding Max’s Cesar copper-silver project in northwestern Colombia.

Under the EIA, US-based Freeport has an option to acquire up to 80% of Cesar by spending CAD$50 million to explore the property, and making a series of cash payments totaling CAD$1.55 million. 

To earn an initial 51% interest, Freeport must fund $20 million of exploration commitments at Cesar over five years and make staged payments to Max totaling $800,000. Max will remain the operator during this initial stage. Once Freeport earns its 51% interest, Freeport can increase its interest to 80% by funding another $30 million in exploration commitments over five years, and making staged payments totaling $750,000.

Freeport-McMoRan brings a lot of game to the table. The amount of financial, technical and human resources they can aggressively throw at any project they have taken an interest in, is far beyond what a junior can do. Such resources include their proprietary expertise garnered over the years becoming the world’s leading copper producer.

Freeport Bio

Freeport-McMoRan Inc. (NYSE:FCX) is an international mining company headquartered in Phoenix, Arizona.

FCX operates large, enduring, geographically diverse assets with significant proven and probable reserves, and primarily explores for copper, gold, molybdenum, silver and cobalt deposits.

The company is the world’s largest publicly traded copper producer and the fifth largest miner by market cap.

FCX’s portfolio of assets includes the Morenci mine in Arizona, Cerro Verde in Peru, El Abra in Chile, and the massive Grasberg mine in Indonesia. For more details click on the Operations tab on Freeport’s website.

Max Resource stands out among copper exploration, development and mining companies for recognizing the potential of the Cesar Basin. The company’s land package now spans more than 1,150 km of geology prospective for sedimentary-hosted copper and silver deposits, with Max’s 20 mining concessions totaling over 188 square km. Field teams have so far identified 28 targets.  

This article explores the benefits of the strategic earn-in partnership between MAX and FCX. The advantages to both companies become evident.

Technical Expertise and Operational Support

Few exploration companies have the money or technical expertise to “go mining”. (A study in Australia found the riskiest activity a junior explorer can do is to actually build the mine. 28% of the New South Wales juniors in the study did this, and of those, half went broke or closed down their operations. Another 25% were taken over.)

This is where Max Resource’s JV agreement with Freeport-McMoRan becomes important. The JV grants MAX, as operator for the first 5 years, access to FCX’s technical expertise and operational support. Freeport brings extensive experience in mining operations, technological advancements and best practices.

This collaboration allows Max Resource to tap into Freeport-McMoRan’s knowledge base, enhancing Max’s understanding of copper exploration and extraction processes.

With Freeport-McMoRan’s guidance, Max can navigate challenges, optimize their exploration operations, and minimize risks associated with copper/ silver exploration and development.

For example, in FCX’s first-quarter 2024 report, it mentions ongoing efforts to mitigate lower ore grades at the Morenci mine. Asset efficiency, productivity initiatives, and cost controls were seen as instrumental in a sustained leaching rate of ~200 mm lbs per annum.

In the Americas, new leach technologies show the potential for significant increases in recoverable metal beyond the current run rate.

Freeport’s Bagdad mine in northwestern Arizona is expected to become the first US mine with a fully autonomous haulage system, by converting the 30-truck manned fleet to 100% autonomous by the third quarter, 2025.

Enhanced Exploration Capabilities

By partnering with FCX, Max Resource benefits from enhanced exploration capabilities.

FCX possesses advanced exploration technologies, geoscientific expertise, and a vast network of industry contacts. These resources enable Max to conduct more extensive and accurate geological surveys, geophysical studies, and geochemical analyses. As a result, they can identify copper deposits with greater precision, increasing the chances of the deposit becoming a mine.

In its fourth-quarter 2023 report, Freeport says exploration results continue to indicate opportunities for significant future potential reserve additions at FCX’s properties in North America and South America. Exploration expenditures for 2023 were expected to approximate $100 million, on par with $105 million spent in 2022. FCX plans to advance Lone Star and other opportunities at its North American copper mines.

FCX’s proven and probable mineral reserves, as of December 31, 2022, include 111 billion pounds of copper, 26.9 million ounces of gold and 3.53 billion pounds of molybdenum.

Risk Mitigation and Market Credibility

The mining industry is inherently uncertain, conferring high risk on exploration firms. However, through its partnership with Freeport-McMoRan, Max Resource gains a level of risk mitigation and market credibility.

FCX has achieved, and is committed to maintaining the Copper Mark and Molybdenum Mark at all of its sites. The Copper Mark is an assurance framework developed to demonstrate the copper industry’s responsible production practices. It requires third-party assurance of site performance and independent Copper Mark validation every three years.

Being a top-tier global copper producer, Freeport’s reputation and track record lend credibility to Max’s operations and increase investor confidence. This enhanced market standing can help Max secure additional funding, partnerships, or off-take agreements, further strengthening their standing in the junior copper sector.

Synergy and Strategic Growth

The collaborative nature of option/JV agreements allows for synergy and strategic growth. Max Resource and Freeport can pool their resources, knowledge, and networks to leverage each other’s strengths in Colombia. This collaboration promotes innovation, efficiency and cost optimization, ultimately driving growth for both companies.

“Careful consideration was given in selecting the best suited earn-in party for Cesar, and access to Freeport’s global team and expertise is aimed at unlocking Cesar’s potential. Freeport has a track record of global copper discoveries that have proceeded to mine development and production. Max looks forward to advancing our Cesar Project with Freeport, one of the world’s largest copper producers,” Max’s CEO Brett Matich said in the May 13 news release.

Furthermore, if the partnership proves successful, it may open doors for future joint ventures or acquisitions.

Max’s option/JV agreement with Freeport-McMoRan provides the company with a significant advantage over other copper exploration companies. By aligning themselves with a financially stable and experienced mining company, Max Resource gains access to necessary financial resources, technical expertise, and enhanced exploration capabilities.

The partnership with Freeport-McMoRan mitigates risks, enhances market credibility, and fosters strategic growth. As a result, Max is well-positioned to capitalize on the opportunities presented in not only copper exploration but the junior exploration sector as a whole, setting itself apart from its competitors.

Leveling the Playing Field

Fact – It does not matter where you explore, develop and mine, your biggest cost factor is remoteness from infrastructure. The difference between how far CAD$50m would go in remote northern Canada and non-remote southern Canada demonstrates this fact extremely well and is shown below.

Taken from Leveling the Playing Field

Projects were grouped into three categories: non-remote (50km or less from a supply route); remote (from 51km to 500km); and very remote (more than 500km). Based on these groupings, an analysis of average costs (using all-in costs for diamond drilling) revealed the following:

• The average costs of the remote and very remote projects (more than 50 km from a supply route) were 2.27 times more expensive than the average costs of the non-remote projects (up to 50 km away).
  
• The average costs of the very remote projects (more than 500 km from a supply route) were, on average, 2.8 times higher than the non-remote projects.

Production

The mine development cost premium is largely due to the need to invest in infrastructure that would not be required for an otherwise equivalent southern mine.

Costs for northern mine development include:

• Capital costs, which can be particularly high compared to an equivalent mine in a centrally located jurisdiction:
  
• About double for gold mines
  
• 2.5 times higher for base metal mines
  
• Operating costs, which are about 30%–60% higher

A Northern Canada versus Colombia comparison is instructive. Arguably, CAD$50 million spent in Colombia will go a lot further than CAD$50 million spent in northern Canada, especially when you consider the exchange rate.

The exchange rate between Canada’s dollar and Colombia’s peso is very favorable — $1.00 CAD = 2,830 COP.

As the map below shows, Cesar is close to existing mining infrastructure. There is also a skilled labor pool to draw from. Any new infrastructure required will be paid for with Canadian dollars that, when converted to Colombian pesos, will cost a fraction of the equivalent infrastructure in Canada — let alone remote Canada.

The Cesar project region provides access to major infrastructure resulting from oil & gas and open pit mining operations – roads, airport, railway, workforce, supplies and deep-sea ports.

Freeport is going to spend up to $50m earning 80% of the Cesar project. Max will own, at no further dilution to itself, 20% of whatever Freeport’s money finds/drills.                          

Freeport is going to start spending money drilling to start their earn-in, news will flow. For FCX to be there, their criteria for getting involved in a project big enough to make a difference to their bottom line would had to have been met.

Juniors do not own, for long, 20% of a successful project in the hands of a major miner, let alone the fifth-ranked miner by market cap.

Would MAX have a huge takeout target on it’s back? I’ll let you decide, but here’s what I think about:

1. With every new discovery, with every successful drill hole MAX should get more expensive.

2. Every success, every positive news release, could mean an offer from someone else who might to want to own our action.                    

If we’re still around when a cash call comes, it means Freeport is taking Cesar down the mine development road and again, in my opinion, there isn’t a bank in the world that would not finance Max’s part of a Freeport mine.

Conclusion

The Freeport deal has been approved. No shareholder vote was needed.

Max Resource Receives Exchange Approval for Cesar Earn-In Transaction

Every junior resource company that tries to build a mine suffers the massive dilution that will entail, many fail. Way too many companies get blown-out share structures just getting to a first or second resource estimate, diluting the return to shareholders even before starting the numerous studies and permitting processes.               

It’s always a trade-off: let someone else spend the money and take the country/results risks; or try to go it alone, suffering years of risk, market cycles and dilution.

It should be easier for Freeport, with their vast network of industry and government contacts, to navigate the political and operational situation in Colombia. Although it must be said, Max Resource has done an admirable job of that, which means FCX and MAX should be able to work together in Colombia, and perhaps elsewhere in South America.

By having FCX fully fund all exploration activities on the Cesar project, Max Resource can allocate more capital towards developing its other 100% owned projects. 

There will be a shareholder vote needed to approve the Florália hematite deposit acquisition from Jaguar Mining. I expect we will be back to trading after Max releases a 43-101 report on the project.

Max Resource to Purchase the Florália Hematite Iron Ore Property in Brazil

Max Resource Corp.
TSXV:MAX; OTC:MXROF; Frankfurt:M1D2
Cdn$0.15 2024.06.03
Shares Outstanding 176m
Market cap Cdn$26.3m
MAX website

Richard (Rick) Mills
aheadoftheherd.com
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