Los Cerros Limited


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Our Investment Summary

Date of Initial Coverage


Initial Entry Price


Returns from Initial Entry


Our Big Bet for LCL

LCL to re-rate 1,000% off exploration success on its PNG gold, copper, nickel projects OR from developing its advanced gold project in Colombia.

Investment Memo: Los Cerros Limited (ASX:LCL) - LIVE

Opened: 02-Feb-2022

Shares Held at Open: 3,210,000

What does LCL do?

Los Cerros Limited (ASX: LCL) is an exploration company on the hunt for world class gold assets in the emerging global minerals hotspot within Colombia. LCL is aggressively drilling to determine the extent of its flagship project and surrounding areas.

What is the macro theme?

Gold remains a safe haven investment and hedge against inflation, and has historically outperformed in times of volatility (e.g market bubble crash, armed conflicts, pandemics…). Bullish gold market conditions persist, particularly with the go-to response to the pandemic being unprecedented worldwide monetary and fiscal stimulus (ie ripe conditions for sustained inflation and lower interest rates).

Why did we invest in LCL?

Potentially a huge gold deposit

It’s all about size. More ounces translates to more value, and LCL has its hands on what appears to be a big (multi-million ounces?) gold discovery that's still growing, down the road from its existing smaller gold deposit. This year LCL intends to exceed its record for drilling, having secured 5 rigs on site, which in turn should lead to a maiden resource estimate [at Tesorito] - corrected on 9 May 2022.

Potential that their two discovered gold systems are actually connected

Late last year, geophysical surveys confirmed a huge, deep, metallic anomaly (which we’ve affectionately labelled “Jabba the blob” for its size) between LCL’s two most advanced prospects. This year, LCL is drilling Jabba to determine if it hosts a deeper, possible source porphyry deposit that links other known prospects - this could indicate that a much larger goldfield.

Capital register set for growth

Backed by two of the world’s leading gold investment funds, and with Top-5 largest global gold producer Anglogold Ashanti on the register, LCL has a register with deep pockets and seeking Tier-1 asset discoveries.

What do we expect LCL to deliver?

Objective #1: Deliver a maiden JORC resource at its Tesorito gold prospect

Since its discovery in mid-2020, LCL has been drilling its flagship Tesorito prospect, but has yet to find all the limits of the deposit. This suggests a large gold system in place. We anticipate that LCL will continue to drill until at least 3 of the 4 edges are found, before determining the maiden resource estimate (MRE), likely sometime in mid-2022.

Here is how we will rank the JORC resource estimate result (our opinion only):

Sprott Initiation Coverage

Warwick Grigor Calculations

Objective #2: Test if LCL's two gold systems are connected by drilling in-between them

  • LCL suspect that it may have more than just one big deposit on its hands, as there is evidence that the flagship may just be one end of a bigger, regional goldfield
  • Drilling is underway to test this, starting with several deep holes into “Jabba”. We anticipate first results by 2Q22. If these results are encouraging, we’d expect further drilling into Jaba to continue throughout the year.
  • If the results from Jabba are not promising, we expect LCL to send those drill rigs to fast-track exploration at other advanced prospects nearby

Objective #3: Commence scoping studies

Following maiden JORC resource at its Tesorito prospect, and incorporating existing Definitive Feasibility Study at Miraflores and potential ‘nested porphyries’ discoveries, we anticipate LCL to commence a scoping study in 2H22. This is significant as this will provide a clearer indication of what returns could be expected should the flagship be commercialised.

Objective #4: Get some big gold funds on the register

Given that LCL is close to releasing a maiden JORC, we would like to see a strategic raise to bring in a couple more major gold funds, preferable at a much higher share price than the current ~11c. Bringing on more major gold funds (or increased investment from the two gold funds already on the cap table) will underpin the valuation.

What could go wrong?

Exploration risk

LCL is years away from production of its assets, and hence its value is derived from exploration success, which is not guaranteed to eventuate. Drilling deep in between their gold systems is quite expensive (~$1m per drill hole), and hence if nothing substantial is revealed in the early holes, it is likely that LCL will preserve capital and focus elsewhere (ie no real return). Furthermore, if the maiden resource estimate at the flagship is underwhelming (we’d suggest anything under 1Moz gold), then we presume the market will be disappointed, likely leading to a sell down.

Capital requirements

LCL is not a producer, remaining an explorer, and so requires continuous funding as it determines the value of its prospects . As such, the company will be required to raise capital for survival when the current cash at bank drains. There is no guarantee that capital markets will be conducive at that point.

Underlying commodity risk

LCL is exposed to commodity price risk (in this case, gold), which depends on macroeconomic factors and demand and supply dynamics of the underlying commodities. Market sentiment closely correlates with commodity prices, and hence LCL’s valuation will be impacted by commodity prices as well. There is no guarantee that gold sentiment will trend positively this year.

Sovereign risk

LCL’s prospects are all located in the developing nation of Colombia. There is no guarantee that local authorities and/or communities will favour development of LCL’s prospects, and so could hinder advancement.

What is our investment plan?

Our strategy with advanced explorers is to achieve free carry prior to decision to develop, which is likely beyond 12 months away. Given the success at Tesorito and introduction of several respected gold funds, we intend to hold ~60% of the initial position to see the entire story play out over at least 2 to 3 years.

Disclosure: The authors of this article and owners of Next Investors, S3 Consortium Pty Ltd, and associated entities, own 3,210,000 LCL shares at the time of writing this memo. S3 Consortium Pty Ltd has been engaged by LCL to share our commentary on the progress of our investment in LCL over time.

Investment Milestones for LCL

✅ Initial Investment @ 3.6c
✅ Top Slice
✅ Free Carry
✅ Increase Investment @ 7.68c
✅ Free Carry
✅ Increase Investment @ 15.25c
✅ Free Carry
✅ Increase Investment @ 17.73c
🔲 Free Carry
🔲 Take Profit
✅ Price increases 300% from initial entry
✅ Price increases 500% from initial entry

🔲 Price increases 1000% from initial entry
✅ 12 Month Capital Gain Discount
🔲 Hold remaining position for next 2+ years

Our Past Commentary on Los Cerros Limited

Date Title
25-Nov-2022 $ LCL acquires new gold and battery metals project - drill campaign incoming
22-Oct-2022 $ 0.023 Weed and gold, the unloved investment thematics
21-May-2022 $ 0.065 Commodities super cycles
16-May-2022 $ Assays reveal Miraflores extends significantly deeper
23-Mar-2022 $ LCL Unveils Mineral Resource Estimate as Gold Brushes up Against US$2000/oz
21-Feb-2022 $ 0.115 Why we invest in Oil & Gas and Precious Metals
05-Feb-2022 $ 0.120 The "Lesser Kown" Energy Transition Metals: Copper, Aluminium, Graphite, Helium, Rare Earths
02-Feb-2022 $ LCL finally hits the edge of its giant gold system - JORC resource estimate coming.
18-Dec-2021 $ 0.110 Investing 101: Taking Stock of your Stocks and Diversification
27-Nov-2021 $ 0.130 New COVID strain, Santa Rally, Market Thoughts
06-Nov-2021 $ 0.135 COP26, Battery Metals, Green Energy
30-Oct-2021 $ 0.150 The fallout from the VUL short attack explained
26-Oct-2021 $ LCL drone survey identifies giant magnetic blob
02-Oct-2021 $ 0.135 Evergrand, Gold and Traditional Energy
28-Sep-2021 $ 0.140 Even more stellar gold hits from our gold investment, ASX: LCL
25-Sep-2021 $ 0.135 Managing a market crash - lessons from March 2020
20-Sep-2021 $ 0.130 ONE, VUL all grown up… BPM, LCL finding targets. PUR drilling again.
21-Aug-2021 $ 0.140 Market fluctuations and portfolio news and quick takes
14-Aug-2021 $ 0.165 Bookmark it, a new Pick of the Year is coming next week
10-Aug-2021 $ 0.145 Cashed up LCL delivers more results. 16c Option pressure on share price ends on Monday.
17-Jul-2021 $ 0.180 Cash is King, Gold Stocks and Enough of VUL and EMN
16-Jul-2021 $ 0.180 LCL Raises $20M at 16c - Five Drill Rigs on Site
13-Jul-2021 $ 0.170 New Assay Results for LCL’s Giant Porphyry System
10-Jul-2021 $ 0.175 Breaking News: Stellantis signs offtake MoU with VUL
03-Jul-2021 $ 0.185 End of Financial Year, and what happened to 88E's share price?
26-Jun-2021 $ 0.175 June tax loss selling is behind us, KNI IPO expected in August
22-Jun-2021 $ 0.175 LCL Delivers Highest Ever Grade at its Giant Porphyry System
27-Apr-2021 $ 0.185 Our Portfolio Performance from January 1st to March 31st 2021
07-Apr-2021 $ 0.170 LCL’s Gold Porphyry Discovery Keeps Getting Bigger
18-Mar-2021 $ 0.155 LCL’s Gold System Keeps Getting Bigger
21-Jan-2021 $ 0.185 LCL’s “truly spectacular” gold intercepts pave the way for share price upgrade
21-Jan-2021 $ 0.185 Is LCL Discovering Another Monster Colombian Gold Deposit?
07-Jan-2021 $ 0.130 Our Stock Picks for 2021
10-Sep-2020 $ 0.092 Is LCL One Step Closer to the Next Multi-Million Oz. Colombian Gold Deposit?
03-Aug-2020 $ 0.061 Drilling Imminent as Rig Arrives at LCL’s Quinchia Gold Project
30-Apr-2020 $ 0.034 Gold Junior Los Cerros Welcomes Mining Major to the Register

More developments at Colombian gold project


Jan 23, 2023


Investment Memo: LCL IM-2022
Objective 3 : Commence scoping studies

Shares Held: 3,210,000

Options Held: 0

Trust Centre

Los Cerros (ASX:LCL) announced today that an ongoing detailed geological review of its Quinchia Project in Colombia has revealed a new area of interest at the Ceibal porphyry target.

This target, located less than 1km from the LCL’s at surface, high grade, Tesorito gold porphyry discovery, has not been previously tested and LCL intends to undertake an immediate low-cost field program to better understand the opportunity.

Additionally, today’s announcement confirmed that LCL can tick the box on two key deliverables that it had set out to achieve at the Quinchia project:

1) Completed the pre-scoping production assessment review investigating production options for the Quinchia Project. Several production scenarios were investigated that warrant further investigations.

The commencement of scoping studies was a key objective that we wanted to see LCL achieve, as outlined in our LCL Investment Memo last year.

2) Submitted the Miraflores Environmental Impact Assessment (EIA), marking the final major submission required for development approvals at Miraflores. LCL notes that commencing with small-scale production here is one of the production scenarios considered in the pre-scoping assessment.

We like to hear that LCL is continuing to make progress at its Colombian project following its recent acquisition of multiple copper, nickel, and gold targets in Papua New Guinea (PNG).

And while we remain positive on Colombia, we are really looking forward to exploration to begin in PNG, particularly given the existing exploration data that includes some of the highest grade rock chip assays we have seen — including massive nickel sulphides measuring 45.8% nickel; surface trenches with 2.6% copper, and 11.5g/t gold grades.

As announced last week, site preparations have already begun ahead of maiden drilling that is scheduled for March ahead of first assay results that should arrive next quarter.

First drilling campaign planned for new PNG assets


Jan 16, 2023


Investment Memo: LCL IM-2022

Shares Held: 3,210,000

Options Held: 0

Trust Centre

In November 2022, our junior exploration Investment Los Cerros (ASX:LCL) acquired multiple high-grade copper, gold and nickel targets across five project areas in Papua New Guinea (PNG).

The company today announced it has selected the Kusi Copper/Gold Prospect for the first drilling campaign of these assets.

So, why Kusi first?

Kusi lies within the Ono Project, which is perhaps the most advanced of the new projects acquired. Oso spans some 1,630km2 and is considered prospective for high grade oxide gold in skarns along with epithermal and porphyry style mineralisation.

It is located ~150km from the industrial port of Lae, and within the same structural belt as the multi-million-ounce Hidden Valley gold mine (8Moz) and the Wafi-Golpu copper/gold project (28Moz Au + 13.7Mt Cu). Despite its high prospectivity, much of the project area has never been prospected nor assessed with modern techniques and understanding

At Kusi in particular, historical drill intersections have been impressive, including 35m @ 3.04g/t gold from 136m, plus there is trench sampling that includes 8m @ 11.5g/t gold, 2.6% copper, 24g/t silver.

The combination of big regional discoveries within the same geological formations alongside existing trove of drilling data and gold intercepts made Kusi the standout choice to focus initial exploration activities.

A 3,000m drilling campaign is now in the works, which will deliver over ~18 diamond holes, and is expected to commence in March. A semi-permanent field base is being constructed near the Kusi village — a sign that LCL expects to be drilling here for quite some time (i.e. beyond this initial campaign).

We’re hoping that results from this campaign will lead to progress on our Big Bet for LCL:

“LCL to re-rate 1,000% off exploration success on its new PNG gold, copper, nickel projects or from developing its advanced gold project in Colombia.”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is a lot of work to be done, many risks involved - just some of which we list in our LCL Investment Memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.

Next up

We await drilling to commence in March, with first assays expected in the following quarter. We are also keen to see an update on the progress of LCL’s Preliminary Economic Assessment (PEA) at its Quinchia Project in Colombia, which would provide clarity on what investment returns that development of the project could deliver.

LCL wins Colombia’s leading ESG award


Nov 11, 2022


Investment Memo: LCL IM-2022
Risk 4 : Sovereign risk

This morning, our gold Investment Los Cerros (ASX:LCL) announced that it had won the Colombian Gold Symposium ESG Award.

For those living under a rock, ESG stands for Environmental Social Governance, and is somewhat a measure of how corporations act responsibly.

In this instance, LCL has been recognised for its Miraflores Somos Todos (We are all Miraflores) program, which assists the local artisanal mining community to transition to more sustainable and safer activities.

These activities include agricultural training and capital for farm optimisation, higher education scholarships, and entrepreneurial productive projects. The latter in particular has had a profound impact on the local community, incorporating high profile initiatives such as Quinchips and Quinchia Coffee projects.

ESG is especially important for companies with ambition to develop projects through to commercialisation, as without government and community support, these projects rarely receive the green light to advance. When done well, the local community and government can actually become proactive advocates, as has been the case with LCL - Los Cerros recognised for local ESG endeavours.

This all bodes well should LCL progress its Quinchia Project in Risaralda, Colombia through to production.

If you recall, this project is a cluster of porphyry and epithermal gold/copper targets within a 3km radius, underpinned by established Mineral Resources of 2.6Moz @ 1g/t Au, with further upside for more discoveries.

LCL remains cashed up, with over $11M in the bank as at 30 September 2022, so is well funded to advance Quinchia.

What’s next?

We look forward to an update on the progress of the Preliminary Economic Assessment (PEA). As covered with our LCL Investment Memo, the PEA provides clarity on what investment returns development of the project could deliver.

The recent election of a left-leaning president has dampened broad investor interest in resources companies focused in Colombia, and we’re watching to see how the new president's policies play out.

High grade gold in soil sampling


Nov 08, 2022


Investment Memo: LCL IM-2022

Our junior gold exploration Investment, Los Cerros (ASX:LCL) opened 20% higher this morning on news of high grade gold hits from soil channel sampling at the Dosquebradas gold/copper porphyry, which is part of LCL’s Quinchia Gold Project in Colombia.

The 2.6Moz Quinchia Project comprises a cluster of porphyry and epithermal gold/copper targets within a 3km radius, including Dosquebradas which has an existing Inferred Resource of 0.46Moz grading 0.71g/t gold.

Today’s higher grade surface sampling results include:

  • 146.6m grading 1.82g/t gold, including 34m @ 4.22g/t gold, and
  • 40m grading 2.16g/t gold

We like that LCL suspects that these results could enhance the Dosquebradas Resource grade near surface.

Additionally, results from deeper (3+ metre) auger samples were reported, including 9.28g/t gold and 5.68g/t gold.

Both the channel sample results and the auger samples are from a zone of sparse drilling beyond the historical 0.5g/t gold envelope defining the Dosquebradas Resource, suggesting potential extensions to surface of the current high grade resource envelopes.

LCL intends to integrate this new target area into the ongoing Quinchia Project geological review, which is targeting high grade resources proximal to those resources included in the ongoing Preliminary Economic Assessment (PEA) investigations.

What’s Next?

We now await word that the Preliminary Economic Assessment (PEA) has commenced. As mentioned in our LCL Investment Memo, the PEA — which is similar to a scoping study — will provide a clearer indication of what returns could be expected should the project be commercialised.

Trading in LCL shares (and broadly across listed companies focused in Colombia) have fallen significantly since the Colombian election of President Gustavo Petro earlier this year, given his pre-election stance for higher taxation of select natural resources sectors.

We are watching to determine whether the new government will actually commit to those policies, noting that it has already softened its stance by abandoning a proposed 10% export tax on gold companies.

Drilling completed at Quinchia, focus now squarely on PEA


Sep 27, 2022


Investment Memo: LCL IM-2022

Earlier today our gold Investment Los Cerros (ASX:LCL) announced that it had finally wrapped up its 80 hole, 37,000m drilling campaign at the Quinchia Gold Project, Colombia, which currently contains Mineral Resources of 2.6Moz @ 1.02 g/t Au.

The final hole QMDH61 targeted the depths of the Miraflores deposit, and was following on from encouraging results from two previous, very deep holes that suggested gold mineralisation could extend beyond the current shallower resource that hosts ~877k ounces gold.

Whilst most of the gold encountered in this drill hole was low grade, it did confirm further mineralised depth extensions. Of real interest is that a high-grade intersection of 1.7 meters at 26.6g/t Au was encountered as a depth extension of the vein 880 ore shoot (which is the principal ore shoot within the current Miraflores Resource), about 70m below the existing resource envelope. This shoot remains open at depth and raises the possibility of another deeper high grade gold zone (boiling zone).

We suspect that this will be investigated following planning for the next drilling campaigns.

With the rigs off, now the focus is squarely on completing the Preliminary Economic Assessment (PEA - akin to a scoping study) of Quinchia. Leading Australian engineering group Ausenco has been appointed to progress the PEA, which we expect to be ready by year-end.

We note that LCL maintained a healthy cash balance of over $14 million cash at June 30 2022.

For our detailed take on LCL and what we would like to see the company accomplish in 2022, here is our Investment Memo.

Critical minerals quickly becoming a priority in the EU

Sep 20, 2022

Macro: Commodities

Readers who follow our Investment Portfolios will know that we have been making strategic Investments in commodities that have made critical minerals lists for the EU, USA, Japan, India and Australia.

These minerals are considered critical to the digitisation and decarbonisation macro thematic and include lithium, graphite, cobalt, nickel and PGE’s, to name a few.

Over the weekend, the following speech from the president of the European Commission, Ursula von der Leyen, gave a speech announcing that the EU would look to pass a “European Critical Minerals Act”.

The aim is to avoid the position Europe finds itself in with oil and gas, where it relies on a single trading partner like Russia.

The act would see the EU put in place:

  1. Agreements with partners like Chile, New Zealand, Mexico, India and Australia for the supply of critical minerals.
  2. Identification of strategic projects across all along the supply chain from mine sites to processing/refining projects.
  3. The act would also see the setting up of strategic reserves of these critical minerals.

All of this bodes well for our Investments across commodities identified as “critical minerals” giving these projects strategic importance on the world stage.

To see a list of all the critical minerals in the Australian Critical Minerals strategy document, check out the following link.

Here is a snippet from that speech:

Los Cerros recognised for local ESG endeavours


Sep 14, 2022


Investment Memo: LCL IM-2022

It is crucial for companies developing resource projects to have the approval of both the governments and communities where they are based. Without such support, these projects rarely make it to commercialisation.

So we were pleased to see that our gold Investment Los Cerros (ASX:LCL) was recently publicly recognised for its ESG initiatives at its 100% owned Quinchia Project, in Risaralda – Colombia.

In a televised event, LCL received an award from Quinchia Mayor, Mr Absalón Trejos Arias on behalf of the Quinchia Regional Council alongside support from local community leaders. The mayor relayed the economic and social benefits of LCL’s presence within the community, predominantly employing locals - we note that 78 of LCL’s total work-force of 80 people (including executives) are Colombian.

This award comes on the back of LCL’s “Quinchips” initiative, which was a finalist in the Colombian Mining Industry ESG awards last year. This project re-trained 15 women from families of artisanal miners in Miraflores village (the closest village to LCL’s Miraflores gold deposit), to build and operate a plantain chip business.

LCL is busy progressing the Preliminary Economic Assessment of its Quinchia Project, which hosts a Mineral Resources of 2.6Moz @ 1.02 g/t Au. We expect this to be completed before year-end. The company remains well funded, with a cash balance of over $13 million at the end of June.

For our detailed take on LCL and what we would like to see the company accomplish for the remainder of this year, here is our Investment Memo.

Ausenco appointed to lead PEA of Quinchia Gold Project


Aug 29, 2022


Investment Memo: LCL IM-2022

Earlier today our gold Investment Los Cerros (ASX:LCL) announced the appointment of leading Australian engineering group Ausenco to develop a Preliminary Economic Assessment (PEA - akin to a scoping study) of the Quinchia Project in Colombia.

Quinchia hosts Mineral Resources of 2.6Moz @ 1.02 g/t Au spread across the Miraflores, Tesorito and Dosquebradas deposits, all within a 3km radius.

Quinchia Project

LCL is mulling three production scenarios prior to determining the favoured route for the PEA, namely:

  1. Treatment Plant based on Miraflores underground as the initial development - with subsequent expansion or modifications in outer years to then accommodate materials from other sites within Quinchia (including Tesorito).
  2. Treatment Plant based on the combination of Miraflores and a high grade starter pit at Tesorito - with incorporation of additional feed from the larger Tesorito pit shell, Dosquebradas and potential other sources in later years
  3. Treatment Plant based on Total Quinchia Resources.

The balancing act that LCL is considering is whether to pursue a capital light project with lower production (ie scenario 1) vs a more capital intensive but greater production capacity.

Today’s news follows recent results of Tesorito metallurgical test work that demonstrated Tesorito ore is likely to be amenable to a conventional process flow and to enjoy typical porphyry style recovery performance characteristics.

We like that LCL is very well funded with a strong cash position of over $13 million at the end of June, enabling it to continue advancing Quinchia.

We look forward to the completion of the PEA, expected before year-end. We look forward to the completion of the PEA, expected before year-end. For our detailed take on LCL and what we would like to see the company accomplish this year, here is our Investment Memo.

Noosa Mining Investor Conference round-up

Jul 22, 2022

Macro: Commodities

Spanning three days on the pristine Sunshine Coast of Queensland, the Noosa Mining Investor Conference kicked off its 12th year on Wednesday. Attracting a diverse and large spread of corporates, brokers, retail and institutional investors, this year’s event featured over 60 companies presenting and over 1,000 people in attendance, all hosted within the coastal town's Peppers Resort.

At the event, we caught up with a number of executives from our Investment companies (including AKN, AOU, BPM and PFE) as well as companies of interest, either as potential additions to one of our Portfolios, or to gain expert insight to macro and regional headwinds impacting the markets.

The conference is held in the ideal location to mix work with pleasure, and meet a host of CEOs of ASX juniors. Each day ends with a short ‘business at the bar’ session that quickly morphs into talking tactics about where to eat and drink. On Thursday and Friday nights, many head to the Noosa Surf Club for its networking sessions, enjoying its glassed indoor area and open deck to the beach.

We look forward to providing updates on companies we met with down the road.

More high grade gold hits for Los Cerros


Jul 21, 2022


Investment Memo: LCL IM-2022

Our gold exploration Investment Los Cerros (ASX:LCL) has provided an update on infill drilling at its Tesorito porphyry discovery in Colombia, delivering more high grade gold intercepts.

The short three drill hole infill drilling program was designed to better define the high-grade potential starter pit within the 1.3Moz Tesorito Inferred Resource pit shell, as part of LCL’s plan to advance and de-risk mature prospects within the Quinchia Gold Project.

The best results from surface include:

These results give greater certainty to the nature of the high grade porphyry core of the Tesorito discovery.

We think the move towards infill drilling is sensible given the nature of markets right now, and in particular, the lack of market sentiment for gold stocks.

This follows results of Tesorito metallurgical test work that demonstrated Tesorito ore is likely to be amenable to a conventional process flow and to enjoy typical porphyry style recovery performance characteristics.

LCL’s strong cash position of over $13 million at the end of June leaves it well funded to continue advancing the Miraflores and Tesorito deposits.

China considering US$1.1 trillion infrastructure stimulus

Jul 15, 2022

Macro: Commodities

China plans to make up to US$1.1 trillion in financing available for infrastructure spending, which we think will increase commodity demand. Read the following Bloomberg article for details.

Read the full article here.

Below are our key takeaways:

  • China is making 7.2 trillion yuan ($1.1 trillion) in funds available for infrastructure spending.
  • According to Citigroup, infrastructure investment in 2022 is likely to rise by 7.7% versus 2021.
  • President Xi Jinping has called for an “all out” effort to increase infrastructure spending this year to fuel economic growth and meet a GDP growth target of around 5.5%.

The Bloomberg article touches on the impacts of China’s COVID induced lockdowns on the domestic economy.

With economic growth tipped to slow, the Chinese government is getting ready to lean on fiscal stimulus through infrastructure investment to spur economic growth.

We think this type of fiscal stimulus is likely to become a common theme in China and the West, with macro themes like decarbonisation requiring massive CAPEX.

This infrastructure spending forms part of our “commodities supercycle” investment thesis, where we see increased fiscal stimulus and CAPEX investment spurring higher demand for commodities already facing supply shortages.

China considering US$220Bn in infrastructure stimulus

Jul 08, 2022

Macro: Commodities

The following Bloomberg article highlights China’s plan to spend up to US$220 billion to spur economic growth through infrastructure spending.

All of this new infrastructure will require more commodities.

Read the full article here.

Below are our key takeaways:

  • China’s Ministry of Finance is considering US$220 billion of infrastructure funding aimed at shoring up the country’s beleaguered economy.

  • The funding is to be brought forward from next year’s quota, marking the first time the issuance has been brought forward due to concerns around the dire state of the world’s second largest economy.

  • The funding would primarily be used on infrastructure spending to boost an economy hit by Covid lockdowns and a housing downturn.

  • Commodities rallied in European trading hours following the news, with copper moving 3.6% higher on the London Metal Exchange.

For over two years, we have been writing about an upcoming commodities supercycle brought about by infrastructure spending, following decades of underinvestment in the “real economy”.

All this investment in the “real economy” requires raw materials, which is why we think the macro backdrop for commodities over the next decade is strong.

The Bloomberg article highlights the readiness of the Chinese government to lean on fiscal stimulus to spur economic growth at a time when the Chinese economy is slowing down.

Generally, governments would try to respond to slowdowns in economic growth by cutting interest rates. With this tool exhausted after the COVID pandemic, we think infrastructure spending will become the new policy of choice for governments worldwide.

Again, this infrastructure spending will increase demand for commodities which we expect will take commodity prices higher.

VW CEO breaks down batteries and supply chain issues

Jul 08, 2022

Macro: Commodities

The following Bloomberg article showcases the moves major carmaker Volkswagen is making in the batteries industry.

Read the full article here.

Below are our key takeaways:

  • VW is pressing forward with investments along its battery supply chain, commencing construction at a new cell factory in Salzgitter, Germany, one of five facilities in Europe under the carmaker’s PowerCo subsidiary.
  • Salzgitter is home to VW’s main motor factory, and it is where the company last year opened an $80 million facility to research, develop and test EV batteries.
  • Roughly $2 billion will be invested in the new cell factory, where production is scheduled to begin in 2025.
  • VW expects its battery business to generate €20 billion in revenue by the end of this decade.
  • VW CEO Herbert Diess said, “We are invested in some startups and we are looking forward to a joint venture together with Bosch for the machine tools and equipment for those plants, so we’re really gearing up to become one of the bigger battery cell producers”.

The news is just another sign that downstream investment in battery supply chains is showing no signs of slowing down.

VW is one of the world's largest carmakers and is heavily investing in downstream production capacity. It expects this part of its business to generate over €20 billion in revenues by the end of the decade.

This is a situation where investment in midstream/downstream (manufacturing/battery industry) is far ahead of upstream investment (mining), this leads to the supply/demand imbalances for the raw materials required to produce batteries only becoming worse.

The imbalance comes from the timing of these mega projects. Building a downstream / midstream facility could take 1-4 years whereas it takes around 7 years on average to bring a new resource discovery into the production stage.

As a result, we think that raw materials prices will remain high for at least the next decade whilst the mining industry catches up to demand.

Highly encouraging testwork paves way for Scoping Study


Jul 07, 2022


Investment Memo: LCL IM-2022
Objective 3 : Commence scoping studies

Colombian-focused gold explorer, Los Cerros (ASX:LCL), has described results from metallurgical testwork at the Quinchia Gold Project’s Tesorito deposit as “highly encouraging”.

LCL has a substantial bank of established resources at Quinchia and the company is now focussed on creating value through building confidence in these resources.

We note that LCL offers substantial leverage to the upside — it is trading on a very low Enterprise Value of <$4M, with existing funds of ~$14M (as at 28 June) and a current market cap of $18.2M.

This first round of Tesorito metallurgical test work was designed to assess physical and metallurgical characteristics of the major lithology types in the Tesorito deposit, and to assess amenability to conventional grinding, gravity, and leach/adsorption processing routes.

Results included:

  • 97% recovery of gold from saprolite and 87% from other units (derived from 24 hour whole ore gold leach tests);
  • An optimal grind size of p80 ~75 micron, which is fine grind and typical of porphyry gold ores;
  • Deleterious elements such as arsenic, mercury, organic carbon and soluble copper are all low and of no processing concern.

LCL also noted that silver recoveries and commentary on potential processing pathways are pending and that gravity beneficiation would add no benefits so is not a required step.

These encouraging met’ test results are an important step to building a PEA (Preliminary Economic Assessment) around the project’s potential production scenarios.

LCL has outlined three broad production base case configurations to be investigated under the PEA framework.

  1. Plant designed and sized based on the Miraflores Underground Reserve. Subsequent expansion or modifications in outer years to then accommodate new materials from other sites within Quinchia (including Tesorito).
  2. Plant designed and sized on Miraflores (as above) plus a potential high grade starter pit at Tesorito, incorporating additional feed in later years.
  3. Plant sized and designed based on Total Quinchia Resources.

The completion of the PEA will go towards LCL meeting our Objective #3 for the company for this year: Commence scoping studies, as outlined in our LCL Investment Memo.

Drilling update at flagship gold project


Jun 29, 2022


Investment Memo: LCL IM-2022
Objective 2 : Test if LCL's two gold systems are connected by drilling in-between them

Our junior gold investment Los Cerros (ASX:LCL) yesterday provided a progress update on drilling at its flagship Quinchia Project in the mid-Cauca gold porphyry belt of Colombia. Quinchia already has an established JORC Mineral Resource of 2.6Moz @ 1g/t Au, all within a 3km radius.

Drill results from six holes have now been delivered, namely:

Central Target/Miraflores Deep – a second drillhole (TS-DH61) testing the Central Target between Miraflores and Tesorito deposits and beneath the Miraflores gold resource, returned 393m @ 0.19g/t Au. This shows extensive continuity of gold mineralisation, and is a promising signal that more ounces could ultimately be added to the Miraflores gold resource, which stands at 0.87Moz, including reserves of 0.45Moz Au.

Recall that the first drillhole (TS-DH57) here did not find the potential “Jabba the Blob” porphyry connecting Tesorito and Miraflores that we had initially hoped for, but instead identified Miraflores type breccias 500m below deepest historical drilling. This pointed to a large-scale hydrothermal system, extending from the Miraflores breccia pipe both laterally and at depth. Our in-depth coverage of these results can be found here.

A third hole is now underway to follow up these promising results, seeking to confirm further gold mineralisation below the Miraflores deposit.

Ceibal – results from three drill holes that followed up on two previous moderate grade, gold intercepts (500m @ 0.52g/t Au in CEDDH01, and 586m @ 0.51g/t Au in CEDDH02, both from surface) from late last year. No extensive gold mineralisation was encountered in any of the holes, and so the hunt for the causative porphyry source continues.

Tesorito North/Claras - two holes were drilled to test the southern edge of a +400m gap along the Marmato Fault between northern most Tesorito drilling and the Claras blind porphyry target, ~1km to the north of Tesorito. The assays for both holes returned only low gold mineralisation.

On the trading front, there has been a robust sell off of LCL shares recently, perhaps tied in with uncertainty related to the newly elected Colombian Government as well as general bearish sentiment for the junior exploration sector.

That said, we like that LCL has an extremely robust balance sheet, with $14M cash in the bank and no debt (vs its current market cap of ~$25M, for an EV of ~$11M). This means that it is highly unlikely that the company will need to raise further capital this year.

With LCL having earlier defined a resource at Tesorito, our LCL objective #1 for the year has already been achieved.

Next we want to see progress on our #3 LCL Objective - the PEA (Preliminary Economic Assessment or Scoping Study) is taking place alongside its extensive exploration program.

Of note, LCL stated in yesterday’s announcement that the PEA would be more of a focus given current market conditions, whilst conserving cash by reducing speculative drilling:

We look forward to an update on the PEA, likely within the upcoming quarterly report in late July.

See our LCL Investment Memo for our Investment strategy, key risks, and all of our objectives for LCL for 2022 here.

Miraflores deposit twice as deep as previously known


May 09, 2022


Investment Memo: LCL IM-2022
Objective 2 : Test if LCL's two gold systems are connected by drilling in-between them

Los Cerros (ASX:LCL) today provided an update on its 2022 drilling program at the Quinchia Project in the mid-Cauca gold porphyry belt of Colombia, which is designed to drive new discoveries and continued resource growth into 2023.

The announcement included updates on drilling at the project’s Central Target, Ceibal, Claras and Tesorito West prospects.

At the Central Target, the rig was testing a coincident magnetic and chargeability/conductivity high between Tesorito and Miraflores (as affectionately referred to as Jabba the Blob), with speculation that it could be porphyry joining the two deposits.

This was the second objective that we set for LCL to achieve in 2022, as per our LCL Investment Memo.

While the drilling of the Central Target didn’t make a porphyry discovery joining Miraflores and Tesorito at these depths (not to say it isn’t connected at greater depths or off to the side), the drillhole (TS-DH57) identified Miraflores type breccias 500m below deepest historical Miraflores drilling.

This points to a large-scale hydrothermal system, extending from the Miraflores breccia pipe both laterally and at depth.

This essentially doubled the depth of known breccias in Miraflores, showing potential to double the depth of existing mineral reserve:

LCL will now drill hole TS-DH61 (as seen on the cross section above). This shallower, second drillhole from the same pad is designed to test for extensions of the Miraflores breccia pipe vertically below historical drilling.

However, with the market’s focus on this Central Target, it appears disappointed with the news —  the stock is trading 15% lower this afternoon. However, it appears to be overlooking the real story here.

Consider the unique position that LCL is in:

  • It has an extremely robust balance sheet with $17.5M cash in the bank and no debt (a current market cap of $57M for an EV of ~$40M).
  • Just announced potential deep extensions to the higher-grade Miraflores resource, both laterally and deeper than the existing resource.
  • It currently has no fewer than five drill rigs running, plus lots of targets still to pursue to find the next Tesorito.

And LCL is dedicated to these early stage scout programs — it now has three rigs at the Ceibal target, each chasing three different ideas. As the rigs are not all focussed on one story here, LCL is essentially backing three horses rather than one to see which one comes in.

And as you can see below, LCL still has multiple targets at various levels of investigation, all within a ~3km radius. The major known target areas (orange circles) and earlier stage targets (white circles) within the Quinchia Project:

Following results from the Ceibal target we look forward to drilling between the recently identified Claras target (1km north of Tesorito) and Tesorito North.

Early drilling at the Claras target has provided indications of another porphyry body along the Marmato Fault Corridor.

LCL have good reason to believe that it will find a causative intrusive (porphyry) here (as marked as planned holes below) as there are indicators pointing to the north of Tesorito, and likewise, to the south of Claras:

From there, LCL still has many targets to test that have been identified with the project area, including Dosquebradas, Santa Sofia, and Miracielo.

With LCL having earlier defined a resource at Tesorito, our primary objective for the year has been achieved. Exploration continues to make new discoveries and drive continued resource growth into next year.

Our #3 Objective for LCL in 2022 was to commence scoping studies. LCL has confirmed that this PEA (Preliminary Economic Assessment or Scoping Study) is taking place alongside its extensive exploration program. (A PEA is essentially a more stringent or more detailed version of a Scoping Study - spelling out the business case and potential profitability of the project.)

See our LCL Investment Memo for our Investment strategy, key risks, and all of our objectives for LCL for 2022 here.

Video: recent milestones & potential economic development


Apr 04, 2022

Investment Memo: LCL IM-2022

Our gold investment Los Cerros (ASX:LCL), which is focussed on the emerging global minerals hotspot Colombia, recently announced a maiden resource at its Tesorito prospect. This lifted total resources within the wider Quinchia Project to 2.6Moz gold, along with silver credits.

The company is well funded (over $17M in the bank) and is now progressing a Preliminary Economic Assessment (PEA - similar to an advanced scoping study) for Quinchia, expected in the 2H22. This will outline the economic case for development.

Managing Director Jason Stirbinskis has provided an insightful update to Crux Investors, covering LCL’s recent milestones alongside what is coming up next for LCL.

With LCL already ticking off the #1 objective that we wanted them achieve in 2022 by — delivering the maiden resource estimate at Tesorito, our attention turns to the next objective:

We know that the first hole has been completed, terminating at a depth of 1,205m downhole due to the rig reaching its depth capability, and that a second hole has already commenced (even prior to returning the assays from hole #1, which is typically a good sign). The first assay is expected in April, so readers can expect our commentary once the results are announced.

Tesorito’s JORC Resource Results


Mar 28, 2022


Investment Memo: LCL IM-2022
Objective 1 : Deliver a maiden JORC resource at its Tesorito gold prospect

Last week we looked at our Colombian gold investment LCL after the company reported its long-awaited maiden resource estimate at Quinchia Project’s Tesorito deposit.

The market provided a modest response to the milestone, with trading of LCL jumping slightly from 11 cents pre-announcement to about 12.5 cents today.

We noted that respected commodities analyst Warwick Grigor has since provided some insightful commentary on the LCL results in his most recent newsletter. He noted that it was still “early days” with the expectation that more would ultimately be added.

From last week’s announcement, LCL confirmed that after running pit optimisations as part of the Resource estimation process, and using a US$1,800/ounce gold price, the independent Resource Geologist determined an appropriate cut-off off 0.25g/t gold.

Using a 0.25g/t cut-off grade lifts the Resource to 134.3mt grading 0.53g/t gold for a total of 2.3 million ounces of gold, this result sits well above our “Top of the Class” mark.

Given the rise in the gold price, Grigor echoed similar sentiment to ours in regard to the cut-off grade used for the calculation. A cut off of 0.25g/t Au may appear quite low to those more accustomed to 1 g/t Au cut-off grades as typical over the past two decades. Here’s what Grigor wrote:

With five rigs continuing to drill across the Quinchia project area, we look forward to steady newsflow in the year ahead for LCL.

We’re keenly awaiting assay results next month from drilling “Jabba the Blob” – that is, the big magnetic anomaly residing deep between LCL’s Tesorito and Miraflores deposits - our next objective we’d like to see LCL deliver this year.

Maiden resource expands Quinchia gold project to 2.6Moz


Mar 22, 2022

Investment Memo: LCL IM-2022
Objective 1 : Deliver a maiden JORC resource at its Tesorito gold prospect

Our Colombian gold investment Los Cerros (LCL) today announced its highly anticipated maiden resource at its Tesorito prospect, coming in at 1.3Moz Au, at a grade of 0.81g/t Au.

This takes the total resources for the Quinchia Project to 2.6Moz gold @ 1.02g/t Au, with potential for a high-grade starter pit of 540koz Au at 1.23 g/t Au.

This was the #1 Objective that we set for LCL to achieve this year in our 2022 Investment memo. As per the Memo, we consider the size of the Tesorito maiden resource estimate as a pass mark.

We note also that the grade is decent for a shallow gold porphyry deposit and that there are currently five rigs at the project — meaning that this is just the starting mark for the total project gold resources.

LCL is now examining the prospects of a Tesorito-Miraflores (where most of the 2.6Moz are located) development optionality, through metallurgical test work and a Preliminary Economic Assessment (similar to a scoping study).

We were pleased to also get an update on Central Target, or what we’ve previously referred to as ‘Jabba the blob’ that may connect the Tesorito deposit and Miraflores brescia pipe. LCL reports that the first drill hole here was terminated at 1,205m downhole due to “rig depth capability”. We look forward to seeing the full assay suite, expected in April, which will show the significance of intersected hydrothermal alteration, veining and breccias. A second drill hole at the same site has commenced.

We like that LCL retains a very strong cash position of $17.8M, meaning that it is well funded to keep growing its gold resources at Quinchia.

We will cover today’s announcement in more detail later this week.

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