Appian has a proven track record of de-risking assets, with five mines brought into production over the past four years

Appian portfolio company Avanco Resources (Brazilian copper–gold producer)

Case studies

Harte Gold

Harte Gold Corp. is a Canadian gold developer concurrently pursuing an accelerated exploration and development program at the Sugar Zone operation, with first gold pour scheduled for H2 2018. Prior to Appian’s maiden investment of C$25m in December of 2016, the potential of the Sugar Zone asset and the associated regional land package was not understood by the market. Through a granular due diligence process undertaken by both Appian’s financial and technical teams, Appian recognized the significant prospectivity of the deposit, which was open at depth and along strike, and successfully identified the strong likelihood for further resource growth and the development of a profitable mining operation. This differential view formed the basis of Appian’s initial investment thesis.

Following the initial investment into the company, Appian worked directly with Harte’s management team to develop the dual-track development and exploration strategy and drive value growth. This long-term vision for the Sugar Zone and Harte Gold formed the basis for Appian’s continuing support of the company, and justified total investments to date of US$54m through numerous tranches. Over the past 18 months, Harte has successfully tripled the Sugar Zone resource from a total of 475koz of gold to a total of 1,475koz (714koz indicated and 761koz inferred) while progressing the development of the Sugar Zone operation1. With construction of the mill and associated infrastructure nearing completion, commercial production will be achieved during the second half of 2018. Appian continues to support the company through technical and financial committees and in the pursuit of accretive M&A opportunities.

Working with the Harte team, Appian will have brought the mine from exploration to production in 20 months.

  1. Harte Gold press release, “Harte Gold Triples Mineral Resource at the Sugar Zone Project”, February 2018
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Serrote de Laje

Serrote da Laje is an advanced stage, greenfield copper-gold asset in a mining-friendly region of northeastern Brazil. Benefiting from existing permits and excellent access to infrastructure, the project presents a low capital intensity and defensive investment opportunity. The asset is a well-understood and conventional, low strip deposit amenable to open pit mining that will employ proven processing technology to produce copper concentrate.

Appian acquired the Serrote da Laje greenfield copper-gold development project from Aura Minerals in March 2018 for a total consideration of US$40m (US$10m deferred), following a 6-month due diligence period. Following announcement of the sale, Aura Minerals’ market capitalization increased circa 70% within a 2-month period.

Prior to the successful carve-out of Serrote da Laje by Appian, the asset was non-core to Aura Minerals, who were focusing on their three producing operations in Honduras and Brazil, as well as working to restart the copper-gold-silver Aranzazu mine in Mexico. The sale of a non-core asset enabled Aura Minerals to focus on the core elements within their portfolio and provided them with sufficient capital to successfully do so. Originally scoped to be a large tonnage, low grade project, the internal Appian technical team has re-scoped the development plan from first principals to optimize project economics and returns. The attractive capital profile and development timeline identified by Appian defines a clear path to a low cost commercial operation. Work is currently underway to complete an updated definitive feasibility study (“DFS”) for the Serrote project, following which construction of the operation will begin.

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Santa Rita

The Santa Rita open pit nickel-cobalt sulphide operation is a fully permitted, restart ready, past-producing nickel mine with US$1bn of sunk capital spent. One of the largest open pit nickel sulphide mines in the world, the Santa Rita mine was operated by Mirabela Nickel Ltd. for 6 years, prior to being placed on care and maintenance due to the low nickel price environment in 2015. The operation is located in northeastern Brazil with an estimated annual production capacity of 16.5ktpa of nickel in sulphide concentrate. Supported by local communities and government, the low restart cost positions the mine within the first decile of the nickel incentive pricing curve.

Appian acquired the Santa Rita nickel operation through the bankruptcy process of the mine’s previous operators, Mirabela Nickel Ltd. Due to the restructuring of a loan and the subsequent depression of nickel prices in 2014/15 the operation was unable to generate sufficient cash flow and raise new sources of funding, resulting in Mirabela Nickel declaring bankruptcy and the operations being placed into care and maintenance. For the past three years, the bondholders have acted as receivers and managers of the operation, upkeeping the mine and associated infrastructure to ensure it remained restart ready. In 2017, the receivers determined that the sale of the Santa Rita mine was the optimal path forward to recover value for its creditors.

Through a 6-month due diligence process, Appian has developed a differential view on the asset, delivering a low-cost, high potential operation able to capitalize on attractive nickel and cobalt pricing dynamics. Having identified numerous mine and plant optimisation opportunities, Appian plans to restart the operation and deliver robust returns to investors.

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Avanco Resources

Following a comprehensive benchmarking of global development-stage copper projects undertaken in 2013, the Appian team successfully identified Avanco Resources as a unique investment opportunity. At the time, the company’s flagship asset, Antas North, was one of the highest grade undeveloped copper projects in the world, with significant potential for scale and growth supported by regional satellite exploration targets, and the nearby Pedra Branca deposit. Additionally, Avanco’s management team had successfully accumulated the second largest land package within the highly prospective Carajas region of northern Brazil. Near term production at Antas North with expansion potential combined with significant exploration upside and a strong management team, led to the formation of Appian’s investment thesis.

Following the maiden investment in June of 2014, Appian, along with Avanco’s other major shareholders, supported the company from greenfield development to production within less than 24 months. Given the uniqueness of Avanco’s deep project pipeline and the scarcity of assets similar to Antas North, Appian was confident that the company would be a high priority target following an uptick of M&A activity in the mining sector amid a market recovery. Appian’s thesis has proven to be correct as OZ Minerals recently announced a friendly takeover offer for Avanco, which represented a 121% premium to the company’s previous trading price. Appian was in favour of the takeover and is confident that the OZ Minerals team will successfully extract significant value from Avanco’s suite of high quality assets.

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