lcl.jpg

Los Cerros Limited Limited

ASX:LCL

Last Price:

$0.028

Our Investment Summary

Date of
Initial Coverage

30-Apr-20

Initial
Entry Price

$0.040

Returns from
Initial Entry

-30%



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 in 2022?

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
Drilling update at flagship gold project

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.

Highly encouraging testwork paves way for Scoping Study

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.


Next Investors Investment Milestones

✅ Initial Investment: @4c
✅ Increase Investment: @7.68c
✅ Increase Investment: @15.25c
✅ Price increases 500% from initial entry
🔲 Price increases 1000% from initial entry
🔲 Price increases 2000% from initial entry
✅ 12 Month Capital Gain Discount
✅ Free Carry
🔲 Take Profit
🔲 Hold remaining position for next 2+ years


Our Past Commentary on Los Cerros Limited

Date Title
21-May-2022 $ 0.065 Commodities super cycles
16-May-2022 $ Assays reveal Miraflores extends significantly deeper
14-May-2022 $ 0.069 Small caps in a shocking market
11-Apr-2022 $ 0.115 Why we invest in IPOs and our investment approach
28-Mar-2022 $ 0.125 Small cap market showing signs of waking up
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.
31-Jan-2022 $ 0.115 Inflation, US Fed Reserve, Bond Yield, Cash Buffer Portoflio
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



Investor Presentation

Highly encouraging testwork paves way for Scoping Study

ASX:LCL Jul 07, 2022 Announcement

Investment Memo: LCL IM-2022
Objective 1: 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

ASX:LCL Jun 29, 2022 Announcement

Investment Memo: LCL IM-2022
Objective 1: 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

ASX:LCL May 09, 2022 Announcement



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

ASX:LCL Apr 04, 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.


Commentary on Tesorito’s new JORC resource

ASX:LCL Mar 28, 2022 Announcement


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

ASX:LCL Mar 22, 2022


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.