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.
[Memo Assessment - 27-Feb-2023]: Grade = B
Exploration at the Quinchia project has been overall successful with the company continuing to intersect mineralisation at various prospects across the project area. With a Maiden Mineral Resource Estimate (MRE) (Inferred) of 1.3Moz at Tesorito, LCL grew its JORC resource to 2.6Moz Au at the project.
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.
[Memo Assessment - 27-Feb-2023]: Grade = A
Having raised $20M in mid-2021, LCL remained well funded and did not need to raise capital over the past year.
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.
[Memo Assessment - 27-Feb-2023]: Grade = B
While the gold price has rallied in recent months since its September-October 2022 lows, it was out of favour and declined throughout most of 2022.
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.
[Memo Assessment - 27-Feb-2023]: Grade = D
Under a new President, the Colombian government pledged to reform the country’s mining industry, including creating a nationalised mining company, tackling mining pollution, and helping small scale miners. This introduced uncertainty to Colombia’s mining sector.
In acquiring its new PNG projects, LCL has diversified this risk. However, PNG is not without its own sovereign risk.
Whilst PNG is considered a risky, frontier location, there’s actually a lot of already discovered gold nearby, producing mines, and majors operating.
General updates from LCL
More high grade gold hits for Los Cerros [21-Jul-2022]
Los Cerros recognised for local ESG endeavours [14-Sep-2022]
High grade gold in soil sampling [08-Nov-2022]