Avanco builds a Brazilian empire

Avanco has demonstrated how a foreign mining company can establish a significant presence in mineral-rich Brazil. 

If there is one piece of advice that Avanco managing director Tony Polglase can offer about mining in Brazil, it’s that local credibility is critical for success.

For the Perth-headquartered, ASX-listed company, it has taken around a decade for it to reach the level of credibility it craved in Brazil.

Polglase’s belief that Avanco had built a strong reputation in the country was reinforced in January when it secured a deal to acquire the Pantera copper project in Brazil’s Carajás mineral province from mining giant, Vale.

The Carajás, which hosts the largest iron ore mine in the world, is in the state of Pará in Brazil’s north. Since its mineral wealth was discovered in the 1960s, the Carajás has grown into one of the world’s most important iron oxide copper gold (IOCG) mining regions, with Vale dominating the landscape of operations in the area.

Building a portfolio in a mining region of this stature has been satisfying for Avanco. The company’s latest acquisition, the 9700-hectare Pantera project, is close to its existing operations, and adds crucial potential to significantly grow its resources, reserves and long-term production profile.

Polglase said the Vale deal was something Avanco’s management had dreamt about during its decade in the Carajás region.

“It is perhaps only in the last two years that our credibility has reached a point at which Vale thinks of us as a peer,” Polglase told Australian Mining.

“That’s quite pleasing for us because the Carajás is the equivalent of the Pilbara in Australia, except that the Brazilian Pilbara only has two peers — Vale and Avanco.”

Polglase described Brazil as a mining jurisdiction that’s not for the “amateur”, but also a country that does have opportunities for foreign mining companies like Avanco.

“I’ve worked all over the world and I would say Brazil is as hard as it will possibly be, however, the rewards are there for those that have the tenacity, and the breadth and depth of experience,” Polglase said.

“On top of that Vale is a very big company and is very careful of its reputation and because of that is very cautious about doing deals, especially with juniors.

“They have been waiting a long time for us to turn into what we are now. We share the same region as Vale and we have reached a point where they feel comfortable to do something with us.”

The deal to acquire Pantera will cost Avanco anywhere between $20–$35 million, depending on the exploration and development scenarios agreed on by the two companies.

Avanco secured an option to acquire 100 per cent of the project by completing 14,000m of drilling within two years, and subsequently agreeing on Joint Ore Reserves Committee (JORC) compliant measured and indicated resources hosted within the mineralised zone. The acquisition price is then calculated at $0.04/lb of contained copper.

Avanco can exercise the option by starting payment of the acquisition funds to Vale. Following the exercise — beyond two years and up to five years — Avanco will complete drilling in the mineralised zone and any contained copper in addition to 400,000t will incur a higher acquisition price of $0.06/lb of copper.

The option can also be exercised at any time, with or without drilling, if the two companies agree on a non-JORC-compliant estimation of 400,000t of contained copper within the mineralised zone, valued at $0.04/lb of copper.

In both cases, the acquisition price is capped at $3 million a year, with the payment period to span between seven to 12 years.

In addition to Pantera’s growth potential, Polglase said the project offered Avanco several benefits — some which standout compared to the company’s other operations in the Carajás.

“Believe it or not, the infrastructure that is available to Pantera is even better than what we have at our Antas (copper) operation,” Polglase said.

“We built Antas for about $46 million, which is very economic I would suggest by mining norms. And with even better infrastructure down at Pantera I would hope to be able to develop Pantera with at least the same level of capital intensity that we did at Antas.

“Again, it is probably going to be a high-grade mine with a very low capital cost — it has Avanco’s name written all over it.”

Despite Pantera’s possibilities, it joins an assembly line of more advanced operations that Avanco is developing in Brazil.

Avanco will continue to optimise its performance at the producing Antas mine this year.

The company also owns the advanced-stage Pedra Branca copper project, where it is initially targeting output of 24,000t of copper and 16,000oz of gold in 2020.

The company’s next project — CentroGold in Maranhão state — adds further diversity away from copper. CentroGold is considered one of the largest undeveloped gold projects in Brazil, with some analysts valuing it at around $180 million.

Then there’s Pantera. “In terms of timeline, we’re in a fortunate position, we are queuing them up at the moment,” Polglase explained.

“Pantera invariably falls behind the others because it is still at a relatively early stage of exploration. It also needs to get through the permitting hoops and that could sit behind the other two projects as well.”

The future looks set for Avanco. And if everything goes to plan with Pantera, it’s easy to imagine the company’s Brazilian credibility reaching an all-time high. 

This article also appears in the March edition of Australian Mining.