Luca Mining (TSXV:LUCA) - High-Grade Polymetallic Acquisition Deals to Growing Portfolio in Mexico

Dan Barnholden (0:00)

Hi, Dan Barnholden, CEO, Luca Mining. Luca Mining is a multi-mine, polymetallic producer of gold, silver, copper, zinc, and lead, with now three assets in operations and a fourth development stage project in Mexico.

SPEAKER_2 (0:17)

Tom, good to see you here. We're Paper Creek, obviously, we've made it. It's the last day, it's been busy, right?

Dan Barnholden (0:26)

Absolutely, some late nights, some early mornings, many, many meetings. Really good reception to the story this year.

SPEAKER_2 (0:34)

Yeah, I think they organized and put on a really good conference, lots of investors, different types of investors. What did you hope to get out of it and did you get that?

Dan Barnholden (0:45)

Well, we were just trying to make sure that we got to reposition Luca, saw many people. I mean, this year, I think it's probably bigger than it's ever been. New meeting places, there's meeting outside in tents.

And so yeah, it's been very well attended and our story has been, I think, one of the stars of the show.

SPEAKER_2 (1:06)

Okay. Stars of the show and I think we know why. An acquisition was announced at the beginning of the week.

Maybe run through some of the details and we can get into it.

Dan Barnholden (1:14)

Yeah. So we bought a new copper mine, an underground copper mine in Zacatecas called Cozamin.

We bought that from Capstone. We paid almost $300M, but really that's only two times cash flow. So we think we got a great deal on it.

SPEAKER_2 (1:26)

Yeah.

Dan Barnholden (1:27)

It became non-core for Capstone because obviously they're doing massive copper mines in both the US and in Chile. And so a smaller underground copper mine in Mexico became non-core for them. But it's right down the middle of our fairway.

SPEAKER_2 (1:40)

Okay. So let's look at the numbers, because they kind of help us to… What attracted you to it? So acquisition price plus a kind of follow-up.

Dan Barnholden (1:51)

Yep.

SPEAKER_2 (1:52)

And a little bit of debt with it as well. Yep. So that structure for you made sense. So the price was right for you. Yep.

Dan Barnholden (1:59)

So we're going to pay them up to $385M.

SPEAKER_2 (2:02)

Yeah.

Dan Barnholden (2:02)

It's $290M upfront, which includes $275M in cash and $15M worth of our stock. Yeah. There's an incremental $35M payment in stock or cash at our option in 12 months following closing.

SPEAKER_2 (2:16)

Right.

Dan Barnholden (2:17)

And then Capstone has a price participation to the upside of Copper. $10M a year for three years if Copper is at $7, $15 if it's at $7.75, and $20 if it's at $8.50. And obviously, we'd be thrilled to pay them $20M if the Copper price is $8.50, because obviously, that's an incremental $120M a year in revenue, produces about 60M pounds of Copper equivalent there.

SPEAKER_2 (2:46)

Right, so how did you discover the project and why did you want it?

Dan Barnholden (2:49)

Well, that's a great, that's a fun story actually. My partner Adam, Adam Melnick, he's our corporate development VP. When I hired him, I said, I think that the asset we should really go after is Cozamin. He sort of looked at me and said, I think that asset's too big for us. I said, I think we have a shot. I think we can do it. Let's dare to dream here. And so I met with Cashel, who's the CEO of Capstone and Chris Richter, who's the corporate development head. And I told them a year and a half ago that I thought that we'd like to buy that. They sort of laughed us off too. Fast forward, in March, we were contacted by Scotiabank. Scotiabank was the investment banker advising Capstone on the sale. They ran a process. We participated, we put forward a proposal, we did a lot of due diligence in phase one, phase two, and then some back and forth.

And finally, I think because of the certainty, because we brought in great partners, we were thrilled to work with Wheaton, Macquarie, Taurus, they're the mining lending outfit out of Australia, and Trafigura, and then we had National Bank standing behind us with a bought deal. So, Capstone got very comfortable in our ability to execute, in our ability to deliver cash at closing.

And like I said, we had great partners, and we gave them a lot of certainty around execution of this transaction.

SPEAKER_2 (4:15)

Okay, so the transaction executed on, now you need to get into the operation. This is obviously an existing producer, not necessarily running at full capacity, they played at the moment. So, you've obviously seen some opportunities to optimize here, that you think you can do things that at Capstone weren't focused on.