A Mining Investor’s Guide to Toll Milling in Peru – by Jamie Keech (CEO.ca – May 21, 2015)


In the late 1990s a small Canadian junior mining company bought an exploration property in southern Peru with a plan to capitalize on the newly opened market after two decades of internal conflict and civil war.

Just 100 km north of the Atacama Desert, the driest place on earth, the property consisted of hard earthen mountains, trickling riverbeds and the occasional cactus. Nestled in one rocky corner was a small, half-built gold processing plant. The mill came with the exploration property, almost as an afterthought, a redundancy that was easier to give away than tear down.

The junior was headed by Jean Martineau, a French-Canadian pulp and paper mill operator turned broker turned CEO.

Jean’s days as a broker had left him with one overriding view of the junior mining sector: it ran on a terrible business model – constantly raising money, diluting value, and rarely benefitting investors.

An experienced operator, Martineau decided the best way to fund exploration was to generate cash by getting the small mill on site up and running, purchasing ore from nearby small-scale miners as feed and processing it at a profit.

He was warned off by colleagues, criticized by the market and doubted by industry, but the stubborn Frenchman ploughed ahead anyway.

Martineau was looking for a business model that would fund exploration without the need to continually go back to the market. It took nearly a decade and almost bankrupted the company, but he did it.

What the CEO of Dynacor didn’t know at the time was that he was blazing a trail for a new industry within the junior market – one that would be copied, emulated, hyped and would eventually become one of the “hottest stories” on the market: toll milling.

If you’ve followed the junior mining space over the past few years, you’ve undoubtedly heard stories of the opportunities surrounding Peru’s blossoming toll milling industry.

Toll milling’s rise to prominence is largely due to the success of Dynacor and recent regulatory changes in Peru legalizing small-scale mining. You might have also heard that toll milling is a way to turn a junior miner cash-flow positive with relatively little upfront cost and to make it capable of funding future exploration without diluting shareholder value.

Last month I had the opportunity to spend some time with the CEOs of three of the space’s current and would-be leaders: Jean Martineau of Dynacor Gold Mines, Greg Smith of Anthem United Inc. and Len Clough of Standard Tolling Corp. I then travelled to southern Peru to see the sites in action and meet the Anthem and Dynacor teams.
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