Uruguay Mineral Exploration

Source: Stock Market Digital

Date :13/11/2007 11:19:51

UME is that AIM rarity – a mining and exploration company that’s already producing and even paying a dividend. CEO David Fowler told Exec UK about the company’s production-focused philosophy. product

There is a multitude of small mining and exploration companies on AIM. Many of these focus on exploration, announcing promising survey results and then going back to the market to fund further exploration; in theory, an exploration company can be successful without ever moving through to production. If this has led to a perception that AIM’s mining exploration companies are generally extremely junior, Uruguay Mineral Exploration Inc (UME) is a notable exception.

Written by James Hurley and Produced by Kiron Chavda

An integrated gold production and exploration company, UME has been operating in Uruguay since 1996 and its Minas De Corrales gold project in the north of the country produces approximately 100,000 ounces per year. Even more remarkably for an AIM listed mining company, UME pays its shareholders dividends.

“The great attraction for an investor in UME is that we’re in production when the majority of companies on AIM are exploration and development companies,” confirms David Fowler, UME’s CEO. “Of the companies that are producing, very few are paying dividends. And we still have very significant exploration potential to attract people from a capital appreciation point of view.”

Pro-business environment

Fowler joined UME in 2004 as CFO. His background is in Chartered Accounting, and he has 20 years experience in the mining industry in South America, Australia, and Asia. He was appointed Finance Director in October 2005 and subsequently CEO in June 2006. The company completed its listing on AIM in December 2004. However, it had previously been listed in 1996 in Canada just before the Bre-X scandal scuttled the market for junior explorers. “The company found it difficult to raise money in the Canadian markets after that. So it switched a lot of its financing to London,” Fowler says. UME shares are now listed in London and Toronto.

“We found that the there was a much better base for longer term investment in junior exploration in London. People were interested in investing over the cycle - investing when prices were low with the expectation they’d be able to capitalise on stronger markets when the cycle changed. We had a fairly strong shareholder base in the UK. We wanted to get additional institutional investors and the AIM listing was successful for that.”

Unlike many of its junior peers on AIM, UME doesn’t have to keep going back to the market for funding. “The last raising was done in 2003. Since then we’ve funded refurbishment of the mine, the building of a new pit and re-investment in exploration from cashflow from the Minas De Corrales project.” To date, over 700,000 ounces have been produced from the district, with a further 910,000 ounces in resources.

But what initially attracted the company to Uruguay? “The rationale is that Uruguay is a country which has had very little historical exploration but which has the potential to yield very significant mineral deposits. It has similar sorts of geology to what you’d find in West Africa and northern Brazil. We know it has comparable geology to other areas around the world which have very significant gold and other base metal production. We’re spending close to $10 million a year on exploration.”

The country also has one of the most stable regulatory and economic environments in South America.

“Uruguay didn’t default on its debts during the financial crises in South America over the past decade and the growth in the local economy has reduced the debt to GDP ration and strengthened its financial position. On a political level, the centre left finance minister (Danilo Astori) has been disciplined in the way he has gone about managing the economy and is maintaining a balanced budget. “There’s a little bit of red tape, but generally Uruguay has a pro-business, transparent environment,” says Fowler.

Exploration dollars

Historically, UME has focused on opportunities other than gold. However, it is now at a stage where it believes the best value for shareholders will come from focusing on gold exploration and development. The company has more than ten advanced exploration projects that it will be drilling during the year with in excess of 80,000 meters of drilling planned.

The Lascano project is one non-gold project that will be progressed during 2008. It is a large gravity/magnetic anomaly located in the north east of Uruguay. An airborne gravity survey was completed in 2006, identifying three circular features approximately 20 km in diameter. Drilling during 2007 defined the geological setting causing the anomaly and identified anomalous copper mineralization similar to a porphyry copper system.

“To date we have spent $2.5 million on Lascano. We had some interesting results so we’re going to see if we can find a significant deposit with our drilling. It’s an interesting asset in the sense that it has the potential to hold a very significant deposit. While we’re putting the majority of our exploration dollars into gold projects that are lower risk, we are spending a percentage of our exploration budget on assets which have the potential to pay off exponentially,” Fowler explains.

“We try and get projects to the stage where they are advanced projects so that they can be farmed out and other people will finance them.

But why has UME switched its core focus to gold? “I think we’re in a favourable environment from a gold price perspective. I see the price being at these levels or above in the medium term. I think it’s going to provide a positive environment for the company’s development.

“The industry in general has gone through a period where there has been a lack of investment in exploration over a long period of time, so there have been no new major discoveries coming onto the market. There has been a lot of consolidation and there aren’t a lot of mid-tier producers left. There’s a real opportunity for us to try and grow our resource base and production profile.”

UME has an aggressive exploration philosophy and expects to progress or drop projects as quickly as possible, and on the AIM market at least, this does set the company apart somewhat.

The real challenge is to stay focused in the areas we’re working on and try and keep the discipline in the exploration process so we’re taking the best quality projects forward as quickly as possible and turning them into production assets.”