Meridian Mining: CEO on the Preliminary License for Cabaçal and What's Next

Key Concepts

• Preliminary License (PL): The most crucial license for a mining project in Brazil, signifying technical capacity for production, socioeconomic benefit, and manageable environmental impact.
• Installation License (IL): The engineering diagram or construction plan for the mine, including open pit, mill, waste disposal, and access roads. Granting this license triggers project finance.
• Final Investment Decision (FID): The point at which a company commits to proceeding with a project, typically after securing project finance and necessary permits.
• Definitive Feasibility Study (DFS): A comprehensive study that provides a detailed assessment of a project's technical and economic viability.
• All-In Sustaining Costs (AISC): A metric that represents the total cost of producing one ounce of gold, including operational costs, sustaining capital, and other expenses.
• Volcanic Massive Sulphide (VMS) Belt: A type of ore deposit that is often rich in copper, gold, silver, and zinc.
• Export Credit Agency (ECA): Government agencies that support exports through financing and insurance.
• Share Registry: A record of a company's shareholders.
• Long-Only Funds: Investment funds that are restricted to holding long positions, meaning they profit when asset prices rise.
• Family Offices: Private wealth management advisory firms that serve ultra-high-net-worth individuals and families.
• Project Equity: Ownership stake in a specific mining project.
• Top Co Equity: Ownership stake in the parent company.

Meridian Mining Update: Preliminary License Approval and Future Outlook

This report summarizes a discussion with Gilbert Clark, CEO of Meridian Mining, following the significant news of their preliminary license approval for the Cabal project in Brazil. The approval signifies a major step forward, highlighting the company's execution capabilities and the supportive environment in Mato Grosso.

1. Preliminary License Approval and its Significance

• Key Point: Meridian Mining has received the preliminary license (PL) for its Cabal project, a critical milestone in Brazil.
• Details: This license was granted unanimously by 27 authorities after a two-year data collection and consultation process. It confirms the project's technical capacity for production, its socioeconomic benefits to local communities, and the manageability of its environmental impact.
• Technical Term: The PL is described as the "most important license" in Brazil, as it is a prerequisite for any further development.
• Attribution: Gilbert Clark stated, "It was a tremendous effort... by our team in Brazil, by our shareholders... and also I think it's a really strong testament to the engagement by the government in Matagrosso." He also emphasized, "You cannot proceed in Brazil if you don't have the premier license."

2. Advancing Towards the Installation License

• Key Point: The company is concurrently preparing and submitting the application for the Installation License (IL).
• Details: While the PL confirms the project's viability, the IL serves as the detailed engineering and construction diagram. This includes plans for the open pit, mill, waste disposal (dry stack tailings), and access roads.
• Process: The IL submission is planned for the end of Q1 next year. The authorities will review this against the PL, and its approval will trigger project finance.
• Timeline: Meridian aims for Final Investment Decision (FID) by the end of Q4 next year, contingent on the IL approval.
• Rationale: The company has already begun data collection for the IL, confident in their ability to execute, as Cabal is situated in a historically productive mining district.

3. Definitive Feasibility Study (DFS) and Project Finance

• Key Point: The Definitive Feasibility Study (DFS) is expected to be published in the second half of next year, with FID targeted for the end of Q4.
• Details: Meridian has received significant interest from Export Credit Agencies (ECAs) and conventional project finance banks, as well as specialist project finance groups. Their financial models, based on internal assumptions for debt-to-equity ratios, have been well-received.
• Offtake Interest: Propositions for offtake agreements exceed the company's current needs.
• Financial Strategy: The company is focused on securing a project finance structure that is in the best interest of shareholders, considering various debt and equity options.
• Initial Capex: The initial capital expenditure (capex) is estimated at $248 million, with potential to reach $300 million to account for inflation and contingencies. This is considered relatively low for a multi-commodity project (gold, silver, copper).
• Debt Financing Potential: Clark indicated a strong possibility of financing the entire capex with debt, even under conservative metal price assumptions ($1900 gold, $350 copper). However, they are evaluating different banking mandates and specialist group offers to find the optimal structure.

4. Economic Viability and Operational Efficiency

• Key Point: The project boasts low all-in sustaining costs (AISC) and efficient metallurgical processing, contributing to strong cash flow potential.
• Data: The current AISC is $742 per ounce. Even if this were to rise to $1,000 per ounce, it would still be highly profitable at current metal prices.
• Production Projections: In the first five years, the project is projected to produce 178,000 ounces of gold equivalent per annum.
• Metallurgy: The excellent metallurgy is attributed to the coarse nature of the ore grind and rapid processing. Meridian can process ore in 1 hour, compared to 30-36 hours for some other projects, significantly impacting the size and cost of required equipment.
• Comparison: Meridian's capex is positioned in the middle range for comparable-sized mines in Brazil, as detailed in a table available on their website.

5. Political Landscape in Brazil

• Key Point: The political environment in Brazil is generally supportive of mining, particularly in Mato Grosso.
• Details: All major political parties in Brazil are pro-mining. While President Lula's party has historically supported mining, there are sensitivities regarding development in the Amazon. Meridian's project is not located in the Amazon.
• Mato Grosso Support: The state of Mato Grosso is described as a "fantastic destination" and a "very proactive, pro-development province." Their support has been instrumental in bringing Cabal back towards production.
• Broader Impact: The PL approval is seen as a green light for the industrial development of an entire VMS belt, not just the Cabal project.

6. Speed of Permitting and Project Development

• Key Point: Brazil offers a comparatively rapid permitting and development timeline for mining projects, comparable to Western Australia.
• Comparison: While it can take decades to build a mine in Canada or Europe, Brazil's process is significantly faster. The time from initial data gathering to PL for Cabal was 3.5 years, with the next phase expected to be much shorter (6-12 months).
• Attribution: Clark noted, "Unless you're in say Western Australia, the speed of getting something built, that's the only place I could compare us to."

7. Production Timeline and Development Strategy

• Key Point: Commercial production is targeted for 2028.
• Strategy: Meridian plans a sequential and scheduled build, avoiding shortcuts and utilizing Brazilian materials and engineering firms. The focus is on implementing the "Brazilian way" of mining.

8. Shareholder Protection and Company Control

• Key Point: Meridian Mining has a strong shareholder base that is aligned with the company's objective of building the mine, providing protection against unwanted M&A.
• Shareholder Profile: The share registry comprises a significant portion (60-65%) of long-only funds, institutions, and ultra-high-net-worth family offices, all committed to the project's development.
• Control Mechanism: The company has ensured no third-party instruments exist between the top company and the project, maintaining control over the company's direction and destiny. This contrasts with junior market trends where strategic partners can dilute control.
• Execution Focus: Meridian emphasizes its in-house execution team and the ability to control key development processes, such as the DFS, with strong shareholder support.

9. Upcoming Milestones

• Current Quarter: Release of the Santa Helena resource.
• Q1 Next Year: Submission of the Installation License application.
• Mid-Next Year: Publication of the DFS.
• End of Q4 Next Year: Project finance and FID.

10. Conclusion and Outlook

The preliminary license approval for the Cabal project is a transformative event for Meridian Mining, validating their strategy and execution capabilities. The company is well-positioned with a strong project economics, efficient operations, and a supportive regulatory and shareholder environment. The projected timelines for IL submission, DFS publication, and FID indicate a clear path towards production by 2028. The low capex, low AISC, and robust metal prices suggest a highly profitable operation, with significant upside potential for shareholders. The company's proactive approach to permitting and its strong shareholder base provide a solid foundation for future growth and value creation.