We are committed to helping investors come to grips with the resources sector and learn how to interpret news releases made by companies. In these Analyst’s Notes we illustrate how news from companies affects the investment case for the stock, and how it can affect peers as well. The topics are selected based on what the analysts think is both relevant and informative to you, the investor.
In this Analyst's Notes, we have chosen to take another look at Max Resources.
Executive Summary
In March 2021 Crux Investor published an Analyst’s Notes report on Max Resource Corporation (“Max”) (TSX:MAX) and its Cesar Project in Colombia. The report noted that Max Resources “has all of the hall-marks of a serial under-achiever, with many Red Flags, and yet it has a project that might well be the real deal.” The conclusions delivered to investors were “to wait a few months and see whether or not Max develops a credible action plan”, and advance to drilling.
Fast-forward eighteen months, and Crux Investor can safely report that Max Resources divides opinions. Among the analysts preparing this report there are those that berate the Company for a lack of disclosure, unsystematic work, withholding of results, a lack of focus on key prospects, a lack of geological evidence, and a lack of drilling. Red flags still abound. Other analysts acknowledge the Company’s focus on the wider Cesar project area, the geological thesis backed up by photographs and grade, and the potential for a junior company to own major copper district. Opinion is divided. Crucially, imminent drilling will bring clarity to the situation.
Key Red Flags are:
- Colombia Political risk is now a major concern. Anti-open-pit rhetoric, a new President prioritising agriculture above extractives, and a radical anti-mining Minister for Mines.
- Max Resources does a very poor job of providing technical data in any announcements. The Company has makes bland repetitions of geological generalities in every news release, dubious repetitions of the same sample results time and again, and there is a marked lack of fresh sampling and follow-up work.
- Max Resources does not follow up on promises to deliver reports or project updates on a prospect by prospect scale. Terrible treatment of retail investors through a lack of appropriate information.
Key Green Lights are:
- Max Resources has focused on the wider Cesar project, a Jurassic aged sub-basin in northern Colombia. Grab and channel sample grades from across the region indicate copper-rich mineralising fluids, particularly at URU. Hypogene chalcocite at URU is a good sign.
- Drilling will take place at URU, Conejo and AM in 2022. Despite deficiencies in reporting standards, the truth-machines are about to start turning.
- Copper is in demand, and Cesar is potentially a major copper district
Fundamentally, your approach to any investment will be dictated by your competing emotions of greed and fear. At an enterprise value of C$40 M ($31 M), Max Resources is not carrying a significant market capitalisation. Crux Investor concludes that the Cesar project potentially hosts a large copper-silver endowment. At this stage it is still essentially pre-discovery.
Crux Investor advises potential investors to hold back until drill results show consistent economical grades over decent widths that make them practically mineable. Once the geological fundamentals are satisfactorily established, then the risk / reward profile of the investment changes.
Introduction
For anyone wanting to re-acquaint themselves with the previous Analyst’s Notes on Max Resources, it can be found here. And to cut to the chase, here are the Red Flags and Green Lights from March 2021.
Red Flags:
- Corporate-level lack of focus on a potentially company-making project
- Country-level lack of focus on Cesar as a potentially company-making project
- Project-level lack of focus on Quality, and excessive focus on Growth. More testing and geological de-risking of known prospects please
- Hand-to-mouth financing strategy, with low-quality unit offerings during 2020, rather than attracting long-term equity investors through well-priced straight equity offerings
- Persistent ‘pump and dump’ accusations that will linger for as long as the company lacks focus
Green Lights:
- Cesar could be a company-maker
- Shifting focus to concentrate on Cesar can be achieved immediately and at zero cost
- Shifting focus to concentrate on delivering results that underpin the quality of Cesar rather than focusing on growth can be easily achieved in the short term, at almost zero cost
- Focusing on improving the shareholder register can be achieved IF the company sharpens up its strategy and decides it wants to become a lasting success
Since Crux Investor wrote about Max Resources, eighteen months have passed and its share price trebled this year from 24 c to 72 c before retracing to the current level 40 c. In this update note we will review our Red Flags and Green Lights, providing a report card on progress. Where appropriate we will introduce other themes.
Red Flags
Corporate-level lack of focus on a potentially company-making project, and Country-level lack of focus on Cesar as a potentially company-making project
A corporate lack of focus is addressed by tackling the first two red flags from the previous report. Crux Investor is happy to say that judging by the recent actions taken by the Company, it appears management of Max Resources finally recognises Cesar as a potential company-maker.
Max Resources has been chasing sedimentary-hosted copper in Colombia for some years. During 2018 it licenced a ‘Copperbelt’ 50 km east of Bogota and then five mining concessions in Eastern Colombia within the Gachala ‘sedimentary copper basin’ in early June 2018. According to the press release the area encompassed 27 line-kilometres in a geological setting ‘believed to be analogous to the Zambian Copper Belt of Africa’. An initial 9,374 hectares (“Ha”) were expanded to 13,277 Ha, with much fanfare a week later. And then on 18 June 2018 Max Resources signed the Choco prospect, hunting gold in conglomerates and gravels 120 km SE of Medellin. A few good results and one share price spike later, by mid-October 2019 Max Resources was divesting from Gachala, trying to resolve access issues at Choco, and announcing that its “exploration focus is the Cesar Copper-Silver property area.”
As late as September 2020, an option on the RT Gold project in Peru was signed. RT Gold, however remains firmly on the sidelines, perhaps as a hedge against Colombia risk. One minor news release on RT Gold was issued in December 2020 regarding re-assaying of historic core. Results have been pending since then. Poor show.
Since December 2020 it has all been about sediment-hosted copper at Cesar in Colombia. Every news release in 2021 and 2022 focuses on the wider project. Like a serial-dater settling into marriage, Max Resources finally looks as if it has found “the one”.
Conclusion: Focus at a Corporate and Country level has been demonstrated, despite a lack of information flow. The report card just about makes a Red Flagturn into a Green Light.
Project-level lack of focus on Quality, and excessive focus on Growth. More testing and geological de-risking of known prospects please
The way Max Resources continues to work through its targets and present its exploration results continues to raise Red Flags with Crux Investor.
The Company talks as if it has made a major discovery, and indeed the share price has responded as if a discovery has been made. Trubbliz, geological information remains scant. In fact, most information remains scant.
By early November 2019 Cesar was wholly owned by Max Resources and spanned an area approximately 500 km squared in north-eastern Colombia. The project consisted, at this stage, of three stratabound zones: AM North, AM South and Cesar South, covering a large portion of a 200-kilometre-long sediment-hosted copper-silver belt. Parallels were drawn with the Kupferschiefer mineralisation in Europe. So far, so good. Kupferschiefer mineralisation is well understood and is characterized by the deposition of sediments in a shallow marine environment characterised by anoxic conditions.
The problem, however, lies in the way that Max Resources presents its information with barely any detailed geological observations and jumping straight to interpretations. Sweeping statements are made, grab panel and chip results are presented, consultants are hired, but good supporting information is lacking. Where are the representative samples in three dimensions? What about systematic trenching or clearing faces with a scraper and getting confirmation in the third dimension?
To substantiate these complaints, here are some examples.
An association with the University of Science (AGH) from Krakow, Poland was announced on 21 April 2020. A report was commissioned but never published. The current corporate presentation (9 Aug 2022) notes there is an AGH Technical Presentation on the website, but Crux Investor cannot find it.
In May 2020 it was reported that Max had entered into “a collaboration agreement with one of the world's leading copper producers and brought in Fathom Geophysics to carry out a CESAR technical study.” There is no further reference to this study, nor its findings and conclusions.
During the first half of 2021 Max Resource announced a programme of “ongoing interpretation of seismic sections and analysis of historical drill holes, all being integrated into our structural modelling of the Cesar basin, in collaboration with Ingeniería Geológica Universidad Nacional de Colombia (“IGUN”) in Medellín. There is no further reference to this study, nor its findings and conclusions. C’mon guys, this is getting to be a habit!
Details behind the Endeavour Silver Corporation (“Endeavour”) deal are absent. In March 2022 Max entered into a Cooperation Agreement Endeavour “to solidify the terms to cooperate in the acquisition of addition mining properties to be included in the CESAR Project.” Max Resources talks about how Endeavour “will provide certain financial capabilities required of the Company by the authorities of Colombia” for the benefit of securing additional mineral tenures. But Max Resources does not provide investors with relevant information on the Mining Code in Colombia and any requirements for financial guarantees or rules on the number of concessions any one Company can hold. Outside observers can be forgiven if they start to feel like mushrooms (kept in the dark and occasionally fed muck).
Concession size inconsistencies. Figures currently being used by Max Resources show Cesar licences comprising 70 km squared at Uru, and 116 km squared at AM (including Conejo, presumably), for a total of 186 km squared. A news release from 27 June refers to URU being 99 km squared, so presumably a total of 215 km squared. To coin a Jack Reacher phrase, “in an investigation, details matter”.
Following years of presenting on Kupferschiefer geology, Max Resources introduced the possibility that URU is a Central African Copper Belt (“CACB”) style deposit. Note that CACB deposits are generally accepted to be oxidised sediments in a rift valley basin capped by evaporites that act as a seal. Geologically-speaking, CACB mineralisation is very different to Kupferschiefer mineralisation.
Yes, slide #8 on the current slide deck shows the spatial and temporal relation between Kupferschiefer and CACB geology. Yes, Dr Grainger talks about the relationship in broad terms in a December 2021 video filmed at the Colombia Gold Symposium. But, crikey, the Company ought to do much better at providing key geological information.
Figure 1. Slide #8 from the Max Resources current Corporate Presentation
Geological maps are consistently absent at AM, Conejo, and URU. More information please! Some investors are also geologists and they actually care about the data.
Max Resources typically announces new prospects with great fanfare but moves onto better prospects without completing the reporting of the technical work. AM was the hot prospect in 2020, but last featured in a news release in March 2021. There has been no obvious further work at the AM targets, one of which called Herradura was eminently suitable for establishing size and average grade. Mapping of the Herradura Zone at the AM North area in June 2019 had shown the mineralisation to be present as a low angle continuous copper-silver mineralised horizon trending east-west and dipping gently 15-21º NNW. Positive news releases and results were released in July and then October 2019 announcing the Ventana and Herradura South zones. There was no follow-up work carried out, and no press release explaining the decisions. Soon the focus shifted to Conejo.
On 24 March 2021 Max reported impressive panel sample results for Conejo with six samples assaying more than 10% Cu. Crux Investor records the release of results of approximately 70 panel samples, 32 chips samples and 2 “representative” samples across two press releases. Two subsequent news releases on Conejo (19 October and 3 November 2021) simply rehashed some of these results without any new assay information.
Beyond the observation that two types of mineral events have been observed, a stratiform copper-silver Kupferschiefer type being crosscut by a stockwork within an igneous host rock, there is no information about the geology. No geological maps, no plans showing the relationship between panels sampled, and no trenching of the stratiform layer and stockwork. A few photographs are provided, and then it is on to the next new prospect area, URU. The level of disclosure is very poor and significant questions are raised.
Conclusion: Despite the superficially good exploration results, the Red Flag associated with the way Max Resources presents its technical information is still a Red Flag.
Hand-to-mouth financing strategy, with low-quality unit offerings during 2020, rather than attracting long-term equity investors through well-priced straight equity offerings
Max Resources has made significant progress in the capital markets in the past eighteen months. The Company currently has C$ 20 M in cash and C$ 8 M potential from in-the-money warrants and options. Endeavour subscribed to $1.7 M of a $ 7.7 M capital raise at 35 c in February 2022. The Company raised a further C$ 17.7 M at 60 c in May 2022. Given cash of C$20 M, the diluted Enterprise Value of Max is C$40 M.
Institutional shareholdings have increased to 25% of the share register, with Endeavour at 5%.
Conclusion: Great improvements have been made in the capital markets, turning a Red Flag into a Green Light.
Persistent ‘pump and dump’ accusations that will linger for as long as the company lacks focus
Otto Rock from IKN Blogspot dubbed Max Resources a “Scam Pump” in September 2020. Has it done enough to remove the taint? Crux Investor feels that the focus on the wider Cesar project is a positive move. Many doubts about how Max Resources presents its exploration data remains. If data presentation improves, and systematic testing of targets in three dimensions followed by proper reporting occurs then the Company will be a step further towards respectability.
Conclusion: With drilling around the corner, Max is giving itself every opportunity to turn itself into a more respectable Company. Much work still remains to be done.
Green Lights
Cesar could be a company-maker
Even though the Crux Investor has ranted and raved about the poor quality of disclosure by Max Resources, the lack of follow-up on exploration targets, and the skittering from AM to Conejo to URU, there is, however, a common thread: Copper is being found in abundance, over a wide area. Again and again the photos show copper staining. Again and again the grab and channel samples yield good results.
Cesar still has the potential to be a Company making.
In presentations Max Resources describes URU as a turning point for the Company, as it hosts wide widths of hypogene chalcocite in interpreted sub-vertical structures. More geological information is needed. No signs of chalcopyrite or bornite (the usual copper sulphides), just chalcocite associated with large sub-vertical structures laterally continuous on strike. Information is scant, but results like these are promising:
- 16.8 m @ 8.3% Cu, 146 g/t Ag (interpreted true width)
- 7.0 m @ 8.5% Cu, 143 g/t Ag (interpreted true width)
- 52.0 m @ 4.9% Cu, 41 g/t Ag (along a ridgeline)
The tantalising scraps of information that the Company puts into the public domain suggests that Cesar has the potential to be a Company-Maker.
A recent geophysical survey ahead of drilling in September means that Max Resources is getting to the sharp end of this pre-discovery phase of exploration. CEO Brett Matich has stated in conferences that the Company is looking to drill-test the concept that Max Resources owns an entire sediment-hosted copper system. Drilling will start at URU and advance via Conejo to AM by the end of 2022.
Shifting focus to concentrate on Cesar can be achieved immediately and at zero cost
Max Resources has clearly focused on Cesar in 2021 and 2022. Good work.
Shifting focus to concentrate on delivering results that underpin the quality of Cesar rather than focusing on growth can be easily achieved in the short term, at almost zero cost
Max Resources has failed to report consolidated exploration results from its various prospects. The Company has a bad habit of repeating results and bland interpretive geological statements. On the plus side, the geologists have continued to open up new areas, culminating in URU.
Drilling at URU, then Conejo, and ultimately AM in the coming months will be a crucial milestone for the Company.
Focusing on improving the shareholder register can be achieved IF the company sharpens up its strategy and decides it wants to become a lasting success
Max Resources has had a good year in the Capital Markets, raising C$7.7 M in March, and a further C$17.7 M in June. The addition of Endeavour Silver as a 5% shareholder is optically at least an endorsement of Cesar. Endeavour has a market capitalisation of $680 M and has two operating mines, which indicates professional competence. As far as that goes, having Endeavour on the shareholder register is an endorsement. Looking at it another way, the investment by Endeavour provides low-cost optionality for Endeavour on the project. Endeavour has an underlying 0.5% royalty on new areas signed in Colombia with Endeavours’ backing. The transaction was not deemed newsworthy for Endeavour.
In the current corporate presentation Max Resources states that institutions are 25% of the shareholder register. No supplementary information is provided and the Financing news releases offer the bare bones of information.
Other factors - consider new themes
Colombia
One aspect of risk that Crux Investor did not address in March 2021 was country risk. With the recent inauguration of Gustavo Petro as President, Colombia joins the ranks of South American countries with socialist leadership. There is now high political risk for any mining company operating in Colombia.
Petro has stated a preference for an economy that depends on agriculture rather than extractive industries. The extractive industry response has been to stress that the income extractives generate is vital for funding any election promises.
Petro has promised to stop new exploration for hydrocarbons and construction of new large-scale open-pit mines. Max Resources CEO Brett Matich reports that its “exploration focus aligns directly with Colombia’s National Mining Agency strategy of transitioning from fossil fuels to copper exploration and future development of the Cesar basin.” In the words of Mandy Rice-Davies, “well, he would, wouldn’t he.”
Inconveniently for Max Resources is the background of newly appointed Minister of Mines and Energy, Irene Vélez. Irene Vélez is a philosopher by training and a full professor at the Faculty of Engineering of the Universidad del Valle, one of the most important public higher education institutions in the country. Her work includes investigations into mining-related mercury pollution, the impact of chemicals such as glyphosate when used on crops, the appropriation of water and land resources by different extractive industries, food security in rural and ethnic contexts, the structural violence presented in many environments, and environmental peace as an essential dimension of the transition in the Post-Peace Agreement. She has also said that the new government will right historic wrongs suffered by women, the young, and ethnic and rural minorities. If you are a resources company, Yikes!
Yes Ministers and governments come and go. Yes, the geology is not going to change in a human lifetime. But crikey, it looks like there will be a torrid few years for mining companies operating in Colombia. Massive Red Flag.
Copper
Copper is the metal for electrification. The mega-trends in consumption and decarbonisation indicate that copper will be in sustained demand for decades.
Robert Friedland sensationally reports that “to transition just the world’s passenger cars to electric, we have to mine more materials in the next 30 years that we mined throughout human history”. In his keynote speech at Indaba in May, Friedland referred to a report by Wood Mackenzie in 2021 that said the world needs to invest $240 billion in copper over the next five years to meet growing demand.
BHP reported in its half-yearly Economic and Commodity Outlook that “population growth, urbanisation, the infrastructure of decarbonisation and rising living standards are all expected to drive demand” for metals. BHP also notes that “the resources industry as a whole has been disciplined in its allocation of capital over the last half decade or so. With this disciplined historical supply backdrop as a starting point, any sustained demand surprise seems likely to flow almost directly to tighter market balances.”
The $5.8 B bid by BHP for Oz Minerals on 8 August 2022 is an indication that copper is in demand. By making the bid, BHP has laid bare the desire to get more exposure to the metals needed for decarbonisation and electrification, specifically copper and nickel.
In this copper-favourable environment, the fact that Max Resources may have control over an entire copper province is significant.
Conclusions
Among the analysts preparing this report there are those that berate the Company for a lack of disclosure, unsystematic work, withholding of results, a lack of focus on key prospects, a lack of geological evidence, and a lack of drilling. Red flags still abound. Other analysts acknowledge the Company’s focus on the wider Cesar project area, the geological thesis backed up by photographs and grade, and the potential for a junior company to own major copper district. Opinion is divided. Crucially, imminent drilling will bring clarity to the situation.
Key Red Flags are:
- Colombia Political risk is now a major concern. Anti-open-pit rhetoric, a new President prioritising agriculture above extractives, and a radical anti-mining Minister for Mines.
- Max Resources does a very poor job of providing technical data in any announcements. The Company has makes bland repetitions of geological generalities in every news release, dubious repetitions of the same sample results time and again, and there is a marked lack of fresh sampling and follow-up work.
- Max Resources does not follow up on promises to deliver reports or project updates on a prospect by prospect scale. Terrible treatment of retail investors through a lack of appropriate information.
Key Green Lights are:
- Max Resources has focused on the wider Cesar project, a Jurassic aged sub-basin in northern Colombia. Grab and channel sample grades from across the region indicate copper-rich mineralising fluids, particularly at URU. Hypogene chalcocite at URU is a good sign.
- Drilling will take place at URU, Conejo and AM in 2022. Despite deficiencies in reporting standards, the truth-machines are about to start turning.
- Copper is in demand, and Cesar is potentially a major copper district
Fundamentally, your approach to any investment will be dictated by your competing emotions of greed and fear. At an enterprise value of C$40 M ($31 M), Max Resources is not carrying a significant market capitalisation. Crux Investor concludes that the Cesar project potentially hosts a large copper-silver endowment. At this stage it is still essentially pre-discovery.
Crux Investor advises potential investors to hold back until drill results show consistent economical grades over decent widths that make them practically mineable. Once the geological fundamentals are satisfactorily established, then the risk / reward profile of the investment changes.
If you are a Family Office investor, or an Institutional investor, and you would like the full report behind this article, please contact matthew@cruxinvestor.com
We are committed to helping investors come to grips with the resources sector and learn how to interpret news releases made by companies. In these Analyst’s Notes we illustrate how news from companies affects the investment case for the stock, and how it can affect peers as well. The topics are selected based on what the analysts think is both relevant and informative to you, the investor.
In this Analyst's Notes, we have chosen to take another look at Max Resources.
Executive Summary
In March 2021 Crux Investor published an Analyst’s Notes report on Max Resource Corporation (“Max”) (TSX:MAX) and its Cesar Project in Colombia. The report noted that Max Resources “has all of the hall-marks of a serial under-achiever, with many Red Flags, and yet it has a project that might well be the real deal.” The conclusions delivered to investors were “to wait a few months and see whether or not Max develops a credible action plan”, and advance to drilling.
Fast-forward eighteen months, and Crux Investor can safely report that Max Resources divides opinions. Among the analysts preparing this report there are those that berate the Company for a lack of disclosure, unsystematic work, withholding of results, a lack of focus on key prospects, a lack of geological evidence, and a lack of drilling. Red flags still abound. Other analysts acknowledge the Company’s focus on the wider Cesar project area, the geological thesis backed up by photographs and grade, and the potential for a junior company to own major copper district. Opinion is divided. Crucially, imminent drilling will bring clarity to the situation.
Key Red Flags are:
- Colombia Political risk is now a major concern. Anti-open-pit rhetoric, a new President prioritising agriculture above extractives, and a radical anti-mining Minister for Mines.
- Max Resources does a very poor job of providing technical data in any announcements. The Company has makes bland repetitions of geological generalities in every news release, dubious repetitions of the same sample results time and again, and there is a marked lack of fresh sampling and follow-up work.
- Max Resources does not follow up on promises to deliver reports or project updates on a prospect by prospect scale. Terrible treatment of retail investors through a lack of appropriate information.
Key Green Lights are:
- Max Resources has focused on the wider Cesar project, a Jurassic aged sub-basin in northern Colombia. Grab and channel sample grades from across the region indicate copper-rich mineralising fluids, particularly at URU. Hypogene chalcocite at URU is a good sign.
- Drilling will take place at URU, Conejo and AM in 2022. Despite deficiencies in reporting standards, the truth-machines are about to start turning.
- Copper is in demand, and Cesar is potentially a major copper district
Fundamentally, your approach to any investment will be dictated by your competing emotions of greed and fear. At an enterprise value of C$40 M ($31 M), Max Resources is not carrying a significant market capitalisation. Crux Investor concludes that the Cesar project potentially hosts a large copper-silver endowment. At this stage it is still essentially pre-discovery.
Crux Investor advises potential investors to hold back until drill results show consistent economical grades over decent widths that make them practically mineable. Once the geological fundamentals are satisfactorily established, then the risk / reward profile of the investment changes.
Introduction
For anyone wanting to re-acquaint themselves with the previous Analyst’s Notes on Max Resources, it can be found here. And to cut to the chase, here are the Red Flags and Green Lights from March 2021.
Red Flags:
- Corporate-level lack of focus on a potentially company-making project
- Country-level lack of focus on Cesar as a potentially company-making project
- Project-level lack of focus on Quality, and excessive focus on Growth. More testing and geological de-risking of known prospects please
- Hand-to-mouth financing strategy, with low-quality unit offerings during 2020, rather than attracting long-term equity investors through well-priced straight equity offerings
- Persistent ‘pump and dump’ accusations that will linger for as long as the company lacks focus
Green Lights:
- Cesar could be a company-maker
- Shifting focus to concentrate on Cesar can be achieved immediately and at zero cost
- Shifting focus to concentrate on delivering results that underpin the quality of Cesar rather than focusing on growth can be easily achieved in the short term, at almost zero cost
- Focusing on improving the shareholder register can be achieved IF the company sharpens up its strategy and decides it wants to become a lasting success
Since Crux Investor wrote about Max Resources, eighteen months have passed and its share price trebled this year from 24 c to 72 c before retracing to the current level 40 c. In this update note we will review our Red Flags and Green Lights, providing a report card on progress. Where appropriate we will introduce other themes.
Red Flags
Corporate-level lack of focus on a potentially company-making project, and Country-level lack of focus on Cesar as a potentially company-making project
A corporate lack of focus is addressed by tackling the first two red flags from the previous report. Crux Investor is happy to say that judging by the recent actions taken by the Company, it appears management of Max Resources finally recognises Cesar as a potential company-maker.
Max Resources has been chasing sedimentary-hosted copper in Colombia for some years. During 2018 it licenced a ‘Copperbelt’ 50 km east of Bogota and then five mining concessions in Eastern Colombia within the Gachala ‘sedimentary copper basin’ in early June 2018. According to the press release the area encompassed 27 line-kilometres in a geological setting ‘believed to be analogous to the Zambian Copper Belt of Africa’. An initial 9,374 hectares (“Ha”) were expanded to 13,277 Ha, with much fanfare a week later. And then on 18 June 2018 Max Resources signed the Choco prospect, hunting gold in conglomerates and gravels 120 km SE of Medellin. A few good results and one share price spike later, by mid-October 2019 Max Resources was divesting from Gachala, trying to resolve access issues at Choco, and announcing that its “exploration focus is the Cesar Copper-Silver property area.”
As late as September 2020, an option on the RT Gold project in Peru was signed. RT Gold, however remains firmly on the sidelines, perhaps as a hedge against Colombia risk. One minor news release on RT Gold was issued in December 2020 regarding re-assaying of historic core. Results have been pending since then. Poor show.
Since December 2020 it has all been about sediment-hosted copper at Cesar in Colombia. Every news release in 2021 and 2022 focuses on the wider project. Like a serial-dater settling into marriage, Max Resources finally looks as if it has found “the one”.
Conclusion: Focus at a Corporate and Country level has been demonstrated, despite a lack of information flow. The report card just about makes a Red Flagturn into a Green Light.
Project-level lack of focus on Quality, and excessive focus on Growth. More testing and geological de-risking of known prospects please
The way Max Resources continues to work through its targets and present its exploration results continues to raise Red Flags with Crux Investor.
The Company talks as if it has made a major discovery, and indeed the share price has responded as if a discovery has been made. Trubbliz, geological information remains scant. In fact, most information remains scant.
By early November 2019 Cesar was wholly owned by Max Resources and spanned an area approximately 500 km squared in north-eastern Colombia. The project consisted, at this stage, of three stratabound zones: AM North, AM South and Cesar South, covering a large portion of a 200-kilometre-long sediment-hosted copper-silver belt. Parallels were drawn with the Kupferschiefer mineralisation in Europe. So far, so good. Kupferschiefer mineralisation is well understood and is characterized by the deposition of sediments in a shallow marine environment characterised by anoxic conditions.
The problem, however, lies in the way that Max Resources presents its information with barely any detailed geological observations and jumping straight to interpretations. Sweeping statements are made, grab panel and chip results are presented, consultants are hired, but good supporting information is lacking. Where are the representative samples in three dimensions? What about systematic trenching or clearing faces with a scraper and getting confirmation in the third dimension?
To substantiate these complaints, here are some examples.
An association with the University of Science (AGH) from Krakow, Poland was announced on 21 April 2020. A report was commissioned but never published. The current corporate presentation (9 Aug 2022) notes there is an AGH Technical Presentation on the website, but Crux Investor cannot find it.
In May 2020 it was reported that Max had entered into “a collaboration agreement with one of the world's leading copper producers and brought in Fathom Geophysics to carry out a CESAR technical study.” There is no further reference to this study, nor its findings and conclusions.
During the first half of 2021 Max Resource announced a programme of “ongoing interpretation of seismic sections and analysis of historical drill holes, all being integrated into our structural modelling of the Cesar basin, in collaboration with Ingeniería Geológica Universidad Nacional de Colombia (“IGUN”) in Medellín. There is no further reference to this study, nor its findings and conclusions. C’mon guys, this is getting to be a habit!
Details behind the Endeavour Silver Corporation (“Endeavour”) deal are absent. In March 2022 Max entered into a Cooperation Agreement Endeavour “to solidify the terms to cooperate in the acquisition of addition mining properties to be included in the CESAR Project.” Max Resources talks about how Endeavour “will provide certain financial capabilities required of the Company by the authorities of Colombia” for the benefit of securing additional mineral tenures. But Max Resources does not provide investors with relevant information on the Mining Code in Colombia and any requirements for financial guarantees or rules on the number of concessions any one Company can hold. Outside observers can be forgiven if they start to feel like mushrooms (kept in the dark and occasionally fed muck).
Concession size inconsistencies. Figures currently being used by Max Resources show Cesar licences comprising 70 km squared at Uru, and 116 km squared at AM (including Conejo, presumably), for a total of 186 km squared. A news release from 27 June refers to URU being 99 km squared, so presumably a total of 215 km squared. To coin a Jack Reacher phrase, “in an investigation, details matter”.
Following years of presenting on Kupferschiefer geology, Max Resources introduced the possibility that URU is a Central African Copper Belt (“CACB”) style deposit. Note that CACB deposits are generally accepted to be oxidised sediments in a rift valley basin capped by evaporites that act as a seal. Geologically-speaking, CACB mineralisation is very different to Kupferschiefer mineralisation.
Yes, slide #8 on the current slide deck shows the spatial and temporal relation between Kupferschiefer and CACB geology. Yes, Dr Grainger talks about the relationship in broad terms in a December 2021 video filmed at the Colombia Gold Symposium. But, crikey, the Company ought to do much better at providing key geological information.
Figure 1. Slide #8 from the Max Resources current Corporate Presentation
Geological maps are consistently absent at AM, Conejo, and URU. More information please! Some investors are also geologists and they actually care about the data.
Max Resources typically announces new prospects with great fanfare but moves onto better prospects without completing the reporting of the technical work. AM was the hot prospect in 2020, but last featured in a news release in March 2021. There has been no obvious further work at the AM targets, one of which called Herradura was eminently suitable for establishing size and average grade. Mapping of the Herradura Zone at the AM North area in June 2019 had shown the mineralisation to be present as a low angle continuous copper-silver mineralised horizon trending east-west and dipping gently 15-21º NNW. Positive news releases and results were released in July and then October 2019 announcing the Ventana and Herradura South zones. There was no follow-up work carried out, and no press release explaining the decisions. Soon the focus shifted to Conejo.
On 24 March 2021 Max reported impressive panel sample results for Conejo with six samples assaying more than 10% Cu. Crux Investor records the release of results of approximately 70 panel samples, 32 chips samples and 2 “representative” samples across two press releases. Two subsequent news releases on Conejo (19 October and 3 November 2021) simply rehashed some of these results without any new assay information.
Beyond the observation that two types of mineral events have been observed, a stratiform copper-silver Kupferschiefer type being crosscut by a stockwork within an igneous host rock, there is no information about the geology. No geological maps, no plans showing the relationship between panels sampled, and no trenching of the stratiform layer and stockwork. A few photographs are provided, and then it is on to the next new prospect area, URU. The level of disclosure is very poor and significant questions are raised.
Conclusion: Despite the superficially good exploration results, the Red Flag associated with the way Max Resources presents its technical information is still a Red Flag.
Hand-to-mouth financing strategy, with low-quality unit offerings during 2020, rather than attracting long-term equity investors through well-priced straight equity offerings
Max Resources has made significant progress in the capital markets in the past eighteen months. The Company currently has C$ 20 M in cash and C$ 8 M potential from in-the-money warrants and options. Endeavour subscribed to $1.7 M of a $ 7.7 M capital raise at 35 c in February 2022. The Company raised a further C$ 17.7 M at 60 c in May 2022. Given cash of C$20 M, the diluted Enterprise Value of Max is C$40 M.
Institutional shareholdings have increased to 25% of the share register, with Endeavour at 5%.
Conclusion: Great improvements have been made in the capital markets, turning a Red Flag into a Green Light.
Persistent ‘pump and dump’ accusations that will linger for as long as the company lacks focus
Otto Rock from IKN Blogspot dubbed Max Resources a “Scam Pump” in September 2020. Has it done enough to remove the taint? Crux Investor feels that the focus on the wider Cesar project is a positive move. Many doubts about how Max Resources presents its exploration data remains. If data presentation improves, and systematic testing of targets in three dimensions followed by proper reporting occurs then the Company will be a step further towards respectability.
Conclusion: With drilling around the corner, Max is giving itself every opportunity to turn itself into a more respectable Company. Much work still remains to be done.
Green Lights
Cesar could be a company-maker
Even though the Crux Investor has ranted and raved about the poor quality of disclosure by Max Resources, the lack of follow-up on exploration targets, and the skittering from AM to Conejo to URU, there is, however, a common thread: Copper is being found in abundance, over a wide area. Again and again the photos show copper staining. Again and again the grab and channel samples yield good results.
Cesar still has the potential to be a Company making.
In presentations Max Resources describes URU as a turning point for the Company, as it hosts wide widths of hypogene chalcocite in interpreted sub-vertical structures. More geological information is needed. No signs of chalcopyrite or bornite (the usual copper sulphides), just chalcocite associated with large sub-vertical structures laterally continuous on strike. Information is scant, but results like these are promising:
- 16.8 m @ 8.3% Cu, 146 g/t Ag (interpreted true width)
- 7.0 m @ 8.5% Cu, 143 g/t Ag (interpreted true width)
- 52.0 m @ 4.9% Cu, 41 g/t Ag (along a ridgeline)
The tantalising scraps of information that the Company puts into the public domain suggests that Cesar has the potential to be a Company-Maker.
A recent geophysical survey ahead of drilling in September means that Max Resources is getting to the sharp end of this pre-discovery phase of exploration. CEO Brett Matich has stated in conferences that the Company is looking to drill-test the concept that Max Resources owns an entire sediment-hosted copper system. Drilling will start at URU and advance via Conejo to AM by the end of 2022.
Shifting focus to concentrate on Cesar can be achieved immediately and at zero cost
Max Resources has clearly focused on Cesar in 2021 and 2022. Good work.
Shifting focus to concentrate on delivering results that underpin the quality of Cesar rather than focusing on growth can be easily achieved in the short term, at almost zero cost
Max Resources has failed to report consolidated exploration results from its various prospects. The Company has a bad habit of repeating results and bland interpretive geological statements. On the plus side, the geologists have continued to open up new areas, culminating in URU.
Drilling at URU, then Conejo, and ultimately AM in the coming months will be a crucial milestone for the Company.
Focusing on improving the shareholder register can be achieved IF the company sharpens up its strategy and decides it wants to become a lasting success
Max Resources has had a good year in the Capital Markets, raising C$7.7 M in March, and a further C$17.7 M in June. The addition of Endeavour Silver as a 5% shareholder is optically at least an endorsement of Cesar. Endeavour has a market capitalisation of $680 M and has two operating mines, which indicates professional competence. As far as that goes, having Endeavour on the shareholder register is an endorsement. Looking at it another way, the investment by Endeavour provides low-cost optionality for Endeavour on the project. Endeavour has an underlying 0.5% royalty on new areas signed in Colombia with Endeavours’ backing. The transaction was not deemed newsworthy for Endeavour.
In the current corporate presentation Max Resources states that institutions are 25% of the shareholder register. No supplementary information is provided and the Financing news releases offer the bare bones of information.
Other factors - consider new themes
Colombia
One aspect of risk that Crux Investor did not address in March 2021 was country risk. With the recent inauguration of Gustavo Petro as President, Colombia joins the ranks of South American countries with socialist leadership. There is now high political risk for any mining company operating in Colombia.
Petro has stated a preference for an economy that depends on agriculture rather than extractive industries. The extractive industry response has been to stress that the income extractives generate is vital for funding any election promises.
Petro has promised to stop new exploration for hydrocarbons and construction of new large-scale open-pit mines. Max Resources CEO Brett Matich reports that its “exploration focus aligns directly with Colombia’s National Mining Agency strategy of transitioning from fossil fuels to copper exploration and future development of the Cesar basin.” In the words of Mandy Rice-Davies, “well, he would, wouldn’t he.”
Inconveniently for Max Resources is the background of newly appointed Minister of Mines and Energy, Irene Vélez. Irene Vélez is a philosopher by training and a full professor at the Faculty of Engineering of the Universidad del Valle, one of the most important public higher education institutions in the country. Her work includes investigations into mining-related mercury pollution, the impact of chemicals such as glyphosate when used on crops, the appropriation of water and land resources by different extractive industries, food security in rural and ethnic contexts, the structural violence presented in many environments, and environmental peace as an essential dimension of the transition in the Post-Peace Agreement. She has also said that the new government will right historic wrongs suffered by women, the young, and ethnic and rural minorities. If you are a resources company, Yikes!
Yes Ministers and governments come and go. Yes, the geology is not going to change in a human lifetime. But crikey, it looks like there will be a torrid few years for mining companies operating in Colombia. Massive Red Flag.
Copper
Copper is the metal for electrification. The mega-trends in consumption and decarbonisation indicate that copper will be in sustained demand for decades.
Robert Friedland sensationally reports that “to transition just the world’s passenger cars to electric, we have to mine more materials in the next 30 years that we mined throughout human history”. In his keynote speech at Indaba in May, Friedland referred to a report by Wood Mackenzie in 2021 that said the world needs to invest $240 billion in copper over the next five years to meet growing demand.
BHP reported in its half-yearly Economic and Commodity Outlook that “population growth, urbanisation, the infrastructure of decarbonisation and rising living standards are all expected to drive demand” for metals. BHP also notes that “the resources industry as a whole has been disciplined in its allocation of capital over the last half decade or so. With this disciplined historical supply backdrop as a starting point, any sustained demand surprise seems likely to flow almost directly to tighter market balances.”
The $5.8 B bid by BHP for Oz Minerals on 8 August 2022 is an indication that copper is in demand. By making the bid, BHP has laid bare the desire to get more exposure to the metals needed for decarbonisation and electrification, specifically copper and nickel.
In this copper-favourable environment, the fact that Max Resources may have control over an entire copper province is significant.
Conclusions
Among the analysts preparing this report there are those that berate the Company for a lack of disclosure, unsystematic work, withholding of results, a lack of focus on key prospects, a lack of geological evidence, and a lack of drilling. Red flags still abound. Other analysts acknowledge the Company’s focus on the wider Cesar project area, the geological thesis backed up by photographs and grade, and the potential for a junior company to own major copper district. Opinion is divided. Crucially, imminent drilling will bring clarity to the situation.
Key Red Flags are:
- Colombia Political risk is now a major concern. Anti-open-pit rhetoric, a new President prioritising agriculture above extractives, and a radical anti-mining Minister for Mines.
- Max Resources does a very poor job of providing technical data in any announcements. The Company has makes bland repetitions of geological generalities in every news release, dubious repetitions of the same sample results time and again, and there is a marked lack of fresh sampling and follow-up work.
- Max Resources does not follow up on promises to deliver reports or project updates on a prospect by prospect scale. Terrible treatment of retail investors through a lack of appropriate information.
Key Green Lights are:
- Max Resources has focused on the wider Cesar project, a Jurassic aged sub-basin in northern Colombia. Grab and channel sample grades from across the region indicate copper-rich mineralising fluids, particularly at URU. Hypogene chalcocite at URU is a good sign.
- Drilling will take place at URU, Conejo and AM in 2022. Despite deficiencies in reporting standards, the truth-machines are about to start turning.
- Copper is in demand, and Cesar is potentially a major copper district
Fundamentally, your approach to any investment will be dictated by your competing emotions of greed and fear. At an enterprise value of C$40 M ($31 M), Max Resources is not carrying a significant market capitalisation. Crux Investor concludes that the Cesar project potentially hosts a large copper-silver endowment. At this stage it is still essentially pre-discovery.
Crux Investor advises potential investors to hold back until drill results show consistent economical grades over decent widths that make them practically mineable. Once the geological fundamentals are satisfactorily established, then the risk / reward profile of the investment changes.
If you are a Family Office investor, or an Institutional investor, and you would like the full report behind this article, please contact matthew@cruxinvestor.com
We are committed to helping investors come to grips with the resources sector and learn how to interpret news releases made by companies. In these Analyst’s Notes we illustrate how news from companies affects the investment case for the stock, and how it can affect peers as well. The topics are selected based on what the analysts think is both relevant and informative to you, the investor.
In this Analyst's Notes, we have chosen to take another look at Max Resources.
Executive Summary
In March 2021 Crux Investor published an Analyst’s Notes report on Max Resource Corporation (“Max”) (TSX:MAX) and its Cesar Project in Colombia. The report noted that Max Resources “has all of the hall-marks of a serial under-achiever, with many Red Flags, and yet it has a project that might well be the real deal.” The conclusions delivered to investors were “to wait a few months and see whether or not Max develops a credible action plan”, and advance to drilling.
Fast-forward eighteen months, and Crux Investor can safely report that Max Resources divides opinions. Among the analysts preparing this report there are those that berate the Company for a lack of disclosure, unsystematic work, withholding of results, a lack of focus on key prospects, a lack of geological evidence, and a lack of drilling. Red flags still abound. Other analysts acknowledge the Company’s focus on the wider Cesar project area, the geological thesis backed up by photographs and grade, and the potential for a junior company to own major copper district. Opinion is divided. Crucially, imminent drilling will bring clarity to the situation.
Key Red Flags are:
- Colombia Political risk is now a major concern. Anti-open-pit rhetoric, a new President prioritising agriculture above extractives, and a radical anti-mining Minister for Mines.
- Max Resources does a very poor job of providing technical data in any announcements. The Company has makes bland repetitions of geological generalities in every news release, dubious repetitions of the same sample results time and again, and there is a marked lack of fresh sampling and follow-up work.
- Max Resources does not follow up on promises to deliver reports or project updates on a prospect by prospect scale. Terrible treatment of retail investors through a lack of appropriate information.
Key Green Lights are:
- Max Resources has focused on the wider Cesar project, a Jurassic aged sub-basin in northern Colombia. Grab and channel sample grades from across the region indicate copper-rich mineralising fluids, particularly at URU. Hypogene chalcocite at URU is a good sign.
- Drilling will take place at URU, Conejo and AM in 2022. Despite deficiencies in reporting standards, the truth-machines are about to start turning.
- Copper is in demand, and Cesar is potentially a major copper district
Fundamentally, your approach to any investment will be dictated by your competing emotions of greed and fear. At an enterprise value of C$40 M ($31 M), Max Resources is not carrying a significant market capitalisation. Crux Investor concludes that the Cesar project potentially hosts a large copper-silver endowment. At this stage it is still essentially pre-discovery.
Crux Investor advises potential investors to hold back until drill results show consistent economical grades over decent widths that make them practically mineable. Once the geological fundamentals are satisfactorily established, then the risk / reward profile of the investment changes.
Introduction
For anyone wanting to re-acquaint themselves with the previous Analyst’s Notes on Max Resources, it can be found here. And to cut to the chase, here are the Red Flags and Green Lights from March 2021.
Red Flags:
- Corporate-level lack of focus on a potentially company-making project
- Country-level lack of focus on Cesar as a potentially company-making project
- Project-level lack of focus on Quality, and excessive focus on Growth. More testing and geological de-risking of known prospects please
- Hand-to-mouth financing strategy, with low-quality unit offerings during 2020, rather than attracting long-term equity investors through well-priced straight equity offerings
- Persistent ‘pump and dump’ accusations that will linger for as long as the company lacks focus
Green Lights:
- Cesar could be a company-maker
- Shifting focus to concentrate on Cesar can be achieved immediately and at zero cost
- Shifting focus to concentrate on delivering results that underpin the quality of Cesar rather than focusing on growth can be easily achieved in the short term, at almost zero cost
- Focusing on improving the shareholder register can be achieved IF the company sharpens up its strategy and decides it wants to become a lasting success
Since Crux Investor wrote about Max Resources, eighteen months have passed and its share price trebled this year from 24 c to 72 c before retracing to the current level 40 c. In this update note we will review our Red Flags and Green Lights, providing a report card on progress. Where appropriate we will introduce other themes.
Red Flags
Corporate-level lack of focus on a potentially company-making project, and Country-level lack of focus on Cesar as a potentially company-making project
A corporate lack of focus is addressed by tackling the first two red flags from the previous report. Crux Investor is happy to say that judging by the recent actions taken by the Company, it appears management of Max Resources finally recognises Cesar as a potential company-maker.
Max Resources has been chasing sedimentary-hosted copper in Colombia for some years. During 2018 it licenced a ‘Copperbelt’ 50 km east of Bogota and then five mining concessions in Eastern Colombia within the Gachala ‘sedimentary copper basin’ in early June 2018. According to the press release the area encompassed 27 line-kilometres in a geological setting ‘believed to be analogous to the Zambian Copper Belt of Africa’. An initial 9,374 hectares (“Ha”) were expanded to 13,277 Ha, with much fanfare a week later. And then on 18 June 2018 Max Resources signed the Choco prospect, hunting gold in conglomerates and gravels 120 km SE of Medellin. A few good results and one share price spike later, by mid-October 2019 Max Resources was divesting from Gachala, trying to resolve access issues at Choco, and announcing that its “exploration focus is the Cesar Copper-Silver property area.”
As late as September 2020, an option on the RT Gold project in Peru was signed. RT Gold, however remains firmly on the sidelines, perhaps as a hedge against Colombia risk. One minor news release on RT Gold was issued in December 2020 regarding re-assaying of historic core. Results have been pending since then. Poor show.
Since December 2020 it has all been about sediment-hosted copper at Cesar in Colombia. Every news release in 2021 and 2022 focuses on the wider project. Like a serial-dater settling into marriage, Max Resources finally looks as if it has found “the one”.
Conclusion: Focus at a Corporate and Country level has been demonstrated, despite a lack of information flow. The report card just about makes a Red Flagturn into a Green Light.
Project-level lack of focus on Quality, and excessive focus on Growth. More testing and geological de-risking of known prospects please
The way Max Resources continues to work through its targets and present its exploration results continues to raise Red Flags with Crux Investor.
The Company talks as if it has made a major discovery, and indeed the share price has responded as if a discovery has been made. Trubbliz, geological information remains scant. In fact, most information remains scant.
By early November 2019 Cesar was wholly owned by Max Resources and spanned an area approximately 500 km squared in north-eastern Colombia. The project consisted, at this stage, of three stratabound zones: AM North, AM South and Cesar South, covering a large portion of a 200-kilometre-long sediment-hosted copper-silver belt. Parallels were drawn with the Kupferschiefer mineralisation in Europe. So far, so good. Kupferschiefer mineralisation is well understood and is characterized by the deposition of sediments in a shallow marine environment characterised by anoxic conditions.
The problem, however, lies in the way that Max Resources presents its information with barely any detailed geological observations and jumping straight to interpretations. Sweeping statements are made, grab panel and chip results are presented, consultants are hired, but good supporting information is lacking. Where are the representative samples in three dimensions? What about systematic trenching or clearing faces with a scraper and getting confirmation in the third dimension?
To substantiate these complaints, here are some examples.
An association with the University of Science (AGH) from Krakow, Poland was announced on 21 April 2020. A report was commissioned but never published. The current corporate presentation (9 Aug 2022) notes there is an AGH Technical Presentation on the website, but Crux Investor cannot find it.
In May 2020 it was reported that Max had entered into “a collaboration agreement with one of the world's leading copper producers and brought in Fathom Geophysics to carry out a CESAR technical study.” There is no further reference to this study, nor its findings and conclusions.
During the first half of 2021 Max Resource announced a programme of “ongoing interpretation of seismic sections and analysis of historical drill holes, all being integrated into our structural modelling of the Cesar basin, in collaboration with Ingeniería Geológica Universidad Nacional de Colombia (“IGUN”) in Medellín. There is no further reference to this study, nor its findings and conclusions. C’mon guys, this is getting to be a habit!
Details behind the Endeavour Silver Corporation (“Endeavour”) deal are absent. In March 2022 Max entered into a Cooperation Agreement Endeavour “to solidify the terms to cooperate in the acquisition of addition mining properties to be included in the CESAR Project.” Max Resources talks about how Endeavour “will provide certain financial capabilities required of the Company by the authorities of Colombia” for the benefit of securing additional mineral tenures. But Max Resources does not provide investors with relevant information on the Mining Code in Colombia and any requirements for financial guarantees or rules on the number of concessions any one Company can hold. Outside observers can be forgiven if they start to feel like mushrooms (kept in the dark and occasionally fed muck).
Concession size inconsistencies. Figures currently being used by Max Resources show Cesar licences comprising 70 km squared at Uru, and 116 km squared at AM (including Conejo, presumably), for a total of 186 km squared. A news release from 27 June refers to URU being 99 km squared, so presumably a total of 215 km squared. To coin a Jack Reacher phrase, “in an investigation, details matter”.
Following years of presenting on Kupferschiefer geology, Max Resources introduced the possibility that URU is a Central African Copper Belt (“CACB”) style deposit. Note that CACB deposits are generally accepted to be oxidised sediments in a rift valley basin capped by evaporites that act as a seal. Geologically-speaking, CACB mineralisation is very different to Kupferschiefer mineralisation.
Yes, slide #8 on the current slide deck shows the spatial and temporal relation between Kupferschiefer and CACB geology. Yes, Dr Grainger talks about the relationship in broad terms in a December 2021 video filmed at the Colombia Gold Symposium. But, crikey, the Company ought to do much better at providing key geological information.
Figure 1. Slide #8 from the Max Resources current Corporate Presentation
Geological maps are consistently absent at AM, Conejo, and URU. More information please! Some investors are also geologists and they actually care about the data.
Max Resources typically announces new prospects with great fanfare but moves onto better prospects without completing the reporting of the technical work. AM was the hot prospect in 2020, but last featured in a news release in March 2021. There has been no obvious further work at the AM targets, one of which called Herradura was eminently suitable for establishing size and average grade. Mapping of the Herradura Zone at the AM North area in June 2019 had shown the mineralisation to be present as a low angle continuous copper-silver mineralised horizon trending east-west and dipping gently 15-21º NNW. Positive news releases and results were released in July and then October 2019 announcing the Ventana and Herradura South zones. There was no follow-up work carried out, and no press release explaining the decisions. Soon the focus shifted to Conejo.
On 24 March 2021 Max reported impressive panel sample results for Conejo with six samples assaying more than 10% Cu. Crux Investor records the release of results of approximately 70 panel samples, 32 chips samples and 2 “representative” samples across two press releases. Two subsequent news releases on Conejo (19 October and 3 November 2021) simply rehashed some of these results without any new assay information.
Beyond the observation that two types of mineral events have been observed, a stratiform copper-silver Kupferschiefer type being crosscut by a stockwork within an igneous host rock, there is no information about the geology. No geological maps, no plans showing the relationship between panels sampled, and no trenching of the stratiform layer and stockwork. A few photographs are provided, and then it is on to the next new prospect area, URU. The level of disclosure is very poor and significant questions are raised.
Conclusion: Despite the superficially good exploration results, the Red Flag associated with the way Max Resources presents its technical information is still a Red Flag.
Hand-to-mouth financing strategy, with low-quality unit offerings during 2020, rather than attracting long-term equity investors through well-priced straight equity offerings
Max Resources has made significant progress in the capital markets in the past eighteen months. The Company currently has C$ 20 M in cash and C$ 8 M potential from in-the-money warrants and options. Endeavour subscribed to $1.7 M of a $ 7.7 M capital raise at 35 c in February 2022. The Company raised a further C$ 17.7 M at 60 c in May 2022. Given cash of C$20 M, the diluted Enterprise Value of Max is C$40 M.
Institutional shareholdings have increased to 25% of the share register, with Endeavour at 5%.
Conclusion: Great improvements have been made in the capital markets, turning a Red Flag into a Green Light.
Persistent ‘pump and dump’ accusations that will linger for as long as the company lacks focus
Otto Rock from IKN Blogspot dubbed Max Resources a “Scam Pump” in September 2020. Has it done enough to remove the taint? Crux Investor feels that the focus on the wider Cesar project is a positive move. Many doubts about how Max Resources presents its exploration data remains. If data presentation improves, and systematic testing of targets in three dimensions followed by proper reporting occurs then the Company will be a step further towards respectability.
Conclusion: With drilling around the corner, Max is giving itself every opportunity to turn itself into a more respectable Company. Much work still remains to be done.
Green Lights
Cesar could be a company-maker
Even though the Crux Investor has ranted and raved about the poor quality of disclosure by Max Resources, the lack of follow-up on exploration targets, and the skittering from AM to Conejo to URU, there is, however, a common thread: Copper is being found in abundance, over a wide area. Again and again the photos show copper staining. Again and again the grab and channel samples yield good results.
Cesar still has the potential to be a Company making.
In presentations Max Resources describes URU as a turning point for the Company, as it hosts wide widths of hypogene chalcocite in interpreted sub-vertical structures. More geological information is needed. No signs of chalcopyrite or bornite (the usual copper sulphides), just chalcocite associated with large sub-vertical structures laterally continuous on strike. Information is scant, but results like these are promising:
- 16.8 m @ 8.3% Cu, 146 g/t Ag (interpreted true width)
- 7.0 m @ 8.5% Cu, 143 g/t Ag (interpreted true width)
- 52.0 m @ 4.9% Cu, 41 g/t Ag (along a ridgeline)
The tantalising scraps of information that the Company puts into the public domain suggests that Cesar has the potential to be a Company-Maker.
A recent geophysical survey ahead of drilling in September means that Max Resources is getting to the sharp end of this pre-discovery phase of exploration. CEO Brett Matich has stated in conferences that the Company is looking to drill-test the concept that Max Resources owns an entire sediment-hosted copper system. Drilling will start at URU and advance via Conejo to AM by the end of 2022.
Shifting focus to concentrate on Cesar can be achieved immediately and at zero cost
Max Resources has clearly focused on Cesar in 2021 and 2022. Good work.
Shifting focus to concentrate on delivering results that underpin the quality of Cesar rather than focusing on growth can be easily achieved in the short term, at almost zero cost
Max Resources has failed to report consolidated exploration results from its various prospects. The Company has a bad habit of repeating results and bland interpretive geological statements. On the plus side, the geologists have continued to open up new areas, culminating in URU.
Drilling at URU, then Conejo, and ultimately AM in the coming months will be a crucial milestone for the Company.
Focusing on improving the shareholder register can be achieved IF the company sharpens up its strategy and decides it wants to become a lasting success
Max Resources has had a good year in the Capital Markets, raising C$7.7 M in March, and a further C$17.7 M in June. The addition of Endeavour Silver as a 5% shareholder is optically at least an endorsement of Cesar. Endeavour has a market capitalisation of $680 M and has two operating mines, which indicates professional competence. As far as that goes, having Endeavour on the shareholder register is an endorsement. Looking at it another way, the investment by Endeavour provides low-cost optionality for Endeavour on the project. Endeavour has an underlying 0.5% royalty on new areas signed in Colombia with Endeavours’ backing. The transaction was not deemed newsworthy for Endeavour.
In the current corporate presentation Max Resources states that institutions are 25% of the shareholder register. No supplementary information is provided and the Financing news releases offer the bare bones of information.
Other factors - consider new themes
Colombia
One aspect of risk that Crux Investor did not address in March 2021 was country risk. With the recent inauguration of Gustavo Petro as President, Colombia joins the ranks of South American countries with socialist leadership. There is now high political risk for any mining company operating in Colombia.
Petro has stated a preference for an economy that depends on agriculture rather than extractive industries. The extractive industry response has been to stress that the income extractives generate is vital for funding any election promises.
Petro has promised to stop new exploration for hydrocarbons and construction of new large-scale open-pit mines. Max Resources CEO Brett Matich reports that its “exploration focus aligns directly with Colombia’s National Mining Agency strategy of transitioning from fossil fuels to copper exploration and future development of the Cesar basin.” In the words of Mandy Rice-Davies, “well, he would, wouldn’t he.”
Inconveniently for Max Resources is the background of newly appointed Minister of Mines and Energy, Irene Vélez. Irene Vélez is a philosopher by training and a full professor at the Faculty of Engineering of the Universidad del Valle, one of the most important public higher education institutions in the country. Her work includes investigations into mining-related mercury pollution, the impact of chemicals such as glyphosate when used on crops, the appropriation of water and land resources by different extractive industries, food security in rural and ethnic contexts, the structural violence presented in many environments, and environmental peace as an essential dimension of the transition in the Post-Peace Agreement. She has also said that the new government will right historic wrongs suffered by women, the young, and ethnic and rural minorities. If you are a resources company, Yikes!
Yes Ministers and governments come and go. Yes, the geology is not going to change in a human lifetime. But crikey, it looks like there will be a torrid few years for mining companies operating in Colombia. Massive Red Flag.
Copper
Copper is the metal for electrification. The mega-trends in consumption and decarbonisation indicate that copper will be in sustained demand for decades.
Robert Friedland sensationally reports that “to transition just the world’s passenger cars to electric, we have to mine more materials in the next 30 years that we mined throughout human history”. In his keynote speech at Indaba in May, Friedland referred to a report by Wood Mackenzie in 2021 that said the world needs to invest $240 billion in copper over the next five years to meet growing demand.
BHP reported in its half-yearly Economic and Commodity Outlook that “population growth, urbanisation, the infrastructure of decarbonisation and rising living standards are all expected to drive demand” for metals. BHP also notes that “the resources industry as a whole has been disciplined in its allocation of capital over the last half decade or so. With this disciplined historical supply backdrop as a starting point, any sustained demand surprise seems likely to flow almost directly to tighter market balances.”
The $5.8 B bid by BHP for Oz Minerals on 8 August 2022 is an indication that copper is in demand. By making the bid, BHP has laid bare the desire to get more exposure to the metals needed for decarbonisation and electrification, specifically copper and nickel.
In this copper-favourable environment, the fact that Max Resources may have control over an entire copper province is significant.
Conclusions
Among the analysts preparing this report there are those that berate the Company for a lack of disclosure, unsystematic work, withholding of results, a lack of focus on key prospects, a lack of geological evidence, and a lack of drilling. Red flags still abound. Other analysts acknowledge the Company’s focus on the wider Cesar project area, the geological thesis backed up by photographs and grade, and the potential for a junior company to own major copper district. Opinion is divided. Crucially, imminent drilling will bring clarity to the situation.
Key Red Flags are:
- Colombia Political risk is now a major concern. Anti-open-pit rhetoric, a new President prioritising agriculture above extractives, and a radical anti-mining Minister for Mines.
- Max Resources does a very poor job of providing technical data in any announcements. The Company has makes bland repetitions of geological generalities in every news release, dubious repetitions of the same sample results time and again, and there is a marked lack of fresh sampling and follow-up work.
- Max Resources does not follow up on promises to deliver reports or project updates on a prospect by prospect scale. Terrible treatment of retail investors through a lack of appropriate information.
Key Green Lights are:
- Max Resources has focused on the wider Cesar project, a Jurassic aged sub-basin in northern Colombia. Grab and channel sample grades from across the region indicate copper-rich mineralising fluids, particularly at URU. Hypogene chalcocite at URU is a good sign.
- Drilling will take place at URU, Conejo and AM in 2022. Despite deficiencies in reporting standards, the truth-machines are about to start turning.
- Copper is in demand, and Cesar is potentially a major copper district
Fundamentally, your approach to any investment will be dictated by your competing emotions of greed and fear. At an enterprise value of C$40 M ($31 M), Max Resources is not carrying a significant market capitalisation. Crux Investor concludes that the Cesar project potentially hosts a large copper-silver endowment. At this stage it is still essentially pre-discovery.
Crux Investor advises potential investors to hold back until drill results show consistent economical grades over decent widths that make them practically mineable. Once the geological fundamentals are satisfactorily established, then the risk / reward profile of the investment changes.
If you are a Family Office investor, or an Institutional investor, and you would like the full report behind this article, please contact matthew@cruxinvestor.com
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