Interview with Auxico Resources Canada Inc.
Interview with rare earths company Auxico Resources: "We are solving the problem of dependence on China today."
time to read: 14 minutes | The interview was conducted by Nico Popp on December 27th, 2022 in Montreal (CAN).
President and CEO | Auxico Resources Canada Inc.
201 Notre Dame West, Suite 500, H2Y 1T4 Montreal (CAN)
Table of contents:
news|financial: "Auxico Resources is a company all about rare earths, critical minerals and tin. The Company has access to three projects in Colombia, Brazil and the Democratic Republic of Congo, and an additional potential project in a fourth jurisdiction, Bolivia, for future consideration. The project in the Democratic Republic of Congo is generating cash flow to Auxico now and Brazil and Colombia both could generate cash flow in the near future. These project areas provide Auxico access up to an estimated four million tons of these minerals. Can you give us an overview of the projects?"
"[...] Soon we aim to export between 500 and 1,000t per month. That could mean a cash flow of between CAD $500,000 and CAD$ 1 million for us. [...]" Frederick Kozak, President and CEO, Auxico Resources Canada Inc.
With pleasure! The compilation of projects on several continents is unique and makes Auxico Resources an attractive partner for potential customers. Let me start with the project in the Democratic Republic of Congo (DRC). The project is currently producing rare earth elements in the form of monazite sands and is being operated by a private company. We are the exclusive distributor and sales agent of the monazite and we receive a 15% commission for each ton of monazite exported. Exports started in 2022 and are still at a low level in comparison to the resource potential. Soon we aim to export between 500 and 1,000t per month. That could mean a cash flow of between CAD $500,000 and CAD$ 1 million for us.
The project in Bolivia, which we are not actively developing at the moment, has an entirely different status for us. The project has potential, and we will devote ourselves to it again, but for now, our focus is on Brazil and the projects in Colombia, as we can produce there in the medium term. In Brazil, we have access to tailings from several decades of tin mining. The tailings in the area that Auxico will be working have been estimated at 30 million tons and have been evaluated and validated by both German and Brazilian governments.
As a first step, we want to process 2,500t of this material per day. Currently, it is the rainy season in Brazil, but we intend to commence a geologic sampling program in early 2023 to evaluate a small area of the tailings to generate a NI 43-101 maiden resource report. This will be over a small part of the total area and will provide certainty to the market as well as potential financiers and customers. We have already visited the deposits on site, completed a preliminary geologic review and evaluation and have a developed a processing plan and engineering and preliminary cost estimates. This project will be a focus for the Company in 2023.
Opportunities at Orinoco
news|financial: "And what about Colombia?"
Colombia is a very interesting project that offers potential for various rare earth elements and critical minerals, such as tantalum, niobium and tin. It is located in eastern Colombia on the Orinoco River, which is very wide and regularly overflows its banks. Over time, the river has created different layers of sediment and has deposited the different minerals. For example, there is potential for precious metals in the first few meters of sediment and a layer with rare earths below that. Although we are focusing on rare earths, it stands to reason that we would also extract platinum, gold or other precious metals as we will have to move this sedimentary layer anyway. There is already a NI 43-101 technical report on the project and with several hundred samples currently in the lab for assay, these will be used in a maiden resource estimate. We hope that this will be completed by late second quarter of 2023.
What is special about our project in Colombia is that it also offers the prospect of tin. Along the Orinoco River, there are areas where tin is very highly concentrated, either on the ground or in the top of the sediments. The ebb and flow of the river has played an important role in this natural “pre-concentration” of the tin for centuries and we are evaluating the potential on Auxico’s lands.
In addition to the potential tin on our property, we have a trading joint venture with a company from Colombia that already collects exceptionally high-grade tin (+65%) and is cooperating with local indigenous artisanal miners. We believe we will be able to deliver the first tranche of tin concentrate for sale early in 2023. This second source of cash flow is very important for us. In total, we aim to deliver up to 100t per month, generating additional cash flow for Auxico.
Existing business relationship
news|financial: "Are there already customers for this?"
Last August, we signed an agreement to supply tin from Brazil with a European marketing company, Cuex Metal AG. We also plan to use this business relationship to market the tin from Colombia. So, we expect to have two revenue streams in different countries for different raw materials and this creates cash flow for the company and distinguishes Auxico from other pure exploration companies.
Responsibility on site
news|financial: "You mentioned that you rely on cooperation with local workers, often of indigenous origin. What responsibility do you assume as a company in this regard?"
"[...] It is important to us that value is created around our projects, which are supported by local people and which have a sustainable impact on the economic and social fabric of the local population, the region and the country without causing avoidable environmental damage. [...]" Frederick Kozak, President and CEO, Auxico Resources Canada Inc.
Rather than relying on cooperation with local workers and indigenous groups, we seek to foster these relationships. This has been a personal priority of mine even before ESG became “a cause celebre” for investors, as I have had the opportunity to work in many underdeveloped areas of the world.
We have excellent community engagement, particularly with indigenous groups and our team is fully committed to “best in industry” standards. During our on-site visits, there have always been discussions with local leaders, community leaders, regional parliaments and representatives of the indigenous population.
The cooperation is beneficial for both parties. We benefit from the valuable local expertise and look to positively impact the entire region. In return, we provide access to the world market for our local partners or invest capital to reach this stage at a later date. It is important to us that value is created around our projects, which are supported by local people and which have a sustainable impact on the economic and social fabric of the local population, the region and the country without causing avoidable environmental damage.
The role in the world market
news|financial: "When are you ready to offer your products on a large scale on the world market? What role does it play that, as a company, you control potentially significant deposits outside China?"
We currently offer monazite from the Democratic Republic of Congo and as early as mid-2024, we could also offer monazite from Colombia as well as from Brazil. Thanks to the various sources from different regions, we could become attractive to many customers. No one else has such diversified sources of monazite that are not already controlled by China. Some large companies have already recognized this and contacted us. The fact that we can already deliver today is also an advantage and offers the option of strengthening business relationships over time. Although we are moving ahead with our projects at full speed, it is always necessary to communicate plans that extend so far into the future with caution. We can never rule out problems with supply chains or even delayed approvals.
Who processes monazite?
news|financial: "When we talk about your potential customers, which industries come into consideration?"
"[...] Auxico is one of the few companies in the world that has access to monazite that is not already being sold to China – this is important to understand. [...]" Frederick Kozak, President and CEO, Auxico Resources Canada Inc.
Auxico is one of the few companies in the world that has access to monazite that is not already being sold to China – this is important to understand. Potential customers are global but are currently limited to those with the capacity to import and process the monazite, as it typically contains minute amounts of radioactive materials that require special handling and transport permits. While this restricts potential monazite customers, Auxico has the ability to extract the radioactive materials from monazite with patented proprietary technology, making it available to anyone who can process the resultant concentrate.
However, it is important to note that the monazite from the DRC, which we are selling today, has low to no levels of radioactive elements. This makes the transport and processing of this monazite much more attractive to potential customers.
Parallels and differences with China
news|financial: "Your projects score with high levels of rare earths. How do you compare geologically with the competition in China?"
It is impossible to say in detail what the conditions are like in China. But we assume that our projects can keep up with China in terms of content and even do better in many other areas. The pollution surrounding rare earth projects in China, in particular, has already caused a stir. We have a completely different approach to sustainability. We are and will be a trustworthy partner for industrial companies and, ultimately, consumers, both on a social level and in terms of environmental protection.
news|financial: "In recent months, you have entered into a number of groundbreaking cooperations and also restructured your organization in terms of personnel. You yourself have been in office since September. What attracted you personally to the task, and how are the first months going?"
"[...] Auxico has both the product needed for the green transition but also access to the environmentally-friend extraction technology. My first few months in the company confirm this impression. [...]" Frederick Kozak, President and CEO, Auxico Resources Canada Inc.
I have worked in the commodities sector throughout my career and became interested in the rare earths sector in 2010, when I watched China destroy the global rare earths industry. Even back then, I expected China to take over the rare earths market and ultimately dominate it. At that time, sustainability criteria did not yet play a significant role. Smartphones and consumer electronics were selling well, and very few people were thinking about the industry as one of growth. Now however, with the move to a “clean and green” economy, the demand for electric vehicles and wind turbines has resulted in a huge forecast of demand growth and the global supply is lacking.
Meeting this demand is a massive undertaking. Companies, particularly from Canada as well as around the world, are advancing promising exploration properties but it takes time for new projects to deliver raw materials, particularly where infrastructure is lacking in areas of the rare earths discoveries.
When I first met Auxico Resources, I immediately recognized the potential for the company, having spent the last few years active in the rare earths sector. Auxico is not an exploration company but a problem solver, a trader, and near-term supplier of critical materials to a clean technology world. We can deliver monazite today and are targeting to expand our capacity quickly.
In a world that wants to become CO2-neutral as quickly as possible, companies like Auxico are in demand like never before. Auxico has both the product needed for the green transition but also access to the environmentally-friend extraction technology. My first few months in the company confirm this impression. There is a lot of interest in what Auxico is doing and it is good to see that we can meet this interest thanks to our local partners. There is a lot to do, and we are working on several projects simultaneously. For me personally, this is great fun. We want to and will be part of both the global solution to move to a clean and green economy and create a new Western source of critical materials in challenging times!
Plans around trading venues
news|financial: "You are planning a listing on the London Stock Exchange. How far along are the plans?"
"[...] As you can see, we have several options to increase the visibility, liquidity and potential shareholder base of Auxico Resources. [...]" Frederick Kozak, President and CEO, Auxico Resources Canada Inc.
It is definitely something that we are considering. Being additionally listed on the London Stock Exchange would be a particularly unique selling point for us, and an added convenience for our many UK-based shareholders. There are thousands of publicly traded mineral exploration companies in Canada and the USA. Since we see ourselves as a solution provider around critical minerals for the climate-neutral future, a listing in Europe makes sense. It seems that awareness of this challenge is somewhat more advanced there and investors better understand the value proposition that Auxico could offer.
We are also aiming for a listing on the OTCQB market in the US (OTC: AUXIF) to further increase our visibility there, but a listing in London is a more significant step. Precisely because of the importance of this action, we will not rush into anything. In addition, it makes no sense to launch in London without carrying out a capital raise at the same time. If we list on the London Stock Exchange, we will do so as soon as the opportunity arises. Before that, however, we will prepare NI 43-101 resource reports on Colombia and Brazil, which demonstrates value for a listing in London. In addition, this would also allow us to seek an uplisting in Canada and move to the TSX or the TSX-V, for example. As you can see, we have several options to increase the visibility, liquidity and potential shareholder base of Auxico Resources.
news|financial: "What is your financial situation?"
We currently have about CAD $3 million in cash and are well funded for current operations. Furthermore, there are options and warrants that could bring additional capital into the Company in the near future. With a view to possible production in Brazil, we have already considered it and are very satisfied with the preliminary figures. In addition, our offtake agreement with the Swiss company Cuex Metals AG is bankable. That means it has a value that we could use to backstop potential funding. The same applies to NI 43-101 resource estimates. We are reviewing all financing options in this context, and, of course, we are acting in the best interest of our investor base with respect to the potential dilution of shareholdings.
Milestones for 2023
news|financial: "The timeline of your activities in your current presentation extends to Q1 2023. What are the key milestones for the next six months?"
"[...] We are very busy and expect to have a lot of newsworthy results through 2023. [...]" Frederick Kozak, President and CEO, Auxico Resources Canada Inc.
We have a lot of interesting milestones beyond the first quarter. One thing that is out of our hands is the uplisting to the OTCQB in the US. This process is already underway, and we are dependent on the timing of regulators. However, once the listing is approved, more investors should have us on their radar than before. Also pending is the approval of an environmental permit and NI 41-101 report related to our operations in Colombia. Further, in the coming months, we will be developing a new source of cash flow in Colombia through our tin sales joint venture. Since the joint venture is just starting, I do not want to provide any precise forecasts here, but this can be expected in the foreseeable future – hopefully the first trade will be completed in early Q1-2023. In this context, it may be interesting to note that we recently had a geologist on-site to explore further potential around additional tin potential.
In Brazil, we expect results from a field sampling and a NI 43-101 report by mid-year. In the DRC, we want to increase monazite sales significantly. As you can see, there are several opportunities ahead. We are very busy and expect to have a lot of newsworthy results through 2023.
New world order
news|financial: "There is talk in the media of an end to globalization because the world is increasingly splitting into two camps. Does contact with potential customers and business partners confirm this impression?"
It is never good when too much power is in the hands of one market player, such as in the case of the rare earth market and China’s dominance. In addition to the impact on market balance, there are also ESG risks. Rare earths are desperately needed for future clean and green and advanced technologies, so it is critical that we expand alternatives as quickly as possible. Many potential partners see Auxico Resources as part of the solution; we can already supply monazite and have further potential to expand our offering and become a leading and sustainable provider in the critical mineral space. As we operate in Africa and South America, we are also diversified.
I do not think much of establishing opposites and talking about two camps, but the global business community is rightfully concerned. However, rare earths from ESG-compliant sources are urgently needed to make a difference and address climate change. Fortunately, more and more potential customers and companies see it that way.
news|financial: "Thank you very much for talking to us."