Lennin Muñoz: How To Analyze Mining Stocks As A Mining Engineer (SLS.TO, AAL.L, VALE)

Junior mining companies are the prime drivers of new IPOs for the mining industry. The rewards for investing in these companies often far outweighs the risks, as getting in on the ground floor of a junior mining company can mean triple digit percentage point gains or more. Still, there are many questions on investors’ minds before they invest in a mining company, including the company’s plan for exploration, and how to evaluate whether the junior miner has a good chance of success. 

Due diligence and risk management are just as essential when investing in junior mining companies, but factors as wide ranging as the strength of the management team and technical advisors, as well as the company’s ability to finance its exploration with a strong balance sheet, to the viability and potential of its chosen drill sites. Paying attention to the financials, operations, and the drill plan and results are all required to make better decisions when investing in junior mining companies. To get a better understanding of this potentially highly lucrative investment strategy, we spoke with Lennin Munoz, a geo engineer and mining industry veteran. 

Mr. Munoz was able to provide us with some of his insights into why it is important to take a broad overall look of the company, as well as a detailed assessment of its drilling results and management philosophy. 

Taking a deep dive into a junior mining company means going beyond the headlines and getting in the financials, and using critical analyses like NAV, IRR, CAPEX, and more to make an informed decision. 

What are the critical analysis points you use to determine the strength and viability of a project? 

Desirability, Viability, Feasibility and Sustainability. Inside the desirability angle for example if I look for a tier 1 or 2 deposit, I’ll definitely start with geology, for me the ORE BODY IS ALL! So good tonnage and grade is a key factor (e.g 1 Bt 1%Cu or 200 Mt 2g/t Au), then I analyze the viability of the project, for example, potential to be developed, metal production profile, CAPEX intensity, All in Sustaining Cost position in the cash cost curve. Then, I incorporate the feasibility perspective for example, mining methods, high grading programs in first years (payback), Geotech & hydrogeology, metallurgy, processing, tailings and water management, etc. This review helps me to complete my SWOT analysis, so at the end I include the sustainability framework to have a clear map of risks and opportunities, so I can at least measure which is my main risk and what the company is doing about it.

All of this process is summarized in a model where I define the metrics to rank investment opportunities, for example, NAV, IRR, payback, CAPEX, others. I like to calculate NAV/share since this is a comparable metric with the market value and I could make decisions according to my risk/reward ratio.

How important is the environment, social, and governmental (ESG) aspect for a junior mining company? How important is it for you as an investor, and are the companies doing this right changing views on the mining industry?

ESG is here and these important three letters are a must in any project valuation, for example, I use to review assets using a mining economics framework split in desirability, viability, feasibility, and sustainability (I used the Hutton model), is in this last point that ESG plays a key role, a decisive point that can determine any GO or No GO; my experience in the industry tells me that you can have the best skarn deposit, with a tremendous mine plan, already approved by your company’s board and be in a BFS stage, but without an environmental view, a social acceptance, will not fly. Or it can, but is this sustainable in the long term?


It’s difficult, will not be easy, net zero emissions as an example will be a very expensive initiative, but is here, I’ll try to be in Minexpo this September, I’ve reading very interesting material about new technologies in different vendors, thinking in carbon emissions, green energy, or any other idea aligned with the ESG framework.

Last but not least, and by the way I think the most important part, the social aspect, is that the industry is turning mindsets and thinking about how you can work in the same environment for mutual benefit. Learning from other’s mistakes through history is a very powerful tool in this sector. I think most of the developers are changing the strategy to implement a real social, and sustainable model.

Which companies are proving out those ESG commitments and critical analysis points the best right now?

Particularly, I really like what Solaris Resources (SLS.TO) is doing in Warintza, Ecuador. This is not an easy task, a lot of effort on the ground is required, and of course you need a tier 1 team to do that, a very skillful one that can understand what is happening and what are the needs of all the stakeholders. This level of envelopment is so incredible that Lasso and Arauz mentioned the project in public interviews, so the relevance of the project is across the country.

Let’s continue with what Anglo American (AAL.L) is doing, for example they are clear about the feasibility of 100% renewable energy for the Quellaveco Project; this is a very important greenfield development for Peru, first autonomous project, 100% renewable! 

Another example is Vale (VALE), after Brumadinho in 2018 and all the facts down the road, they are turning to dry stacking tailings facilities, we are at an inflection point about waste management. Going to dry stacking is not cheap but thinking in long term and safety for stakeholders as a crucial factor to put the project in the feasibility side, could be invaluable.

Which mining jurisdictions do you feel are providing the strongest advantage for junior mining companies right now?

I like stable jurisdictions like the USA or Canada, my gold positions for example are there but I think more work on the permitting front should be improved.

I like what Ecuador is doing now, when you listen to a president (Lasso) talking about mineral resources development plans for the long term? They want to be a main exporter of commodities, like Chile or Peru.

I like Chile too, but this situation about the mining tax program proposal should be solved ASAP. In the same line, Peru, I think we’ll be good, we need to work more on the ESG front and establish long term plans to develop greenfield projects, but without a social view, it will be difficult. I like these countries but for sure stability is needed.

With copper’s coming supercycle, should the industry be concerned about supply/demand dynamics? 

No, we are in a middle of a stock/global consumption rate amber alerts, but this is driven as a consequence of lower production rates from previous periods, I think big players will join the party during 2021 and 2022 and the price will correct – I expect a pullback in base metals in the next quarters, I expect a support range of $3.5 – $4.0/lb in the long term as new consensus. However, if we consider the current stress scenario in LATAM I’d say that if in the short term the situation in Peru and Chile is not solved, copper prices can expect a lot of volatility without precedents.

How might this tailwind play out in the short/long-term?

In my experience this situation is split in 2 channels, short term, where operations are printing cash at these prices, and operations in the early stage can be more flexible to run high grading programs, at the end the ones sitted in the first quartile of the cost curve like Southern are having a good year. 

In the long term, the increase in copper price assumption has a direct impact in the cutoff calculation, this item is used to define the mineral reserves or in practical terms, the profitable ore, the lower cutoff, the higher reserves inventory you have (if the modifying factors allows this upgrade), so, if you present an annual information format (AIF) with additional reserves, it’s very probable you submit in parallel an update technical report (e.g NI 43 101) and therefore your valuation will be different, you expect to see an extension of the life of mine, more metal production, potential upsides, etc.

So it sounds like a positive environment for junior copper mining companies exploring over the next decade?

Absolutely, let’s take the long term explanation bove, marginal projects at $3/lb can be considered now in the development pipeline at these prices, which will depend on metrics but yes, upside is at hand.

Which companies/metals are on your watchlist or your prime investment candidates?

I like asymmetrical investments, and I think junior companies can provide that. Right now, a junior copper company is my favorite one. I like the “cost opportunistic” view, so if one thing is good, why gamble on things you don’t know? I think speculation is part of the markets but in my portfolio or watchlist, at least I consider companies where I can understand what they are doing, but if I can calculate the NAV under my method, that is a place where I will wait patiently.

The Mining Stocks Lennin Muñoz is Watching

Solaris Resources: (SLS.TO)

This junior copper mining company has driven forward recently with positive assay results, the expansion of drill holes at its flagship Warintza Project in Ecuador, and stock growth generating massive investor value.

The stock’s uninterrupted climb has been pushed along since the company went public last year by strong results and the addition of drill holes. The company’s expansion to its Warintza East with the first drill hole is contributing to the optimism around the company, and Solaris (SLS.TO) is number one on Mr. Munoz’s mining stock picks.

Anglo American (AAL.L)

Anglo American’s (AAL.L) Quellavaco mine in Peru is a shining beacon of what a new copper mine can be, and the site is one of the largest undeveloped copper deposits in the world. It’s commitment to operating with ESG principles at the forefront of the project’s philosophy means that Quellavaco is, according to Mr. Munoz, a  “very important greenfield development for Peru, first autonomous project, 100% renewable! 

With one of the best mining jurisdictions in the world, Peru affords Anglo American the perfect opportunity to develop this massive project while keeping it cost and energy-efficient.

Vale (VALE)

Vale’s (VALE) commitment to improving the maintenance and safety of its dams gives it a unique advantage in the industry right now. The company’s plans to increase the share of dry processing in its production to 70% by 2023 will allow it to reduce the use of dams in its operations. 

By investing in the implementation of dry stacking disposal technology, this initiative shows that we “are at an inflection point about waste management, “said Mr. Munoz. “Going to dry stacking is not cheap but thinking in long term and safety for stakeholders as a crucial factor to put the project in the feasibility side, could be invaluable.”


The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a licensed professional for investment advice. The author is not an insider or shareholder of any of the companies mentioned above.

By Matthew Evanoff

I cover the mining industry and the best mining stocks around the world. I write about industry news, individual companies, projects, management, and profiles on industry leaders.

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