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What John Doody is not telling you about Belo Sun (BSX.to)

A hilarious pump out today on Belo Sun (BSX.to), the protagonists being the promo pumper Porter Scamsberry and his new MiniMe John Doody (who recently removed all semblance of self-respect by selling his ass to Scamsberry). Doody and his new owner Porter have decided to pump the holy fark out of the Stan Bharti waste of space Belo Sun (BSX.to) to their audience of idiots who won’t even realize they’ve been ripped off until the Xanax runs out. It will all end in tears.
With that in mind, allow your author to add some details about the regulatory disaster that is BSX and why it doesn’t stand a chance of moving its project forward anytime soon. What follows is also one of the main reasons Agnico (AEM) bailed on the stock and its story (another entity guilty of doing their DD after purchasing rather than before, better late than never I suppose). For those not wanting the details, the TL:DR is:
  • Brazil is a bureaucratic nightmare
  • Belo Sun is run by idiots
  • Even in a best case, the mess they have made for themselves will take years to resolve. In a worst case they will lose most of their concession area that covers the main mining concession
  • BSX now realizes this, which is why they changed wording in their latest MD&A. They did so in lawyer-script that keeps them about a millimetre inside strict legality, but it completely fails to explain the material risk to the project to its shareholders.
Aside BSX, the protagonist of our story today is Brazil’s Instituto Nacional de Colonização e Reforma Agrária, or INCRA, the body in charge of land reform. INCRA owns plenty of tracts of land in the country and if you, me or anyone else ever wants to purchase or acquire INCRA land, the process involved is extremely complicated and your actual, full-on Brazilian bureaucratic nightmare. Large mining companies know this and I have heard tell of examples when a operating and producing miner has gone through the process of buying small areas land from INCRA (typically for tailings facilities as they grow) and the red tape has taken ten years. We could spend a lot more time on the horrors of INCRA, but the bottom line to this part is that if you’re a mining company, you do not want to rely on buying INCRA-designated land as part of your corporate growth strategy.
Let’s move to BSX, who has said on no-end of occasions that it owns the surface rights for its Volta Grande project. They tell you that because they bought the surface rights from locals. They did that because the locals told BSX that they owned the land packages in question. Sadly, in most cases it has turned out that the locals were not the true owners of the land on which Volta Grande is located, and most of the mining concession area is in fact on INCRA-owned land (as opposed to the greater concession area, important distinction that we come back to later). Which is nice, because it also gives a window in how naive and stupid these BSX people are about working in Brazil. Now I don’t know whether the locals were simply mistaken about their lack of ownership rights (perfectly possible in the Amazon basin, laws get created and annulled over the years and decades) or whether the locals made a proactive decision to rip BSX off, but the upshot is the same: BSX does NOT own the surface rights to all of its mining concession. Not even most of it, in fact. 
After they discovered their stupid and expensive error and up to this year, BSX tried to fob this non-ownership SNAFU by claiming it had a Memorandum of Understanding (MOU) with INCRA. Even under normal circumstances a MOU isn’t a legally binding document (i.e. they do not own the surface rights, no matter how hard they might wail), but an MOU with INCRA is worse, it’s nothing even close to a formal agreement and is more akin to an amuse bouche that the restaurant offers you before you start the 20 plate tasting menu extravaganza. That INCRA MOU isn’t even worth the paper it’s printed on (see above), especially as the guy who did you the favour of signing that MOU isn’t even with INCRA any longer. 
So let’s see how BSX is disclosing the fact that most of the land that hosts the Volta Grande gold mine project isn’t owned by BSX, but by the worst behemoth red-tape monster in Brazil. This is the relevant passage from the 2q19 MD&A, your humble scribe provides a little bold type and underlining:

After receiving the LI, the Company received an order from the judge of the Agrarian Court of Altamira issuing a temporary 180-day injunction halting certain work related to the LI. The purpose of the injunction is to provide time for the relocation of certain families living near the project site and the finalization of the agreement with Instituto Nacional de Colonização e Reforma Agrária (“INCRA”) involving the overlap of a small portion of INCRA urban development project area with the Company’s mining concessions. The INCRA overlap on the Volta Grande Project footprint covers some of the planned infrastructure.

Belo Sun entered into an MOU agreement with INCRA in 2016 and re-signed again in August 2017 which would see Belo Sun purchasing suitable substitutional land chosen by INCRA in exchange for INCRA releasing the overlap land. With the Government change that occurred in January 2018, Belo Sun is now in discussions with the new INCRA administration. While a final satisfactory negotiated solution is not guaranteed, both parties have continued to discuss the mechanics for a solution. The New Administration has indicated that they prefer not to do a land substitution but establish a lease agreement that would see the land returned to INCRA following the closure of the mine. Discussions are ongoing in a favorable and co-operative atmosphere. The discussions between INCRA and Belo Sun are recorded and registered with the court in Altamira on a regular basis. The relocation plan approved in the LI authorizes families to relocate at a time of the families’ choosing, with relocation expenses covered by the Company, stay where they currently live, or receive financial compensation for their property. The Agrarian Court of Altamira lifted this injunction in June 2017.”
You catch that? Instead of the company being honest about the amount of land at Volta Grande with surface rights owned by INCRA, it tried to hide behind phrases such as “…a small portion of INCRA urban development project area…” or “…covers some of the planned infrastructure.” It may be that INCRA has urban development plans for a small corner of its land up there, but what about the land it owns that doesn’t have an urban plan? And once again let us be crystal clear on this, the INCRA overlap on the Volta Grande Project footprint does not cover “some of the planned infrastructure”, it covers MOST of the infrastructure including pit, tailings facility and mill so fair warning required here, if you are a BSX shareholder and read this, then you do not get in contact with the company and have them explain exactly how much of the important areas of their mining concession and sat on INCRA land, you only have yourself to blame afterwards. Let us also note that the new INCRA admin doesn’t even want to sell the land to BSX now, preferring a leaseback (usufruct) structure as they discuss the relative merits of the first course of this 20 course menu. There is a massive material risk to the Volta Grande project that BSX is trying seven ways not to admit to or make public. Pretty obvious as to why that is, as not only would the truth ruin their pumpjob plans but it would also show their management and executives to be a bunch of pikers on Brazil with no clue on how to operate in the country.

Don’t take my word for it, contact BSX and find out for yourself. Ask them about surface rights, land ownership and just how much of their project sits on INCRA land. Ask them why they paid locals al that money for surface rights that the locals did not own. Ask them about the legally binding nature of an MOU with INCRA. Ask them why they have been so keen on burying the truth. Now you know why AEM bailed.

1 Comment

    […] back in August 2019 (with a few updates along the way since then), this humble corner of cyberspace explained how naughty Belo Sun (BSX.to) had been around its Volta Grande project in Brazil. In the post, we went into detail to explain how BSX had knowingly bought land […]

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