Tuesday, July 13, 2010

Extorre Gold builds on successes as independent entity

by Karl Loomes company news image

Spinning off assets into a separate listed company can often be a tricky task. Investors are usually sceptical of the reasoning behind the move – and rightfully so, as many companies do spin off their neglected assets, usually because another project has taken centre stage.

However, a company that holds its own assets, with a dedicated and focused management team, has an opportunity to develop the business that may have once been under a shadow. These companies can now etch out their own standing and build on successes as an independent.  Extorre Gold Mines (TSX: XG, OTC: EXGMF)(“Extorre”) is one such company.

Extorre is a Canadian based exploration company, with market capitalization of C$188 million, C$20 million available in cash and cash equivalents, and is currently seeking a secondary listing on the NYSE AMEX to compliment its Toronto listing.

The company’s primary asset is the flagship high grade Cerro Moro Gold and Silver Project in Santa Cruz, Argentina. Extorre’s management profess a wealth of knowledge and experience specific to gold and silver exploration in this region of the Americas, and have a number of strategic agreements in place, including with a subsidiary of AngloGold Ashanti (NYSE:AU) and the Santa Cruz state owned Fomicruz.

The Cerro Moro project is located within the Deseado Massif gold and silver mining district in north east Santa Cruz, approximately 70 kilometres southwest of the town and deep water port of Puerto Deseado. Access to the project from Puerto Deseado, comes via a paved highway to Tellier, and then by all weather gravel provincial highways to the project itself. There is also a network of tracks providing good access to the individual prospects within the Cerro Moro project area.

Potential for gold/silver discoveries in the area is excellent - Extorre’s neighbours attest to this; including AngloGold and Pan American Silver (NASDAQ:PAAS), with three mines Cerro Vanguardia, Manantial Espejo and San Jose, currently in operation in the Deseado Massif. These mines had a combined precious metal production in 2009 of 350,000 ounces of gold, and 12 million ounces of silver.

Extorre own 100% of the Cerro Moro project through its Argentine subsidiary Estelar Resources after fulfilling all the requirements of an earn in agreement with Cerro Vanguardia Sociedad Anonima (CVSA) in 2003. CVSA retains a 2% net smelter return royalty on all future production from the project.

The gold – silver bearing veins at Cerro Moro are typically narrow (around 1 to 5 metres in width), subvertical, and are characterized by multiple phases of quartz adularia  gold - silver deposition. The high grade Escondida gold - silver deposit hosts a significant proportion of the reported mineral resource at Cerro Moro (70%), and has been drill tested along approximately 2 kilometres of strike extent, to a depth of 200 metres.

The company note that significant potential still exists however, for the discovery of extensions to the known mineralization along strike and at depth at Escondida. Other significant veins at Cerro Moro include the Esperanza, Gabriela, Loma Escondida, Patricia, and Deborah veins. Gold at Cerro Moro occurs within the mineralized veins as either native gold (metallic gold, not significantly combined with other mineral) or as electrum (an alloy of gold and silver), whereas silver occurs either in electrum or in the silver sulfide acanthite. 

The latest NI 43-101 compliant resource estimate showed the site had indicated mineral resources of 590,000 tonnes (using 1 gram per tonne gold equivalent grade cut off), grading 18.9 grams per tonne (g/t) gold and 805g/t silver, for a gold equivalent grade of 32.3g/t. This grade is considered exceptional by industry standards, and translates to 357,000 of gold and 15.3 million ounces of silver, meaning a gold equivalent of 612,000.

The report also showed that Cerro Moro had inferred mineral resources (again assuming 1g/t gold equivalent cut off) of just under 2 million tonnes, grading 3g/t gold and 190g/t silver, for a gold equivalent grade of 6.1g/t. This translates to an inferred resource of 190,000 ounces of gold and 12 million ounces of silver, or 390,000 ounces of gold equivalent. This combines to give a total of over one million indicated and inferred gold equivalent ounces at the project.

One of Extorre’s key goals for 2010 is to advance the Cerro Moro project, specifically the high grade Escondida deposit, along the path to development.

In order to achieve this, the company is performing advanced engineering studies on a 750 ton per day mining operation, initially from the Escondida Vein, with both open pit and underground mining planned. Going forward, the company intend to complete and submit the Environmental Impact Assessment (EIA) to Provincial Authorities by the end of July, completing the Preliminary Economic Assessment (PEA) for Cerro Moro in the third quarter of 2010. Extorre expects permits for construction and mine development are likely to be approved in early 2011, following which commencement of mine construction will begin. Production is then expected to come on line in the second half of 2012.

Using a combination of open pit and underground mining, with projected throughput (including milling) of 750 tonnes per day, the company expect the very high gold and silver grades in the Escondida vein will allow for a production of around 100,000 gold equivalent ounces per annum.

Having a clear strategy, Extorre’s management have paved the path to develop its key, high grade deposit, into production over the next three years. The Cerro Moro project alone, offers excellent potential for growth for the company, clearly appreciated by the market, which has pushed shares in the company well above their IPO price. This is one spin-off that is firmly standing on its own two feet.