Tuesday, October 26, 2010

Patagonian gold and silver rush under way and growing

by Lawrence Williams company news image

The sky-high gold and silver prices of late are definitely stimulating precious metals exploration around the world, but the first beneficiaries are likely to be those companies which already have exploration and development projects under way in key prospective areas.

There are a number of global regions where the term ‘gold rush' might be considered appropriate, but most of these are in areas with considerable gold mining history going back many years.  The Yukon, Ontario/Quebec, West Africa, Western Australia - even the South African historic greenstone belt around Barberton - all spring to mind as being current hotbeds of activity, but there are few such areas with considerably less gold mining history and one of these is Patagonia - or rather Argentina's Santa Cruz province where, contrary to the experience of prospective miners in Chubut immediately to the north, Mendoza and  La Rioja , mining companies are well-regarded and the Provincial authorities are supportive.

Gold mining and exploration history in the province effectively only goes back around 30 years when what is now AngloGold Ashanti's Cerro Vanguardia epithermal vein deposits were first discovered by explorers looking for barites, although the significance was not really understood until another 12 years had passed. Similarly what is now the Manantial Espejo mine was also first noted in the early 1970s And again it took a big revival in silver and gold prices, and a new focus on exploration in the region, before anything was developed.  Now,  in recent years the Deseado Massif, which is host to Cerro Vanguardia and Manantial Espejo, has spawned a number of mines and exciting exploration projects - most of which have only been discovered in the past few years.

Companies involved, in addition to AngloGold, include Hochschild, Minera Andes, Andean Resources (the subject of a huge agreed bid from Goldcorp), Pan American Silver, Coeur d'Alene Mines, Extorre Gold Mines (spun off from Exeter Resource earlier this year), Mariana Resources, Minera IRL, Mirasol Resources, Argentex, Patagonia Gold to name but a few.  However most of these are looking at high grade epithermal gold and silver vein deposits which are, perhaps, for the most part of less interest to the gold mining majors (barring AngloGold and Goldcorp) who nowadays mostly seem to be more interested in huge tonnage, long life, low grade operations. 

But, AngloGold's experience at Cerro Vanguardia suggests there is huge potential with the resource continually being extended as mining progresses - a factor which presumably has not been overlooked by Goldcorp and may well justify longer term what some see as an over-payment for Andean Resources.  Similarly, if one talks to some of the other regional explorers, they all see huge potential as vein clusters are analysed.  Extorre's Yale Simpson, for example, is confident that the company's million ounce gold equivalent resource at Cerro Moro - where a development plan has just been announced (Extorre's Cerro Moro gold/silver project could be producing end 2012) - will just grow and grow as the company drills out the many vein systems on its property.

Minera Andes is reckoning on similar potential at its San Jose mine and CEO Rob McEwen has been recently quoted as saying "The drilling results demonstrate that the area in and around the San José mine is extremely prospective, and we anticipate these new veins will significantly extend the mine life. .Recent events such as the $3.6 billion bid for Andean's nearby Cerro Negro property highlight the world class potential of this emerging gold/silver district." See (Minera Andes said San Jose silver production up during 3Q)

Most recently too, Mariana Resources has shown that the rhyolite domes associated with the vein mineralisation may well have the potential for large scale lower grade disseminated gold and silver, which could well prompt a new burst of exploration activity as other companies start drilling these structures as a result of Mariana's find. (Mariana's gold/silver exploration in Patagonia - best of both worlds)

Mineweb has had the privilege of visiting some of the exploration projects above and has overflown Cerro Vanguardia which, with its multiplicity of small, steep sided open pits, is a fascinating operation to view from the air - and is also one of the lowest cost gold mining operations in the world - a fact which obviously has not escaped the attention of a number of the explorers in the region with similar types of high grade epithermal vein deposits nor, presumably, of possible predators who could be looking to take out some of the other successful explorers and miners - but Goldcorp has set the stakes very high with its Andean Resources deal.

OPERATING MINES

Cerro Vanguardia (AngloGold Ashanti 92.5%, Formicruz 7.5%)

AngloGold Ashanti's Cerro Vanguardia mine can be considered the pioneer of Patagonian precious metals mining development.  The deposit was discovered back in 1978 and eventually brought into production only in 1998.

Current mining operations consist of multiple small, steep sided, lozenge-shaped open pits with high stripping ratios given the steeply dipping narrow high grade vein structures. The orebodies comprise a series of hydrothermal vein deposits containing vast quantities of silver, which is produced as a by-product.  There are plans in progress, due to come to fruition this year.

In 2009 work started on a study to investigate underground mining potential and also the high-grade and high stripping-ratio open pit reserves. This project will improve the capital efficiency of the current operation and optimise the feed grade. Development of the underground section is under way with production scheduled to begin late 2010/early 2011. This mining method at Cerro Vanguardia is estimated to produce approximately 560,000 ounces of gold and 6.3 million ounces of silver.

The company has also been stockpiling lower grade material from its operation and studies have almost been completed on a heap leach operation to treat this material.  This could add another 20,000 ounces of gold a year to the mine's production.

San Jose (Hochschild 51%, Minera Andes 49%)

Minera Andes' geologists discovered the mineralized system on which the San Jose silver/gold mine is now located which has allowed Minera Andes to make the transition from a pure exploration company to a company that also receives income from an operating silver/gold mine. Located within a 99,000-acre mineralized region, San Jose is a joint venture between Minera Andes (49 percent ownership) and Hochschild Mining (51percent). The mine produced 77,070 ounces of gold and 4.9 million ounces of silver in 2009, of which 49 percent is attributable to Minera Andes. Ore from the mine, which is relatively high-grade at about one-half-ounce gold equivalent per tonne, is vein-hosted as are most of the other operations in the region.

The measured and indicated resource at San Jose was last put at 2.645 million tonnes grading 480 g/t silver and 7.39 g/t gold for a content of 40.8 million ounces of silver and 628,000 ounces of gold, but this doesn 't include more recent intersections on existing and new vein structures and there is the prospect of continually upgrading the resource as mining and exploration continues.

Martha (100% Coeur)

The Martha mine is an underground silver and gold mine owned and operated by Coeur Argentina S.R.L., a wholly-owned subsidiary of Coeur d'Alene Mines. Martha is located at the southern end of the Deseado Massif 30 miles northeast of the town of Gobernador Gregores.  However this operation appears to be nearing its end short of finding new mineralisation.  There is a considerable amount of exploration ongoing around the mine.  Production in 2009 was approximately 3.7 million ounces of silver at a cash operating cost per ounce of $6.19 per ounce  Coeur reports on its website that it expects active mining operations will cease late this year and says it is pursuing strategic alternatives for Martha.

The company now seems to be concentrating more on the Joaquin property some 80 km from Martha, on which it has an option with Mirasol to acquire up to up a 71% managing joint venture interest.

Manantial Espejo (Pan American Silver 100%)

The Manantial Espejo mine is a primary silver producer, also located at the southern end of the Deseado Massif  The silver-gold property consists of 17 mineral concessions covering 25,533 hectares, extending 36 by 19 kilometres.  Mining operations only commenced there right at the end of 2008.

Commissioning of the processing plant started on September 27, 2008 and Manantial Espejo began pouring dore on December 29, 2008.  The commissioning and ramp up was very smooth and the mine reached design capacity of 2,000 tonnes per day by the end of the first quarter of 2009. At feasibility study levels Manantial Espejo is expected to produce an average of 4 million ounces of silver and 60,000 ounces of gold annually and should be the Pan American Silver's lowest cost mine.

Latest ore reserve announced by Pan American for Manantial Espejo is 7.34 million tonnes of proven and probable at 153 g/t silver and 2.19 g/t gold.

The mine plan consists of two surface and two underground mines, and a 2,000 tonne-per-day processing facility.

In 2009 the mine milled 632,949 tonnes of ore and produced 3.78 million ounces silver and just under 72,000 ounces of gold at a negative cash cost (taking gold credits into account) of
.84 an ounce of silver.

Advanced exploration and development

There are two projects currently which seem to be close to developing new mining operations in the region - Andean Resources (ASX and TSX listed) and TSX-listed Extorre Gold Mines (which is also planning an Amex listing), with both probably looking to get mining under way within the next 2-3 years, and both anticipating continuing resource upgrading as exploration drilling continues on the high grade gold/silver vein systems on their respective properties.  Andean is almost certainly due to be absorbed by Goldcorp, which has made an agreed C$3.6 billion bid for the company - a deal which has created substantial interest in the other explorers/developers in the region, not least because the high price being paid by Goldcorp recognises the huge ongoing potential of continuing resource growth in the se high grade vein clusters in the area.  But in truth this has already been well demonstrated by AngloGold's Cerro Vanguardia operation which has had huge success in continuously extending its resource base.

Cerro Negro (Andean Resources 100%)

Andean's Cerro Negro at this stage appears to be the bigger of the two advanced projects, but with the considerable potential for extending resources at both properties, which turns out to be the bigger will only become apparent over time.

Goldcorp puts it thus: "Andean's principal asset is the 100%-owned Cerro Negro gold project, an advanced-stage, high-grade vein system located in the Santa Cruz province of Argentina.  Comprising 215 square km, Cerro Negro currently has reported indicated resources of 2.54 million ounces of gold and 23.56 million ounces of silver.  Inferred resources total 523,000 ounces of gold and 3.12 million ounces of silver1.  Cerro Negro also contains several other vein structures, including the Mariana Central zone, where numerous recent drill intercepts have demonstrated high-grade gold and silver over significant widths.

"Chuck Jeannes, Goldcorp President and CEO says "Cerro Negro is a high-grade, near-surface system that is expected to generate significant gold production at low cash operating costs following a relatively short construction period.  A very exciting feature of the project is the opportunity for significant continued growth of gold resources through expansion of the existing deposits and the discovery of additional zones along the strike of the veins. As well, the potential exists for discoveries of new veins within this large, prospective land position."

Cerro Moro (Extorre 92.5%, Formicruz 7.5%)

Much of Goldcorp's raison d'etre for its huge potential commitment with its Andean Resources offer could equally well be applied to TSX listed Extorre's  Cerro Moro project, but the latter is at an earlier exploration stage and the resource is currently not as big - at least so far.  Extorre's management is convinced that its resource will also be subject to continuous expansion, and although the Preliminary Economic Assessment (PEA) announced earlier this week, only looks at an eight year mine life, this like Cerro Vanguardia, could just run and run.  Only a fraction of the ground has been drill tested so far with a specific concentration on the very high gold grade Escondida vein system which is key to getting a mining operation up and running and generating good cash flow.  Extorre also has an agreement with Formicruz over ground immediately to the west where it can earn a 70% interest - and the Escondida vein runs into this Formicruz ground where Extorre drilling is showing an extension of the very high grades experienced on its side of the lease boundary.  Also the vein systems still have not been tested at depth where there is an expectation of continuing high values, at least in some areas.

Extorre's indicated resource here is currently estimated at 590,000 tonnes at 18.9 g/t gold and 805 g/t silver at the Escondida vein, together with additional Inferred Resource of 1.97 Mt at 3.0 g/t gold and 190 g/t silver  from the Escondida, Loma Escondida, Gabriela, Esperanza, and Deborah veins.  The overall resource is put at just over 1 million ounces of gold equivalent taking both precious metals into account.  However these figures do not yet include already drilled high grade areas on the various vein systems and an upgraded resource, including the new data, will probably not be announced until early next year.

Exploration

Only a couple of years ago it was probably relatively easy to pick up exploration concessions on the Deseado Massif areas, but that is certainly not the case now.  The biggest land holdings in the region are probably those of the Santa Cruz state mining entity, Formicruz, followed by Canadian company Mirasol, then Minera IRL and other big exploration holdings controlled by Extorre, Hochschild, Mariana Resources, AngloGold, Pan American Silver, Andean, Coeur, Argentex etc.

Most of these have some exploration activity under way on already identified vein systems, but the problem with these systems is that they require a huge amount of drilling to prove them out and it is difficult to prioritise these drill programmes.  Sufficient to say that in the months and years ahead more and more high grade gold and silver occurrences will be found across the region - and indeed  some are already beginning to be announced like Mariana's excellent grades at Calandria Norte.

But, talking of Mariana, this company has also found a low grade disseminated, potential very high tonnage deposit by drilling into one of the rhyolite domes which are a major feature across the Deseado Massif and with which the high grade vein systems appear to be associated.  The Calandrai Sur project, in the same concession as the high grade Calandria Norte vein system, comprises multiple zones of breccias hosted gold mineralisation on one of the rhyolitic dome structures.  Mariana  has a number of other similar targets on its ground. Core lengths of 100 m all in this disseminated low grade material have been announced.  Mariana is AIM-listed, but is in the process of securing a TSX listing which should include its marketability.

Meanwhile Minera IRL - also originally AIM listed, but now with a TSX listing too -  which has ground immediately to the south of the Mariana area, has also drilled into the same structure (which it calls its Escondido project) has also come up with significant lengths (100m or more in two of its holes) of low grade disseminated gold and silver.  Minera IRL also reckons it is the third largest exploration rights holder in the Deseado Massif area and has a number of other projects with considerable potential.

Extorre too has substantial land holdings and is currently commencing drilling on two new areas, one of which is next to Mariana's Las Calandrias property.

Big land holder, Mirasol Resources (also TSX listed) holds an extensive portfolio of 20 100% owned gold-silver projects in Santa Cruz. Mirasol reckons that the flow of discoveries that followed AngloGold's Cerro Vanguardia discovery has established Santa Cruz as one of the world's most prolific low sulphidation epithermal gold-silver mineral provinces. As the company points out - and as noted above - there are four gold and silver mines in Santa Cruz operated by large international and mid-tier precious metal companies.

The portfolio encompasses projects at all exploration stages from advanced exploration drilling, to drill ready projects available for joint venture, to a large group of early stage "pipeline projects". Properties in the portfolio were initially generated through collaboration with Global Ore Discovery consultancy, and were identified, staked and explored by Mirasol's technical team.

Mirasol is looking to jv many of these projects.

TSX Venture exchange quoted Argentex is another explorer with multiple properties in the region and, of its properties, the Pinguino polymetallic deposit (which including significant indium values), is so far the most interesting.  Argentex has a NI 43-101 resource on the property of an indicated 7.3 million tonnes at 5.5 oz/t (169.64 g/t) silver equivalent and an inferred resource of 35.4 million tonnes at 4.0 oz/t (123.63 g/t) silver equivalent. (The silver equivalent values were calculated from a combination of individual silver, gold, lead, zinc and indium grades).

AIM-listed Patagonia Gold holds over 70 properties (expedients) in Santa Cruz, totalling approximately 200,000 hectares.  This portfolio of properties is composed of several  targets which are currently being drilled. The bulk of the properties were acquired from Barrick on its decision to desist from further exploration in Santa Cruz.  

Patagonia Gold has already completed one programme of 38 diamond and 9 RC holes (totalling 7,100 metres), and 750 metres of trenching at  the very prospective Lomada de Leiva property in the La Paloma block.

Like the explorers, this article only scratches the surface of some of the ongoing work in what has now to be considered one of the world's most prospective precious metals provinces.  The proving up of some of the vein systems does require a huge amount of drilling, but the rewards can be great with some of the high grade structures likely to host some of the lowest cost gold and silver mines in the world as new mines are brought to production.  And now, the recent rhyolite dome discovery by Mariana and Minera IRL, with its promise of high tonnage, relatively low grade gold silver mineralisation (in reality reasonable grades when both the gold and silver content is taken into account and in comparison with some of the big low grade mines being developed elsewhere) suggests that more precious mining majors and mid-sized companies may be attracted to the area as the potential becomes even more apparent.

Assuming gold and silver prices hold up anywhere near current levels, and that the Santa Cruz authorities remain supportive of mining development in the region, and the Argentinian Federal Government doesn't get greedy, Patagonia could become one of the world's major precious metals mining regions over the next decades.

http://www.proactiveinvestors.com/companies/news/9517/patagonian-gold-and-silver-rush-under-way-and-growing-9517.html