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TABLE OF CONTENTS Oct 26 - Nov 1, 2009 Volume 95 Number 36 - 0 comments

Antioquia Gold Has High Hopes For Cisneros And Colombia

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By: Anthony Vaccaro
2009-10-26

SITE VISIT: MEDELLIN, COLOMBIA -- Dorian Amaya and Antioquia Gold (AGD-V, ANTZF-O) have something in common. They both long for the gold in the rich veins that run through the steep green hills of Colombia's Antioquia state.

Amaya, like his father and his grandfather before him, uses his mastery of the gold pan to extract bonanza gold from the creek beds that carry the yellow metal from the mountains above.

Using nothing more that a shovel and a hard rock, he mashes soil, sluices it with some water and deftly separates the gold into a thin line along the edge of the glistening granules in the shovel's head.

And while for generations Amaya's family has worked the rivers here in Colombia's Antioquia region for themselves, today the gold he produces is for his employer, Antioquia Gold.

Too often mining companies and artisanal miners find themselves at odds, but here, outside of the small mountain town of Cisneros, Antioquia Gold and artisanals have struck a harmonious chord.

From the company perspective, chairman Jim Decker sees the artisanals as an aid in finding new exploration targets.

And they are generally keen to exchange the inconsistent earnings from the pan for a steady paycheque from a company, bringing their small-scale mining skills with them.

There is no small amount of irony in the pleasant relations between artisanal miners and a North American- based mining company. This is Colombia after all, a country more known for narco-warfare, kidnappings and twisted killings than it is for the friendly greetings workers at a cottage mill give us as we pass in company trucks.

But just as foreign corporations and traditional miners are focused on finding a way to make things work, so, too, is the country as a whole.

Antioquia's Cisneros project lies just 70 km along a paved highway from the region's capital, Medellin -- a sprawling metropolis of 3 million people that runs up the base of the lush mountains that encircle it.

The city is perhaps the most infamous in one of the world's most infamous countries; it was once the home base of legendary drug trafficker Pablo Escobar.

And while Escobar's ghost persists in the districts he built for the poor and the soccer fields he so doggedly laid out for all, the city has begun to awaken from the nightmare of the narco-warfare he unleashed on its streets through the 1980s and early 1990s.

Since 2002, the homicide rate in Colombia has dropped by 44% and kidnappings have fallen by 85%, with only 437 occurring last year.

Those improvements played a part in the country's recent ascent up the World Bank's list of the best countries in which to do business. Of the 180 countries considered, Colombia now ranks 53rd, second only to Chile in Latin America and 26 positions higher than it was earlier in the decade.

International investors have taken note. The country has seen a 400% increase in foreign direct investment over the last eight years.

And while much of that influx has gone into the country's natural resources -- Colombia has long been known for its significant amounts of oil, coal and nickel -- more recently, the investment buzz centres around the country's gold potential.

Such attention doesn't come without historical precedent.

Colombia holds the title as largest historical gold producer in South America, having turned out over 80 million oz. in its troubled past, with 75% of that amount coming from the regions of Antioquia and Caldas.

With security now returning to most of the country, Calgary-based Antioquia believes it can be a key player in the country's reborn gold-mining sector.

A well-heeled management team, with extensive experience in the country, has assembled a prospective land package that would be the envy of many juniors.

And the timing of the company's move into the country couldn't have been better; the market is just now catching up to the Colombia story -- as attested to by the spectacular market run of Ventana Gold (VEN-T, VENGF-O), which holds the La Bodega gold project in the country.

Despite such attention, there are still only a handful of names through which investors can play the gold exploration here. And while many juniors are clamouring to get in, Antioquia has the potential to parlay its early mover status into impressive ounces before the next big wave of explorers arrives.

Towards that end, the company recently began a 3,000-metre drill program to better understand the structures at Guayabito and La Manuela -- two permits within the larger Cisneros project that have been subject to heavy artisanal activity.

It is the first-ever drill program done on the properties and vice-president of exploration Brad Van Den Bussche hopes it will bring a better understanding of the mineralized dipping planes that early stage exploration has identified.

Van Den Bussche theorizes that where these planes intersect, higher grades will be found, much like another mesothermal lode-gold deposit that is more familiar to Canadian investors-- Goldcorp's (G-T, GG-N) Red Lake mine. Geologists at the famed Ontario mine often follow metre-wide veins to a point of intersection with a plane of other veins where widths then increase and gold grades go up.

"We're drilling six to ten holes to define both the north-south and east-west structures and from knowing the accurate inclination of those planes, you can find out where the intersection of planes are and project the axis of those planes," Van Den Bussche says.

With only limited surface work done so far, the inclination of the planes is not yet known and getting the inclination right is crucial, as even a 5-10° margin of error can change the axis of the zones significantly.

"So we have to initially define the individual structure and then calculate where the intersections will be and then go after it," Van Den Bussche sums up.

Another key piece to the puzzle the drill program may help solve is the extent of recently discovered clusters of mineralized veinlets.

As Decker points out, the clusters are seen at times between high-grade planes and have provided an unexpected bonus for Antioquia. The company is now eager to find how much those clusters might bolster the economics of a future operation.

"We were expecting a vein-type structure roughly two metres wide and then granite diorite on either side, so basically zero grams per tonne in between vein structures," he says.

Such a scenario would still make for a pretty nice underground mine, but what the company has found from channel sampling is leading to bigger ideas.

"We're starting to see more clusters in some holes and at surface," Van Den Bussche explains. "The very high-grade zones may be one-to two-metre planes, but at surface we've found as many as a half-dozen of these veinlets in a 20-metre zone where there's more disseminated mineralization. So potentially, instead of two metres at 20 to 30 grams gold, you may end up with places where you have some lower-grade mineralization over 10, 20 or even 30 metres."

"And if you get 10, 20 or 30 metre wide intervals of clusters," Decker adds, "then you can start talking about open-pit mining."

While Decker is the first to point out that it is still far too early to know if the project will host any type of economic mine, let alone an open-pit mine, the clusters are shaping up to be an important element to the Antioquia story.

"The good news is that with these extra clusters, we now have the possibility of expanding the mining width," he says. "Three to four metres would be dandy as you start to get into bulk-tonnage underground mining. You can mine if you have a high-grade zone of a metre at 30 grams, but if you've got from 0.5 gram gold to a couple grams in those clusters, then you start really bulking up your tonnage."

Just what the company has on its hands will become clearer over the next several months as drill results are released.

And while any junior relies heavily on the drill to capture a more defined geological picture of what lies below, Antioquia, and any junior exploring the Colombia countryside for that matter, rely on the drill bit that much more. That is because the famed fertility of the Colombian soil spawns lush growth everywhere, leaving very little exposed rock as clues for geologists.

Fortunately for Antioquia, an old train tunnel on the property gave it a free look at a cross-section of rock from an inside vantage point. Exploring the tunnel provided the company's first glimpse of the wider clusters.

Luckily for Antioquia, either the artisanals never noticed the clusters or just considered them too low-grade next to the 30-gram veins they typically followed, and they remained untouched.

The train tunnel also points to another positive feature of the project.

Despite the ruggedness of the land, solid infrastructure exists right at the company's doorstep. A paved highway and a railway line lead from Medellin to Cisneros, and a power line crosses the property.

As a whole, Cisneros hosts mesothermal lode-gold style mineralization with gold associated with quartz veins.

The area is underlain by an intrusive body of granodiorite to quartz diorite compositing and is known as the Antioquia Batholith. The batholith is structurally controlled by two fault systems trending northwest and northeast.

Antioquia first arrived here in 2007 through the acquisition of the Guayabito project for US$1.6 million. It now has full ownership over two permits, Guayabito, which covers 1.8 sq. km and La Manuela, which covers 1 sq. km.

And while the current drill program will focus on five areas within those two permits, they still only represent part of the land package.

Antioquia is also partnered with Grupo Bullet on two concessions that cover 52.4 sq. km and sit adjacent to Guayabito and La Manuela.

Grupo Bullet is a privately owned exploration and mining company that, along with AngloGold Ashanti (AU-N, AGD-L), has amassed some of the biggest mineral land packages in the country and Antioquia can earn a 90% stake in that ground by giving Bullet 1 million of its shares and 500,000 warrants.

The potential of some of the Bullet JV land was highlighted by a recent soil sample that assayed 76 grams gold per tonne. Antioquia plans to follow up with channel sampling, trenching and ground geophysical programs in the area where the soil sample was taken.

And Antioquia has ambitions beyond just Cisneros and the Bullet partnership.

In mid-October, the company announced the acquisition of Ingenieria y Gestion del Territorio (IGTER) -- a Medellin-based company that provides Antioquia with a team of Colombian mineral professionals and, more importantly, a large inventory of exploration targets throughout the country.

It is paying IGTER shareholders US$300,000 in cash and issuing 2 million of its shares.

Of note, the acquisition means Antioquia inherits a previous agreement between IGTER and an undisclosed multinational mining company. The two are partnered on several prospective land packages that in total cover more than 1,000 sq. km.

The multinational has the right to earn a 60% interest in ground explored by Antioquia by paying the junior's share of exploration costs, discovery fees and future exploration and development costs.

Due diligence and preliminary field work has already begun on some of the properties, Antioquia says.

The shrewd deal to acquire IGTER highlights Antioquia management's ability to strike a fine balance between finance and exploration.

At presstime, the company had roughly $2 million in the kitty, but that was set to climb to $4.7 million thanks to a planned private placement.

The transaction will raise the funds by issuing 7.1 million units for 25¢ apiece. Each unit will consist of one share and half a warrant, with each full warrant exercisable at 40¢ per share within 18 months.

Once completed, Antioquia will have 50.3 million shares outstanding, or 78.5 million fully diluted. If all warrants due in the next three months were exercised, it would bring an additional $3 million into Antioquia's coffers.

And while the future looks bright for Antioquia, it will have to continue to do an exemplary job managing relations with artisanal miners, in particular -- especially because their rights are being taken very seriously by the government as it rewrites the country's mining code.

A new mining code has already achieved congressional approval and only awaits the signature of President Alvaro Uribe. He is expected to sign the code once minor amendments are made.

Part of the code gives land rights to what it calls "traditional" miners, if they can prove to have worked a given area for at least five years.

It also includes provisions that could allow traditional miners to suspend a contract already held by a company until an agreement between the two parties can be reached.

Antioquia has already come to terms with artisanals at Cisneros, signing agreements with 33 of them when it first acquired the property in 2007.

"Over half of the artisanals are currently working for us, and more will come aboard as we expand," says Antioquia's chief executive Rick Thibault. "They are good workers and know the area intimately."

Overall, Antioquia sees the changes to the mining code as a positive development for junior miners in the country. It's true that the main impetus for the changes was a desire to free up prospective land that a few larger companies had tied up and were doing little with.

The new code calls for higher exploration fees per hectare, thus encouraging the breakup of such large and inactive holdings, opening up the country's gold riches to management teams with foresight and the prudence to seize an opportunity few places in the world can still offer.



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Photos



Dorian Amaya, whose family has been mining the hills of Antioquia state in Colombia for generations, is one of many artisanal miners who have been hired by Antioquia Gold.
Dorian Amaya, whose family has been mining the hills of...
Antioquia Gold's vice-president of exploration, Brad Van Den Bussche, strikes a pose during a site visit at the company's Cisneros gold project, near Medellin, Colombia.
Antioquia Gold's vice-president of exploration, Brad Va...



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