VANCOUVER — Over two years ago Gainey Capital (TSXV: GNC) CEO David Coburn saw promise in a private Mexican precious metal operation 135 km southeast of Mazatlan — along the border of the States of Nayarit and Durango — called El Colomo. It may have taken some time, but Coburn put together a deal for the project, and the company now hopes its newly acquired processing facility will allow it to leverage quick cash flow into exploration success on a 190 sq. km property package.
El Colomo includes five known mineral occurences, namely: the La Nueva Victora, Las Minitas, Higuera, El Arrayan, La Bufa, El Guayabo and El Penon deposits. According to technical reports, gold and silver mineralization appears to be restricted to low-sulphidation, epithermal quartz veins within fault zones, which constitute the most common form of deposit in the Sierra Madre Occidental volcanic province. All showings found to date have steeply dipping gold- and silver-bearing epithermal quartz veins.
Gainey picked up the project from the private mining outfit Golden Anvil, which invested US$5 million to build a 300-tonne-per-day gravity-flotation plant, 63 km by road from the mine in the town of Huajicori. The pilot plant processed 4,300 tonnes of material in mid-2011, which resulted in 61.3 dry tonnes of concentrate grading 61 grams gold per tonne and 2,874 grams silver per tonne.
For Coburn the operation showed promise, but needed more investment capital and an experienced team to head up exploration and fine-tune the mill.
Enter geologist Peter Megaw, whose Mexican discoveries include MAG Silver’s (TSX: MAG; NYSE-MKT: MVG) Juanicipio deposit. Megaw was familiar with the asset and took a meeting with Coburn in Tucson, Ariz.
“When we started looking at the project I went down to meet with Dr. Megaw, who knew El Colomo very, very well,” Coburn recounts during an interview. “His team had actually been trying to purchase the property since 1993, and he really just wanted to know how we were going to secure the entire land package, because it’s a large area that’s going to be a district play. We worked with the previous Mexican owners to patch the whole thing together, which was somewhat complicated since the company we purchased it from had between 35 and 40 investors in a private corporation.”
In the end the terms of sale included 12 million shares of Gainey, plus the issue of special warrants that award Golden Anvil one additional share per ounce of gold (or gold equivalent) categorized as reserves by October 2015. The warrants are capped at 3 million additional shares.
To beef up his management team Coburn added George Cantua as operations manager. Cantua spent two years as operation supervisor at Barrick Gold and Goldcorp’s Pueblo Viejo gold mine in the Dominican Republic.
“George is doing a great job,” Coburn says. “He’s training our people down there, and we’re only really running one shift right now. We’re sampling a lot of different ore, which basically makes this a pilot or pre-production operation for us. Between sampling and running some production we’ve actually been cash-flow positive this past month. We’ve been quite happy with the results as they pertain to our operating costs versus sales output. My goal after we closed our qualifying transaction was to get the mill operational and profitable as quickly as possible.”
Megaw came aboard to manage Gainey’s exploration strategy through his Minera Cascabel technical company.
Gainey closed a US$2.7-million non-brokered private placement in May of 13.6 million units for 20¢ apiece. Each unit comprises a share and a warrant allowing the holder to buy another share for 30¢ within two years.
The funds are earmarked for an initial exploration program that will include stream-and-sediment geochemical work.
There has been drilling across a number of El Colomo’s prospects. La Nueva Victoria is the site of most exploration and development, and hosts a historic resource of 401,000 tonnes grading of 13.75 grams gold equivalent. There is also a potential bulk-tonnage target at the La Higuerita open pit, which holds a historic resource of 18 million tonnes averaging 1.37 grams gold equivalent. Coburn points out that only 3% of the total property package has been explored using modern geological concepts and technology.
“There are a number of historic resources on the property, and we could have come up with a compliant resource for our initial technical report, but we opted to let our own geologists take a look prior to doing that,” Coburn explains. “We plan on doing some of our own drilling, which will include verifying a number of the historic holes. We’d like to get a diamond drill in there. One of the comments Peter made was that his team couldn’t believe how much gold was left on the table. There’s plenty of opportunity with stock piles, and we’re working on that as well.”
As Megaw and his team develop an exploration plan for El Colomo, Coburn has his eyes set on making Gainey cash-flow positive through toll milling third-party ore.
He says Gainey’s mill is one of the only gravity-flotation plants in the region, and that a number of companies with nearby orebodies have contacted him about trucking their ore to the pilot operation.
Gainey is also exploring adding another ball mill and other upgrades that would bring El Colomo’s throughput to 750 tonnes per day.
“Everybody has been looking at the Dynacor Gold Mines (TSX: DNG; US-OTC: DNGDF) model in Peru, and though it took a while to get it tweaked, we think it’s a great idea,” Coburn says. “We’re searching for that leverage in the early days, though eventually we would like to process our own ore. I could actually see us having two facilities: one that will process ore from the site, and one that will process trucked-in ore. We’ve already trucked in material, and we’re processing it as we speak. We’re one of the few facilities in a large area that has the processing availability.”
Gainey has traded between 10¢ and 54¢ per share since its qualifying transaction in September 2013. Shares are up 100%, or 24¢ since May, en route to a 47¢ close at press time. Gainey has 43 million shares outstanding for a $20.4- million market capitalization.