-- Posted Wednesday, 11 April 2012 | | Disqus
By: Simon Russell, Mining Analyst – GoldSeek.com
Summary
Batero Gold Corp’s [TSX-V.BAT, BELDF.PK] first NI 43-101 compliant resource estimate for their 100% owned Quinchia porphyry in Colombia was posted on SEDAR in March. Batero has an accomplished management team, excellent geology, existing infrastructure, and support from the local community. Having visited this project and reviewed the latest technical report with management, it appears their Quinchia project has outstanding underlying value that is being overlooked by today’s volatile market. Eventually Batero should get re-valued similar to other companies exploring and developing large gold-copper porphyry discoveries in the emerging Mid-Cauca Trend.
Batero’s Quinchia NI 43-101 Resource
Batero’s Quinchia Resource is associated with three porphyry gold-copper deposits called La Cumbre, Dos Quebradas, and El Centro. These three Miocene age (30-60 Ma) intrusive centers occur along a 3 km long north-south trend from about 1,050 to 1,600 meters above sea level. Higher grade epithermal gold mineralization has also been found between La Cumbre and El Centro porphyries along the Amarilla Structural Corridor, where Batero also owns numerous historic artisan underground mines.
The Quinchia Project occurs along a mountain range, and in some of the steeper areas the porphyries are covered with minimal soil or outcrop to surface. Over time Colombia’s tropical jungle environment has intensely weathered the mineralization so that an oxide zone up to 70 meters thick and a transition zone 150 to 200 meters thick cover the deeper sulfides. As shown in the following cross-section of La Cumbre porphyry from their March 2012 Oxide news release, the near surface oxide blanket (grey) and thicker transition zone (orange) cover the un-weathered sulfide mineralization (red). The gold contour outlines in this same map show significant areas of higher grade mineralization at or near surface within the Whittle pit shell.
(La Cumbre section map from Batero’s March 2012 Oxide news release)
Preliminary metallurgical test work on oxide mineralization found up to 94% recovery, and the Project returned an average of 80% recovery. Batero’s upcoming Preliminary Economic Assessment will follow up with additional metallurgical testing of Quinchia’s resource zones, and look for ways of optimizing their potential for initial production using an inexpensive heap leach process.
Because of the Project’s topography and the deposit’s geometry, surface mining could begin at the top of La Cumbre porphyry and work downwards with gravity. The transition zone’s leach-ability will also have a major impact on the project’s economics because the heap’s infrastructure and processing costs are much less than conventional milling and flotation. While non-mineralized overburden would be placed on waste dumps, during any future mining operation any decent grade leachable transition material that needs to be stripped to access the high grade core could possibly make money if placed on the oxide cap’s leach pads. Relatively minimal additional cost would be needed for extra permitting, lining, plumbing, and processing. Since the initial metallurgical tests show good leach recoveries this could enable more ounces of gold to be poured from the same deposit at a lower production cost than if the transition zone were a halo of low grade un-weathered sulfides that need milling.
The combination of an inexpensive capital expenditure and low operating costs for heap leach mineral processing could possibly generate cash flow early in the mine life that would enhance the project’s economics. This in turn helps lower the project’s break-even cut-off grade. Furthermore, these large tonnages of low grade leachable oxide and transition zones dilute the higher grade core tonnages and bring down the average grade of the Total Resource. While the overall grade looks lower than if Quinchia were just a pure sulfide mineralization, RPA engineers emphasize the Mineral Resource estimate modeled using the relatively low 0.16 g/t gold cut-off grade because the most economic approach to extracting this existing Resource is with a giant low grade heap-leach and super pit operation.
Table 14-19 from Batero’s February 2012 technical report outlines Quinchia’s total Mineral Resources of about 6.1 million ounces of gold included in a Whittle pit with a 0.16 g/t gold cut-off grade. Other parameters include $1,500/oz gold, 80% recovery (based on preliminary metallurgical work), and excluding copper and silver values.
(0.16 g/t Au Resource model from Batero’s NI 43-101 Resource Presentation)
About 60% of Quinchia’s Total Resource is at La Cumbre, which has a large high grade porphyry core. Mineralization remains open to further exploration laterally and at depth where circled in red in the figure above. In the technical report RPA mentions there is potential for another 1.5 to 3 million ounces outside the Whittle pit, which is not classified as a resource but considered to have exploration potential. The Tonnage Grade Curve Data Table 14-18 in RPA’s technical report shows these substantial tonnages of drilled mineralization at Quinchia when not constrained by the Whittle pit shell. This shows the Project has realistic potential to add resource tonnes with further drilling and pit design in the upcoming Preliminary Economic Assessment. Some companies do not constrain their resources within a Whittle pit shell and would otherwise include this in their resource, but RPA’s approach considers basic geometry and economic factors that will affect mine-ability so it is much more conservative.
For comparison, notice how the Whittle pit walls shown above at the 0.16 g/t gold cut-off grade is essentially the same excavation needed for a 0.3 g/t gold cut-off grade; however, the deposit’s tonnes and shape decreases for the higher grade while the strip ratio increases. The difference between these two grade shell shapes includes a lot of low grade oxide and transition mineralization that needs to be mined and hauled in either case. During real world mining operations any marginal or sub-grade gold in leachable material would be sampled and separated into a low grade stockpile, and frequently re-evaluated for potential to make money by shipping to any existing leach pad over the mine life.
(0.3 g/t Au Resource model from Batero Gold Corp.)
Table 14-20 from the same report estimates Quinchia’s total Mineral Resources are about 4.5 million ounces of gold within a Whittle pit using the same parameters but at a higher 0.3 g/t gold cut-off grade.
This large gold-copper system has also been enriched by multiple mineralizing events, including high grade epithermal veins and breccias systems. Many of these mineralized structures have had historic artisanal gold production from underground workings, especially at the Amarilla Structural Corridor located between La Cumbre and El Centro porphyries as shown below. Any narrow high grade drill intercepts were capped at 3.0 g/t gold in the block model, although often they assayed at much higher metal concentrations. Follow-up drilling could possibly upgrade these zones to high grade benches within a super pit, or help identify potential for near term underground mining. The following map shows the company recently drilled several high grade intercepts near these historic workings.
(Historic artisanal mines map courtesy of Batero Gold Corp.)
December 2012 drill results also show La Cumbre’s porphyry core has a thick zone of higher grade mineralization, such as the following interval recovered in hole LC-008:
· 344.4 m grading 0.81 g/t gold and 0.16% copper,
· including 146.4 m grading 1.20 g/t gold and 0.17% copper
If Batero is able to prove their Quinchia discovery is economically feasible, this property has excellent infrastructure for mine construction with existing power lines and the Pan American highway crossing part of the claim block in the Cauca River valley.
Valuation of Batero’s NI 43-101 Resources
Batero’s first NI 43-101 Resource is currently very low on an Enterprise Value per ounce (EV/oz) basis, which implies the market is steeply discounting their existing ounces and ignoring their upside potential.
Batero has almost 50 million Shares Outstanding, and 52.7 million shares Fully Diluted, so trading at $1.00 per share the company’s Market Capitalization is $50 million (currently trading at $0.69 = ~$36M market cap). With about zero debt, about $2.2 million in warrants and options, and $4 million in Working Capital, the company’s Enterprise Value is about $43.7 million.
Considering RPA’s recommendation to consider mining most of the low grade oxide and transition zones with a large leach operation that justifies the gold only cut-off grade of 0.16 g/t, Batero’s Total Resource at is 6.1 million ounces has an EV/oz valuation of $7.12 per ounce.
The valuation for BAT’s Total Resource of 4.5 million ounces using the medium model gold cut-off grade of 0.3 g/t is $9.71 per ounce of gold.
Just their Measured and Indicated Resource of 2.9 million ounces at the 0.3 g/t cut-off grade, excluding the Inferred, is valued at $15.06 per ounce in the ground.
All of Batero’s Total Resource ounces are constrained within a Whittle pit shell. While the estimated target potential for another 1.5 to 3 million ounces is not 43-101 compliant, should further exploration work successfully add about this many more ounces to the resource, their value per ounce would be even cheaper. Copper and Silver values are also excluded from the initial resource estimate.
Using their new technical report to help guide further exploration and development, Batero’s 2012 plan is to expand the high grade porphyry centers at La Cumbre and Dos Quebradas, and pursue advanced metallurgical testing of the oxide and transition material for heap leach-ability. The upcoming program will also follow up on high grade drill intercepts near artisanal workings at El Centro.
(Map courtesy of Batero Gold Corp.)
Colombia’s Modern Gold Rush and Mid-Cauca Trend Discoveries
Colombia’s emerging Cauca porphyry belt is a series of Miocene age copper and gold rich intrusive rock formations that follow the Cauca River Valley along the northernmost Andes Mountain chain. The Cauca River flows northwards through the Coffee Triangle into Colombia’s other major river, the Magdalena, and eventually into the Caribbean Ocean near Panama.
(Map courtesy of Batero Gold Corp.)
This region has a long history of artisanal underground and placer mining, but no large modern underground or surface metal mining operations. The giant porphyry discoveries in the Mid-Cauca were only first drilled in recent years so they are just now announcing their initial resource estimates and economic evaluations. Geologists are finally beginning to piece together and advance their understanding of the regional story, and we are starting to see that it has potential to become a major modern gold and copper mining area in the future. Perhaps eventually Colombia’s Mid-Cauca Trend will rival Nevada’s prolific Carlin Trend, which has produced over 50 million ounces of gold.
Sunward Resources Ltd.’s [TSX-V.SWD] is a Canadian based exploration company whose Titribi discovery is located about 80 km north of Batero’s Quinchia project with very similar porphyritic geology, tonnages and metal grades. Titribi’s second 43-101 compliant Resource was published in September 2011, and estimates this significant deposit contains a Total Resource of 8.28 million ounces of gold within 497.6 million tonnes averaging 0.518 g/t using a 0.3 g/t gold cut-off grade (excluding copper and silver). About 2.2 million ounces are within the higher Measured and Indicated Resource categories, with the remaining 6.08 million ounces Inferred.
Sunward is currently trading around $2.15 per share with about 143 million shares outstanding, and 187 million shares fully diluted. With $66.8 million in working capital, about 43.7 million warrants and options in the money for another $77.2 million and no debt their Enterprise Value is around $181.2 million.
Considering Titribi’s Total Resource is 8.28 million ounces of gold, this company is currently valued at $21.88 per ounce.
Just their highest quality Measured and Indicated Resources of 2.2 million ounces of gold is valued at $82.35 per ounce, when excluding the Inferred category.
For comparison, at the same 0.3 g/t cut-off Batero’s Measured and Indicated Resource is larger with 2.9 million ounces but valued at only $15.06 per ounce. This is a significant discount compared to SWD’s value of over $82 per ounce for just the highest confidence resource categories.
It is also important to note that Sunward’s Titribi resource is not constrained within a Whittle pit shell like Batero’s Quinchia project is. If Sunward calculated their resource the same way some as Batero, some of Titribi’s existing resource might be outside the economic pit shell and possibly similar to what Quinchia calls target potential outside their Resource classification.
Quinchia’s Resource at 0.16 g/t cut-off is constrained within Whittle and shows potential for excellent oxide and transition zone leach recoveries from rock that would possibly be too low grade to mill and concentrate if it were otherwise un-weathered sulfide minerals. While these large tonnages dilute the overall grade they increase the amount of potentially mineable gold to 6.1 million ounces with lower overall production costs, and are currently valued at just $7.12 per ounce.
Since Brazilian Billionaire Eike Batista bought Ventana Gold for about $1.5 billion in March 2011 the market’s valuation of Colombian exploration and development companies has cooled off for the time being, while companies like Batero have discovered sizeable resources. This month last year Ventana’s La Bodega 3.5 million ounces of gold were bought for about $425 per ounce, and that property is near the Venezuela border in an environmentally sensitive ecosystem.
The amount of gold resources found in Colombia has been increasing rapidly over recent years, proving this underexplored part of the Andes has realistic potential to host many similar size gold and copper deposits as found further south in Peru and Chile. The valuation multiples of explorers with significant resources here should eventually appreciate because majors like AngloGold Ashanti are likely to continue investing in this region. The South African miner has just updated their La Colosa resource to 16.3 million ounces, making their recent discovery one of the world’s largest undeveloped gold deposits. Other majors like IAMGOLD and Barrick are also busy exploring projects in Colombia.
The large low grade bulk tonnage porphyry type deposits recently found in the Mid-Cauca River Valley have realistic potential to eventually become significant modern surface and underground metal mining operations over the upcoming years, although none exist in Colombia today. The following diagram compares AngloGold’s La Colosa discovery with other world class deposits, such as Barrick’s Gold Strike and Cortez mines in Nevada.
(From AngloGold Ashanti’s 2012 BMO Presentation)
Quinchia Community
Artisanal miners have pursued gold rich veins and breccias into the mountains here for centuries. Colombia’s history of gold mining and cultural use of the precious metal has been preserved by the Banco de la Republica’s Museo del Oro, whose main exhibit is downtown Bogota. Their Mid-Cauca regional branch Museo del Oro Quimbaya displays over 500 additional prehistoric gold pieces and exhibits explaining the sophisticated alloying and casting techniques developed by the indigenous goldsmiths who lived in this valley between 500 B.C. and 600 A.D.
(Artisanal mill at La Cumbre porphyry. Picture from Batero’s website)
Today about 33,000 people live in the mountainous town of Quinchia, the economic center for coffee and agricultural trade for the nearby farms. One of the most important aspects of this project is how this community welcomes the opportunity for new jobs and economic benefits that responsible modern exploration and mining operations can provide.
Batero’s successful “Farms for the Future” land-swap program is just one of many examples from their initiative to “Explore Better” that is adding underlying value to this mineral resource. As shown in BAT’s social and environmental video series, local families who have lived and farmed on the steep hillsides of these porphyries for generations are very pleased with this initiative. Instead of buying farms with cash payments like lottery winnings, the company’s land exchange program has traded similar size plots with better soil in the flatter Cauca River valley. This has already empowered the locals to begin generating greater coffee yields. Consequently the people are hopeful that good paying mining jobs can come here in the future, and in the meantime they are happy to continue farming and have any additional income from exploration and development work.
Conclusion
Batero Gold Corp’s 2011 drill data and February 2012 technical report show they have they just discovered a cluster of three gold-copper porphyries that are covered by a thick blanket of heap leachable oxide and transition zones. These deposits are also enriched by high grade veins and breccias that were mined intermittently for hundreds of years. Batero has an outstanding management team from the office to the field, so with realistic potential to host about 5 to 10+ million ounces of gold with follow up exploration, we expect Quinchia to eventually pan out for both the local community and investors.
Simon Russell is a mining and geological engineer with 10 years of experience. His background includes hydrology and environmental engineering, exploration geology, underground contract mining, mine engineering and project management, and mine investment analysis. Mr. Russell has worked for many different types of mineral projects internationally and across the western United States for investors, consulting firms, and both major and junior resource companies.
Mr. Russell is not an investment advisor, and this is not intended as investment advice.
Original Publication date: March 31st, 2012
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-- Posted Wednesday, 11 April 2012 | Digg This Article
| Source: GoldSeek.com
