The low-risk, high-grade Ana Paula gold exploration project in Mexico’s Guerrero gold belt, which precious metals explorer Newstrike Capital bought from Goldcorp about four years ago, could attract interest from several potential buyers.

Newstrike CEO Richard Whittall says the Ana Paula project is a “top quartile” gold project and offers compelling returns in any gold environment.

He believes mergers and acquisitions are likely to pick up by the second quarter of the year, as many gold producers could see a return to free cash flows, which will stir activity in the marketplace.

Last year, the company declared a maiden Canadian National Instrument 43-101- compliant resource for Ana Paula, which estimated the measured and indicated resource to contain 43-million tons of ore grading 1.63 g/t, resulting in about 2.26-million contained gold-equivalent ounces, which comprise 2.2-million ounces at 1.59 g/t of gold and 9.7-million ounces of contained silver at grades of 7 g/t of silver.

The inferred resource was estimated at 1.8-million tons of ore grading 0.89 g/t, containing a possible 60 000 gold- equivalent ounces, comprising 50 000 oz of gold grading 0.78 g/t and 1.1-million ounces of silver grading 18.7 g/t. The company used a cutoff grade of 0.45 g/t gold equivalent.

Newstrike intends to update Ana Paula’s resource statement in 2014 and it also plans to publish a preliminary economic assessment for the project. The Ana Paula project falls in the Aurea Norte project area, which stretches over 59 637 ha. Exploration results from a number of high priority drilling targets at Aurea Norte are expected this year.

Whittall believes Newstrike is exploring in one of the most significant gold districts in Mexico and that it will prove up many more discoveries. He is also upbeat about investment prospects in Mexico, despite the country having introduced new royalties on mining companies at the beginning of 2014.

“While no company benefits from an increase in corporate taxes, we think investors will continue to view Mexico as a powerhouse in the gold and silver business. The deterioration in the gold price, not the royalty tax, has been the primary cause of the significant weakness in exploration and production companies’ valuations. The introduction of the new royalty tax comes at a dreadful time in the industry, yet this sector has a long history of being resilient and innovative. Margins will recover through cost cutting and overall improvement in investor demand for precious metals,” he says.

Whittall is forecasting gold in the $1 300/oz to $1 400/oz range this year, which should improve the valuations of explorers and developers.

Last year, the falling gold price and significant competition from US equities weighed on exploration and development companies, with investor demand for stocks in the sector having fallen off a cliff.

“I suspect that in 2014, we will see a gradual return to the sector because of limited returns in US equities (non-materials) and significant margin improvement among producers because of cost-cutting measures over the last year,” he says.