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JV allows Samco Gold to sharpen focus on Corina project, Argentina

12th June 2014

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – Argentina-focused explorer Samco Gold has recently struck an option agreement in the form of a binding letter of intent allowing proposed joint venture (JV) partner Pan American Silver (PAS) to earn up to a 60% interest in its flagship El Dorado-Monserrat (EDM) project in Santa Cruz, freeing Samco to focus on exploring its 100%-owned Corina base metals/silver discovery.

TSX-V-listed Samco owns about 55 000 ha of mineral exploration concessions comprising ten projects, all of which are located on the Deseado Massif in the province of Santa Cruz, Argentina.

Samco’s EDM project comprises the El Dorado and Monserrat properties, which together cover about 3 000 ha and on which the company has identified six significant target areas for further exploration.

EDM is located next to the western boundary of the licence area of the Cerro Vanguardia gold/silver mine, operated by AngloGold Ashanti.

In a recent interview with Mining Weekly Online from Miami, Florida, TSX-V-listed Samco chairperson and CEO Charles Koppel said that the company had at the end of May entered into  an “extremely attractive” arrangement that confirmed the potential of the EDM project.

Under the option agreement, PAS has the exclusive option to acquire a 60% interest in the EDM project, while both parties plan to participate in the exploration and development of the project up to first production.

Under the agreement, PAS would need to conduct further work, including drilling at EDM equivalent to at least $2-million, followed by preparing a technical report in the form of a prefeasibility study. When exercising its option, PAS would need to make a one-time payment to Samco of $5-million.

Koppel explained that funding development of the project might be provided by PAS up to certain limits and under certain lending criteria, which could have the effect of reducing Samco’s carried interest in the project to 30%.

The intention is to form a jointly owned company through which to start mining at EDM. Further dilution might take place after commercial production has been declared, should a party not provide its share of ongoing costs. If either party is diluted to less than a 10% interest in the operating company, that party’s interest would automatically convert to a 2% net smelter royalty.

PAS would have the day-to-day management control of the operating company.

The letter of intent would terminate if a definitive agreement between the parties’ Argentinean subsidiaries has not been entered into by October 1, 2014.

“We are looking forward to working with PAS’s high-quality team with the joint intention of bringing the project through to production. In addition, we will not only benefit from their exploration and operational expertise, but also from the synergies with their nearby [150 km] Manantial Espejo openpit and underground silver/gold mine,” Koppel said.

The EDM project hosts more than 15 km of outcropping veins, which have been the subject of previous exploration campaigns over the past 20 years, including some 20 000 metres of drilling and more than 60 km of trenching.

WOOING CORINA

The company also owns strategically distributed concessions located throughout the Deseado Massif, next to significant gold/silver mines and advanced projects.

Following the recent option agreement with PAS, Koppel said that Samco is now concentrating its efforts on exploration work at the Corina project, which comprises three concessions totalling some 5 000 ha, situated on the northern boundary of the significant Cerro Moro project, owned by Canadian miner Yamana Gold.

Samco had in March filed a technical report on the Corina project with securities regulators, which confirmed that Corina and the neighbouring Mercia licences had significant strategic exploration upside, being located within the Deseado Massif, next to the two-million-gold-equivalent-ounce Cerro Morro project.

Undertaken by consulting professional services firm ACA Howe International, the technical report found that despite the limited sampling and drilling conducted on the licences to date, the results, combined with field observations, indicated potential for significant gold/silver and base metal mineralisation on the licences.

The report likened the structural and geological settings of the Corina project to those hosting other significant discoveries in the Deseado Massif, including San Jose, Cerro Negro, Mina Martha, Manatial Espejo, Cerro Moro, Cerro Vanguardia and others, including EDM. 

Among several targets at Corina is the Cerro Cubilete zone, where exploration had revealed a 300-m-long north north-easterly strike zone in which surface samples averaged 243 g/t silver, accompanied by significant base metal and gold values. The deposit is open in all directions and falls within a mineralised east-northeast-trending corridor that extends for at least 2 km. 

The report found that the preliminary core-drilling programme completed at Cerro Cubilete pointed to similarities with the Fresnillo area of Mexico, where significant silver/base metal mineralisation is common. Comparisons were also drawn with the major Navidad silver-base metal mineralisation of Chubut province, Argentina.

The report recommended follow-up exploration work comprising about 5 000 m in trenching and more than 4 000 m of drilling.

INNOVATIVE FINANCING

Earlier this year, Samco signed a participation-and-option agreement with Samco director Dr Ricardo Auriemma to support the development of its EDM and Corina projects.

An Argentinian Court of Appeals had found in favour of Auriemma on a breach-of-agreement case against Northern Orion Resources (GNOR), which was acquired by Yamana Gold in 2007. GNOR was found to have breached a regional alliance agreement with Auriemma.

Under the participation deal, Samco has the right to receive a share of the proceeds arising out of the judgment.

Koppel said that Samco would use the funds to support further development of its gold and silver assets in Argentina, including the core EDM and Corina properties, without any equity dilution to shareholders.

“At a time when mining companies are finding it difficult to raise finance for exploration, this transaction is expected to provide the company with a substantial capital injection, with potential for a future revenue stream. This would allow us to accelerate the development of our very exciting portfolio,” Koppel said.

The Argentinean Court of Appeals found that Auriemma was entitled to 15% of the dividends (subject to certain adjustments) received by GNOR from its interest in the Bajo de la Alumbrera mine.

Koppel said that an appeal of the judgment by GNOR/Yamana at the Argentinean Court of Appeals was recently denied, and a court-appointed expert was currently working to quantify the damages against GNOR/Yamana according to a court-prescribed formula.

Samco have numerous institutional shareholders, including The Sentient Group, who hold 19.9% of the company and have a seat on the board. Samco’s TSX-V-listed stock has ranged between C$0.07 and C$0.35 in the last six months and currently stands, on Thursday, at C$0.16.

Edited by Creamer Media Reporter

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