TORONTO (miningweekly.com) – Arm’s-length parties Rio Silver and Magellan Gold have signed a nonbinding option agreement allowing Magellan to earn up to 50% of the Niñobamba silver project, in Peru.

Pending regulatory approval and following a 45-day due diligence period, the parties will sign a definitive agreement.

Under the terms of the letter of intent, Magellan has the option to acquire 50% interest in Niñobamba by spending $2-million within a three-year period in direct and indirect exploration and development expenditures on the property, including 4 000 m of drilling, of which 700 m must be completed by the end of November, 2017. Upon completion of the exploration programmes, Magellan would have to deliver a preliminary resource estimate for the Niñobamba property.

Rio Silver said it intended to complete two private placement financings of C$75 000 each, with Magellan being the sole subscriber.

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The 900 ha project is located about 330 km south-east of Lima in the Ayacucho region. The Niñobamba claim block is located next to claims owned by Southern Peru Copper and Newmont, in a historic silver district with positive infrastructure in a mining-friendly jurisdiction, Rio Silver advised Monday.

According to the company, mineralisation demonstrated the potential for a large, bulk-tonnage, disseminated-silver project.

The property was previously explored by AngloGold Peru in 2001, which drilled five widely spaced core holes totalling 861 m. Anglo's drilling highlights included DDH-2, which reported assay results of 87 g/t silver over a drilled interval of 130 m starting from a depth of 9 m, and DDH-4 reporting 54 g/t silver over a drilled interval of 96 m starting from 23 m.

The true widths of mineralisation from this drilling were not yet known, Rio Silver stated.

In 2003, Bear Creek Mining signed an option agreement to earn a 60% joint-venture interest and an additional eight holes were drilled totalling 1 001 m. Results of this limited exploration programme outlined two distinct parallel zones of silver mineralisation 400 m apart.

The last exploration programme undertaken by Rio Silver was completed in 2012, when 17 trenches were excavated. The trenches were channel sampled with a rock saw and all sample intervals were later surveyed. Highlights from the sample results included 56 m of 1.03 g/t gold and 98.9 g/t silver in trench TR-01; 42 m of 131 g/t silver in trench TR-02; and 108 m of 62.4 g/t silver in trench TR-05.

The company had discovered a new zone of gold/silver mineralisation about 400 m west of trench TR-01.