Talon Metals to explore for gold and potash in Brazil

Talon Metals (TLO-T) surged 74% or 21 a share to 49.5 today on news that it had acquired potash exploration licences in Brazil and had also received long-awaited exploration rights to the Juruean gold project — a major garimpeiro mining site in the resource-rich South American country.

On the potash front, Talon has concluded an agreement to acquire a 100% interest in Bancor Mineracao, a Brazilian subsidiary of Kmine, a private company. Bancor has eight potash project areas across an expanse of 36,402 hectares in Brazil’s Sergipe and Alagoas states.

The acquisition “underlines our belief that, under the current uncertain circumstances and a depressed commodity market, it is important to acquire strategic holdings in commodities that may have a more settled future,” Stuart Comline, Talon’s president and chief executive, said in a prepared statement. “We will continue to review other potash opportunities, as well as gold opportunities that have the potential to host substantial deposits.”

According to Talon, Brazil has a huge appetite for potash but currently produces only about 10% of what it consumes annually. The company also notes that global demand for potash has gone up 35% on a cumulative basis from 2000 to 2007.

Bancor holds exploration rights for the commodity on 17,473 hectares in three project areas and has applied for exploration rights on an additional 18,929 hectares in five other project areas.

The project areas are in the same sedimentary basin as established oil producing areas and the nearby Taquari-Vassouras potash mine, which Vale (RIO-N) operates and which produced 607,000 tonnes of potash last year.

Under the terms of the agreement with Kmine, Talon has acquired a 100% interest in Bancor for cash payments of US$20 million, payable over 10 years. Of that amount, US$375,000 was payable on the closing of the agreement and is due again at the start of the second year.

Incremental payments are then to be made annually on the third, fourth, and fifth anniversaries of the agreement’s closing date and the final payment is due on its tenth anniversary.

The agreement mandates that Talon make payments from the end of the second year. Half of each payment will be made in Talon shares with the remainder due in cash.

The amount payable in Talon shares is equivalent to 47% of the full price. Talon may withdraw from the agreement at any time and return the Bancor shares to Kmine.

On the gold front, Brazil’s Departamento Nacional de Produ Eco Mineral recently granted Talon a 6,369 hectare exploration licence for the Juruena gold project in the Alta Floresta gold district in Mato Grosso state. The award came two years after Talon first submitted a tender for the exploration rights.

Juruena, which previously had been one of the major garimpeiro mining sites in Brazil, has an estimated historical production of some 250,000 ounces of gold, mainly from shallow alluvial and saprolite deposits from eleven pits.

Talon’s hard rock target is a series of multiple quartz veins hosted in alteration zones within granites.

Talon has a treasury of about C$6.5 million and holds 2.45 million shares in Beadell Resources (BDR-A).

Talon has 27.05 million shares outstanding and a 52-week trading range of 10-81 per share.