Medoro lays claim to Frontino

According to Medoro Resources (MRS-V) the battle for the rights to the Frontino gold mine is over.

The Toronto-based company says it has signed an agreement with the legally appointed liquidator of the mine, Luis Fernando Alvarado, to acquire the project for US$200 million.

Controversy has been swarming around the prized asset thanks to the workers union at the site’s opposition to the proposed deal.

The union — known as the Mining and Energy Industry Worker’s Union — claims ownership on the project and has stated publicly that it does not want to sell the Medoro.

On March 12 it issued a press release denying the authority of the liquidator, the current management at Frontino, and even the government itself, over the mine.

“We the workers, the retirees, and the people of the region are the rightful owners of the assets of the Frontino Gold Mines,” the release reads, “and accordingly we will negotiate all business arrangements regarding these assets.”

The union says its ownership claim is based on a deed that was signed in 2003, and a Supreme Court Ruling from 1969.

And while the union may learn that it doesn’t have much of a legal leg to stand on it could still make things difficult on the ground for Medoro if relations are not soothed over.

It should come as little surprise then that the deal announced by Medoro comes with a guarantee to offer 1,600 jobs to locals. The jobs will be guaranteed for one year from the date of closing.

But Medoro’s greatest tool at the negotiations table, was no doubt, its access to capital.

Saddled with massive liabilities – the largest of which is due to pensioners – the liquidator had little choice but to come to terms with a company that could bring enough cash to the table to clear those liabilities.

Thanks in part to a massive equity financing completed last year, Medoro is flush with cash, and, it would appear, it has used it to acquire one of Colombia’s prized mining assets.

The Frontino license covers 28.7 sq. km of land near the city of Segovia — roughly 220 km north of Medellin.

The mine has been in production for over 150 years and has turned out 4.5 million oz. of gold during that time but it has done so using rather crude mining techniques.

Made up of three distinct underground mines — El Silencio, Providencia and Sandra K. – the dire financial position the mine found itself in meant there was only enough capital to keep Providencia in production. That mine managed to produce 44,000 oz. of gold produced last year from the processing of 450 tonnes of ore per day with an average head grade of 8 grams per tonne.

Along with closing El Silencio and Sandra K. back in 2004, which is when the liquidator came in, any thoughts of an exploration program had to be abandoned as well thanks to the cash crunch.

Indeed no exploration drilling has been done at the project since 1989 – something Medoro plans to correct as soon as it can.

With the purchase set to close in four months, Medoro is set to get busy on the project immediately.

As part of its due diligence it says it will finish a National Instrument 43 101 compliant resource within the allotted time.

Also tied to the deal is an arrangement for Medoro to sell half of Frontino to a group headed by one of its founding members and former member of Medoro’s board, Serafino Iacono.

Iacono’s group will pay 50% of Medoro’s purchase price to earn the interest and will also fund 50% of all costs going forward. Medoro, however, will serve as the operator.

The closing of the deal for the mine will also see Iacono secure a $4 million success fee for his integral role in negotiating the acquisition of the mine.

Iacono is known for his ability to get deals done in South America – particularly in Venezuela and Colombia. He was the former chief executive of Bolivar Gold, which sold its Choco 10 gold mine to Gold Fields (GFI-N, GOF-L) and also was behind Pacific Rubiales Energy’s (PRE-T) recent market success on the back of oil assets he helped secure in Colombia.

If the deal closes in four months time Medoro will catapult itself into the position of a leading gold producer in Colombia.

The company’s flagship project, however, will continue to be its Marmato gold project where it has spent considerable effort over the last few years consolidating the notoriously gold rich but bifurcated property.

Marmato currently boasts 7.5 million oz. of gold in the measured and indicated categories and a further 2.2 million ounces of gold in the inferred category and is host to the Mineros underground mine which turns out roughly 25,000 oz. of gold per year.