Money is no barrier for Patagonia Gold in Argentina

Explorer Patagonia Gold (PGD-L) is all cashed up to develop larger and cheaper gold projects in Argentina’s Santa Cruz province.

Earlier this month the company raised US$18.79 million in a share placement and raised US$13.45 million in a similar exercise in March. Net proceeds will be used to start work on a trial heap leach operation at its Lomada de Leiva gold project and for general working capital purposes.

Patagonia Gold’s exploration program is focused on finding low-sulphidation epithermal gold deposits in Patagonia. Mineral deposits in Argentine Patagonia include AngloGold Ashanti’s (AU-N) Cerro Vanguardia deposit and Meridian’s Esquel (Desquite) deposit.

Argentina boasts several other world class deposits including porphyry copper-molybdenum-gold (Bajo de la Alumbrera), high-sulphidation epithermal gold-silver (Veladero, Pascua-Lama), low-sulphidation epithermal gold-silver (Cerro Vanguardia, Esquel) and lead-silver (Navidad), as well as important deposits of uranium and numerous smaller deposits containing a variety of metals.

It’s been a busy spring so far for Patagonia Gold. On April 16, the company announced that the province of Santa Cruz’s State Secretariat of Mining had approved Lomada de Leiva’s environmental impact study and issued a permit for the trial heap leach operation.

The Lomada de Leiva project is contained within the La Paloma property block of exploration tenements 48 km southeast of Perito Moreno. It is also within Argentina’s recently defined “Area of Special Interest for Mining.” Access to the project is by paved provincial highways and secondary dirt roads.

Engineering design and procurement contracts for the heap leach operation are advanced with the fabrication and construction of the processing plant scheduled for completion in the third quarter. If everything goes smoothly, the main heap leach operation could start production in the latter half of 2011.

The main heap leach operation is forecast to produce more than 21,000 oz. gold a year at a cash cost of US$300 per oz.

Lomada de Leiva lies in the northwest portion of the Deseado Massif geological province of southern Patagonia. The Jurassic-aged volcanic complex is an emerging world class, epithermal gold-silver mining district.

Between 2002 and 2004, Lomada de Leiva’s previous owners conducted exploration there including diamond drill holes, trenching, surface sampling, geological mapping and electrical geophysics, which delineated the existence of gold mineralization throughout the project area as well as several targets that remain untested.

In 2007, Patagonia Gold completed 750 metres of sawn trench sampling and 38 diamond and nine reverse circulation holes totalling 7,100 metres. Exploration drilling has delineated low sulphidation, epithermal gold breccia/vein style mineralization hosted within a moderately east-southeast dipping fault breccia, attaining widths of up to 30 metres, which is currently defined over a strike length of 600 metres.

A National Instrument 43-101 compliant resource calculation was completed in Oct. 2007 by Chlumsky, Armbrust and Meyer, which defined a resource of 235,000 oz. gold with an average grade of 0.84 grams gold per tonne at a 0.3 gram gold cutoff grade. About 60% of the resource is classified as indicated and inferred.

A scoping study in 2008 based on the gold resource estimate concluded that a run-of-mine heap leach operation was the most attractive processing option. Highlights of the study included a low pre-production capital cost of US$8.5 million recovered within fourteen months of startup. The mine life would be an estimated seven years based on an initial resource of 182,369 oz. gold, with a production of 21,000 plus oz. gold per year at a cash cost of US$299 per oz.

Cash flow, before tax, was estimated at US$35.3 million based on a price of US$650 per oz. gold and a recovery of 80%. After tax net present value (NPV) at a 10% discount rate was pegged at US$18.9 million. At a gold price of US$850 per oz., pre-tax cash flow would rise to US$63.6 million while post-tax NPV at a 10% discount rate would be about US$36.9 million

Metallurgical testing on composite samples showed the ore at Lomada de Leiva to be amenable to leaching with excellent recoveries averaging 97% in just 12 hours with material crushed to minus 0.075 millimetres, the company says on its website. Given the positive scoping study results, Patagonia decided to move the project forward.

Meanwhile at Patagonia’s flagship Cap Oeste project, a recently revised resource estimate outlines an indicated resources of 5.63 million tonnes grading 1.89 grams gold and 65.04 grams silver and an inferred resource of 1.05 million tonnes grading 1.35 grams gold and 41.34 grams silver.

Cap Oeste and the company’s Breccia Valentina prospect are about 6 km apart in the El Tranquilo property block, 65 km southeast of Bajo Caracoles in Santa Cruz province. These concessions were acquired in from subsidiaries of Barrick Gold (ABX-T, ABX-N) in 2007.

Exploration work located the Cap Oeste gold-silver deposit in 2008 and additional delineation drilling during 2009 has extended the limits of mineralization down-plunge to a vertical depth of about 370 metres from surface.

The company envisions an open-pit mining operation at Cap Oeste.

Patagonia also believes there are at least seven areas hosting either gold-silver mineralisation or containing elevated levels of pathfinder geochemical metals in the northern portion of the El Tranquilo property block. Micon believes that additional diamond drill programs are warranted to search for the limits of the Cap Oeste deposit.

In March, the company reported that drilling at COSE (Cap-Oeste South East), a target 2 km to the southeast and along strike from Cap-Oeste, continued to intercept high-grade gold and silver. The highlight was a 13.93-metre intersection grading 159.23 grams gold and 627 grams silver from 214 metres, including 1.6 meters grading 1,284.15 grams gold and 3,977 grams silver.

Other projects include La Manchuria, about 50 k m southeast of COSE. Patagonia believes it will be ready to release a resource estimate for La Manchuria in the third quarter of this year.

La Manchuria is made up of five mining concessions, which cover 5,575 hectares. In April, Patagonia told investors that results from a recently completed drill program on the Main Zone confirmed the continuity of high-grade gold and silver mineralization along 400 metres of strike length and remained open along strike to the north and south and at depth.

Results included 0.5 metres at 145 grams gold per tonne and 28,207 grams silver per tonne, including 0.90 metres at 111 grams gold and 896 grams silver in drill hole LM-093A.

In geological terms La Manchuria is situated in the same structural corridor that hosts the operating Mina Martha mine, a high-grade silver operation about 60 km by road to the southeast.

Finally, the Huemeles project in Chubut has a defined resource of 116,700 oz. gold. Huemules is to the west of the town of Rio Percy in the Cordon Rivadavia and lies within the 6 km wide, northwest striking Willimanco structural corridor, which extends to the northwest from the 3.5 million oz. Esquel gold project.

Huemules is to the west of Esquel, within the zone that currently prevents exploration. This restriction was established in June 2006 for a period of three years.

When Patagonia Gold acquired 100% of Huemules in 2005, the company completed a National Instrument 43-101 compliant resource on the high-grade shoot at Huemules Norte. The resource was calculated on a 3.0 gram gold cutoff and a minimum vein width of 1.5 metres. The study reported an inferred resource of 364,657 tonnes grading 9.96 grams gold for a total of 116,773 oz. gold.