Magellan races to find more Brazilian gold

It’s been years since geologists Alan Carter and Dennis Moore flew around with a claim map staking property in Brazil’s attractive Tapajos gold district, before setting up their own mining company – Magellan Minerals (mnm-v).

One of the first properties the two staked before taking Magellan public in 2008 was the Tocantinzinho gold project. Tocantinzinho is now owned by Eldorado Gold (eld-t, ego-n), and contains a gold resource of 2.5 million oz.

In 2003, Carter and Moore vended the grassroots exploration property to Brazauro Resources in exchange for US$465,000, 2.6 million shares and a 3.5% net smelter return royalty. Moore, who now serves as Magellan’s vice-president of business development, worked for nearly 18 months at Brazauro to help develop the project.

“(Moore) is the guy that supervised the drill program, hired a team in Brazil, built a camp there and imported a drill rig,” says Carter, Magellan’s president and CEO.

Eldorado then bought Brazauro and its prized Tocantinzinho asset in 2010 for $122 million.  

 “So, that asset never has been part of Magellan,” says Carter, “but we founded Magellan on the back of that success.”

Since its inception, the company has acquired a handful of early stage gold exploration projects and found two additional gold deposits in Brazil’s Para state – Cuiu Cuiu and Coringa – where drilling is currently underway. 

Located 25 km from the Tocantinzinho project, Cuiu Cuiu is one of the largest historic garimpeiro gold producers in the Tapajos, having kicked out 2 million oz. from streams during the gold rush that started in the ’70s and lasted until the mid-90s.

Carter says the Tapajos district, during the same time, produced 20 to 30 million oz. gold from artisanal mining, making it the world’s third largest placer gold province.

“We are in a race to find as many hardrock sources of that gold as we possibly can,” he says, adding that he believes Magellan has found two such sources with Coringa and Cuiu Cuiu.

At Cuiu Cuiu the company has outlined the Central and Moreira Gomes zones, sitting about 5 km apart. Together, they contain 100,000 oz. gold from 3.4 million indicated tonnes grading 1 gram gold per tonne, and 1.2 million oz. gold from 31 million inferred tonnes averaging 1.2 grams gold.

Carter notes the sizable near-surface project is unique because it has a 12-km-long gold-in-soil anomaly. “It’s very very unusual, and very very large,” he remarks, saying the company is “quite optimistic” about finding more orebodies within the anomaly.

Dale Mah, an analyst at Mackie Research Capital, writes in a recent research note that “as it is an early-stage project, the resource envelope represents less than 20% of this trend and has considerable exploration potential.”

Mah reckons that Cuiu Cuiu and Coringa combined could host more than 2.63 million oz. gold.

For 2011, Magellan has three rigs turning on the 470-sq.-km Cuiu Cuiu property, with plans to drill 15,000 metres. The company expects to release an updated resource estimate for the project by early 2012. 

Some 200 km southeast of Cuiu Cuiu, Magellan has another two rigs drilling at its Coringa project. It expects to punch 10,000 metres into Coringa, and release a revised resource estimate by March 2012.

The 235-sq.-km property is home to 982,000 indicated tonnes grading 8.53 grams gold for 269,450 oz., with another 98,224 oz. in inferred, from 327,000 tonnes at 9.34 grams.

The company says the high-grade gold mineralization is often associated with quartz veins containing a large amount of base metal sulphides. It also occurs with quartz and pyrite.

A 2010 preliminary economic assessment for Coringa pegged the cost to build an underground mine at US$26.4 million. The mine is estimated to recover 240,837 oz. gold over its seven-plus-year life.

Based on a gold price of US$950 per oz. and a 5% discount rate, the study calculated a net present value of US$41.3 million and an internal return rate of 34%, with less than four years payback.

After updating the resources, Magellan, which has about $20 million in the bank, would launch a feasibility study for Coringa in early 2012.

Mah of Mackie Research Capital lists the lack of infrastructure and environmental considerations as some of the junior’s risks.

Though in a friendly mining province, Magellan’s projects are located in “semi-remote areas of the Amazon Rainforest that would require significant upgrades to transportation and power supply,” says Mah. However, he adds that the potential development of the nearby Tocantinzinho project will bring necessary infrastructure to the area, decreasing Magellan’s initial capital costs.   

As the company advances its 25,000-metre program on Coringa and Cuiu Cuiu for the year, it’s also on a lookout for acquisition opportunities.

 “We’re looking not only at drilling at our own projects, we are always looking for other potential acquisitions that might make sense for us,” says Carter.

Mah has a speculative buy on the stock with a 12-month target price of $2.10 per share.

At presstime, Magellan shares traded at $1.15, within a 52-week range of 64¢ to $1.94.