Oro Mining posts solid drill results

Before joining Oro Mining (OGR-V) as chief executive and chief operating officer, John Brownlie was president of Capital Gold, where he successfully brought the El Chanate open-pit gold mine into production and made it one of the most cost-effective mines in Mexico. He also grew Capital Gold from a market capitalization of about $25 million to $400 million before selling it in 2010 to Gammon Gold, now known as AuRico Gold (AUQ-T, AUQ-N). 

Now Brownlie hopes to work the same magic at Oro Mining. The junior gold exploration company, founded in 2005, has three promising properties in Mexico spread across a land package of about 2,650 sq. km: Trinidad in southern Sinaloa, about two hours southeast of Mazatlan; El Compas in Zacatecas state, about 4 km south of Zacatecas City; and Cimarron in southern Sinaloa.

The Trinidad property hosts the Taunus gold deposit and is currently the focus of Oro Mining’s exploration activities. In a telephone interview from his home in Denver, Colo., Brownlie explains that he had first taken a look at Trinidad with a view to buying it when he was at Capital Gold.

Eldorado Gold (ELD-T, EGO-N) had operated Trinidad as an open-pit mine to a depth of about 50 metres and produced gold there for three years before shutting down the operation after flooding from a hurricane in 1998. The hurricane created a significant run-off from the leach pad to the ponds, and the mine didn’t have sufficient buffer space to capture the cyanide solution. So Eldorado diverted the water into the open pit, essentially flooding it themselves. 

The reason Brownlie hadn’t made buying the Trinidad operation a priority when he was at Capital Gold was that conventional core drilling hadn’t produced the results he would have needed to make a better valuation on what the company should pay for it, he explains. “It was a deposit Eldorado had problems with,” he adds. “They used RC drilling and didn’t cater for the clay, which gave them problems. Clay isn’t a problem as long as you know it’s there, but if you don’t design your flow-sheet properly it can become a problem.”

For Brownlie, the answer lay in sonic drilling – typically used in soft material, either unconsolidated ground or something of a clay nature. Sonic drilling does not use fluids, it simply vibrates its way through material and you can get close to 100% recovery rates, he says. After draining the pit, Oro Mining began sonic drilling in January, completing a 4,000-metre program earlier this month. Of the 38 sonic holes, seven were located in the existing leach pad to test for resource class mineralization and to test the sonic drill rig.

“The disadvantages of sonic drilling are that it is very expensive, it is slow and has depth limitations,” Brownlie says. “But having sacrificed these downsides, we’ve achieved what we wanted, which is very good core recovery and by doing cross checks we’ve identified that our previous estimation theory is correct, which is that the previous resources were understated.” Oro Mining plans to complete a preliminary economic assessment before the end of the year. 

“The development would be by open pit, it’s easy to mine and process, and we’re looking to initially develop a project that would produce about 50,000 ounces of gold a year over ten years,” Brownlie says. “It’s open at depth and on strike, but due to depth limitations we will only be able to identify additional resources at depth as we mine and go forward.

“This deposit has high grades for an open-pit mine and we’re really excited about the fact that from the original resource at Eldorado, we have a significant upside from that and metal prices make this deposit very attractive,” he adds. 

On Aug. 8 the company released additional high-grade gold intercepts from Taunus where drilling beneath the pit floor has demonstrated mineralized connections between the near-surface El Dorado zone and the deeper HS zone. It has also stepped out on strike and identified additional mineralization along the structural corridor.

“Eldorado hadn’t drilled to any depth so they didn’t know that the HS zone was sitting below the Eldorado zone, so this was a whole new find for us,” he says. “Sonic drilling has made this deposit.” 

While sonic drilling typically is double the cost of reverse circulation (RC) drilling and about one and a half times the cost of core drilling, Brownlie says, Oro Mining has had to field many requests for additional information about its advantages. “Who knows,” he says, “as more people use this maybe the technology will get better and you can drill deeper.”

Drill highlights so far include hole 24 that intersected 48 metres of 2.2 grams gold per tonne and expanded the HS zone 20 metres to the east of the previous model. Hole 27 cut 18.7 metres of 2 grams gold in the Eldorado zone and 40.9 metres of 1.7 grams gold in the HS zone, “both intervals are at least twice the gold grade of previous nearby RC drill hole results,” the company noted in a press release. Other notable intercepts included hole 30, which returned 10.6 metres of 2.9 grams gold in the Eldorado zone.

Taunus is hosted in polymictic and volcanic breccia bedrock. The gold mineralization is considered epithermal in style and associated with quartz veining and stockwork both in the breccia matrix and clasts.

Brownlie says the company will do the pre-strip followed by one or two years of mining, then sequentially drill at depth. “I’m of the opinion that at the moment, companies get valued for production more than for resources,” he adds. “The most cost-effective benefit to stakeholders here is to turn Oro Mining into a cash positive producer at Taunus… At current metal prices, even on a preliminary model we ran from a previous estimate, the payback at US$1,200 per oz. gold is less than two years. These types of deposits of 2- and 3-gram material just shine.”

The junior is also looking at exploration targets in a 314-sq.-km area outside the Taunus deposit. Initially the company says it will focus on the San Carlos gold property, a 77-sq.-km land package it recently acquired that is situated about 2 km north of Taunus.

Results from trench sampling at San Carlos have included 60 metres of 1.68 grams gold and 16 metres of 4.43 grams gold. The company has identified an open-ended surface gold-in-soil anomaly there measuring 440 metres by 140 metres. 

RC drilling at San Carlos in the mid-1990s by Eldorado Gold totalled 1,342 metres. Intercepts reported at the time included 40 metres of 1.74 grams gold per tonne, 14 metres of 1.37 grams gold, and 18 metres of 1.87 grams gold and Oro Mining is currently verifying the historic data.

As for his views on mining in Mexico, Brownlie says the country “has been very good” to him.

While he admits there are probably easier places to work and there are issues including Mexico’s drug wars and worries about extortion, the situation is “becoming easier.” 

Mining companies typically get good cooperation from Mexico’s state-owned power company, Comision Federal de Electricidad, or CFE, and the legal system “is very friendly and very favourable.”

In addition, tax laws are enforced and mining companies can recover value-added taxes with little effort. “We’ve had close to $1 million refunded to us,” he says. “Typically in developing countries you don’t get those incentives and even when they are there the recovery process is so prohibitive that you sometimes give up.”

And as far as skill sets go, he adds, Capital Gold was run by Mexican management, labour and contractors, and he expects that trend to continue. 

What’s more, Mexico’s lack of royalties is a huge advantage in its efforts to attract exploration and development dollars, Brownlie says. 

“Why would you chase mining companies for a few million dollars a year and lose the potential for hundreds of millions of dollars a year in development money,” h
e asks. “And behind the scenes that’s the message we get. We haven’t had to defend the case whereby the government has come out and said it is thinking of imposing royalties, as they have in places like Nevada and elsewhere. They’re quite happy with business as usual.”

At presstime Oro Mining was trading at 25.5¢ per share within a 52-week range of 23.5¢ and 54¢ per share. It has about 121 million shares, fully diluted.