Amarillo buys time for Mara Rosa in Brazil

VANCOUVER — President and CEO Buddy Doyle and his team at Amarillo Gold (AGC-V) have gained some breathing room in their fast-track development of the Mara Rosa gold project 320 km southeast of Brasilia, Brazil. The company filed a prefeasibility study on the project in January 2012, and had hoped to move towards bankable feasibility by year-end. Weakening equity markets during the rest of the year, however, have caused Amarillo to delay making a project development decision to early 2013.

“What we’re doing right now, before we hire an engineering firm, is we’re getting that updated resource and completing geotechnical studies,” Doyle explains by phone from Brazil, pointing to 12 geotechnical holes drilled at the deposit.

The company is also looking at a steeper gradient on its proposed pit wall that would turn an 8-to-1 strip ratio to 6.4 to 1.

“With the infill drilling we did, there were two deep pits, and a saddle in-between. Most of that saddle was waste, but we’ve since drilled infill there, and we’re hopeful we can get rid of some of that waste and add a little bit of gold,” he says.

Amarillo is working with a November 2011 resource statement that focuses on its Posse deposit, which carries 17 million tonnes in the “proven and probable” category grading 1.72 grams gold per tonne for 945,200 contained oz. at a 0.5 gram gold cut-off. The project holds another 4.7 million measured and indicated tonnes averaging 1.52 grams gold for 229,700 contained oz. gold.

“We have done more drilling. We have to remember that around ninety percent of our current resource is in the measured and indicated category,” Doyle says, referencing inferred resources at Posse that total 3.6 million tonnes grading 1.34 grams gold for 156,400 contained oz. gold. “The drilling we’ve just done will upgrade more of that inferred stuff.”

Amarillo is advancing metallurgical testing at Mara Rosa. During the prefeasibility stage, the company identified a better processing alternative that yielded 93% recovery rates — historic operations had only achieved 84% recoveries from Posse-type sulphide materials. Amarillo achieved the higher recoveries using finer grind and oxygen in place of compressed air during the aeration process, and higher pH levels.

On Oct. 11, the company announced metallurgical results from an ongoing program that continued to achieve a 93% gold recovery during a large-scale, plant-type process that simulated conditions proposed under Amarillo’s mine plan.

“We’re taking what they did with metallurgy, but getting a bit more clever with it,” Doyle says, noting that around 80,000 oz. gold was produced out of Posse’s sulphide ore historically, using conventional carbon-in-leach processing. “We’ve viewed that as a large bulk sample for metallurgy, and spent about one million dollars on work showing higher recoveries.”

Amarillo applied for its preliminary mining licence in June, including an environmental baseline study necessary to be granted a permit to move Posse into development. Doyle reckons that process should take up to 24 months to complete.

Amarillo is negotiating for all the surface rights for the project, with Doyle commenting that the company prefers to own the land on which it operates.

“We’re dealing with the state land manager now.” Doyle notes. “We have mine permits where we are, but they’ve been in a state of suspension. The government wants to see us build the mine, so they’ve been supportive.”

Amarillo closed an over-subscribed, US$4.1-million non-brokered private placement on Sept. 12 to fund its optimization program, issuing 5.5 million shares at 75¢. Doyle says Amarillo opted for an interim financing due to weak market conditions.

“We’re disappointed in our share price, but that is fairly common in the industry at the moment, outside of a select few companies,” he says. “We did the small raise to try to buy us some time.”

He says the current financing gets Amarillo through the industrial-scale metallurgy and geotechnical work, as well as some environmental and social initiatives.

Doyle comments that the funds will take the company into the first quarter of next year, and by then, Amarillo “will be ready to determine how we’ll move forward.”

Amarillo also runs an exploration drill on the site to find more near-surface gold.

Doyle says Amarillo has considered joint-venture and partnership opportunities, but that the current strategy is to build the Mara Rosa mine in-house.

“We can quickly build a team and there seems to be a lot of available debt out there, so the challenge will be raising the initial down payment on the project. I think it is doable, but it will be all about price,” he says.

Elsewhere in Brazil, the company is completing a resource estimate for its Lavras do Sul gold project in southern Brazil’s Rio Grande do Sul state.

Amarillo completed a 23-hole infill program at Lavras do Sul’s Butia target in mid-year. Nine of the holes targeted artisanal workings on the site, which resulted in the “discovery” of the Boa Vista and Sao Clemente gold zones. Hole 220 cut 55 metres averaging 2.06 grams gold from 138 metres depth at Boa Vista.

Amarillo was trading at 70¢ at press time, with 64 million shares outstanding.