Antioquia to proceed with underground mine at Cisneros

For a penny stock, Antioquia Gold (TSXV: AGD; US-OTC: AGDXF) sure has a lot of firepower behind it.

Consorcio Minero Horizonte (CMH), a privately held mining company in Peru, learned about Antioquia’s Cisneros project in Colombia about five years ago, and since then has become the junior’s largest shareholder, with a 54% ownership stake.

CMH will also pony up half of the US$40 million Antioquia needs for an underground mine at Cisneros, freeing the junior from having to raise money through a dilutive equity financing.

The rest of the funds will come from the cash expected by next year from the small, 500-tonne-per day mining operation. Antioquia says the underground mine, 55 km northeast of Medellin, will operate by mid-2016.

“CMH were looking for opportunities outside of Peru and were particularly attracted to us because of the similarity of our high-grade gold deposit to their existing mine at Parcoy,” Jim Decker, the company’s executive vice-president, says in an interview from his office in Calgary. “Cisneros and Parcoy are both high-grade deposits that get richer at depth, and so they recognized the type of deposit we had and got interested, and have invested in us ever since.”

Antioquia acquired the 56.2 sq. km Cisneros property — where artisanal miners have been active for decades — in two deals in June 2007 and October 2008. It paid US$2 million for the land package and committed to spend another US$2 million on exploration by 2010. 

“When offered the deal, I made a site visit and took five random grab samples from three areas, and all of them produced gold results, the best being 45 grams gold per tonne,” Decker recalls. “The rest is history.”

Several years and 209 drill holes later, Antioquia reported a resource on two of the deposits on the property — Guayabito and Guaico. Based on 45,400 metres of drilling, the company outlined measured and indicated resources of 599,056 tonnes grading 5.04 grams gold per tonne for 97,092 contained oz. gold. Inferred resources add another 1.1 million tonnes grading 4.90 grams gold for 172,861 contained oz. gold.

Antioquia’s board announced that it would proceed with plans for an underground mine at Cisneros, and management is confident that exploration from underground will easily find more ounces of the precious metal.

“We made a corporate decision that the 270,000 oz. gold was sufficient to get a mine of this size started, because to double that resource would have required spending another US$3–5 million on exploration, and it probably would have taken another two years to get to that level,” Decker says.

“We determined that we had sufficient reserves for a five- to seven-year mine life at 30,000 oz. gold annually, and we felt that would generate significant cash flow to fund the additional drilling required to increase the resource.”

Decker estimates that Antioquia could pay back the US$20 million loan from CMH within 19 months. (The loan is unsecured, and bears a 7.1% interest rate.)

“By the end of 2016 we should spin off US$3 million a month in revenue from producing 2,500 oz. a month using a price of US$1,200 per oz. gold,” the mining executive says. “So no matter how slow our start-up is, this thing pays off that loan in less than two years. That’s why it’s a good deal and why our partners are keen to loan us the money, because they recognize that.”

The mine plan envisions that ore from Guayabito and Guaico will be sent to a central processing plant. The two deposits are 2 km apart, and mine development will start at Guaico first.

Civil works and infrastructure are slated for September 2015, with completion before year-end. Tunnel and mine development will also start in September and finish in July 2016, Decker says.

Antioquia expects to receive its environmental and mining permit for Guayabito in December 2015, and start civil works and infrastructure development there in May 2016, with tunnel and mine development work to follow in July 2016.

Final basic engineering and processing plant design will be completed in July 2015, with construction and commissioning finished by July 2016.

Decker expects that the two deposits will be linked by a tunnel, so there will be just one delivery system to the central mill.

Antioquia will spend a bit more money (Decker estimates between US$500,000 and US$1 million) to build a dry-stacked tailings disposal system, rather than a more conventional wet tailings pond.

“The minute you mention cyanide and tailings ponds, regulators get nervous,” Decker says. “We knew that if we did dry tailings it would make the permitting process much less rigorous, so from day one, we decided that we would incorporate the additional capital expense and go with dry tailings.”

Decker notes that dry tailings will take up far less space than a wet tailings pond, and given that Cisneros is in a semi-agricultural area where the main crop is sugarcane and land costs are at a premium, it makes more economic sense in the longer term. “We’ll save at least US$10 million by doing it this way, and we’re doing it in an environmentally friendly manner.”

In terms of permitting, Decker says it took two years for Guaico to get underground mine approval. But he is quick to say that this time frame does not indicate the process today, because it was “early days” for both the federal and departmental governments, and there was a lot of uncertainty at the time about which group had jurisdictional authority.

“The mines ministry has significantly revamped the application process   and has committed to swift action for those applications that have been  prepared properly,” he says. “In the case of [permitting] Guayabito, we anticipate a period of four to six months, maximum.”

As for exploration upside, the hills around Cisneros — situated within the late Cretaceous Antioquia batholith — contain gold, Decker says, noting that there are six other targets on the property that warrant follow-up.

“Gold mining has been going on in this valley for more than 100 years,” he says, adding that AngloGold Ashanti (NYSE: AU) and B2Gold’s (TSX: BTO; NYSE-MKT: BTG) Gramalote project is 15 km to the east, while Red Eagle Mining’s (TSXV: RD; US-OTC: RDEMF) San Ramon project sits 55 km northwest.

“There are gold occurrences literally across our 5,000-plus hectare property,” he says. “Most of it is covered by 5 to 20 metres of overburden, but panning samples have been corroborated by geophysical and geochemical results as well.”

Decker notes that Antioquia has a good relationship with the local community and that most of the company’s workforce will come from there. “They’re good miners and will be delighted to work with modern mining machinery, a far cry from their previous artisanal methods.”

As for working in Colombia, Decker says the 2002 election of President Alvaro Uribe has increased security, and that the threat of kidnappings and extortion from narco-guerillas like the Revolutionary Armed Forces of Colombia (FARC) and the National Liberation Army has abated in most of the country.

Decker should know. He spent three years in the late 1980s in Colombia working as a production manager for Exxon, which at the time owned half of the Cerrejon coal mine. Since then he has worked in the country as a consultant, and says that by 2006, security issues “had been resolved very well.”

“In reality, Colombia is safer today than Mexico,” he says. “When Uribe came in, he openly solicited the help of the U.S. and drove the FARC into the jungles, an
d that’s where they are right now.”

Uribe also negotiated to lay down their arms in exchange for pardons, which has gutted their organization from 23,000 members down to 9,000, Decker says. Many of those left would like to negotiate similar pardons from Uribe’s successor, President Juan Manuel Santos, who came to power in 2010, Decker says.

But there are still parts of Colombia that Decker says should be off limits to exploration companies, such as areas within 100 km of its borders with Panama, Venezuela and Brazil, but the rest of the country is safe.

“We’re only 55 km from Medellin, the second-largest city in Colombia,” he says. “We’re in a highly populated area, and FARC activity is absolutely minimal. Yes, we have security measures in place, but they’re really not overly dramatic or expensive.”

He says the government proactively supports mining, and the economy is business-oriented. “It’s the only Latin American country that has never had its currency devalued,” he says. “It is self-sufficient in oil and gas, one of the most significant coffee producers, a rich country in its own right, the people are professional, the laws are modern and a lot of them are modelled after Canadian laws.

“The simple reason we chose Colombia was because of its high potential, and because it was also a secure place.”