Argentex grows Pinguino, looks for partners

Argentex Mining (TSXV: ATX; US-OTC: AGXMF) believes its Pinguino project is the largest undeveloped silver-gold vein field in the Patagonia region of Argentina.

The project in central Santa Cruz province lies on the same structure that created AngloGold Ashanti’s (NYSE: AU) producing Cerro Vanguardia gold-silver mine, 35 km south. In August Argentex updated its resource estimate, increasing the number of silver-equivalent ounces by 13% in the indicated category and 49% in the inferred.

The junior has drill tested just 37 of the more than 70 veins identified so far at the deposit, and the latest resource estimate was based on 12 of those veins, only one of which was drilled below a depth of 150 metres.

“We picked Pinguino up in 2003–04, and it has gone through a long exploration history,” company president and CEO Mike Brown says. “It’s fair to say that drilling was focused on two veins … the high density of drilling on those two veins is typically not what you’d expect for a project that has yet to have a PEA, which explains our resource: we’ve got 84% of the resource in the indicated category, which is incredibly high … and we haven’t really drilled at depth.”

Pinguino has 6.3 million indicated tonnes grading 103.4 grams silver per tonne, 0.58 gram gold per tonne, 0.77% zinc and 0.54% lead (or 132.3 grams silver equivalent per tonne) for 20.9 million contained oz. silver and 117,000 contained oz. gold. There are another 2.2 million inferred tonnes at 65.3 grams silver, 0.66 gram gold, 0.52% zinc and 0.35% zinc for 4.6 million contained oz. silver.

The estimate uses cut-off grades of 40 grams per tonne silver equivalent to a 130-metre depth and 100 grams silver equivalent for greater depths.

Brown says the key transition, from the initial resource estimate in 2013 and the latest one this year, has been defining the project as a high-grade, vein-hosted deposit, while the previous resource estimate  had envisioned a bulk-tonnage, low-grade project.

“We are focusing on grade for all important margin — as opposed to tonnes,” Brown says. “In 2013–14 we looked at increasing the oxide component, where we believe the first part of a future operation will focus. Drilling has been shallow from 100 to 150 metres, in general, with only a few holes deeper towards 350 metres on two of the veins.”

Pinguino hosts intermediate sulphidation epithermal veins with a combined strike length of at least 113 km. The deposit has two mineralization types: a near-surface silver-gold oxide zone with supergene enrichment (affecting all veins to an oxidation limit averaging 50 metres deep); and older intrusive-related sulphide polymetallic (zinc-silver-indium-lead-gold) epithermal veins.

“We believe that the oxide resource is now of sufficient size to move forward on development options, and production off these would provide the cash flow for developing the sulphide resource,” Brown says.

But with just $1.7 million in cash, the junior explorer thinks now might be the right time to bring in a financial or development partner to advance the project, with a merger, earn-in or “any other combination or iteration, whilst we evaluate internally what process or flowsheet would make the most sense given the character of the project … we’re internally reviewing heap leach versus a mill carbon-in-leach — and subsequent flotation once you’re down in the sulphides.”

“If we had a significant treasury I don’t think there would be too many questions about what we’d do next — we’d push through engineering and look at optimization, and how to take it forward,” Brown adds. “But given our core strength is in exploration, the best value for our shareholders is if we can bring in another player and take the project forward, and we have a number of discussions with companies underway.”

Brown hopes to leverage Argentex’s experienced geological team and make more discoveries in South America. “We are looking for another mid-stage project in Chile and/or Argentina, in parallel with seeking a partner to advance Pinguino,” Brown says, whose two decades in the resource sector has included stints as vice-president of energy at Kinross Gold (TSX: K; NYSE: KGC) and leading exploration and resource development programs in Western Australia, Chile, Argentina and Indonesia for Rio Tinto (NYSE: RIO; LSE: RIO), Homestake Mining Co., which merged with Barrick Gold (TSX: ABX; NYSE: ABX) in 2001, and Phelps Dodge.

“Given the current market, we are hopeful that we might get into another project and use our epithermal expertise to drive another discovery,” he explains. “We have, in my mind, a world-class epithermal exploration group, so getting them into a new project is in my viewpoint one of the best ways to drive value for our shareholders.”

Other projects in Santa Cruz province near Pinguino include Goldcorp’s (TSX: G; NYSE: GG) Cerro Negro mine, 120 km northwest; Pan American Silver’s (TSX: PAA; NASDAQ: PAAS) Mantial Espejo mine, 105 km southwest; Coeur Mining’s (NYSE: CDE) recently closed Mina Martha mine, 100 km southwest; and Yamana Gold’s (TSX: YRI; NSYE: AUY; LSE: YAU) Cerro Moro development project, 185 km east.

“With five mines put into operation in the last decade and a number of advanced projects, Santa Cruz has been a hot region and has had no historic exploration, which is why it’s such an exciting area,” Brown says. “If it wasn’t for some of the issues Argentina is facing, it would have continued to have been a prolific region of exploration.”

At the same time, he says, the benefits of having come “off the boil” is that the region remains “lightly explored” but enjoys good infrastructure and is accessible year-round, “and there are no community or indigenous issues that claim large areas of the rest of South America.”

As an example of being underexplored, Brown points to the Cerro Vanguardia mine and the Pinguino project, where the veins splay off the main structure. “Seeing 3- to 8-metre-wide veins marching off into the distance looks pretty amazing,” he says. “It’s even more amazing that you don’t see old workings, which you find in most places in the world where there is vein outcropping, and that speaks to the prospectivity of Santa Cruz. It was not explored at all.”

Pinguino can be accessed by two public roads, has a transmission line nearby, does not have glaciers to contend with and is relatively flat — all of which makes for lower-cost exploration and potentially lower infrastructure capital if the project is developed, Brown says.

The company’s strategic partners are the International Finance Corp., an arm of the World Bank, which owns 12.1% of the company after investing $7.4 million in October 2010; and Austral Gold (ASX: AGD), which invested $5 million in July 2013 and owns 19.9% of its shares. Austral Gold’s chairman and largest shareholder — with an 87% stake in the company — is Eduardo Sergio Elsztain, a prominent Argentine businessman who is reportedly the country’s largest landowner and real-estate developer.

Argentex has a $7.1-million market capitalization. Over the last year the company has traded within a range of 6¢ to 13¢ per share.