Cayden’s El Barqueo steals the show

Cayden Resources’ (TSXV: CYD) El Barqueno gold project in Mexico’s Jalisco state hasn’t been in its portfolio for very long, but the potentially high-grade, near-surface project has grabbed centre stage.

Cayden is about to start a 5,000-metre drill program at the past-producing project, which it acquired from Grupo Mexico (MEX: GMEXICO; US-OTC: GMBXF) last April.

But the project that initially lured Cayden to Mexico, shortly after its initial public offering in 2010, was the Morelos Sur project, situated on the Guerrero gold belt, in Guerrero state.

That property contains two intriguing targets: Las Calles, a thin plot of land strategically located between the two open pits that make up Goldcorp’s (TSX: G; NYSE: GG) Los Filos gold mine, and La Magnetita, a 25 sq. km soil anomaly just a few kilometres west of Los Filos.

Cayden recently announced results from 13 of 14 holes drilled over the past year at La Magnetita. Although 11 holes intersected anomalous mineralization, the results weren’t market moving.

Magnetita is a skarn target, which means it will be more expensive, challenging and time-consuming to drill than El Barqueno, which hosts mineralization in epithermal veins.

Cayden president and CEO Ivan Bebek notes that Teck Resources (TSX: TCK.B; NYSE: TCK) drilled 72 holes before it hit the first discovery hole at what is now Los Filos, also a skarn deposit.

Highlights of the recent program at Magnetita, which tested a small section of the contact zone between limestone and a large magnetic granodiorite stock, include 12.5 metres of 1.14 grams gold per tonne and 11.7 grams silver from 131 metres depth, and 2 metres of 7.49 grams gold from 223 metres.

While the results show the potential for a deposit at Magnetita, Bebek says, a lot more work will be required to make a find. So in a market that has little patience, Cayden is backing off the skarn target for now, in favour of El Barqueno.

“This is a market where companies are under a magnifying glass of the money they’re spending and the holes that they’re drilling,” says Bebek, who was a co-founder of Keegan Resources, which is now Asanko Gold (TSX: AKG; NYSE-MKT: AKG).

“Although Magnetita represents a massive target and could be another major deposit in the Guerrero gold belt, it’s going to be a bit more expensive to find it. So Barqueno has stolen the show for now, and it’s something that we believe we can deliver in a shorter timeline.”

Cayden acquired an option to earn 100% of El Barqueno, 110 km west of Guadalajara, last year in return for a series of escalating payments over three years totalling $8 million.

Just under $1 million has already been paid, with the next payments being $1 million due in October, and a $1.5-million payment due next April.

Grupo Mexico retains a 1.5% net smelter return royalty (NSR), plus an annual advance royalty starting after two years. The Mexican Geological Survey also has a 2.5% NSR on the property.

In the 1980s, the Mexican government produced 250,000 oz. gold from two small pits on the El Barqueno concessions, using heap-leaching. The property contains a historic resource (not compliant with National Instrument 43-101 standards) of 2.2 million tonnes grading 3.62 grams gold for 290,000 oz. contained in several different areas.

Unfortunately, none of the historic core from El Barqueno is available to be re-assayed to confirm the historic resource.

But Bebek is excited about the possibilities at the project. In addition to epithermal veins, Cayden has found stockwork vein exposures that contain heavy, oxidized alteration around those veins during its trenching program.

“What we’ve learned from our recent trenching is that we’re seeing some incredible grades that are associated with obviously the veins, but not just the veins in the wallrock or the country rock around the veins. So this gives us the opportunity to potentially find a bulk-mineable epithermal deposit.”

Trenching has returned highlights of 91 metres grading 2.9 grams gold per tonne, 21 metres of 8.3 grams gold, 13 metres of 8.3 grams gold and 35 metres of 3 grams gold. Advanced target areas include the main Azteca target and Pena de Oro, which occur at the ends of an 8 km long trend.

And in July, the company announced soil sampling had outlined two new targets on a parallel trend: the 5 by 1.5 km Poncho target and the 3 km by 200 metre San Diego target.

At press time, the company was waiting for its final drill permits before beginning a 5,000-metre drilling program that is budgeted at $5 million.

In July Cayden more than quadrupled its land holdings around El Barqueno, expanding its concessions there to 460 sq. km from 98 sq. km. The company acquired an option to earn 100% of a land package it calls El Barqueno II and staked another land package, El Barqueno III. The option agreement for El Barqueno II requires a payment of $25,000, $1.4 million worth of exploration spending over three years, plus a $5-million payment in cash or shares in June 2017.

Like other juniors, Cayden recently had its hand slapped over technical disclosures on its website that didn’t adhere strictly enough to National Instrument 43-101 standards. The company issued a press release clarifying the category, grade and tonnage of resources at Morelos Sur in its website materials. There were other minor infractions, such as not consistently identifying the qualified person responsible for its properties. Bebek says the British Columbia Securities Commission is cracking down on junior miners, but doesn’t think it’s out of line.

“It’s difficult but it’s appropriate. I think it protects the investors and it protects the actual market — the industry, and it maintains credibility and integrity,” Bebek says. (As an aside, however, he does believe that the cost of regulatory compliance has become too burdensone for juniors, who shell out upwards of $200,000 a year just for basic expenses of running a business.)

The Cayden team is largely the same one that discovered Asanko Gold’s (formerly Keegan Resources) feasibility stage Esaase gold project in Ghana. Esaase hosts proven and probable reserves of 52 million tonnes grading 1.41 grams gold for 2.4 million oz. at US$1,400 per oz. gold. If measured, indicated and inferred resources are included, Esaase’s numbers swell to over 5 million oz.

Once Esaase was advanced enough, Bebek left Keegan to start up Cayden, and was later joined by Keegan co-founder Shawn Wallace as chairman and Daniel McCoy as chief geologist.

“We like the thrill of the chase, finding the mine,” Bebek says. “We believe that the largest return for investors is [at that stage], but also for ourselves, that’s where the biggest excitement is.”

The company also boasts David Jones, an ex-Teck geologist credited with the Los Filos discovery, as a director; and on its technical team, former Newmont Mining geologists and “gold ninjas” Michael Henrichsen and David Smithson, known for adding big ounces to the Ahafo deposit in Ghana and Yanacocha deposit in Peru.

Cayden has $11.5 million in its treasury, and Bebek says 80-90% of that is earmarked for exploration, drilling and property maintenance. The El Barqueno program’s budget is $5 million, with most of the remainder going towards property payments on the project, taxes and general and admi
nistrative expenses.

Even with sizable property payments and a significant exploration program, Bebek says Cayden has enough money to last into the first quarter of 2015.

Although the Morelos Sur concessions have been overshadowed by El Barqueno’s nearer-term upside, it still has the potential to deliver cash.

Cayden sold a non-core part of its Morelos Sur concessions — about 15% of the total concessions and excluding Las Calles — to Goldcorp in February for $15.7 million. It’s already received half the Morelos Sur money, with the second half due before the end of the year.

Goldcorp needed the land in question for an expansion of its waste dumps and leach pad.

“We owned the mineral rights in those areas, and they owned the surface rights,” Bebek says.

Instead of Goldcorp conducting condemnation drilling on those areas (it had drilled around the leach pad and found no significant mineralization) in recognition of Cayden’s mineral rights, Cayden accepted a payment equal to the cost of the foregone drilling program.

The cash doesn’t cover the original cost of the concessions, which Bebek admits were “expensive” when they were acquired at $25 million between cash and shares.

“Fortunately for us, our share price shot up from 40¢ to $5.50 per share on that acquisition, which I believe was in part due to market conditions being a lot better, our reputations, and thirdly, the fact that people saw an opportunity to get some kind of cash from the land position in the Guerrero gold belt with Goldcorp,” Bebek says.

Cayden did a three-for-one share split in late 2010, the opposite of the usual share consolidations most juniors eventually have to undertake following massive dilution.

Cayden’s goal is to sell Los Calles before it runs out of money in 2015 to keep its tight share structure intact (it has 40 million shares outstanding), and provide working capital for another two to four years. While Goldcorp would be the natural buyer, Bebek says other parties have also expressed interest.

Las Calles has only seen about a dozen holes, the best results being 28.5 metres of 3.21 grams gold per tonne and 84 grams silver from 254 metres depth, and 14 metres of 4.2 grams gold from the same depth.

Bebek says it would need another 40 to 50 holes to potentially define a resource.

A Las Calles sale would allow Cayden to revisit La Magnetita.

Hopefully by then, Cayden will find a market with more patience.

Cayden has 41.6 million shares outstanding and recently traded at $1.29 in a 52-week window of 64¢ to $1.72.