CB Gold surges on Santa Ana deal

Shares of CB Gold (TSXV: CBJ) jumped 36% on news that the junior explorer has bought the Santa Ana silver project in Colombia.

Santa Ana, on the eastern side of the Central Cordillera, about 190 km northeast of Bogota, is situated in one of the country’s most prolific colonial mining camps, where production dates to the sixteenth century.

“It’s a historic silver mining district in the province of Tolima, and the market is reflecting positively on the news,” says Patrick Balit, vice-president of corporate development at Red Eagle Mining (TSXV: RD; US-OTC: RDEMF), which owns 71% of CB Gold. “This place was written about in the history books. In historic documents dating from 1585 there were claims they were mining 17.5 kilograms per ton of silver from four-and-a-half-foot-wide veins.”

A preliminary drill program in 2012 by the project’s seller — privately held Condor Precious Metals — returned intersections of 1,751 equivalent grams silver per tonne over 3 metres, 1,465 equivalent grams silver per tonne over 1.8 metres and 2,545 equivalent grams silver per tonne over 1.3 metres.

All of the eight holes in Condor’s 1,200-metre drill program were drilled from a single platform and tested the down-dip extension of vein mineralization below the historic Santa Ana mine tunnels.

Visible silver in high-grade mineralization (grading 11.2 grams gold and 2,820 grams silver per tonne) in the Guadua tunnel in the colonial mine at CB Gold’s Santa Ana project. Credit: CB Gold.

Prospecting and rock-chip sampling of vein material by Condor between 2012 and 2014 returned assays as high as 11 grams gold per tonne and 2,820 grams silver. Chip samples from outcrops in 2013 and 2014 returned 68 grams gold and 422 grams silver, 48 grams gold and 81 grams silver, and 36 grams gold and 163 grams silver.

Santa Ana contains four past-producing mines: La Porfia, El Dorado, La Manta and La Obdulia, according to a 2013 technical report by Doublewood Consulting and Antediluvial Consulting, part of which relied on historic documents in Spanish.

Santa Ana’s polymetallic silver-gold veins are described as “characteristic of an intrusion-related, silver-rich system later overprinted by a low-sulphidation epithermal system in a thrust and fold setting.”

CB Gold says it intends to advance the project towards a feasibility study by delineating high-grade vein resources that can be exploited by underground mining methods.

Initial work will range from compiling data to detailed underground mapping, underground channel sampling, and prioritizing targets for drifting and surface and underground diamond drilling.

Under the deal, CB Gold is buying 100% of Santa Ana in exchange for $250,000 in cash and 8.1 million shares of its common stock (which at 10.5¢ per share is worth $850,000), and a 2% net smelter return royalty (NSR). CB Gold has the right of first refusal on any sale of the royalty and can buy 1% of the NSR at any time for $500,000.

Elsewhere in Colombia, CB Gold owns the Vetas gold project, where over 71,000 metres of diamond drilling have been completed and more than 177 intersections returned gold grades of more than 5 grams gold per tonne. Highlighted assays include 325 grams gold over 2.1 metres, 507 grams gold over 0.7 metre and 104 grams gold over 2.5 metres.

Meanwhile, CB Gold’s major shareholder, Red Eagle Mining, owns 100% of the San Ramon gold mine and mill, which are fully permitted and financed. (Red Eagle closed a US$60-million construction credit facility in April 2015.)

San Ramon is a single shear zone in Red Eagle’s 100 sq. km Santa Rosa gold project, an intrusive-hosted, structurally controlled quartz stockwork system in the Antioquia Batholith, 70 km north of Medellin.

The shear zone extends over 2 km, is up to 50 metres wide and is mineralized from surface. Red Eagle expects San Ramon will produce 70,000 oz. gold next year, at cash costs of US$596 per oz. and all-in sustaining costs of US$670 per oz. gold.

At US$1,300 per oz. and a 5% discount rate, the project’s post-tax internal rate of return is an estimated 53%, and its net present value is US$104 million. The company expects to pay off its US$74 million in capex in just over a year.

San Ramon also has exploration potential, according to the company, because the deposit is open at strike to the east and also at depth, and reserves have only been delineated to 250 metres deep.

Red Eagle’s major shareholders include: Liberty Metals and Mining Holdings (19%); Stracon GyM (14%), a leading Latin American contract miner builder and operator; Orion Mine Finance (11%); Ross Beaty (5%); and directors (5%).

Balit notes that the Santa Ana acquisition is part of a strategy to “roll up interesting projects in Colombia that we think can be mines,” adding that “we want to find projects with gold and silver that are low cost and low technical risk.”

He points out that the Santa Ana acquisition not only drove shares of CB Gold higher (to a 52-week high of 15¢), but had a positive impact on Red Eagle Mining’s shares, which closed 6% higher at 86¢ apiece.

“This acquisition seems to have reminded investors of Red Eagle Mining’s first-mover advantage,” and the fact that the company “is bringing the first modern mine in Colombia into production later this year.”