Checking in with Amarillo Gold at Mara Rosa

VANCOUVER — For president and CEO Buddy Doyle and his team at Amarillo Gold (AGC-V) it is fast approaching decision time at the Mara Rosa gold project 320 km southeast of Brasilia, Brazil. The company filed its pre-feasibility study (PFS) on the project in Jan. 2012, and had hoped to be moving towards bankable feasibility by year end. Weakening equity markets during the remainder of the year, however; have forced Amarillo to delay a decision on project development through early 2013.

According to Doyle, Amarillo has yet to appoint an independent engineering contractor for its bankable study, instead opting to refine some of the project specifics at Mara Rosa in a bid to improve overall economics.

“What we’re doing right now, before we hire an engineering firm, is we’re getting that updated resource and geotechnical studies completed,” Doyle explains by phone from Brazil, pointing out 12 geotechnical holes drilled at the deposit. The company is also looking at a steeper gradient on its pit wall that would result in an 8 to 1 strip ratio dropping to roughly 6.4 to 1.

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

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

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

Amarillo has also turned its eye towards shoring up metallurgical testing at Mara Rosa. During the PFS stage the company identified a cost-effective processing alternative that yielded 93% recoveries — historic operations had only achieved 84% recoveries from Posse-type sulphide materials. Amarillo achieved the higher recoveries using a finer grind, oxygen in place of compressed air during the aeration process, and higher pH levels.

On Oct. 11 the company announced further metallurgical results from its ongoing program that achieved a gold recovery of 92.9% during a large-scale plant type process that simulated conditions proposed under Amarillo’s mine plan.

“We’re basically taking what they did with metallurgy, but getting a bit cleverer with it,” Doyle explains, noting that around 80,000 oz. of 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. Why are we getting better results? Well because we’re grinding finer, and we’ve advancing the preliminary stages using better technology.”

Amarillo applied for its preliminary mining license in June, including an environmental baseline study that will kick-start permitting to move Posse into development. Doyle speculates the process should take between 18 and 24 months to complete.

“We’re currently negotiating for all the surface rights,” Doyle explains, stating the company prefers to own the land on which it operates. “We’re dealing with the state land manager now. 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 very supportive.”

In order to fund its optimization program, Amarillo closed an over-subscribed, US$4.1 million non-brokered private placement on Sept. 12. The company issued 5.5 million shares at a price of 75¢. Doyle says Amarillo opted for an interim financing due to market conditions.

“We’re disappointed in our share price, but I think that is fairly common in the industry at the moment outside of a select few companies,” he muses, noting Amarillo also continues to run an exploration drill on the site aimed at identifying more near-surface gold mineralization. “We did the small raise to try to buy us some time. The current financing gets us through the industrial-scale metallurgy and geotech work, as well as some environmental and social initiatives. I see it taking us into the first quarter of next year, and by then we’ll be ready to determine how we’ll move forward.”

Amarillo was trading at 70¢ at time of writing, and had 64 million shares outstanding. Doyle says that his team has considered joint-venture and partnership opportunities, but the current strategy is to build the Mara Rosa mine as an in-house project.

“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 speculates.

Near-term drivers for the company will include development and exploration work at Mara Rosa, as well as an updated resource estimate for the company’s Lavras do Sul gold project in Brazil’s southern Rio Grande do Sul state.

Amarillo completed a 23-hole in-fill program at Lavras do Sul’s Butia target during the summer. Nine of the holes targeted artisanal working on the site, which resulted in the discovery of two new gold zones called Boa Vista and Sao Clemente. Drill hole LDH-220 cut 55 metres averaging 2.06 grams gold from 138 metres depth at the Boa Vista target.