Colossus nears gold-production target at Serra Pelada

Toronto-based Colossus Minerals (CSI-T) has a finish line within sight following a year-and-a-half of extensive development at its Serra Pelada precious metals-rich, polymetallic project outside the town of Curionopolis in Brazil’s Carajas region. 

In a progress report released in early April, Colossus said it was within 350 metres of reaching the main mineralization at Serra Pelada’s central mineralized zone (CMZ), and is on target to begin bulk sampling during the second half of the year.

Serra Pelada is a historic Brazilian artisanal gold-platinum mine that produced 2 million oz. gold in the 1980s. Colossus is a 75% joint-venture partner with Coomigasp — a Brazilian co-operative company representing regional artisanal miners.

The project is unique owing to the impressively high grades Colossus has intersected during surface-drilling. For instance, the company cut 7 metres grading 1,494.7 grams gold per tonne, 516.6 grams platinum and 558.9 grams palladium from 237 metres depth last year, which paved the way for aggressive development plans despite a lack of a resource estimate or economic assessment.

“Higher-grade deposits tend to require more drilling,” says Colossus president and chief executive officer Claudio Mancuso during a phone interview. “Which is something people seem to have forgotten, given the nature of the low-grade bulk tonnage deposits that have been the focus of the latest bull rush in gold. We need underground drilling and a bulk sample to give us more information for a resource, since there is that grade variability in the deposit.”

The nature of Serra Pelada’s CMZ deposit — intense hydrothermal carbonaceous and argillic alteration of mainly siltstones — prompted Colossus to start excavating a 3.5-km decline to provide underground access for exploration and definition drilling. According to the status update in April the company has completed 950 metres of the decline to a vertical depth of 135 metres.

“The other reason we need to bulk sample and underground drill is because this isn’t a vein,” Mancuso explains. “It’s a large mineralized system, and the geometry of it requires more drilling than you would need for a vein-type deposit.”

The other element of Colossus’ development program is the purchase, installation and construction of site infrastructure for upcoming bulk sampling, as well as production scheduled for mid-2013. 

The company bought a ball mill 100 km away from Serra Pelada for US$620,000, and a gravity processing plant is slated for completion on site later this year. Four generators arrived at Colossus’ 200-person camp in early 2012 and construction of infrastructure necessary for power distribution is ongoing.

Colossus’ exploration program includes five drills at surface, along with two diamond drills underground, and carries a reported annual price tag of US$11.8 million. The plan focuses on infill and definition drilling at the CMZ and GT targets. CMZ runs 600 metres southwest along strike from the historic artisanal pit, while GT runs parallel to CMZ on the west at a similar strike length, with both structures open at depth and southwest.

“We know the grade is going to be robust,” Mancuso comments. “We know it’s not a bulk-tonnage low-grade deposit, but to give any indication on production or average costs we have to get that grade estimate, and we’re not there yet.”

Colossus is planning to follow a traditional underhand cut-and-fill mining method at Serra Pelada, which allows for 100% ore extraction. The process involves working from the top of the orebody downwards under cement-rock fill, and has proven successful with previous high-grade gold projects like Goldcorp’s (G-T, GG-N) Red Lake mine in Ontario and Barrick Gold’s (ABX-T, ABX-N) Miekle mine in Nevada. Adding platinum and palladium credits could help Colossus maintain competitive average cash costs over the mine’s life.

“What you’ve seen in this last commodities boom is that investors really don’t like the hedging of precious metals, so we don’t plan on doing any offtake agreements with the platinum or palladium assets,” Mancuso says. “My view on offtakes is that they’re a financing mechanism, and usually a financing mechanism of last resort.”

Along with the ongoing expansion of the CMZ and GT zones, Colossus has two earlier-stage gold targets that are slated for exploration during the 2012 campaign.

The company is conducting a follow-up auger drilling program at its Elefante target 2 km southeast of Serra Pelada. Colossus released results from the program in March, which includes grades ranging from 1.06 grams gold to 18 grams gold within 2 metres of surface. The results suggest a broad halo of gold mineralization at the Elefante target, which may be sourced by a deeper bedrock zone. Colossus will do more auger drilling in the next few weeks, targeting potential mineralization in the bedrock to establish deeper targets for a diamond drill program,

“As we ramp up the underground we’ll move some of the surface rigs over to Elefante, and that is going to happen imminently,” Mancuso explains. “We’re looking to start drilling at Elefante around the end of this quarter, so hopefully we’ll have some deeper holes into that target later this year.”

Colossus augmented its regional landholdings in January when it purchased the Cutia property for US$2 million. The company’s partnership with local artisanal miners has proven beneficial when it comes to identifying prospective new targets and acquisitions. Cutia is 13 km southeast of Serra Pelada and features 600 metres of strike-length open to the east and west. The property is another artisanal mining site, which produced 65,000 oz. gold from 1988 to 1992. 

“That’s still a very grassroots asset. We’re doing some preliminary exploration there now, some channel sampling and soil sampling,” Mancuso says. “We’ll be looking at putting drill rigs on that property in the second half of the year as well.”

Despite being on schedule with development at Serra Pelada, and a growing exploration portfolio in the region, Colossus has experienced recent market setbacks.

“I think we’re down in unison with the rest of the gold space. It’s been pretty widely documented that there is a disconnect between gold prices and the multiples that are afforded gold equities right now,” Mancuso says when asked about Colossus’ share-price performance. “I think at some point the equities will correct, and I’m still long-term bullish on gold. We have a few things going for us in the gold sector. What you see in this market is that higher-liquidity stocks tend to outperform on the downside just because there is more liquidity for people to monetize any portfolio positions.”

Colossus shares have tumbled 37%, or $2.97, since early November, from a high of $7.80 to a low of $4.88 at presstime on a 675,000-unit, average daily trade volume. 

The company has a strong cash position with US$103 million in the treasury to start the year, including  money from a US$86-million bought-deal financing led by Dundee Securities and completed last October. The cash cushion will help it withstand a weaker share price, and complete its 2012 work plans on schedule.

“We did the bought-deal financing in O
ctober last year, and at that point we felt that would get us over the line as far as reaching production is concerned,” Mancuso says. “We’re not seeing anything now that would indicate that won’t be the case.”