Columbus Gold to launch $20M program

Over the next year, Columbus Gold (TSXV: CGT; US-OTC: CBGDF), a small junior with a market cap of just $64 million, will oversee $20 million invested in exploration and development at its two gold projects, Paul Isnard in French Guiana and Eastside in Nevada

Half of that sum will come from Russia’s Nordgold (LSE: NORD), a company in which Russian billionaire Alexey Mordashov holds an 89% stake. In March 2014, Nordgold agreed to spend US$30 million on Columbus’ Paul Isnard, and complete a bankable feasibility study, to earn a 50.01% stake in the project.

Peter Ball, Columbus’ senior vice-president, estimates that Nordgold spent $11.8 million last year on the project’s Montagne d’Or deposit in French Guiana, and by the end of 2015 will have spent a about $28 million of its committed funds. 

As operator, Columbus Gold charges Nordgold a 10% operator fee, and will earn $3 million in fees.

“It’s a win-win for Columbus,” Ball says, adding that Nordgold may have to spend more funds to finish a bankable feasibility before March 2017. “They’re accelerating on all fronts,” he adds. “We’re one of their key projects.”

In March Columbus and Nordgold completed an updated resource estimate for Montagne d’Or, increasing the average grade and converting 88% of the inferred resources into the indicated category.

Today the indicated resource stands at 83.2 million tonnes grading 1.46 grams gold per tonne for 3.8 million contained oz. gold, and inferred resources measure 22.4 million tonnes at 1.56 grams gold for 1.1 million contained oz. metal. The resource was based on a US$1,300 per oz. gold price and a cut-off grade of 0.40 gram gold per tonne.

“We were on budget, and the updated resource announcement was just two weeks later than we had planned, which is good for the industry,” Ball says. “So it’s been an excellent year, in regards to advancing the asset.”

The plan for the rest of 2015 is to take part of the deposit and drill it on a 25-metre spacing to upgrade the resource from the indicated category to the measured and indicated category, drill off the saprolite layer at surface and undertake condemnation drilling.

Ball says the company better understands the deposit after drilling below the 100-metre threshold in 2014. “We discovered more about the potential of the deposit at depth and saw an additional increase in grade and size of the mineralized zones in the western portion of the project,” he says in an interview.  “And previous exploration — including geophysics, geochemistry and mapping — also indicate that the deposit has potential for a strike length of 3–4 km west.”

The remote deposit in northwestern French Guiana, 180 km west of the capital Cayenne and 80 km south of Saint-Laurent-du-Maroni, sits in a mountain (Montagne d’Or) that is 150–250 metres in height and is situated in primary and secondary tropical forest. The game plan is to remove the cap of the mountain and continue to depth with an open pit.

Ball notes that both the UFC zone, and another zone called LFC, get quite large at depth. The UFC zone is open at depth and along strike to the west. “If you look at it from above, you have three main zones that go east to west,” he explains. “Our main zone, UFC, is big, and carries 65–70% of the mineralization, and we see there is opportunity to extend that zone to the west and along parallel zones.”

Columbus expects to complete a preliminary economic assessment in the second quarter of this year.

The Vancouver-based junior acquired the project in November 2010, but had to cool its heels until January 2012, when legislation was brought in that defined which parts of French Guiana — a department of France and subject to French laws — were open to exploration and mining. 

Fortunately for Columbus Gold, it was determined that Paul Isnard lies within the area designated for mining and exploration.

One of the reasons it has taken so long to write the new law is that 95% of French Guiana is covered by equatorial forest, and is home to one of the world’s largest biological reserves (644 sq. km) where mining is prohibited.

Under the new legislation, French Guiana was carved up into four zones: Zone O, where prospecting and mining is banned completely; Zone 1, which is open to airborne surveys and underground mining subject to conditions; Zone 2, which is open to prospecting as well as both underground and open-pit mining, subject to conditions; and Zone 3; which is open to prospecting and underground and open-pit mining, without any conditions.

Paul Isnard is situated in Zone 2, where underground and open-pit mining are allowed. The boundary of the biological reserve comes to within 550–1,050 metres of Paul Isnard’s southern boundary.

“We are often asked how close can we build an open pit from the biological reserve, and we have been informed that we can put the pit right to the border of the zone, but of course we’re going to maintain a significant distance away,” Ball says. “We have no plans to build to the border. We have a central zone that we will make sure doesn’t encroach on the boundary.”

Ball doesn’t believe Columbus will run up against serious permitting issues, such as Iamgold (TSX: IMG; NYSE: IAG) encountered at its Camp Caiman project. In January 2008, Iamgold announced that the French government had advised the company that France’s president would not approve the final permits needed to start construction. “No technical, environmental or legal reasoning for the decision was provided in the declaration,” Iamgold stated in a press release at the time.

“Before 2012, there was no specific legislation in place defining the zones where one could explore, develop and complete open-pit or underground mining,” Ball explains. “Camp Caiman happened to be in a zone where mining activity was later banned under the new legislation. It happened to be right in the middle of what became a biological reserve.”

Ball notes that not only has the French government defined where open-pit and underground mining can take place, but since 2013 it has issued exploration permits, trimmed the state royalty to US$30 per oz. — “quite low by international standards” — and worked on a mining code. Last year, France announced plans to create a state-owned mining company.

“They’re looking to streamline the approval process for mining companies,” Ball says. “And if you look at the map, over half to three-fifths of French Guiana provides zoning for mining … France has taken proactive steps to show they’re in favour of mining, more than they ever have been.

“They’ve taken initiatives to be mining friendly,” Ball continues. “Like any permitting, in any country, there are always issues pushing a project forward, but one of the key things for Columbus is that it has a strategic board of advisors that have worked with senior officials at all levels of the government of France for many, many years, and they will assist Columbus take the project through the permitting process.”

Among its French advisory board is Marie-Hélène Bérard, whose awards from the French government include the Commander of the Legion of Honor and Commander of the Order of National Merit. From 1972 until 1988, Berard was posted to the Ministry of Economy and Finance, where
her roles encompassed acting as deputy advisor to Prime Minister Raymond Barre and as a special advisor to Prime Minister Jacques Chirac on civil service, immigration and trade union relations issues.

Since 1988, Berard has worked in the private sector, with roles such as deputy managing director of Marceau Investments, a French investment firm, and as a senior member of management of Crédit Commercial de France, now HSBC France. Currently, Berard is a director of the Russian Investment Fund Verno, and a director of United Cement Group for Russia, Kazakhstan and Uzbekistan.

Columbus’ French advisory board also includes Jacques Attali, an honorary member of the French Council of State. From 1981 to 1991, Attali served as a special advisor to French president François Mitterrand. He was also founder and the first president of the European Bank for Reconstruction and Development from 1991 to 1993. In 2010, Attali was chosen to head a three-year commission to evaluate France’s economic policies and propose initiatives to restore public finances and spur economic growth and employment.

Ball notes that Columbus already navigated some of the permitting  last year — when it needed to get approval to drill past 100 metres — and learned a lot from the process. “We’ve gone through a number of steps and built strong relationships with local government officials in French Guiana and in France, so we feel positive about taking the asset forward.”

As far as infrastructure is concerned, there is a 115 km, all-weather road from the project to Saint-Laurent-du-Maroni, and an airstrip on site. “It’s safe, a good place to do business and there are five ports along the coastline,” Ball says, adding that France has built one of the world’s largest spaceports in French Guiana, “where countries from all over the world come to launch their satellites.”

The Guiana Space Centre, 500 km north of the equator near the town of Kourou, is 150 km from the Paul Isnard project. The French have operated the space port since 1968, but in 1975 offered to share the facilities with the European Space Agency.

In addition, while Columbus is one of the first foreign mining companies to work in French Guiana this century, Ball points out that Newmont Mining (NYSE: NEM) is staking ground in French Guiana to the north of Montagne d’Or. Newmont is also active across the border in Suriname at its Merian gold project, about a 15-minute helicopter journey from Montagne d’Or.

The open-pit Merian mine, which like Paul Isnard is situated on the Guiana shield, is under construction and will cost around  US$1 billion, and could produce 300,000 to 400,000 oz. gold annually over an 11-year mine life.

Meanwhile, and closer to home, Columbus is making headway at its Eastside project in Nevada.

Columbus has followed the prospector/generator model in Nevada for the past eight years, under the guidance of Andy Wallace, a geologist and principal of Cordex Exploration. Cordex is considered as one of the most successful gold exploration groups in the U.S., Ball says, and was founded by John Livermore, who is credited with discovering the Carlin mine.

Wallace joined Cordex in 1974, at the height of the Nevada gold rush. Since then, Cordex has been credited with nine gold discoveries in the state, including the 5 million oz. Marigold mine, now operated by Goldcorp (TSX: G; NYSE: GG); the 12 million oz. Stonehouse/Lone Tree mines and the Daisy mine, now controlled by Newmont; and the Pinson and Dee mines, now controlled by Barrick Gold (TSX: ABX; NYSE: ABX).

“We approached Andy some years ago, and he said, ‘Give me seven or eight years, and I’ll find you something,” Ball recalls. “When Andy talks, people listen.”

Wallace partnered with Columbus in 2005 and now runs all of the junior’s exploration programs in the U.S., as president of Columbus Gold USA. He charges a standard management fee and retains a net smelter return royalty on all discoveries that make it into production.

“He’s got one of the best databases in Nevada to understand where to stick a drill rig,” Ball says. “And like Robert [Giustra], our chairman, [Frank Giustra’s first cousin], he’s got a lot of energy, and he’s a go-getter. This position with us allowed him to focus on Nevada and keep his team intact.”

Columbus plans to drill 64,000 metres in 250 holes at its Eastside project this year, starting with two rigs in May and June, and increasing to three rigs in the fourth quarter. The original target at Eastside, 32 km west of Tonopah and just 9.7 km north of the US 95 Highway, hosts a large area of shallow oxide gold mineralization that remains open to the south and measures about 1,600 metres long and up to 600 metres wide.

The gold at Eastside occurs near — and is associated with — the contact of an altered Tertiary rhyolite dome.

Columbus submitted an environmental assessment of the project in March and anticipates final plan of operation permits in the second quarter of 2015.

As for financing the $10-million exploration program at Eastside this year, it won’t be an issue, Ball says. As of Dec. 31, 2014, the company had $5.7 million in cash.

In late 2014, Columbus completed a $5.4-million financing at 40¢ per share and no warrants with one strategic investor. “In spite of the market conditions last year, Columbus is doing exceptionally well in raising capital without dilution,” Ball says, adding that the strategic investor runs a multi-billion dollar resource and energy fund out of New York.

“He did the investment out of his own personal funds,” Ball says. “It’s fantastic, and he also brought in additional colleagues to buy some of our stock.

“The good thing is we earn money by having one of the most profitable and lowest-cost gold producers, Nordgold, advancing our Paul Isnard project for free, and we’re also really excited about the opportunity at Eastside, noting Andy Wallace’s success over the last 40 years, and what we’ve seen so far at the project. Not many juniors are spending $20 million over the next year.”