Cornerstone and Newmont partner in Ecuador

With gold prices at a 27-year high, Cornerstone Capital Resources (CGP-V, CTNXF-O) and Newmont Ventures, a division of Newmont Mining (NMC-T, NEM-N), are teaming up to hunt for gold in Ecuador.

Cornerstone and Newmont have agreed on non-binding commercial terms to form a regional exploration alliance to search for a variety of gold deposit types across an area of about 1800 sq. km in Loja province in southern Ecuador.

The area includes Cornerstones highly prospective Macara project area near Ecuadors border with Peru, where the company holds or has applications pending on 600 sq. km of mineral concessions.

We chose Ecuador because of what we saw as its vast mineral potential, says Glen McKay, Cornerstones president and chief executive, in a telephone interview from his home in Alberta. Were just north of Peru and I dont need to explain Perus great mineral potential. The same geology goes right through Ecuador.

Early results from preliminary working on the grass roots project include chip samples collected during reconnaissance prospecting. These samples returned assays of 13 grams per tonne gold over 2 metres (including 44.2 grams per tonnes gold over 0.5 metres) and 8.3 grams per tonne gold over 0.65 metres from sulphide bearing quartz veins within shear zones cutting granites.

Newmont has visited and investigated the property several times. They like the geology, they liked the early work weve done, and they think this area holds potential and we do as well, McKay notes.

Under the proposed alliance, Newmont will not earn any interest in existing Cornerstone properties. But it will have the right to earn an interest in the Cornerstone properties within the projects so-called alliance area of influence, or AOI, through a separate earn-in and joint-venture option agreement with pre-established commercial terms.

Under the proposed agreement, Newmont will complete a US$1-million private placement in Cornerstone priced at a 20% premium to market, which will be spent on a Phase I program evaluating the prospective area.

If Newmont elects to move into Phase II, it can earn 51% by spending US$3 million over four years on any projects that Cornerstone identifies within the Macara project area.

Cornerstone will have access to Newmonts technologies that have proven mine-finding capabilities.

McKay argues that the deal represents a significant endorsement of Newmonts belief in Ecuadors mineral potential.

Newmont is not currently active in Ecuador so for them to come into Ecuador and spend money on exploration projects in this political environment is an endorsement of Cornerstone and it is also, we think, an endorsement of Ecuadors mineral potential, says McKay. Its also a positive statement about the political risk and the future of mining in Ecuador.

Last year Ecuador brought to power a new party the PAIS Alliance — that endorses political sovereignty, regional integration and economic relief for the poor.

The countrys president, Rafael Correa, is among a group of emerging left-leaning leaders to have won democratic elections in Latin America over the past few years. His PAIS Alliance won a landslide victory in Constituent Assembly elections on Sep. 30.

Since the election, the government has indicated that it will implement changes to the mining law, and has appointed a new minister of mines, Galo Chiriboga.

But McKay says he has been in communication with the new minister of mines and is confident any changes will be within industry standards.

The new minister has indicated that he has a desire to work together with the industry, McKay says. He sees a need for developing the mining industry in Ecuador. But the caveat — and this caveat exists no matter where you go in the world today — is that it has to be developed in a manner that is environmentally friendly, and which provides benefits to the country and people directly affected by the development. And thats a principle we can all deal with.

Cornerstone first entered Ecuador in 2005. It wasnt long before it identified the Shyri Gold Project in Azuay province. Cornerstone joint-ventured the project with Coastport Capital (CPP-V, CSTPF-O), and has planned 15,000 metres of drilling on the project once it receives its drill permits.

The 454 sq.-km property is close to Iamgolds (IMG-T, IAG-N) Quimasacocha project, which has an indicated resource of 3.4 million oz. gold.

Says McKay: Were very close to that project — were in the same geology — and the same elevation.

Another reason McKay says he likes Ecuador is because it is relatively unexplored. While it shares its geology with mineral-rich Peru, many mining companies have been reluctant to enter Ecuador because of its dense forest cover. Ecuador is a well-covered country so its more challenging to explore and for that reason many companies arent there, he says.

In Toronto, shares of Cornerstone closed at $0.72 a share, up $0.01 apiece on a trading volume of 150,180, while Newmonts shares fell $0.23 to close at $43.97 a share on a trading volume of 36,727.