Extorre enjoys 8% share boost following Cerro Moro PEA

VANCOUVER — Markets reacted with enthusiasm to Extorre Gold Mines’ (XG-T, XG-X) preliminary economic assessment on its Cerro Moro gold-silver project 70 km southwest of Puerto Deseado in Argentina’s Santa Cruz province.

Extorre shares jumped 8% following the announcement on April 2, rising 49¢ to a $6.49 close on an above-average 450,000 share volume.

The new economic assessment takes into account an upgraded resource estimate released in late November that includes the new high-grade Zoe vein in the indicated category and the new Carla, Martina, Esperanza-Nini discoveries in the inferred category.

“Zoe was a fantastic discovery for us. From a material impact point-of-view for sure, but it’s also an exciting discovery from an exploration perspective,” explains company president and chief executive officer Dr. Eric Roth in a January investor presentation, “On the surface the Zoe vein doesn’t look like anything special, our exploration guys went in and said we ‘have enough smoke here’ let’s drill deeper, and literally 20 metres below surface you hit this high-grade mineralization. It was a real game changer on how we explore and discover new resources at Moro.”

According to the new figures Cerro Moro now has an indicated resource totalling 2.4 million tonnes grading 7.4 grams gold and 499 grams silver for 578,000 oz. contained gold and 38.9 million oz. contained silver. The inferred resource is a further 4.7 million tonnes carrying 3.5 grams gold and 172 grams silver for 528,000 oz. contained gold and 26.3 million oz. contained silver.

“One of the key things with the Extorre assets is the very high grades in both gold and silver,” Roth comments, “You don’t see many projects like this at the global scale. At the mining and development stage it will really translate into lower cash costs.”

Extorre’s current mining permits allow for a 750-tonnes-per-day operation, but with recent discoveries and increasing grades the company now foresees throughput rates closer to 1,300 tonnes per day, which increases projected-annual production to 250,000 oz. of gold equivalent over a 9-year mine life.

Under the new model Cerro Moro has an after-tax internal rate of return of 47% with a net-present value of US$463 million at a 5% discount rate. Development carries an initial capital expenditure of US$284 million, with a 24 month pay-back period. Projected average-cash costs sit at US$304 per oz. gold equivalent through the first five years.  

“Typically the systems are mined through open cuts close to surface with the deeper portions being mined underground,” explains Roth, “The mineralization in these systems sits on very long structures but within those structures you have discrete ore shoots. Cerro Moro is very similar to AngloGold Ashanti‘s (AU-N, AGG-A) Cerro Vanguardia mine in this regard, which has historically been one of AngloGold’s lowest cash-cost producers over the past 15 years.”

If precedent is any indicator, Extorre should have no trouble with the permit process in Santa Cruz. The Argentinean province approved Goldcorp’s (G-T, GG-N) plan to increase throughput from 1,850 to 4,000 tonnes per day at its Cerro Negro gold project in December after just two months of review.

Extoree plans to apply for the new mining permit during the third quarter with construction aimed to start shortly thereafter, and initial production pegged for first quarter 2014.

“From the investor prospective we will have strong news flow through 2012,” Roth says, “We have the two-pronged strategy of continuing to expand the system through exploration as well as proceeding with the mine development studies as we move towards eventual production.”

Roth says exploration is the companies “growth driver” and Extorre plans to keep four drill rigs active through 2012, expanding current resources and discovering additional mineralized zones. The drill program includes a combination of in-fill drilling at Zoe, and discovery-stage drilling at the Zoe East, Tres Lomas, Mosquito, Alejandra, and Carlita targets.

“With these types of systems you can start a mine even if you don’t have all of your resources yet,” explains Roth, “If you look at our neighbours they reach a particular resource level and move to the development stage, but continue to make additional discoveries. That’s the underlying value for the company.”

Extorre released updated drill results on the Zoe in-fill program in early March, the program hit high-grades at depths exceeding 250 metres with highlights of: 2.5 metres grading 41.4 grams per tonne gold and 2,245 grams silver; 3.7 metres carrying 53 grams gold and 4,300 grams silver including a higher grade section of 1.37 metres grading 131.4 grams gold and 9,521 grams silver; and 1.5 metres grading 51 grams gold and 6,426 grams silver.

“We have potential to expand along strike, and at depth,” Roth points out, “The Cerro Moro deposit has never been drilled to great depth, and in fact the bulk of the Escondida mineralization has only been drilled to roughly 200 metres. We know that at the Zoe discovery, for example, we have mineralization identified to at least 450 metres vertically.”

Extorre’s mineral rights extend over 1,600 sq.km in Santa Cruz, and the company recently announced economic-tenor gold mineralization at its Falcon project, as well as positive silver results from its Puntudo project.

“We feel the Santa Cruz province is a bit underdeveloped from an exploration perspective, though it’s quite busy these days,” Roth says, “With the quality of projects in the neighbourhood it’s not too surprising.” 

With a bought-deal equity financing to the tune of US$50 million completed in January, US$37 million in treasury to start April, and an US$577 million presstime market capitalization, Extorre looks ready to take advantage.