Gammon looks to Bolnisi to fast track Ocampo

Looking to bring the Ocampo gold-silver project in Mexico into production as soon as possible, Halifax-based Gammon Lake Resources (GAM-T) has inked a letter of intent with Australia’s Bolnisi Gold.

Under the proposed deal, Bolnisi can earn a 60% stake in the Plaza de Gallos, Refugio, Conico, Picacho and La Estrella concessions at Ocampo by completing the feasibility study for an open-pit, heap-leach mine, which is underway at the project and, at by solely funding the project into production at a rate of at least 1.25 million tonnes per year. Gammon would retain the remaining 40% interest in the concessions.

Gammon expects that the shallow portions of the Conico, Refugio and Plaza de Gallos zones would be targeted by a single, 1-km-long open-pit, with material being transported by truck or conveyor belt to pads on the nearby flats.

Simple column-leach tests on crushed core samples by Kappes Cassaday & Associates on composite samples of core from the Refugio and Plaza de Gallos zones showed recovery rates of 88% for gold and 63% for silver for a 143-day leach of material with 80% smaller than 6.3 mm. With finer grinding, so that 80% of the material passed a 1.7-mm sieve, recoveries rose to 91% for gold and 76% for silver after 117 days in the column. The tests also indicated low reagent consumption, with the coarser material consuming 0.28 kg of sodium cyanide and 1 kg of calcium hydroxide for each tonne of material treated. The finer material consumed 0.69 kg of sodium cyanide and was marginally more caustic.

Subject to due diligence by both companies, Bolnisi would pay $30,000 per month toward Gammon’s ongoing overhead expenses until the project reaches the agreed upon production rate. If in 18 months the project is not running at the agree rate, Bolnisi would pay Gammon a penalty payment of $100,000 per month. If the property is still not at the agreed rate after two years from signing a deal, 100% ownership of the concessions would be returned to Gammon.

Also under the deal, Bolnisi will have the right of first refusal to match any third party offer to develop any of Gammon’s 100%-owned concession. Gammon retains the right to develop those concessions on its own.

Gammon’s 100%-owned Ocampo concessions include the San Juan – Balvanera, Aventurero and Brenda structures. Highlights of drilling in those areas include:

• Aventurero — 7.6 metres grading 18.9 grams gold and 408 grams silver per tonne and 3 metres of 6.4 grams gold and 226 grams silver;
• San Juan – 6 metres running 7.8 grams gold and 684 grams silver and 4.6 metres of 8.4 grams gold and 675 grams silver; and
• Brenda – 3 metres of 10.9 grams gold and 633 grams silver and 3 metres of 4.7 grams gold and 267 grams silver.

The agreement also calls for Bolnisi to cover 60% of Gammon’s payments due to Minerales de Soyopa under an existing deal to acquire 100% of that company’s Ocampo concessions. In return, Bolinisi will recoup the capital expenses incurred to bring the joint venture project into production from 60% of project revenues.

Under a twice-reworked deal, Gammon can acquire all of Soyopa’s Ocampo claims by: paying Soyopa US$100,000 in cash on signing the agreement, plus US$125,000 by May 23, 2002; and paying US$3.5 million by Nov. 23, 2006, plus another US$3.5 million a year later.

If the project enters production before Nov. 23, 2006, Gammon must pay Soyopa US$1 million per year, starting on the first anniversary of production. Such payments will be deducted from the US$7 million payment obligation. To transfer or sell the concessions to a third party, Gammon must pay off the balance of the US$7 million owing.

Gammon must also issue Soyopa 5 million shares. For two years after the issuance, the shares can only be sold for at least C$2.50 apiece. After that, the shares can be sold for C$1 apiece, any less than that and only half the outstanding shares can be sold.

Finally, Soyopa will nominate one member to Gammon’s board of directors.

Gammon also has a deal to acquire a 100% interest in Fuerte Mayo’s Ocampo concessions. Under that deal, which was last summer, no further payments will be made to Fuerte Mayo until the sale of the Ocampo asset is realized; all royalties to Minera Fuerte Mayo are eliminated; and US$211,526 will be paid to Fuerte Mayo on the sale of the Ocampo asset by Gammon.

Together, the two agreements cover virtually the entire 25-sq.-km Ocampo mining camp.

At last report, Ocampo hosted resources of 21.7 million tonnes grading 1.44 grams gold and 57 grams silver per tonne in the measured and indicated category (1.8 million contained ounces gold-equivalent) plus 5.8 million inferred tonnes of 1.7 grams gold and 86 grams silver (637,000 contained ounces gold-equivalent).

Gammon’s share price, which traded at $6 on the Toronto Stock Exchange little more than a year ago, took a severe beating during 2001 slipping to the 50+ range. The issue has recovered slightly over the last few months and in mid-afternoon trade on Jan. 28 was off 14 or 15% to 78.