Majors eye junior active in Brazilian gold camp

The promise of political and economic reforms in Brazil has put the spotlight on newly listed Santa Elina Gold (TSE), a junior company which has been exploring and developing gold mining properties in the country since 1976.

Santa Elina holds huge land positions in various parts of Brazil, totaling more than 4 million hectares of claims at various stages of exploration. The company’s primary asset is 2.6 million hectares of claims near the border with Bolivia, a land package which covers large portions of the Santa Elina gold belt and contains the producing Sao Vicente mine and the advanced Sao Francisco deposit. The company also has interests in other mineral projects in South America.

The potential for the discovery of bulk-tonnage gold deposits within the geologically prospective Santa Elina belt has already attracted the attention of several majors, including Rio Algom (TSE) and Echo Bay Mines (TSE). Rio Algom participated in Santa Elina’s initial public offering, taking down 3.3 million shares at a cost of US$5 million (thereby giving it an interest of approximately 2.5%).

“We also negotiated an arrangement that buys us some time to get to know the company’s holdings better so that we can select a property for a 50-50 joint venture,” says Kelly O’Connor, president of Rio Algom Exploration. O’Connor says Rio Algom’s interest in Santa Elina Gold reflects a decision to expand into South America, as well as to diversify into gold. “We had wrestled with cents the question of] how to get into the gold business for some time,” he explains. “We decided the best course was to look at early-stage projects which have lots of upside potential. We think this cents venture] fits the bill. There is plenty of evidence of past mining activity by garimpieros and others, but the land package is relatively unexplored by modern techniques.”

Another advantage, O’Connor says, is that Santa Elina is controlled by Brazilians familiar with the country’s mineral potential and business climate. The junior is headed by Paulo de Brito, a well-known businessman who founded and built one of Brazil’s largest trading companies. John Hammes holds the post of chief operating officer. Other officers and directors include Patrick Burns, vice-president of exploration; William Meyer; and Michael Wilson, formerly Canada’s minister of finance.

Santa Elina intends to spend at least $2 million in each of the next two years on the Santa Elina gold belt and will provide Rio Algom with the results. The major will then have 15 months to select a 10,000-hectare parcel of land for a 50-50 joint venture and act as operator.

The initial parcel may be replaced by another, and so on for up to three years. Rio Algom also has the right of first opportunity to joint-venture any land parcels on the gold belt which Santa Elina wishes to farm out. And it has the right to joint-venture and acquire up to 80% of base metal targets identified by Santa Elina anywhere in Brazil.

Rio Algom’s agreement does not include the known deposits and prior third-party rights. Last summer, Echo Bay purchased 6.6 million shares of Santa Elina for US$10 million and agreed to explore the junior’s Sao Vicente-Braco property in the Santa Elina gold belt.

Echo Bay would have the option of acquiring a 50% joint-venture interest after completing a feasibility study relating to the property. A formal agreement between the parties is being negotiated.

The Sao Vicente mine, Santa Elina’s most advanced project, has an undiluted reserve calculated by Watts, Griffis & McOuat (WGM) as being 3.99 million tonnes grading 1.89 grams gold per tonne, with a waste-to-ore stripping ratio of 2.62-to-1. An additional undiluted inferred resource was estimated at 12.3 million tonnes grading 1.89 grams.

Sao Vicente produces 36,636 oz. gold per year (the cash cost was US$309 per oz. in the past year) and improvements in production and recovery are expected from a newly constructed processing plant which should boost annual production to about 60,000 oz. (including tailings). The new circuit for non-gravity recoverable gold is expected to increase recovery to an estimated 85% from about 60%.

WGM also calculated a preliminary resource estimate for the Sao Francisco deposit, which is exposed on surface and which occurs in the same formation as Sao Vicente. This inferred reserve is reported to be 67 million tonnes at a grade of 0.88 gram, or 1.9 million oz. WGM is of the view that this estimated tonnage will probably double along the strike length. Additional drilling and sampling, together with a feasibility study, are being undertaken in order to establish a mine plan for the property. Six drills are in operation.

In addition to Sao Vicente and Sao Francisco, an estimated 50 other known bedrock and placer gold occurrences lie within the gold belt. The regional geological setting for the Sao Vicente mine, the Sao Francisco property and the other gold occurrences is the Aguapei Mobile and Mafic Arc belt, which extends for more than 900 km in a north-northwest direction. This belt lies along a crustal break which separates the older Brazilian Precambrian Shield on the east from the Paragua Precambrian Shield on the west.

The Aguapei Group is the host rock for the gold mineralization and is predominantly metamorphosed conglomerates, sandstones and shales. It overlies part of the Brazilian Precambrian Shield which contains volcanic and sedimentary formations surrounded by older igneous rocks.

Prolonged erosion of these older rocks was accompanied by the development of basins in which were deposited sediments later subjected to

compressional forces. Gold mineralization in the folded host rock occurs in the quartz-filled shear zones along bedding planes and in quartz veins infilling fracture zones which cut across the bedding. Free gold frequently occurs as visible nuggets within the quartz, as laminations along shear planes, and within boxworks after pyrite and arsenopyrite. Historically, production was from the surface weathered material and from placer deposits.