Patagonia Gold advances exploration in Argentina

Patagonia Gold (PGD-L) is all cashed up to develop larger and cheaper gold projects in Argentina’s Santa Cruz province.

Earlier this month, the company raised US$18.79 million in a share placement and US$13.45 million in a similar exercise in March. Net proceeds will be used to start work on a trial heap-leach operation at its Lomada de Leiva gold project and for general working capital purposes.

Patagonia Gold’s exploration program is focused on finding lowsulphidation epithermal gold deposits in Argentine Patagonia. Mineral deposits in Patagonia include AngloGold Ashanti’s (AU-N) Cerro Vanguardia gold deposit and Meridian’s Esquel (Desquite) goldsilver deposit.

Argentina boasts several other world-class deposits including porphyry copper-molybdenum-gold (Bajo de la Alumbrera), highsulphidation epithermal gold-silver (Veladero, Pascua-Lama), low-sulphidation epithermal goldsilver (Cerro Vanguardia, Esquel) and lead-silver (Navidad), as well as important deposits of uranium and numerous smaller deposits containing a variety of metals.

It has been a busy spring so far for Patagonia Gold. On April 16, the company announced that Santa Cruz’s Secretariat of Mining had approved Lomada de Leiva’s environmental impact study and issued a permit for the trial heapleach operation.

The Lomada de Leiva project is contained within the La Paloma property block of exploration tenements 48 km southeast of Perito Moreno. It is also within Argentina’s recently defined “area of special interest for mining.” The project is accessible by paved provincial highways and dirt roads.

Engineering design and procurement contracts for the heapleach operation are advanced, with building of the processing plant scheduled for completion in the third quarter. If all goes to plan, the main heap-leach operation could start production in the latter half of 2011.

The main operation is forecast to produce more than 21,000 oz. gold a year at a cash cost of US$300 per oz.

Lomada de Leiva lies in the northwest portion of the Deseado Massif geological province of southern Patagonia. The Jurassicaged volcanic complex is an emerging world-class, epithermal gold-silver mining district.

Between 2002 and 2004, Lomada de Leiva’s previous owners conducted exploration there including diamond drill holes, trenching, surface sampling, geological mapping and electrical geophysics, which delineated the existence of gold mineralization throughout the project area as well as several targets that remain untested.

In 2007, Patagonia Gold completed 750 metres of sawn trench sampling and 38 diamond and nine reverse circulation holes totaling 7,100 metres. Exploration drilling has delineated low-sulphidation, epithermal gold breccia/vein style mineralization hosted within a moderately east-southeast dipping fault breccia, attaining widths of up to 30 metres, which is currently defined over a strike length of 600 metres.

A 2007 National Instrument 43-101 compliant resource defined a resource of 235,000 oz. gold with an average grade of 0.84 gram gold per tonne at a 0.3-gram gold cutoff grade. About 60% of the resource is classified as indicated and inferred.

A scoping study in 2008, based on the gold resource estimate, concluded that a run-of-mine heap-leach operation was the most at-t ractive processing option. Highlights of the study included a low pre-production capital cost of US$8.5 million recovered within 14 months of startup. The mine life would be an estimated seven years based on an initial resource of 182,369 oz. gold, with a production of 21,000 plus oz. gold per year at a cash cost of US$299 per oz.

Cash flow, before tax, was estimated at US$35.3 million based on a price of US$650 per oz. gold and a recovery of 80%. After-tax net present value (NPV) at a 10% discount rate was pegged at US$18.9 million. At a gold price of US$850 per oz., pretax cash flow would rise to US$63.6 million while after-tax NPV, using a 10% discount rate, would be about US$36.9 million.

Metallurgical testing on composite samples showed the ore at Lomada de Leiva to be amenable to leaching with recoveries averaging 97%. Given the positive scoping study results, Patagonia decided to advance the project.

Meanwhile at Patagonia’s flagship Cap Oeste gold-silver project, a recently revised resource estimate outlined an indicated resource of 5.63 million tonnes grading 1.89 grams gold and 65.04 grams silver, and an inferred resource of 1.05 million tonnes at 1.35 grams gold and 41.34 grams silver.

Cap Oeste and the company’s Breccia Valentina prospect are about 6 km apart in the El Tranquilo property block, 65 km southeast of Bajo Caracoles in Santa Cruz. These concessions were acquired from subsidiaries of Barrick Gold (ABX-T, ABX-N) in 2007.

Miners discovered the Cap Oeste deposit in 2008, while doing exploration work, and additional delineation drilling during 2009 has extended the limits of mineralization down-plunge to a vertical depth of about 370 metres from surface.

The company envisions an open-pit mining operation at Cap Oeste.

Patagonia also believes there are at least seven areas hosting either gold-silver mineralization or containing elevated levels of pathfinder geochemical metals in the northern portion of the El Tranquilo property block. The company believes that additional diamond drill programs are needed to search for the limits of the Cap Oeste deposit.

In March, the company reported that drilling at COSE (Cap-Oeste South East), a target 2 km to the southeast and along strike from Cap-Oeste, continued to intercept