Patagonia Gold lists on the TSX

With the backing of one of Argentina’s biggest industrialists and plans to start generating free cash flow in the South American country by 2013, Patagonia Gold (PAT-T, PGD-L) and its recent listing on the Toronto Stock Exchange could start to generate some interest among retail investors on this side of the Atlantic.

Patagonia Gold is one of the largest landholders in Argentina’s mining friendly province of Santa Cruz where it hopes to put its Lomada de Leiva deposit into production in 2013 as it continues to develop its flagship Cap-Oeste project.

The company’s non-executive deputy chairman Carlos J Miguens holds a roughly 13.5% stake in Patagonia Gold and his two sisters and a brother own a further 14.5%. Other family members along with close associates own 10%–bringing the family’s combined total to about 38%.

The siblings are the descendants of Otto Bemberg, who emigrated from Germany to Argentina in 1850 and founded the country’s very successful Quilmes brewery in 1888. Their mother, Maria Luisa Bemberg, was one of Argentina’s most successful film actresses, directors and writers.

Miguens, a president of Patagonia Gold since its inception according to the company’s 2010 annual report, served for eleven years as the president of the brewery Quilmes. (The Miguens-Bemberg family no longer owns a stake in the company.)  He is also vice president of Central Puerto SA and Hidroelectrica Piedra del Aguila SA, two of Argentina’s main utility companies.

“He is a significant shareholder and a director and he obviously has some influence within Argentina,” Bill Humphries, the company’s chief executive officer, said in an interview following Patagonia’s Dec. 7 listing on the TSX and meetings in Toronto with analysts and investment bankers. “He also owns about 25% of the power production in Argentina.”

Humphries, who is perhaps best known for selling Brancote Holdings PLC to Meridien Gold in April 2002, originally went into business with Miguens before he joined Brancote as managing director in 1999. Carlos’s grandfather discovered gold in the Cordon Esquel in western Chubut province where Brancote discovered the Esquel gold deposit.

“They [the Miguen family] said they would look after Argentina for us politically,” Humphries says. “It’s a very good partnership and we’ve maintained it all along….He’s very honourable. That’s the big thing about Carlos and his family–they’re in the top echelon of people.”

Patagonia has been listed on the Alternative Investment Market in London since 2003 but Humphries explains that the company wanted a listing in Toronto because it’s a market that understands mining, is home to more medium-sized producers than any other stock exchange in the world, and has excellent analysts. “AIM is very good at following management,” he says. “We get good coverage in London but we don’t have the kinds of analysts that you have here.”

In 2007 Patagonia Gold acquired from Barrick Gold (ABX-T, ABX-N) a portfolio of properties in the Deseado Massif region of Santa Cruz province. The portfolio of low sulphidation epithermal gold-silver deposits included Patagonia’s flagship Cap-Oeste project and the adjacent high-grade Cap-Oeste South East project (COSE), part of the 80-sq-km El Tranquilo block of concessions, as well as the Lomada de Leiva and La Manchuria gold and silver deposits. Under amendments earlier this year to the original deal, Barrick’s back-in right was eliminated in exchange for a 2.5% net smelter return royalty.

Patagonia has a production target of 200,000 ounces of gold by 2015. The plan is to put Lomada de Leiva into operation first and generate cash flow for the development of Cap-Oeste, which has indicated resources at a 0.3 gram gold per tonne cut-off grade of 8.18 million tonnes grading 2.28 grams gold per tonne for 599,570 ounces of contained gold and 74.71 grams silver per tonne for 19.66 million ounces of contained silver. Inferred resources add 2.42 million tonnes grading 2.01 grams gold for 156,465 ounces of contained gold and 49.85 grams silver per tonne for 3.88 million ounces of contained silver.

The company has mapped a strike length of more than six kilometres at Cap-Oeste and drilling there has confirmed the presence of a wide gold mineralised structure with a core containing bonanza grade gold and silver. The deposit remains open in all directions. Patagonia believes it can complete a pre-feasibility study on Cap-Oeste in 2012, a full feasibility study in 2012/2013 with permitting, construction, and production by the end of 2014.

Its COSE deposit 2 km southeast of Cap-Oeste has indicated resources of 20,637 tonnes grading 60.06 grams gold per tonne and 1,933.07 grams silver per tonne with inferred resources of 13,758 tonnes at the same gold and silver grades, for a combined total of 106,393 gold-equivalent ounces.  

Other interesting prospects on the El Tranquilo block of properties include Monte Leon and La Marciana, 11 km and 20 km respectively from Cap-Oeste on the southeast continuation of the Cap-Oeste structural corridor. And its La Manchuria property 50 km to the southeast of Cap-Oeste could become a satellite ore-feeder, the company says. The La Manchuria deposit remains open to the north, south and at depth and currently has indicated resources of 425,705 tonnes grading 2.95 grams gold per tonne for 40,137 ounces of contained gold and 135 grams silver for 1.85 million ounces of silver; inferred resources total 1.47 million tonnes grading 1.53 grams gold for 72,335 ounces of gold and 49.4 grams silver for 2.34 million ounces of silver. Further drilling is planned early next year.

At Lomada de Leiva, a 50,000-tonne trial heap leach pad and processing facility performed satisfactorily in the second quarter of this year and an expansion of the pad to 200,000 tonnes will be completed in the second quarter of 2012. Depending on the success of permitting, Patagonia anticipates starting a full-scale heap leach operation in the third quarter of 2012.

The company expects to update the resource in the first quarter of next year but currently Lomada de Leiva, on the La Paloma block of properties,  has measured and indicated resources of 5.0 million tonnes grading 1.0 gram gold for 161,346 ounces of contained gold and inferred resources of 3.41 million tonnes grading 0.67 gram gold for 73,725 ounces of gold.

As of June 30, Patagonia held US$32.2 million in cash and has no debt. Management expects to raise funds in 2012. At presstime in Toronto Patagonia was trading at 75¢ per share. The company has about 736.4 million shares outstanding.