Rio Novo Gold buys Toldafria in Colombia

After being lured away from a 25-year career in investment banking to take the helm of Rio Novo Gold (RN-T) and its two advanced-stage gold projects in Brazil, David Beatty was eager to find other equally promising gold projects in South America that the company could sink its teeth into.

It took one year and more than ten site visits to mineral properties in central Colombia, but Beatty and his geological team finally found what they were looking for in the Toldafria prospect. Toldafria is 60 km south of Medoro Resources‘ (MRS-V) Marmato project (9.8 million oz.) and 60 km north of AngloGold Ashanti‘s (AU-N) La Colosa deposit (12.3 million oz.), in the country’s prolific Middle Cauca gold belt.

Rio Novo Gold bought its initial 75% stake in the property in April, and announced June 1 that it signed a letter of
intent with a private company in Colombia to scoop up the rest.

“This was by far the best deal,” Beatty says in a telephone interview from his home in Toronto. “We bought it from a private company, so we didn’t have to pay a premium to the public markets. It doubles Rio Novo Gold’s existing resources; it comes at a very favourable price of less than US$10 per inferred ounce; it has initially favourable metallurgy; it is geologically open in all directions and represents an excellent drill target that we want to get at towards the end of the year.”

Under the letter of intent, Rio Novo Gold will pay a total of about US$1.5 million in cash and 5.07 million shares, or US$9 million.

The prospect has an inferred resource of 12.4 million tonnes grading 2.38 grams gold per tonne, or 947,000 contained oz. gold, using a 0.5-gram cut-off grade. The estimate was based entirely on underground sampling – there has been no drilling. An initial diamond drill program of 10,000 metres will start before 2012.

The resource occupies 15% of the central portion of the 164-hectare land package. Beatty notes that the company “will endeavour to consolidate adjacent properties.”

Over the next six months the company plans to carry out trenching, channel sampling, mapping and selecting drill sites, and will start drilling as soon as it gets the permits. 

The prospect is in Colombia’s Central Cordillera at an elevation between 2,800 and 3,000 metres above sea level, below the threshold elevation of 3,200 metres specified in the country’s “cloud forest” or paramo legislation.

The project has an environmental licence for small-scale mining, which would have to be modified for a modern mine under Colombia’s mining code.

There is no electrical power-grid connection to the site, and electricity is currently supplied by a generator. Negotiations have begun with the Hydroelectric Plant of Caldas to determine the viability of providing grid power to site. About 4 km of power lines would have to be built.

Toldafria, about 12 km southeast of the city of Manziales (population 400,000), is a low sulphidation, epithermal deposit hosted in strongly deformed Palaeozoic metavolcanic rocks. These types of deposits form at relatively shallow depths, usually within 1-to-2 km of surface.

Individual veins within the prospect are “generally narrower than one metre, high-grade and frequently in groups or vein systems,” the report continues. “The mineralization can also be disseminated within the host rock and/or associated hydrothermal or tectonic breccias.”

Medoro’s Marmato project is an epithermal intermediate sulphidation-type gold deposit, while AngloGold’s La Colosa
deposit is classified as a porphyry gold deposit.

Artisanal miners have worked in the Toldafria area for more than a century, and left behind a 10-km network of underground workings.

At presstime, Rio Novo Gold traded at $1.44 within a 52-week range of $1.10 (July 21, 2010) and $2.82 (Nov. 8, 2010). The company has 111.1 million shares outstanding.