Sea change at Seafield

Sometimes a little change can do a company a lot of good. In the case of Seafield Resources (SFF-V) change comes in the form of a new management team, and the good it hopes to do is revive investor interest in what was briefly one of the hottest trading stocks on the TSX Venture Exchange. 

That market success came in December 2010, when Seafield’s share price ran up 209% from 22¢ to close at 68¢, after the company intercepted 449 metres grading 1.29 grams gold at the Miraflores target on its Quinchia project in Colombia’s prolific Middle Cauca belt.

But building on that surge proved difficult, and the company’s share price went into an extended funk. From the near-70¢ trading levels in December of that year, Seafield’s shares began a steady descent and bottomed at 14¢ in December 2011. Since then, however, they have rebounded somewhat, and through February 2012 traded in a tight range between 18¢ and 20¢.

During the stock’s free fall, some investors grumbled about a certain mining promoter’s affiliation with the project: Ian Park. Seafield’s country manager until August  2011, Park ran afoul of the U.S. Securities and Exchange Commission (SEC) for his affiliation with Renaissance Mining — a company that claimed to be a leading gold producer in Latin America with three gold mines. The SEC ruled that, in actual fact, the company had no gold production and owned no mines. Connected with those charges, in 2007 Park accepted a five-year ban from being an officer or director of a public company and paid a $30,000 fine, while not admitting to any wrongdoing.

If Park’s reputation was getting in the way of the market appreciating a promising project, something needed to be done about it. And last May, change began in earnest.

That was when Cesar Lopez agreed to take the reins as chief executive and Thomas Henricksen assumed the role of vice-president of exploration. 

Both men have proven track records: Lopez was the founder and former chief executive of AQM Copper (AQM-V) and the founder of Centenario Copper, which was acquired by Quadra FNX Mining (QUX-T) in 2009. Henricksen worked on significant finds for Rio Tinto (RIO-N), AQM and the recently acquired Norsemont Mining over his 35-year career.

The two men first became interested in Quinchia in August 2010. 

“Tom and I went to Colombia for a country visit to scope out projects, and Quinchia was our favourite prospect,” Lopez says. “We saw the immense potential in the district and approached the old management team about a strategic investment.”

That investment eventually led to a thorough house cleaning. By mid-2011 Lopez not only had a new vice-president of exploration in the form of Hendrickson, but also a new chief financial officer in Stephanie Ashton, and a new country manager in Giovanny Ortiz. 

The last change was key: Park was replaced by Ortiz, a former exploration manager at Eco Oro Minerals’ (EOM-T) Angostura gold project in northeastern Colombia. Park no longer has any affiliation with the company’s management or board.

“We have restructured the corporate management, revamped the operations in Colombia by bringing on Giovanny to manage the exploration program, and most importantly, we have delivered on everything we have promised to our investors,” Lopez says. “The global resource inventory of our project has tripled since the new management took over.”

Under the new management’s guidance, Miraflores has measured and indicated resources of 77.8 million tonnes grading 0.8 gram gold for 1.93 million contained oz. gold, plus 5.5 million inferred tonnes at 0.6 gram gold for 103,000 oz. gold  

And yet Miraflores is only one of two deposits at the Quinchia property, which sits 8 km southwest of Gran Colombia Gold’s (GCM-T) Marmato project and contiguous to Batero Gold’s (BAT-V) Batero-Quinchia project. 

The property line between Batero’s ground and the portion of Seafield’s property that contains its second gold deposit divides what is likely the same deposit, a zone known on the Batero side as the Dos Quebradas porphyry. 

Seafield’s second deposit is called Dosquebrada. The company has put 12 holes totalling 15,000 metres into its portion and outlined a 57.8-million-tonne inferred resource grading 0.5 gram gold for 920,000 contained oz. gold. 

On Batero’s side, Dos Quebradas is one of four areas of interest and the company says just five historic holes have been put into the zone, with a 216-metre highlight intercept grading 0.76 gram gold and 0.11% copper. 

Although Miraflores and Dos-quebradas sit within the same property, gold mineralization in the two zones is quite different. 

The Miraflores deposit occurs within a hydrothermal and circular breccia body measuring 280 by 250 metres at surface. The deposit has been drill-tested down to 600 metres and is still open at depth.

Dosquebradas is described as a gold-copper porphyry hosted in diorites, basalts and mixed intrusive breccias. To date, the main mineralization zone has been outlined over a 400-by-300-metre area and 600-metre depth.

Seafield’s arrival 

As with many projects being developed by juniors in Colombia, Quinchia was originally held by AngloGold Ashanti (AU-N). The gold senior delineated a low-grade, large-tonnage gold-silver deposit, and drilling done by the company, in combination with more drilling done by B2Gold (BTO-T) in 2007 and 2008, makes up the current inferred resource at the project.

Seafield arrived on the scene in April 2010 when after coming to terms on an option agreement with the Association of Miners of Miraflores (AMM), who still run a small, 8-tonne-per-day operation at Miraflores.

The option agreement calls for five cash payments totalling US$1.5 over two years and a final $1.5-million option payment within 30 months of the initial signing date.

Lopez seems intent on turning that $3-million investment into a much larger return for investors.

“We think it has great potential to be one of the first open-pit [gold] operations in the country,” he says. “From now until the end of the year, we anticipate the release of Miraflores’ preliminary economic assessment and will begin a series of marketing efforts to ensure investors understand the value of our company, and potential upside of our project.”

The assessment is due by the end of March, and Lopez’s optimism regarding mine development at the site is bolstered by a few points. First, the project sits below the paramo — an ecological sensitive high mountain area well known for derailing open-pit mine development at Angostura. Second, there is no town that needs to be moved, as is the case with the Marmato project. And lastly, there is excellent infrastructure in and around the site, including a paved road that winds 100 km north to the state capital of Medellin.

But before talk of a mine can get really serious, Seafield must wrap up deals with local vendors for the remaining 80% of surface rights. Lopez says the process is going well and he expects to finish by the end of the year. Once that is done, the company can make its move to obtain an exploitation licence.

Seafield believes that a future mining operation at Quinchia could combine
underground and open-pit mining methods, and produce between 80,000 oz. and 100,000 oz.  gold per year, with a capital expenditure in the neighbourhood of US$100 million.

Metallurgical testwork done to date has been promising with 94% recoveries achieved. 

With a new management team behind the wheel, the final speed bump that may stand in the path of a rejuvenated stock price is investors’ reluctance to invest in Colombia. While the country has made well-publicized strides in dealing with past security concerns and has generally promoted a business-friendly environment, some in the mining industry still have their doubts as to whether the country will ever be open to large-scale, open-pit gold mines.

Lopez, however, takes these fears in stride. 

“Colombia is an extremely mining-friendly landscape. The country has hosted coal, oil and nickel mining for years,” he says. “I think it’s a matter of time before the country accepts mid- to large-scale gold operations, and understands the benefits that it brings to the country’s economy.”