Troy Buys Intrepid’s Casposo For US$22M

VANCOUVER — Two operating mines is not enough for Troy Resources (TRY-T) — the company is spending US$22 million to add Intrepid Mines’ (IAU-T, IAUFF-O) Casposo gold-silver project in Argentina to its portfolio.

A feasibility study for Casposo, in San Juan province, was completed in early 2007. The study envisaged a six-year mine life, with a gold-rich open pit providing mill feed for the first four years, switching to a silver- rich underground operation in the final two years.

The property hosts a low-sulphidation epithermal- style gold-silver deposit with mineralization hosted in rhyolite breccias and andesite. The mineralized structure occurs along a 10-kmlong northwest-trending structural corridor, which consists of two parallel vein sets that dip to the southwest. Intrepid updated Casposo’s resource in mid- 2008, containing open-pit resources within a US$760-per-oz.-gold price shell. For underground resources, the calculation used a cutoff grade of 3.5 grams gold per tonne.

In the open pit, indicated resources total 1.88 million tonnes grading 5.39 grams gold and 130 grams silver, while inferred resources add 15,800 tonnes grading 5.61 grams gold and 137 grams silver. The underground resource comprises 193,800 indicated tonnes grading 1.97 grams gold and 196 grams silver, as well as 8,800 inferred tonnes averaging 2.43 grams gold and 294 grams silver.

Probable reserves come in at 1.4 million open-pit tonnes grading 5.44 grams gold and 96 grams silver and 335,000 underground tonnes averaging 3.99 grams gold and 220.5 grams silver.

Troy has enough cash on hand to finance the purchase, which comprises an immediate US$20- million payment plus US$2 million payable six months after the start of production.

And Troy says it plans to bring the mine into production quickly, something the Australian-based miner has had success with at other projects. Casposo would be Troy’s third mine in South America. In 2002, the company bought Serato, a Brazilian property with a defined gold-silver resource, and brought it into production in 14 months by refurbishing a second-hand plant.

Resources at Serato were depleted in late 2006, so the company bought another gold property, Andorinhas, in Brazil. Using the plant from Serato, Troy brought Andorinhas into production in 16 months. The open-pit reserves are mined out, with 15 months of stockpiled material now being processed, and the company is developing a high-grade underground mine at Mamao, just 7 km southeast.

To bring Casposo online quickly, Troy expects to use the gold plant it has in storage in Cobar, New South Wales.

Casposo’s original owners still hold royalties on the property; if Troy brings it into production, it will have to pay them US$6 per oz. gold equivalent on the first 450,000 oz. gold and then US$5 per oz. for production beyond that.

In the second half of 2008, Troy earned A$13.5 million, stemming from 32,450 oz. gold production and A$34.97 million in gold sales. The company spent A$3.9 million on exploration and allowed A$5.7 million for depreciation and amortization over the six months. It also booked a pretax profit of A$21 million from selling its stake in Comaplex Minerals (CMF-T, CXMLF-O) to Agnico-Eagle Mines (AEM-T, AEM-N) for A$48 million.

Troy’s Sandstone gold mine in Western Australia, which has been the company’s backbone for nine years, was supposed to close in February after processing stockpiled material for 18 months. In January, however, Troy announced it was restarting mining at the Lord Nelson pit because high gold prices make mining the low-grade material profitable. The mine is expected to continue operating through 2009.

Sandstone produced 18,700 oz. gold in the second half of 2008, while Andorhinas produced 13,750 oz. At the end of 2008, Troy had A$60 million on hand and carried no debt or forward sales.

On news of the Casposo purchase, Troy’s shares gained 14¢ in two days to close at $1.15. The company has a 52-week trading range of 51¢-$2.50 and 70 million shares outstanding.

For its part, Intrepid says the sale will allow it to focus on its Paulsens gold mine in Western Australia, which produces 80,000 oz. gold annually. The sale will also provide “additional financial flexibility” in developing the Tujuh Bukit gold-silver project in East Java, Indonesia.

And Intrepid has been enjoying drilling success at Tujuh Bukit of late. The company is probing Zone B, where near-surface oxide goldsilver mineralization overlies high-sulphidation copper-goldsilver mineralization at depth. The project’s two other, better-defined zones, A and C, show similar mineralization.

One of the latest holes into Zone B, hole 58, cut 64 metres of oxide mineralization grading 2.65 grams gold and 17.2 grams silver, starting 24 metres down-hole. Then, at 248 metres, the drill hit 44 metres of high-sulphidation mineralization grading 0.11 gram gold, 13.3 grams silver and 0.31% copper, followed closely by 28 metres of 1.5 grams silver and 0.22% copper.

Nearby holes returned similar results: hole 57 cut 92 metres of oxide grading 0.77 gram gold and 15.7 grams silver, followed by 118 metres of 0.19 gram gold, 17.6 grams silver and 0.46% copper.

Some drills have also hit a third layer of mineralization below the high-sulphidation intercepts. Hole 57, for example, cut 198 metres of high-sulphidation mineralization grading 0.26 gram gold, 12 grams silver and 0.25% copper from 76 metres depth and then returned 226 metres of porphyry mineralization grading 0.72 gram gold and 0.44% copper from 450 metres.

Intrepid is now conducting an extensive soil geochemistry program at Tujuh Bukit, with additional geophysical surveys planned later in the year.

The company has already defined inferred resources at Zones A and C. At Zone A, the northernmost zone, inferred resources come in at 43.6 million tonnes grading 0.63 gram gold and 27.8 grams silver; the resource is all oxide or partially-oxidized material. At Zone C, 500 metres southwest, inferred resources stand at 36.5 million tonnes grading 0.53 gram gold, 25 grams silver and 0.1% copper.

The hiccup at Tujuh Bukit is that parts of the property — specifically those that sit above a certain elevation — are designated “protection forests,” which means open-pit mines are prohibited. The rest of the property is “production forest,” where open-pit mines are allowed, subject to permitting.

The company says the designations are intended to prevent mass clear-cutting and the drainage and erosion problems it creates. Intrepid is in talks with the government to reclassify all of its land as production forest, a move the government has made before to allow mine development. Intrepid hopes to resolve the issue before the middle of the year.

Intrepid is debt-free and enjoys a cash flow of roughly US$3 million each month from Paulsens. On news of the Casposo sale, its shares gained 3¢ to close at 26.5¢. The company has a 52-week trading range of 5-38¢ and has 415 million shares outstanding.