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Fast Tracked
US Gold Hastens Mexico Mine, Plans Merger
~By Greg Klein - August 17 2011
Drilling started in 2009; the first resource estimate came out last summer, Working in Sinaloa State, however, means proximity to a drug cartel. “We have
an updated resource last November and a PEA in February. Full feasibility been very active there for three or four years and have been able to establish
is scheduled for 1Q 2012. With 11 core drills, five percussion drills, a 2011 a pretty good relationship—and this might sound strange—with the cartel.
budget of $25 million and an on-site assay lab running 24/7, this project has You have to know who they are and inform them what you’re doing and where
definitely hit the fast track. By early 2014, US Gold’s El Gallo project in Mexico you’re moving to…. They don’t want you near their marijuana crops,” Ball says.
is slated for open-pit silver-gold production, potentially becoming one of the 10
largest low-cost silver mines in the world. “We do have quite an extensive security policy,” he emphasizes. “We do have
audits that are done by outside security, and they make ongoing recommenda-
“We’ve been trying to advance quickly,” says Senior VP Ian Ball. “The project’s tions on how we can continue to improve. We provide training for the employ-
pretty simple from a mining standpoint, being all near-surface. So there’s no ees; all that is ongoing.”
underground development to worry about. The infrastructure in the area is
quite reasonable. You’re close to power and the roads are well developed.” Closer to home, the company’s Gold Bar Project in Nevada is undergoing
prefeasibility. “We’ll publish at the end of October,” Ball says. “We will not be go-
ing to final feasibility, based on the small CAPEX that’s required—we’re in the
$50-million ball park.” Bell expects permitting to take at least 18 months.
“That deposit right now, all in, is about a million ounces at one gram per tonne,
approximately 90% oxide material. We are envisioning an open-pit heap-leach
process there,” Ball says.
About 120 kilometres away in Nevada, the company is drilling its Limo Project,
which produced 91,000 gold ounces from 1989 to 1990.
Perhaps the best indication of US Gold’s future came last June with the an-
nouncement of a planned merger with Minera Andes Inc. The new company,
to be called McEwen Mining Inc, is the concept of Rob McEwen, chairman
and CEO of US Gold and CEO of Minera. He’s the largest shareholder of both
companies, holding 21% of US Gold and 30% of Minera. As the founder of
Goldcorp Inc, McEwen is credited with steering that company from a market
The November resource estimate shows 39.8 million silver ounces and cap of $50 million to over $10 billion.
543,728 gold ounces measured and indicated and 19.7 million silver ounces
and 23,764 gold ounces inferred. About 90% of the resource lies within 100 Minera currently has three Argentina assets: a 49% interest in the San Jose
metres of the surface. Silver-Gold Mine, which produced 5.3 million silver ounces and 84,000 gold
ounces in 2010, a 100% interest in Los Azules copper exploration project,
Based on November’s figures, the February PEA estimated production at 5 which is currently undergoing prefeasibility, and a portfolio of silver-gold explo-
million silver ounces and 50,245 gold ounces annually for six years. Assum- ration properties. Ball expects to see the merger completed by November.
ing silver to be $18 an ounce and gold $1,000, the report estimates a 27%
internal rate of return with a $155-million net present value. With $28.50 silver “With Minera Andes you have a mine that’s in production, that’s generating
and $1,350 gold, the IRR reaches 65% and the NPV $521 million. And since silver and gold. It has exciting exploration properties but no discoveries yet
November, continued drilling has found six new silver-gold veins. beyond the mine. Whereas El Gallo has some very attractive exploration but no
cash flow. And so we thought, if you combine this pretty strong cash flow with
Assays released August 11 include 180.4 grams per tonne silver over 72.4 something that’s growing in size and providing excitement, you are going to be
metres (including 955.2 g/t silver over 10.1 metres), 168.1 g/t silver over 36.6 combining the best of both worlds—benefiting from the higher prices of metals
metres (including 289.3 g/t silver over 11.7 metres), 88.7 g/t silver over 27.4 through the cash flow on the mine, which should be able to build the mine in El
metres (including 205.8 g/t silver over 9.9 metres), 325.4 g/t silver and 6.8 g/t Gallo.”
gold over 4.5 metres (including 675 g/t silver and 13.9 g/t gold over 1.5 metres)
“
and 9.3 g/t gold over 3.1 metres (including 22.5 g/t gold over 1.1 metres). At press time US Gold had 136.3 million shares outstanding at $5.97, for a
market cap of $813.9 million. Minera Andes had 282.7 million shares at $2.35
Ironically, El Gallo production has been held back by assays that are too good for a market cap of $664.3 million.
to ignore. “Originally our feasibility study was scheduled for release later this
year,” Ball explains. “But it’s probably going to be 1Q of next year. A lot of is- If you combine this pretty strong cash flow
sues involve drill findings. There have been a lot of cases where we wanted to
place waste rock or the site of the mill on a certain location, then we hit miner- with something that’s growing in size and
alization below those planned buildings. So we have to follow up and see how providing excitement, you are going to be
much material is down there or whether it’s just a one-off occurrence. That’s combining the best of both worlds
been the main reason for the delay.” El Gallo includes the former Magistral
Mine, whose buildings and assay lab will be incorporated into the new project. –Ian Ball
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