Andover Ventures: On the Home Straight towards Gold and Silver Production

Andover Ventures' recent clutch of announcements about the renegotiation of its debt, the raising of private finance, and the finalisation of the purchase of its 60% share in Chief Consolidated suggest that after an arduous course the company could now be on the home straight for achieving production at its Trixie gold/silver mine in Utah by the end of the year.

When Andover invested in Chief in 2009 it knew it could be sitting on a proverbial gold mine; Chief's landholding of 65 square kilometres of patented and prolific ground in the East Tintic Mining District of Utah included 23 past-producing historical mineral deposits, 2 former mines, plenty of infrastructure and potential revenue streams from water and geothermal energy.  But Andover knew too that it had a number of legal and financial roadblocks to clear before it could get down to the business of mining.  For the last year and a half the company has systematically set about surmounting each one. The biggest hurdle – Chief's obligation from 2005 to pay $60M in respect of contaminated lands to the US Environment Protection Agency – was finally cleared in May, following a programme of remediation and renegotiation, when Andover was successful in obtaining a court order which waived the $60M charge (see the Proactive Investors article of 9 June for more detail).

This left just one more significant hurdle – the financing of the $5m debt payable to Genco Resources on 24th September 2010 for Andover's investment in 13m shares in Chief Consolidated.  In late June Andover announced a private placement to raise gross funds of $2.5M, and on 20 July it announced a settlement with Genco whereby the $5m debt was reduced to $4m.  Moreover the timing was pushed back such that Andover will now pay $1.3M immediately, a further $700,000 by 31st October 2010 and the final $2M by 24th September 2011, by which time the company should be generating significant cash flow.  

So now the company is free to focus on mining rather than legal/financial issues, and according to CEO and director Gordon Blankstein, the Trixie mine is "low hanging fruit".  Although relatively small it is a high-grade, low-cost former gold/silver mine with a processing plant just a mile and a half away where the crushing and grinding circuits are in pristine condition as they were revamped in 2001 but then operated for just 5 months prior to the mine closure.  Moreover Trixie has surface stockpiles of ore containing an estimated 4,500 ounces of gold and 32,500 ounces of silver which can be processed immediately at de minimis cost.  As Blankstein points out, 4500 ounces at today's price of $1184/oz is good money.

So it is not surprising that there are many suitors who are interested in Joint Venturing with Andover at Trixie.  But Andover is being highly selective in who gets to "look under the kimono", according to Blankstein. The company wants to ensure that it will optimise production by selecting a partner with particular expertise in narrow-vein high-grade deposits. (Andover's business model, as discussed in the previous article is essentially to JV with partners who provide cash, resources, credibility and expertise to develop projects at no risk and cost to Andover).

Andover is now in the closing throes of finalising its first JV agreement, which is with Kennecott Copper Utah on the Big Hill copper/gold/molybdenum target.  Under the earn-in agreement Kennecott, a subsidiary of Rio Tinto, can earn 51% on either the delivery of a Pre-Feasibility Study or after spending $20M. The details of the partnership have taken up a considerable amount of management time but the "heavylifting" has now been done according to Blankstein, "and the deposit has the potential to be at the centre of a large classic porphyry system so could prove a great feather in the company's cap".

Meanwhile it is the height of the exploration season at the company's 100%-owned SUN project in Alaska which is considered to be one of the largest undeveloped copper/zinc deposits in the world.   One of the next milestones at the project will be an extension to the historical resource and an upgrade to NI-43-101 standards. 

Andover is thus moving steadfastly and systematically onwards and upwards towards production at the first of its potential mines, with "light at the end of the tunnel", according to Blankstein. Together the SUN and Utah projects contain an estimated $7bn of metal in the ground at current prices, according to historic (non NI 43-101 compliant) resource estimates.

At today's share price of 23 cents the market capitalisation of the company is C$15M.