Patagonia Gold shares rocket after COSE project provides more exceptional grades

Patagonia Gold (LON:PGD) shares rocketed almost 20 percent to hit new highs after it told investors that it continues to hit exceptionally high grade gold and silver at the COSE project in Argentina.

It gave the results for a total of 4 drill holes, which cut between 2.9 - 5.64 metres and had grades between 33.04 - 274.88 grams per tonne gold and 2,536 - 10,378g/t silver.

The stand out hole returned 5 metres grading 274.88 grams per tonne (g/t) gold and 10,378 g/t silver. The drill hole also had an even higher grading interval which was just less than 1 metre wide and had grades of 1,305.80 g/t gold and 2,489 g/t silver.

PGD’s key projects are La Manchuria, Lomada de Leiva and COSE. Over the past three years PGD has delineated over 1 million ounces of gold equivalent across the three projects in the Santa Cruz province.

Collins Stewart mining analyst John Mcgloin expects the shares to trade strongly in light of today’s announcement.

“Patagonia gold has some very promising ground in the highly prospective gold-silver exploration hot spot of Santa Cruz,” Mcgloin said in a note to clients. 

The analyst emphasised that the market has looked very favourably upon explorers and developers in that apart of the world. 

Indeed Santa Cruz has been a very popular destination for many investors looking to get exposure to not only rising gold prices, but potential M&A related upside as well.

Gold companies in the region have been very much in the limelight in recent months, after one of the world’s largest gold producers paid a sizeable premium to buy a mine development project there.

Back in September Goldcorp (NYSE:GG, TSX:G) outbid Eldorado Gold Corp (TSX:ELD, NYSE:EGO, ASX:EAU) to acquire Andean Resources for C$3.6 billion. The deal effectively saw Goldcorp take control of the Cerro Negro gold project, which has around 2.5 million ounces in gold resources.

At the time Goldcorp’s C$3.6 billion, or C$6.50 per share, bid represented a 35 percent premium to Andean’s share price on the Toronto Stock Exchange.

Whilst most gold juniors have had a good run in 2010, a quick glance at Patagonia' share chart shows the additional boost gained from PGD’s increasingly popular location.

PGD’s shares have more than doubled in value since the early summer months and this morning’s latest rally pushed it to a new all time high.

This morning, trading initially peaked around 33.25 pence before a second push drove the stock on to make a 6 pence gain on the day, rising almost 20 percent to new high at 36.75 pence.

Mcgloin also raised slight caution. He highlighted that with a £200 million plus market cap and a resource base of 1 million oz gold equivalent, the shares are trading at more than US$400 per ounce of in-situ resource which he believes makes it one of the more expensive stocks in the sector.

The COSE project is hosted on the El Tranquilo property block, which also hosts the Cap-Oeste gold and silver resource as well as a number of other prospects.  COSE and Cap-Oeste are around 2 kilometres apart.  

This morning the company also revealed that El Tranquilo’s biannual Environmental Impact Report (EIR), which permits the ongoing work programmes, has been approved by the authorities in the Santa Cruz province.

PGD highlighted that the EIR also allows certain underground development activities, so it is able to develop a decline to gain access for underground drilling at COSE. It is also permitted to carry out bulk sampling for metallurgical test work.

The company has also retained Colarado-based mine engineering group Chlumsky, Armbrust and Meyer (CAM) to independently define the COSE gold and silver resource.

Additionally, PGD highlighted preliminary metallurgical testing on 25 sample composites from the first 43 drill-holes from COSE. 

After 72 hours cyanide leaching tests had greater than 75 percent average gold recovery and around 55 percent for silver, recovery is still ongoing.

The gravity concentration tests recovered 60 percent gold and 35 percent silver.

PGD said the results indicate that it can process the high grade ore on site substantially reducing processing costs. 

Chilean consultants SGS Minerals carried out the metallurgy work.