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Ovoca Gold on the hunt for strategic partner

Published: 16:01 04 Apr 2012 BST

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Ovoca Gold (LON:OVG) is on the hunt to find a strategic partner to share in the rewards that the Russian Far East has to offer, CEO Tim McCutcheon says.

A partner is needed to help de-risk part of the remote 2,460 sq km Rassoshinskaya licences in the Magadan region - one of the company's two main projects in Russia.

And in doing so, it will benefit from and build on the progress the junior explorer has made so far.

Its target list includes Canadian and UK miners - with market caps of around US$1 to US$5 billion - and the search is ongoing.

The Ovoca boss believes these relatively smaller firms have the desire and entrepreneurial spirit required to carry out the exploration that is vital to make progress in Russia.

Despite being the globe's fifth largest gold producer, McCutcheon points out that there are not many big, "ready-to-buy" mines in the country to attract the big players, so coming to Russia means getting your hands dirty, which he says the big firms don't want to do.

"But they have to do it," he declares, adding that he believes the 'big boys' will come.... in time.

"Russia is the fifth largest gold mining country and none of the big western miners, except Kinross, are here. You can only scratch around in Western Australia and Mexico so far until there simply aren't any more projects to have," he points out.

The problem is many firms are put off by their perception of risk in Russia, though McCutcheon is keen to say that the country is in fact not a risky place to work.

What it is, he says, is cumbersome and slow, as illustrated by the slow regulatory process to gain relevant permissions.

But the administrative process is a predictable one, he says, adding that he will also tell any potential partners that many Canadian and UK companies have done very well mining gold in Russia.

Indeed, no embellishments are needed to show the potential of the firm's efforts at Rassoshinskaya - where its main focus is the Olcha project.

Olcha already houses 279,000 ounces of gold at 13.4 grammes per tonne and 655,000 ounces of silver at 31.6 g/t in the Russian C1 and C2 category and last year the firm received the vital certificate of discovery, which allows it to apply for an exploitation licence (so it can mine) and McCutcheon hopes to have that licence very soon.

Olcha's grades are already very positive, particularly given the current high gold price. The challenge is the deposit's current volume of ore, explains McCutcheon.

"We need to cobble together 2-3 million ounces of gold for this thing to have legs," said McCutcheon, referring to the amount of rock needed to justify the capital expenditure on a mine, and therefore much more drilling is required – and hence the need for a partner.

Currently Olcha is not regarded as strategic under Russian rules, because it is below the 1.6 million ounce gold threshold, however future exploration may put it in the strategic category. Although that is an extra layer of regulatory burden, there is no reason to expect Ovoca to not get strategic asset ownership approval, says McCutcheon.

Regarding partnership, "Our job as a junior is to remove as much as possible of the exploration risks and to bring to the table our deep local know-how. We look to a strategic partner to share the development risk of converting a resource into a reserve and then into bankable feasibility study."

Ovoca's plan for a strategic partner for Rassoshinskaya dovetails with its plan for its other main project - Stakhanovsky - also in Magadan.

This project is a very different animal, explains McCutcheon, but the aim ultimately is for this project to produce the cash flow to allow Ovoca to prove up other targets on Rassoshinskaya.

"It is the low hanging fruit starter mine that we can cut our teeth on and get Ovoca on a solid footing," he says.

He plans to have a Russian C1 + C2 resource statement and a JORC statement (for the capital markets) for the 72 sq km Stakhanovsky licence by the end of 2012, while production start up for the mine is now earmarked for 2014. Importantly, the project already has a permit to mine.

A maiden JORC inferred resource of 350,000 ounces of gold at 1.2 g/t was unveiled last February, and the restart of a 20,000 tonne bulk sampling programme to better define the grade of the project is due to start within the next two months - after the winter snow has thawed.

Delays in the construction of the processing facility built last year to process this large amount of ore are largely the reason behind the production start date for the project now penciled in for 2014 - not 2013.

However, McCutcheon highlights a real positive about the new processing facility.

"It's bigger than some of the junior miner's mines," he says, pointing out that it would be easily scalable and used for the mine operation once it starts.

Another plus for the project is that it is next to a power sub-station, an all-year road, a housing camp and there is water on-site.

The gold recovery process will use simple gravitational techniques which means the capital costs of the project are likely to be relatively cheap at US$15-20 million, which the company should be able to fund from its existing resources.

So Ovoca Gold really does have a lot to offer - for the market and indeed, a potential new partner.

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