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Matrix Corp Capital praises Patagonia Gold’s limited risk project development plan

Published: 21:27 08 Jul 2010 BST

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Investment bank Matrix Corporate Capital stated that Patagonia Gold (LON:PGD) does not just “chase ounces” and called the Argentina focused gold explorer a “cheap entry” to gold production that could reach a level of 230,000 ozpa (ounces per annum) by 2015.

The report released by Matrix this morning highlighted the £13 million raised by Patagonia to support it through to production and increase the resource base of its gold projects in Argentina. The company has plans to develop a trial mining operation by the end of the current year or in early 2011, which were advanced by the recent resolution of permit issues. Additionally, another project was identified at Cap Oeste South East (COSE) that could potentially increase production and add value to Patagonia.

The smaller incremental projects that are set to start as soon as this year will bring in early-stage cash flow to Patagonia, unlike neighbour Andean Resources (ASX:AND), which is expected to begin production from its deposit at about the same time as Patagonia, though without the benefits of an early trial mining operation.

According to Matrix, other advantages of Patagonia’s development plan included a lesser operational risk with multiple ore sources, lower technical and political risk for development, the possibility of funding later projects with cash flow from earlier operations, which will also offer greater debt leverage.

Matrix is projecting the company to enter into cash flow in 2011 with potential gross operating profit of US$11.5 million, which would increase to more than US$100 million pa (per annum) by 2015.

“Traditionally, the southern winter has been quiet in terms of news flow as field teams withdraw for the cold months. This year, however, we think it will be different – with cash in the bank and a gold production facility to build by the end of year, we foresee no lack of news,” Matrix said in its report.

Total production including COSE is expected to reach 2,000 oz this year, 15,000 oz in 2011, 46,000 oz in 2012, 62,000 oz, 157,000 oz in 2014 and 232,000 oz in 2015. Matrix also noted that this production can be achieved at a cost of US$400/oz compared to the current global average of US$500/oz.

In March, Patagonia reported that drilling at COSE continued to intercept bonanza grades of gold and silver. The highlight of the results, was a 13.93m intersection at 159.23 g/t gold and 627 g/t (grammes per tonne) silver from 214 meters, including 1.6 meters grading an eye-watering 1,284.15 g/t gold and 3,977 g/t silver. COSE sits approximately 2 kilometers to the south-east and along strike from Cap-Oeste.

La Manchuria consists of five “expedients” mining concessions, which cover 5,575 hectares, located approximately 50km to the south-east of COSE. Last month, Patagonia told investors that the results from a recently completed drilling programme, on the Main Zone of La Manchuria, confirmed the continuity of high grade gold and silver mineralisation, producing grades of up to 145 g/t of gold.

PGD currently has two distinct 43-101 compliant resources, standing at a combined total of 891,000 oz of gold equivalent, with the potential for the total to be lifted above 1 Moz (million ounces) in the near term by the addition of two new resources.

Shares in the company were up nearly 4 percent in midmorning trade.

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