Having wrapped up an extensive drilling campaign at its Ocampo gold-silver project in Mexico earlier this year,
With only $700,000 in cash left in its coffers, Gammon returned to the markets this month for an additional $1.1 million in financing. The private placement consists of 2.1 million special warrants priced at 52 apiece, with each special warrant exercisable into a share and a warrant to buy another share within two years for 65. Northern Securities acted as the agent.
Gammon’s share price, which traded at $6 little more than a year ago, has taken a severe beating this year, and at presstime it was trading in the 50+ range.
“We didn’t really want to be raising money at these price levels, so that’s why we only raised what we absolutely needed to get through the feasibility study,” says Chief Executive Officer Bradley Langille. “We don’t want to dilute the stock any more.”
Explaining Gammon’s share-price collapse, Langille says that, while none of the stock that was issued to obtain Ocampo property was dumped on to the market, Gammon’s large shareholder base in Halifax was heavily invested in tech stocks and suffered the consequences this year.
“If you compare our chart with the TSE 300 index as the tech sector dropped off, it’s a pretty close fit,” says Langille. “A lot of our biggest shareholders were in the JDS Uniphases and the Nortels and really burned on margin calls. That hurt our stock as well.”
Still, Langille is optimistic: “It’s been a tough market for us the last three or four months, but we definitely see light at the end of the tunnel. We’re quite excited about getting the feasibility study finished and, hopefully, graduating to the level of mid-tier producer.”
At Ocampo, Gammon holds various options to acquire 100% interests in virtually the entire epithermal gold-silver camp. The company has already spent $1.2 million acquiring some interests and will need to spend $17 million more to exercise all its options.
Since the late 1990s, some 38,000 metres of core were drilled at the property, of which 30,000 metres were drilled by Gammon.
Watts Griffis & McOuat, the lead engineering firm for the feasibility study, released a revised resource estimate for Ocampo this spring. Resources in the measured and indicated categories stand at 21.7 million tonnes grading 1.44 grams gold and 57 grams silver per tonne (or 1.8 million contained ounces of gold-equivalent). Another 5.8 million tonnes of 1.7 grams gold and 86 grams silver lie in the inferred category (637,000 contained ounces gold-equivalent).
Gregory Liller, Gammon’s vice-president of exploration, says Ocampo’s underground potential is still “very high” but that the company has generated enough data and drilling density to build an open-pit operation that would exploit shallow portions of the Conico, Refugio and Plaza de Gallos zones.
These three zones would likely be exploited by a single open pit that would extend over 1 km in length, with material being transported by truck or conveyor belt to pads on the nearby flats.
“What we’d like to do, once we get the feasibility study completed, is look at a small underground operation at the same time as the open pits, possibly at the Aventurero and San Juan zones,” says Liller.
During the summer, Gammon released the results of metallurgical work by Kappes Cassaday & Associates on composite samples of core from the Refugio and Plaza de Gallos zones.
The tests were simple column-leach tests on crushed core samples, and they showed recovery rates of 88% for gold and 63% for silver for a 143-day leach of material with 80% smaller than 6.3 mm.
With finer grinding, so that 80% of the material passed a 1.7-mm sieve, recoveries rose to 91% for gold and 76% for silver after 117 days in the column.
“I’m very excited about the metallurgy,” says Liller. “It’s much, much better than I ever expected.”
These tests also showed low reagent consumption, with the coarser material consuming 0.28 kg of sodium cyanide and 1 kg of calcium hydroxide for each tonne of material treated. The finer material consumed 0.69 kg of sodium cyanide and was marginally more caustic.
Leach pad tailings
Additional metallurgical work will accompany the ongoing feasibility study.
In addition to studies of pit slope and ground stability, Gammon’s consultants have identified a suitable area on the property for the leach pad and tailings. An initial, 7-million-tonne pad-and-pond complex should cost about US$1.9 million, and expansion to take another 14 million tonnes would cost a further US$2.4 million.
Going forward, Langille says the company is discussing debt financing for the project with third parties.
“We think the project could be viable at US$275-per-oz. gold and US$4.50-per-oz. silver,” says Langille, “and that the recent rise in gold — wow! — just adds to that viability.”
A year ago, Gammon Lake’s primary goal was to carry out an aggressive exploration campaign and then try to dress the project up for a quick, profitable sale to a major.
Although that strategy is still valid and attractive, the difficult environment for juniors has prompted some rethinking of the company’s long-term options.
“People are holding on to their cash in this market,” says Langille. “All the acquisitions recently have related only to the majors and their large mergers; there hasn’t been a lot going on with the smaller- tier guys.
“So we’ll just have to go ahead and build a mine — we can’t stop and wait for a company to take us out. However, along the way, if someone sees that we’ve taken all the risk out of this project, maybe they’ll reconsider and make us an offer.”
More expertise
Langille adds that the Gammon board realizes the company will need to bring in more operating expertise if it decides to forge ahead with a go-it-alone approach to development.
Meanwhile, on-site at Ocampo, the state government of Chihuahua is wiring the town of Ocampo into the main electrical grid. New poles are being strung, and electricity should be flowing into the town by November, replacing a small petroleum-fired generator.
“That’s a good show of faith on the government’s part, since they’ve been promising that that would be one of their contributions toward the project,” says Langille.
Adds Liller: “We’ve had very good a relations with the community: the town wants a mine for the jobs; the Chihuahua government wants to see a mine in the Sierra Madres; and the federal government, since the early 1990s, has promoted foreign investment.
“They’re 100% behind Ocampo going ahead — it’s nice to work in a country where you’re wanted, as opposed to fighting court battles all the time.”
Gammon Lake’s feasibility study at Ocampo should be finished within seven months, at which time a production decision may be made.
Beyond Ocampo, Gammon has been scouting around elsewhere in Latin America for merger and acquisition opportunities in the precious metals sector. To date, however, no deals have been completed.
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