Ecuadorian consolidates Gaby holdings

Zappa Resources (ZPA-V) is set to deal its interest in the Gaby gold deposit in southern Ecuador to Ecuadorian Minerals (EMC-T).

In a deal valued at US$1.6 million, Ecuadorian would take sole interest in the deposit by issuing to Zappa up to 3 million shares over three years to purchase Zappa’s interest in three concessions — Guadalupe, Papa Grande and Mollopongo.

The 112-ha Guadalupe concession incorporates most of the Gaby deposit; the remainder of the deposit was already in Ecuadorian’s hands. Papa Grande and Mollopongo are higher-grade gold deposits in the vicinity of Gaby that are expected to make an operation centred on the latter deposit more economic.

Guadalupe was the subject of a March 1995 joint-venture agreement between the two companies, whereby Ecuadorian would acquire a 51% stake. The joint venture calculated a minable reserve of 89.8 million tonnes grading 0.75 gram gold per tonne, for 2.2 million contained ounces. The total mineral inventory at Gaby stands at 165 million tonnes at 0.73 gram, for 3.9 million contained ounces.

Although a prefeasibility study came out positive, Ecuadorian never proceeded to final feasibility. “There was not a lot of point [doing so] in a low gold market,” says President Steven Kay. However, believing the project required sole operatorship in order to come to fruition, Kay began discussions with Zappa nearly a year ago to consolidate Ecuadorian’s Gaby-area holdings. The important factor became Zappa’s Papa Grande and Mollopongo concessions.

The 416-ha Papa Grande concession is a 50-50 joint venture between Zappa and the underlying property owner, with Zappa holding the right of first refusal to acquire the other half-interest (the right would be transferred to Ecuadorian in the transaction). Mollopongo, which covers 60 ha, is wholly owned by Zappa. Zappa’s interests in both concessions are subject to a joint-venture agreement with Cambior (CBJ-T), which has given its approval to the transaction with Ecuadorian.

Cambior outlined a near-surface gold resource on the two concessions of 45 million tonnes grading 1.1 grams gold and subsequently calculated a reserve of 17.8 million tonnes grading 1.4 grams gold, for 800,000 contained ounces.

Consolidating the properties boosts Ecuadorian’s total mineral inventory to 5 million oz. gold from fewer than 3 million oz., while its minable reserves jump to 2.7 million oz. from 1.64 million oz.

“[Gaby and Papa Grande] need each other,” Kay says, in order to achieve economies of scale. Ecuadorian expects it can initially process the highest-grade material in order to keep early operating costs low.

Based on in-house estimates, Ecuadorian has calculated operating costs of US$220 per oz. gold over the life of the combined operation, including US$155 per oz. during the first three years. The operation would process 30,000 tonnes per day through a carbon-in-leach mill to produce 270,000 oz.

gold per year. Capital costs have been estimated at US$200 million, with payback achieved in less than three years of a 10-year mine life.

At the close of the transaction, set for late June, Ecuadorian will transfer 500,000 shares to Zappa, plus another half a million shares every six months for two years. Zappa gets another 250,000 shares if the price of gold averages US$350 per oz. or higher for any 10-day trading period during the next three years, and another 250,000 shares if the price averages US$400 per oz. Zappa would retain a net smelter royalty of up to 2% on commercial production.