Columbus sets sail for French Guiana (March 28, 2011)

France is hardly considered a hotbed of mining potential, but Columbus Gold (CGT-V) sees the part of the country tucked away in the South American jungle as just that.

The erstwhile Nevada-focused junior has changed course and will now be focusing exploration in the wilds of French Guiana – the French départment d’outre-mer between Suriname and Brazil. As an overseas department, the region is politically considered part of mainland France and citizens enjoy the same legal status as mainland French citizens.

Columbus is entering the region through an option agreement with Cayenne-based, Paris Euronext-listed Auplata to acquire the Paul Isnard gold project. The 135-sq.-km property is remote with little infrastructure, but is reachable via an 85-km road heading southwest from the coast.

The area has been subject to alluvial mining since the 19th century, but only in the late 1990s did EURO Ressources (at that time, named Guyanor Resources and a 71%-owned subsidiary of Golden Star Resources [GSC-T, GSS-X]) conduct proper diamond drilling on the Montagne d’Or area and lay the foundation for the resource that exists today.

“We’ve acquired a 2 million oz. deposit,” said Robert Giustra, chairman and chief executive of Columbus Gold, and cousin to mining magnate Frank Giustra, by phone. “It’s not one of those historical things someone drilled fifty years ago. It’s a current 43-101 inferred resource and we think it’s going to get a lot bigger.”

Specifically, the resource stands at 36.7 million inferred tonnes grading 1.6 grams gold per tonne for 1.9 million oz., using a 0.4 gram gold cutoff. EURO Ressources, since mostly acquired by Iamgold (IMG-T, AIG-N), holds a 10% gross sales royalty less US$400 per oz. on the first 2 million oz. of production, then 5% less US$400 per oz. on the balance; plus there is a US$580 per kg royalty to French Guiana. 

The option agreement requires Columbus to spend $7 million in exploration and issue Auplata 49% of its shares within two years to
earn 51% of the property. Columbus can earn full control by completing a feasibility study within four.  

As Columbus’s share price has climbed from around 25¢ late last November, before the deal was announced, to over $1 in early March, the deal looks rich for Auplata. The French company boasted in January that, with a minimum of 35 million shares coming its way, the property deal was already worth $27 million as Columbus was trading at 78¢. The deal should be significant for Auplata, which despite owning two operating gold mines in French Guiana, produced a modest 2,600 oz. gold in the third quarter of 2010 and has yet to turn a profit.

Giustra, however, sees the deal as good for Columbus as well.

“It’s actually the best price paid in the last three years for a gold acquisition,” said Giustra, explaining that Columbus was trading at 20¢ or so when it agreed to issue what he said will amount to about 40 million shares. 

“We’re paying $8 million for 2 million oz. in the ground. That makes it one of the cheapest acquisitions per ounce,” said Giustra, who also noted that Auplata’s largest shareholder will be buying 15% of the shares being issued, at 21.5¢ each.

The deal has obviously been good for Columbus shareholders too, with a roughly 275% share price increase since the company’s stock was halted to announce the news, though shareholders have to wait until May to confirm the deal. Warrant holders have taken note, too, with Columbus already taking in about $3 million in warrant
exercises with another million on the way.

The new cash more than covers the first drill program planned for this year of 4,300 metres over 15 holes. Giustra said that previous drilling only went down to about 100 metres while new drilling will be in the 250- to 300-metre range. The company will be drilling along strike in both directions as well as between holes, some of which are 400 metres apart.

“There are ounces to be added just by drilling between holes,” said Giustra. “It’s wide open.”

The deposit, trending east-west, dips steeply south under the slopes of Dékou-Dékou Mountain and is exposed on the northern slope. According to the technical report,
mineralization is hosted in inter-calated felsic and mafic volcanics with subordinate volcaniclastics, while gold mineralization is associated with primary sulphide minerals as replacements within pyrite and chalcopyrite.

Of course, the potential of a deposit is meaningless unless one is actually allowed to develop it. French Guiana’s mining reputation severely suffered after it blocked Iamgold’s Camp Caiman gold project in 2009 on apparent environmental grounds, forcing the company to take an US$88.8-million impairment charge.

The blocking of that project,
however, led the French government to start a major land review of the department to make it clear which regions are open to mining and which are not. The country has now been divided into five levels of openness to mining, ranging from not even allowing exploration to allowing open-pit mining as long as a reclamation plan is in place.

The legislation still has to be approved by the French courts, but Giustra is confident it will pass, and once in place will provide far greater certainty going forward.

The Paul Isnard project, meanwhile, falls in the middle category of land, requiring an environmental impact study, a reclamation plan, and possible further reclamation work. So far Columbus has committed to spending $452,000 to help repair the damage done by illegal miners, largely from Brazil and Suriname. Giustra said that there were 1,500 wildcat miners on its claims a year ago, but the military has since kicked them out.

The government crackdown on illegal mining, and the thorough land review, could both be considered signs that the French government wants to promote legal mining in the country. Giustra said that without the beaches of Brazil or much of a fishing economy, the area has few options other than its gold industry. (French Guiana does however, host the European Space Agency’s €1.6-billion spaceport at Kourou, which serves as the launchpad for the Ariane rocket.)

“We’re confident from what we’ve seen that the French government is supportive of the mining industry in the country,” said Giustra.

As the only North American-listed company in the department, Columbus takes on greater risk, but it is also better set to take advantage of any opportunities.

“The question marks are right about to go away, and we’re the first guys in there,” said Giustra. “I think that’s going to lead to some more acquisitions.”