Patagonia Gold debuts on TSX

With the backing of one of Argentina’s biggest industrialists and plans to generate free cash flow in the South American country by 2013, Patagonia Gold (PAT-T, PGD-L) and its recent listing on the Toronto Stock Exchange could generate interest among retail investors on this side of the Atlantic.

Patagonia Gold, one of the largest landholders in mining-friendly Santa Cruz province, hopes to put its Lomada de Leiva gold-silver deposit into production in 2013 while developing its flagship Cap-Oeste gold-silver project. 

Non-executive deputy chairman Carlos J. Miguens holds a 13.5% stake in the company, and his two sisters and a brother own a further 14.5%. Other family members and close associates own another 10% – bringing the family’s total to 38%. 

The siblings are descendants of Otto Bemberg, who emigrated from Germany to Argentina in 1850 and founded the country’s Quilmes brewery in 1888. Their mother, Maria Luisa Bemberg, was one of Argentina’s most successful film actresses, directors and writers.

Miguens, a president of Patagonia Gold since its inception, served for 11 years as the president of the Quilmes brewery. (The Miguens family no longer owns a stake in the company.) He is also vice-president of utility companies Central Puerto and Hidroelectrica Piedra del Aguila. 

“He is a significant shareholder and a director, and he obviously has some influence within Argentina,” Bill Humphries, Patagonia’s CEO, said in an interview following Patagonia’s Dec. 7 TSX listing. “He also owns about twenty-five percent of the power production in Argentina.” 

Humphries, who is perhaps best known for selling Brancote Holdings to Meridian Gold in 2002, originally went into business with Miguens before he joined Brancote as managing director in 1999. Carlos’s grandfather discovered gold in the Cordon Esquel in western Chubut province, where Brancote discovered the Esquel gold deposit. 

“[The Miguen family] said they would look after Argentina for us, politically,” Humphries says. “It’s a very good partnership and we’ve maintained it all along . . . he’s very honourable.”

Patagonia has been listed on the Alternative Investment Market in London since 2003, but Humphries explains that the company wanted a listing in Toronto because it’s a market that understands mining, is home to more medium-sized producers than any other stock exchange in the world and has excellent analysts. “AIM is very good at following management,” he says. “We get good coverage in London, but we don’t have the kinds of analysts that you have here.”

In 2007 Patagonia Gold acquired a portfolio of properties from Barrick Gold (ABX-T, ABX-N) in the Deseado Massif region of Santa Cruz. The portfolio of low-sulphidation, epithermal gold-silver deposits included Cap-Oeste and the adjacent high-grade Cap-Oeste South East project (COSE), part of the 80-sq.-km El Tranquilo block of concessions, as well as the Lomada de Leiva and La Manchuria gold-silver deposits. Under amendments earlier this year to the original deal, Barrick’s back-in right was eliminated in exchange for a 2.5% net smelter return royalty.

Patagonia has a production target of 200,000 oz. gold by 2015. The plan is to put Lomada de Leiva into operation first and generate cash flow for the development of Cap-Oeste, which has indicated resources at a 0.3 gram gold per tonne cut-off grade of 8.18 million tonnes grading 2.28 grams gold per tonne, for 599,570 contained oz. gold and 74.71 grams silver per tonne for 19.66 million contained oz. silver. Inferred resources add 2.42 million tonnes grading 2.01 grams gold for 156,465 contained oz. gold, and 49.85 grams silver per tonne for 3.88 million contained oz. silver.

The company has mapped a strike length of more than 6 km at Cap-Oeste, and drilling has confirmed the presence of a wide, gold-mineralized structure with a core containing bonanza-grade gold and silver. The deposit remains open in all directions. Patagonia believes it can complete a prefeasibility study on Cap-Oeste in 2012 and a full feasibility study in 2012-2013 with permitting, construction and production by the end of 2014. 

Its COSE deposit 2 km southeast of Cap-Oeste has indicated resources of 20,637 tonnes grading 60.06 grams gold and 1,933 grams silver, with inferred resources of 13,758 tonnes at the same grades for a combined total of 106,393 equivalent oz. gold.

Other interesting prospects on the El Tranquilo property block include Monte Leon and La Marciana, 11 km and 20 km respectively from Cap-Oeste on the southeast continuation of the Cap-Oeste structural corridor. And its La Manchuria property 50 km to the southeast of Cap-Oeste could become a satellite ore-feeder to Cap-Oeste, the company says. The La Manchuria deposit remains open to the north, south and at depth, and has indicated resources of 425,705 tonnes grading 2.95 grams gold per tonne for 40,137 contained oz. gold and 135 grams silver for 1.85 million oz. silver. Inferred resources total 1.47 million tonnes grading 1.53 grams gold for 72,335 oz. gold and 49.4 grams silver for 2.34 million oz. silver. Further drilling is planned for early next year. 

At Lomada de Leiva, a 50,000-tonne trial heap-leach pad and processing facility performed satisfactorily in this year’s second quarter, and an expansion of the pad to 200,000 tonnes will be completed in the second quarter of 2012. Depending on successful permitting, Patagonia anticipates starting a full-scale heap leach operation in the third quarter of 2012. 

The company expects to update the resource in the first quarter next year, but Lomada de Leiva, on the La Paloma block of properties, contains measured and indicated resources of 5 million tonnes grading 1 gram gold for 161,346 contained oz. gold, and inferred resources of 3.41 million tonnes grading 0.67 gram gold for 73,725 oz. gold. 

As of June 30, Patagonia held US$32.2 million in cash and no debt. Management expects to raise funds in 2012. At presstime Patagonia traded at 75¢ per share. The company has 736.4 million shares outstanding.