End of rainy season lures juniors back to Sierra Madre

Cash is trickling into the Sierra Madre gold camps in Mexico as the rainy season draws to a close and juniors launch exploration programs designed to outline new resources or test the feasibility of production.

At the Uruachic camp in Chihuahua state, Golden Goliath Resources (GNG-V) is preparing to test coincident geological, geophysical and geochemical targets with a $1-million drill program, which should get under way once Hurricane Juliet blows over. “I’ve got two Cats sitting in the town,” says President Paul Sorbara. “We’ll fix up the wash outs in the road as soon as the rain stops and then bring in the drill.” Uruachic has never been drilled before.

At the other end of the exploration sequence, Gammon Lake Resources (GAM-T) is using proceeds from a $1.1-million private placement to complete a feasibility study on the Ocampo project, northwest of Uruachic. Gammon Lake in earning a 100% interest in the past-producing gold-silver property, where reserves stand at 21.7 million tonnes grading 1.4 grams gold and 57 grams silver per tonne.

Minefinders (MFL-T), owner of the Dolores property north of Ocampo, has also been successful in raising money for more exploration on its Mexican properties. The company recently closed the third tranche of a private placement for proceeds of $554,182. A spokesman said the company hopes to raise additional funds this fall to proceed with a bankable feasibility study at Dolores, which hosts a 100-million-tonne gold resource.

Operating on a smaller scale, National Gold (NGT-V) is expected to raise $150,000 through a brokered private placement of 1 million shares at 15 per share. The funds will help the company make payments owed to vendors Placer Dome (PDG-T) and Kennecott for the Salamandra camp, a collection of seven gold-bearing epithermal systems 220 km east of Hermosillo. One of the systems, Mulatos, has a measured and indicated resource of 69 million tonnes grading 1.1 grams gold.

The junior sector’s ability to raise money for gold exploration and property acquisitions in these lean times testifies to the still-considerable potential of the Sierra Madre Occidental, a mountain range in northwestern Mexico that starts near the U.S.-Mexico border and trends southeast into the states of Zacatecas and Jalisco. The elusive search for gold in these mountains captured the public’s imagination as far back as 1935, when the mysterious B. Traven published his riveting novel The Treasure of the Sierra Madre (filmed 13 years later by John Huston), and changes to Mexican mining laws in the 1990s, combined with new exploration technology, have given rise to renewed activity in the area.

Cenozoic volcanic rocks, mostly tilting to the east, characterize the belt. The volcanics are divided into a lower andesitic unit (about 40-70 million years old) and an upper rhyolitic unit (20-40 million. years old). Most of the precious metal deposits are associated with, and below, the unconformable contact between the two volcanic sequences. The upper part of the lower sequence is the major host for gold. Mineralization occurs in hydrothermal stockworks, breccias and quartz veins.

Over the past 400 years, the belt has produced 40 million oz. gold and more than 1 billion oz. silver. Native groups were the first to exploit the silver and gold veins, followed by the early Spanish settlers, and modern exploration technologies, introduced in response to incentives for foreign investment in Mexico’s mineral sector during the past decade, are uncovering even more buried treasure.

Majors uncommitted

But despite the juniors’ success in outlining new resources, senior companies have yet to endorse the rush. Although majors like Teck Cominco (TEK-T) and Newmont Gold (NGC-N) are said to have visited several of the Sierra Madre camps, they have not committed any cash. Placer Dome and Kennecott are selling their Salamandra land package, where they spent an estimated $50 million on exploration, to National Gold for $10.5 million.

One of the biggest players in the region is Francisco Gold (FGX-V), which discovered the El Sauzal oxide gold deposit in a silicified rhyolite breccia during a grassroots program in 1995. Since then, the company has completed 187 drill holes to establish a resource of 51.5 million tonnes grading 2 grams per tonne, using a cutoff of 0.5 gram gold per tonne. Armed with a treasury of $32 million, Francisco is financing a final feasibility study on El Sauzal, assuming a 6,000 tonne-per-day open-pit mine and existing oxide gold reserves of 2 million oz. The study is expected to be complete in early 2002.

Just as advanced is Minefinders’ Dolores gold-silver property, north of El Sauzal. Since discovering Dolores in 1996, Minefinders has drilled 292 holes to outline an indicated and inferred reserve of about 100 million tonnes. At gold and silver prices of US$300 and US$5 per oz., respectively, and a stripping ratio of 4.2-to-1, the open-pit portion of the reserve is estimated to contain 67.2 million tonnes grading 0.96 gram gold and 53.6 grams silver per tonne. A mine life of 13 years would provide annual production of 138,359 oz. gold and 6.3 million oz. silver. Pending financing, Minefinders is ready to launch a final feasibility study for Dolores.

Ocampo

Between Dolores and El Sauzal lies Gammon Lake’s Ocampo gold-silver property. The property contains several high-grade clavos, or oreshoots. In the process of drilling 300 holes, Gammon Lake has outlined a measured and indicated reserve of 21.7 million tonnes grading 1.4 grams gold and 57 grams silver per tonne, assuming a cutoff grade of 0.5 gram gold-equivalent, a gold price of US$260 per oz., and a silver price of US$5.20 per oz. A private placement of 2,138,462 special warrants priced at 52 per special warrant will finance a 7-month feasibility study at Ocampo.

The greatest upside potential in the Sierra Madre lies in the past-producing Uruachic camp, held by Golden Goliath. Last year, the junior raised $4.5 million to explore Uruachic in an oversubscribed initial public offering of units. Each 50 unit consists of one share and one full warrant, with the warrants being exercisable for two years at 75.

Sorbara, Goliath’s president, says the company has outlined nine targets, six of which will be drilled this fall. The $1 million allocated to the program will pay for 20-24 holes to depths of 200-250 metres. Some of the targets are coincident induced-polarization and soil geochemistry anomalies within larger zones of gold-bearing stockworks and breccias. Uruachic is on a large alteration system associated with a collapsed caldera structure, similar to the setting at the nearby El Sauzal.

South of Uruachic, Atna Resources (ATN-T) has dropped its option to earn a 100% interest in the Monterde property, a former underground producer of gold and silver. Reverse-circulation drilling tested an inferred open-pit resource (based on limited drilling) of 10.5 million tonnes grading 2.1 grams gold and 72 grams silver. The property is owned by Kimber Resources, a private company based in Vancouver.