Gleichen Boosts Morelos Stake, Readies Project For Drilling

Gleichen Resources (GRL-V) likes what it sees at the Morelos gold project in Mexico’s Guerrero state, and is set to take it all for itself.

The Toronto-based company — it had been based in Vancouver until three months ago — announced it will take a full interest in Minera Media Luna (MML) by buying Goldcorp’s (G-T, GG-N) 21.2% stake in the project for $52 million in cash.

The move was spurred by Newstrike Capital’s attempt to acquire the Goldcorp stake at the end of December. Gleichen, which holds a right of first refusal on Goldcorp’s interest, matched Newstrike’s offer thus securing a 100% stake in Morelos.

“The exploration potential of the property is truly what the project has to offer,” Gleichen’s new president and chief executive Fred Stanford says of Morelos. “There’s the potential to find a whole lot more gold since the terrain around the intrusion is so similar.”

The prospect of finding more gold at the site is even more tantalizing when coupled with just how much gold has already been found.

Originally discovered by Teck Resources (TCK. B-T, TCK-N) geologists in the late 1990s, Gleichen commissioned a resource estimate based on Teck’s drilling that put 28.8 million tonnes grading 3.2 grams gold for 2.97 million oz. in the measured and indicated category and a further 8.7 million tonnes grading 3.2 grams gold for 890,000 oz. gold in the inferred category.

The property only became available when Teck’s debt crisis led it to sell off its gold assets.

Gleichen, thanks in large part to the reputation of the man behind it, Terry MacGibbon, the chairman of FNX Mining(FNX-T), was able raise the funds necessary to submit a winning bid.

That bid was for US$150 million and a 4.9% stake in Gleichen, and it secured a 78.8% interest in Morelos for the company.

“Teck was divesting to help with its debt and we saw it as a positive project, with good grade in an open pittable resource,” says Stanford. “There are not many projects like that left.”

Stanford credits the company’s success in raising the initial $150 million, and a further $50 million — which it will use to finance the acquisition of Goldcorp’s stake — to the good reputation of the people behind Gleichen.

It was MacGibbon, who still serves as a director at Gleichen, who recruited Stanford to run the company. Stanford has close to 30 years of senior management experience with Inco and then its acquirer Vale (VALE-N).

Of course the potential of the project itself also had something to do with the impressive fund raisings.

“People looked at the project as excellent technically,” Stanford explains. “It’s in a good location with good grade and good infrastructure, the political climate in Mexico is good. . . the Ejido issue was a concern but investors thought them to be manageable.”

Ejido’s are communal land holdings in Mexico. The “Ejido issue” referred to by Stanford is in relation to one of the three Ejidos that had given Teck some resistance in the past.

Frustrated by talks with Teck, the Ejido at the El Limon zone (where roughly half of the current resource lies) set up a blockade to demonstrate their displeasure.

The blockade has since been removed and Gleichen has renewed talks with the community. Stanford says those talks have been going well and he expects an agreement to be reached soon. He says drilling at El Limon could get underway within four months.

Agreements have already been reached with the other two communities concerned, and Gleichen plans to have drills turning on those zones before April.

Stanford says the plan is to favour exploration drilling over infill drilling by a 2 to 1 ratio in terms of dollars.

If all goes well, the strategy is will allow the company to beef up resources as it pushes towards a construction decision by the end of 2011. If Gleichen decides to go ahead with an open pit mine at that time, Stanford says it will take another 2 years to reach production.

That gives Gleichen plenty of time to prove up the full potential of Morelos.

Morelos is in a well-established gold-mining district, with Goldcorp’s Los Filos gold mine sitting just 50 km south.

Morelos itself is roughly 180 km southwest of Mexico City and comprises 7 claims, covering 30 sq. km

Gleichen — which will change its name to Torex Gold Resources soon — currently has 287 million shares outstanding and its shares have traded between 18¢-$1.48 over the last 52 weeks. At presstime, the company’s shares were trading for $1.03.