Medoro, Gran Colombia have big plans

It’s shaping up to be a busy year for Medoro Resources (MRS-T). A preliminary economic assessment of developing a large-scale, open-pit gold and silver mine at its Marmato project in Colombia is expected before the end of May, and an updated resource estimate before the end of the second quarter. In early June shareholders will vote on the company’s proposed merger with Gran Colombia Gold (GCM-T).

Gran Colombia holds 95% of the former Frontino Gold Mines’ gold and silver assets, including the largest underground gold and silver mining operation in Colombia, and Medoro’s Marmato development project is located on the same mid-Cauca gold belt near Medellin.

Under the terms of the proposed merger, each Medoro shareholder will receive 1.20 common shares of Gran Colombia, plus half a Gran Colombia purchase warrant, for each Medoro share it holds. Each whole warrant allows Medoro shareholders to acquire one share of Gran Colombia at a price of $2.60 per share before Aug. 24, 2015. 

If the merger is approved, existing Gran Colombia and Medoro shareholders will each own about 50% of the combined company on a fully diluted basis before the exercise of warrants, and the board of directors will be made up of all the current directors of each company.

According to a joint press release in April, gold production from the combined company would climb from about 109,000 oz. this year to more than 630,000 oz. in 2016.

The merger would allow shareholders to “participate in a meaningful way in the enormous gold development and production potential in Colombia as the leading producer with secured access to processing facilities,” Medoro chairman Robert Metcalfe said in his statement. “The combined company will have exposure to two large production and development projects at a time of record-high gold prices.”

In January Medoro updated its mineral resource estimate on the Medoro project. At a 0.3 gram gold per tonne cut-off, it contains measured and indicated resources of 226 million tonnes at an average grade of 0.9 gram gold for 6.6 million oz. contained gold and 5.1 grams silver per tonne for 37 million oz. contained silver. Inferred resources add 116 million tonnes grading 0.9 gram gold for 3.2 million oz. gold and 5.9 grams silver for 22 million oz. silver.

The estimate was based on more than 127,500 metres of diamond drilling and cross-cut samples. In addition to 379 historic drill holes, the updated estimate reflects results from 105 drill holes of a definition drill program. A further 60 drill holes were completed after the cut-off date for the resource estimate, and another 237 holes are planned this year. The majority of this year’s holes will be underground drill holes aimed at upgrading inferred resources to the measured and indicated category.

On April 19, Medoro released results from 52 holes totalling 20,000 metres from its surface and underground program. Highlights included hole MT-1376, which returned 1.6 grams gold per tonne and 11.2 grams silver per tonne over 229.5 metres.

The deepest intersection returned 1.1 gram gold over 101.4 metres from a depth of 503 metres. MT-1331 cut 2.3 grams gold over 97 metres, while MT-1343A returned an uncut gold grade of 18.3 grams gold over 6.3 metres.

MT-1366, one of the underground holes, hit 79.2 metres downhole grading 1.7 grams
gold and 8.7 grams silver from a depth of 252.4 metres, which extends the economic mineralization more than 100 metres below the current bottom of the preliminary open pit, the company reported.

In a research note to clients on May 3, mining analysts at Raymond James forecast Medoro will rise to $2.30 per share over the next six to twelve months, up about 19% from its closing price of $1.93 on April 29.

At presstime Medoro was trading at $1.83 per share and Gran Colombia Gold was trading at $1.05 a share.