Nayarit, Capital Gold To Merge

VANCOUVER — Capital Gold (CGC-T) and Nayarit Gold (NYG-V) have agreed to an all-share merger that will create a Mexico-focused company with one producing gold asset and another that is making its way towards a production decision.

The deal, which is subject to shareholder approval, will see Nayarit shareholders receive 0.134 of a Capital Gold share for each Nayarit share held, resulting in Nayarit shareholders holding just under 20% of Capital Gold’s outstanding shares. The board of directors of the combined company, which will use the Capital Gold name, will consist of Capital Gold’s current board plus one Nayarit nominee. John Brownlie will continue to serve as Capital Gold president, and Nayarit’s Bradley Langille and Colin Sutherland will join Capital as senior officers.

Capital Gold owns and operates the El Chanate open-pit, heap-leach gold mine in Sonora, Mexico, which is pumping out 60,000 oz. gold a year. Nayarit is continuing to build upon the resource estimate and preliminary economic analysis at its Animas-Del Norte target, which is within its 104-sq.-km Orion project in Mexico’s Nayarit state.

Capital Gold’s stock was down 10¢ on the day of the news to close at $3.55; the company has a 52- week trading range of $2.40-$4.52 and 48.5 million shares outstanding after a recent 4-to-1 rollback. Nayarit’s stock didn’t move on the news, closing at 50¢. The company has a 52-week trading range of 40¢-73¢ and 90 million shares outstanding.

Meanwhile, Nayarit has released a preliminary economic assessment (PEA) for its Animas-Del Norte deposit, which lies in the Orion District of Mexico’s Nayarit state. The study determined an underground mine at Animas could produce a pre-tax internal rate of return of 38%, that will allow payback in less than 2.5 years, and carries a pre-tax net present value of US$46.5 million, using a 5% discount rate.

The key question in developing a preliminary mine plan for Animas is whether the deposit is better suited to open-pit or underground mining. In its initial resource estimate for the project, out in November, Nayarit divided the main resource at Animas-Del Norte into open-pit and underground portions. Open-pit resources came in at 3.6 million indicated tonnes grading 1.08 grams gold per tonne and 104.3 grams silver per tonne plus 1.7 million inferred tonnes averaging 0.4 gram gold and 36 grams silver, while underground resources totaled 433,000 indicated tonnes grading 2.57 grams gold and 193 grams silver plus 126,000 inferred tonnes averaging 1.77 grams gold and 107 grams silver.

The PEA investigated all possible mining scenarios for Animas-Del Norte and found underground bulk mining produced the best returns. From there, the study re-assessed the division of open-pit and underground resources and increased the underground resource at Animas- Del Norte to 1.12 million indicated tonnes grading 3.63 grams gold and 347 grams silver, plus 181,000 inferred tonnes grading 3.74 grams gold and 349 grams silver.

Plans call for a mill able to process 750 tonnes of ore daily, to produce some 20,000 oz. gold and 1.79 million oz. silver a year. Start-up costs are estimated at $35 million, while cash costs are pegged at US$320 per gold equivalent oz. The development timeline is set at two years, while current resources support a 5-year mine life. A combination of milling and tank leaching are planned for processing.

The Animas-Del Norte deposit is the first significant discovery in Nayarit’s 1,100 sq. km of mining concessions in the Orion District. It lies in the southeast region of the Sierra Madre Occidental, about 110 km from the state capital of Tepic. Infrastructure is good, with a railroad, a major power transmission line and the Pan American highway nearby.

The deposit is part of an east-west vein structure that has been traced for more than 4 km and remains open at both ends. The deposit was discovered in late 2007. It is described as a low-sulphidation epithermal vein-set, with acanthite and electrum as the most common precious metal-bearing minerals. There are also mineralized stock-work zones adjacent to the veins that add to the width of the mineralized system.

The company is still on the lookout for other discoveries in the Orion District, having already identified three additional targets within the property and delineated small resources at two of them. The San Francisco zone hosts 59,000 indicated tonnes grading 1.84 grams gold and 111.91 grams silver and 62,000 inferred tonnes carrying 1.65 grams gold and 55.87 grams silver. Estrella has 81,000 indicated tonnes averaging 5.29 grams gold and 1 gram silver, and 80,000 inferred tonnes grading 4.42 grams gold and 0.8 gram silver.

The company renegotiated property payments on the 1.46-sq. km La Estrella concession in late 2009, delaying full payment of the final US$1 million until the end of 2012. Nayarit plans to continue developing the Animas-Del Norte deposit with the intention to bring the deposit into production independently, according to Alison Stephens, manager of corporate governance, though she added that these are still early days.

The Sierra Madre region has been home to several substantial discoveries, including Tayoltita with 9.6 million oz. gold, and 482 million oz. silver, El Oro-Tlalpujahua with 7.4 million oz. gold and 92 million oz. silver and Pachuca with 6 million oz. gold and 1.5 billion oz. silver.

The company’s share price gained a penny on news of the positive PEA, closing at 54¢. Nayarit has a 52-week trading range of 40-73¢ and 89 million shares outstanding.