VERACRUZ, Mexico – There was a PDA moment in the mist,as 18 of us reached drill-holes 69 and 70 at Goldgroup Mining’s Caballo Blanco.
A PDA moment is when a bunch of died-in-the-wool gold investors, analysts and geologists reach for their personal digital assistants, their mobile phones. (So that’s why Goldgroup Mining (TSX: T.GGA, Stock Forum) shares spurted ahead a few minutes before 3 p.m. ET this past Friday.)
The light bulb in that handheld moment? When it became clear that Goldgroup’s two drill rigs, near the crest of that fogged-in hill, were bringing home the same vuggy silica we had seen below: at the core shed. For those of us, including me, who were a little fuzzy on vuggy, Paul Zweng, a geologist and newest GGA director, clarified and confirmed
“Silica-altered rock is vuggy silica without the vugs. Hard, but brittle,” he said. The Stanford University doctor of geology, Honolulu money manager and interim CEO of a Panama and Colombia gold and copper company explained how a run of mine strategy could make Goldgroup Mining’s property in this industrial Mexico state eminently profitable. “The ore shatters like glass … when the mine bench is detonated and blasted. No need for the crusher.”
That’s run of mine: straight to a 100-meter heap leach pad that requires small bits of rock, shuttled from a nearby open pit. Translation: cheaply produced gold.
This review of GGA’s Caballo Blanco property was delivered Monday toTicker Trax subscribers. We also previewed Goldgroup Mining’s three Mexico gold properties in late November for our free Stockhouse audience.
On this Caballo Blanco walkabout, one premise becomes clear: Keith Piggott and Gregg Sedun’s Goldgroup Mining (TSX: T.GGA, Stock Forum) is on track to become what we call “the next Osisko Mining” (TSX: T.OSK, Stock Forum) … of Mexico in this case. The shares, even as they gain ground this week, are still purchasable. I do not own the stock, preferring to keep my research on GGA entirely clinical.
A site visit to Caballo Blanco one hour north of port city Veracruz leaves us with a case for GGA as 150,000-ounce pure gold producer, perhaps by mid-2012. (Goldgroup has two other Mexico properties, one a small gold producer.) The biggest boost to Goldgroup’s fortunes will come as it develops its resource at Caballo Blanco, this high-sulfidation epithermal deposit that had many of the tour’s participants ready to prance like the White Horse of CB’s Spanish name.
Dr. Zweng, interim CEO of Bellhaven Copper & Gold (TSX: V.BHV, Stock Forum), a company upon which I have staked our Ticker Trax legacy and much of my portfolio, joined this tour as GGA’s newest director. Dr. Zweng performed calculations that (depending on drill results) allow for as much as 1.5 million ounces of gold at Caballo Blanco’s prime prospect.
As much as eight million ounces of gold, even more say some on this tour, could be buried across others parts of this 10,000-square-hectare property. That is my savvy, for what it is worth.
CEO Piggott and his team have favored La Paila, one of six gold prospects found at the Northern Zone of Caballo Blanco. Another prospect is several km to the south at the Highway Zone. There, gold grades as high as three grams per metric ton have been unearthed in outcroppings along the shoulder of the highway.
Dr. Zweng says he is pumped by what he sees in the limonites, the hydrated iron oxide minerals of the rock here. A highly selective fund manager of Resource Venture Partners in Honolulu, Paul Zweng owns GGA shares.
“This is what dreams are made of -- for geos anyway,” says Dr. Zweng, a Stanford University doctorate in earth sciences and a specialist in copper and gold porphyrys and high-sulphidation epithermal deposits in Peru, Panama and Colombia. Dr. Zweng, CEO Piggott, project manager and Mexico mining pioneer Francisco Escandon Valle and I, along with a gaggle of analysts, writers and asset managers, were examining core pulled from several of the 70 holes at Caballo Blanco’s La Paila zone.
Sr. Escandon, known as Paco, was a working partner of Lukas Lundin in the 1990s. (The Lundin Group of Canada sold the newish Goldgroup this CB property in spring 2010. Prospect generator Almaden Minerals (AAU and TSX: T.AMM, Stock Forum) is a 30 percent owner of Caballo Blanco.) The 70-year-old Sr. Escandon also served as leader of Mexico’s mining bureau, reporting to presidents Calderon and Fox, from 2000 to 2007.
Paco’s connections, says Goldgroup Chairman Gregg Sedun, a Canadian venture capitalist who resembles actor Bruce Willis, are sufficient to navigate Caballo Blanco through government regulations to a goal of a producing open-pit mine by mid-2012. (Please see photo of Sr. Escandon and Dr. Zweng at top of article – Thom Calandra photo)
We discuss the challenge of being within sight of Mexico’s only nuclear power plant, a 25-year fixture in the state of Veracruz. “We are surrounded by heavy industry in Veracruz state, car manufacturers, the port,” says Mr. Sedun, whom I know from way back during the Robert M. Friedland days of the late 1990s. Adds Mr. Piggott, a British engineer and longtime Mexico miner, “There is oil drilling here but no metals mining. Paco already has more than 700 job applications for 100 potential spots.” (Please see photo: from left, Chairman Sedun, 321gold’s Moriarty, a note-taking Ticker Trax reporter and CEO Piggott. – Trace Adams photo)
As for the geology and the economics of Caballo Blanco, we discuss the core from Holes 69 and 70, then head up the hill to the two rigs.
Sr. Escandon explains how high resistivity readings coincide with silicas that support high-sulphidation theories. Oxidization goes as deep as 400 meters, making Caballo Blanco’s Paila Zone to the north an area where strip ratios are a promising 1-to-1. Mr. Piggott notes that a team of geologists (15 companywide at three Mexico properties) believes it has identified feeder zones at Paila, which is as high as 500 meters above sea level.
Thus far, in about 11,000 meters of diamond (and some reverse-circulation) drilling, the best result is 94 meters of two grams gold. Led by VP of exploration Kevin Sullivan, Goldgroup Mining’s execs are content to discuss general targets for the property and let deskbound analysts state their own projected tonnages and ounces. (In this regard, the strategy is similar to that of Continental Gold (TSX: T.CNL, Stock Forum) and its Buritica property in Colombia.)
Jennings Capital analyst Ryan Walker trudged up and down the same hills we did. He saw, and he confirmed in a report this week, what most of us had calculated based on our core examinations, our perusal of maps, property size and mineralogy. If Caballo Blanco shows even the lightest gold grades it already has logged in Canada-compliant filings, the property still could yield many millions of low-cost ounces of gold. No fooling.
A March 2010 43-101 compliant filing shows a measured-and-indicated 139,000 ounces gold and 517,000 ounces inferred gold. There is in addition a little silver by-product. “We can’t define what we have not drilled,” says CEO Piggott. “But we can let people estimate based on this one Paila Zone and just show them how expansive our other zones are here.”
Scanning neatly arrayed columns of core, Dr. Zweng told us that hematite (red) and jarosite (yellow) are the limonites, or iron poxiedes, most highly correlated to gold. The presence of limonite in silica-altered rock can be favorable for predicting gold, I have learned on a half-dozen-plus tours with Dr. Zweng.
Paul being his overreaching and exuberant self, we soon had company amidst the core. Joining us: investor and writer Bob Moriarty of 321gold.com and Trace Adams of the John Adams clan – sprung from British Guyana’s Sandspring Resources (TSX: V.SSP, Stock Forum) for a look-see at what we think will be the next Osisko Mining (OSK) of Mexico.
“What pumped me,” he said, “was the number of silica and vuggy silica zones throughout the Northern Zone and the Highway Zone.” Silicas are associated with the presence of gold and relate back to the run of mine economics of the potential project. (Please see photo of core.)
“When you get to this advanced argillic zone of alteration, you are just knocking on the door of silica,” Paul said. “At Hole 70, the mineralized zone starts at 21 meters, right here. They hit ore. The company has not even seen the results yet (from the lab) but you see the advanced argillic right there.”
Paul Zweng calculates “at least 34 meters of gold” from Hole 70, which is sunk from one of the highest points of the Paila Zone at Caballo Blanco and not far from Hole 69. “You see they are getting the reds and the yellows and the probability that this is very good to excellent grade ore. But we won’t know that (until late March or April),” he says.
Calculating Geos
There are other calculations regarding recovery ratios, IP magnetic, projected tonnage, transport options for ore and plans, one hopes, for a 100-million-metric-tonne leach pad. Says CEO Piggott, “We think this is run of mine because the gold is very, very fine … no crushing. It is possible our costs could be as low as $200 an ounce. This depends on our ability to achieve a recovery rate of 80 percent.”
Ticker Trax subscribers, I am, as I have done with our favoured Bellhaven Copper & Gold, putting my reputation as a writer-reporter, a researcher, a judge of people and mining teams and above all, as an investor, on the line here: Goldgroup Mining, based on Caballo Blanco alone, is likely to see its market worth balloon as it nears production in the state of Veracruz.
I decline to say much at this point about GGA’s Cerro Colorado producing gold mine and its San Jose de Gracia prospect. This is because I have not seen them. We leave you with some Caballo Blanco themes:
I believe executives are discussing how to might secure 90 percent or more of the property as they meet with 30 percent owner Almaden Minerals and its principals. I cannot get a confirmation on that.
- Risks include that nuclear power plant and the blasting that would occur at the open-pit operation. Other risks will become clear as a preliminary economic assessment of the project continues.
- Mining engineer Juan Guerrero of Goldgroup has worked at open-pit operations that include Newmont (NYSE: NEM, Stock Forum) mine La Herradura. Sr. Guerrero sees at least 20,000 metric tons a day for Caballo Blanco output.
- There are some who theorize that other prospects in the northern part of Caballo Blanco – at sites named Bandera Norte, La Cruz, Las Cuevas, Bandera Sur and Red Valley – could yield as much as eight million ounces of resource, depending once again on grades, drill results and other factors. No one was willing to venture estimates for what is called the Highway Zone of the property. CB is about two minutes from the highway.
- Canada-listed Goldgroup Mining has $12 million in its treasury, with some $8 million of that pointed toward exploration.
Please seeour coverage at Stockhouse and at our password-secure Ticker Trax Library. I own shares of Bellhaven Copper & Gold, which Dr. Zweng started to run in spring 2010.
- For more on our Mexico and Ghana (and Nicaragua/Panama/Colombia/Nevada), please subscribe to Ticker Trax. This week, we are off to Colorado to see a mine that might be another LODE in terms of one-month return to risk-oriented investors.
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THOM CALANDRA of Ticker Trax helps his audience find value in a quagmire of investment choices. Thom was founding editor of MarketWatch, CBS MarketWatch and FT MarketWatch. He was the voice of Thom Calandra's StockWatch and The Calandra Report. Thom has been covering life-sciences and natural resources since 1988.
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