US Gold Corp TSX:UXG announced results from its El Gallo Project in Sinaloa State, Mexico. Highlights include 180.4 g/t silver over 72.4 metres (including 955.2 g/t silver over 10.1 metres), 168.1 g/t silver over 36.6 metres (including 289.3 g/t silver over 11.7 metres), 88.7 g/t silver over 27.4 metres (including 205.8 g/t silver over 9.9 metres), 325.4 g/t silver and 6.8 g/t gold over 4.5 metres (including 675 g/t silver and 13.9 g/t gold over 1.5 metres) and 9.3 g/t gold over 3.1 metres (including 22.5 g/t gold over 1.1 metres).
Senior VP Ian Ball tells ResourceClips.com, “El Gallo is a relatively new discovery that was first drill-tested in 2009. We continued to explore it, and we put out the initial resource last summer and updated it in November. Then we put out a preliminary economic assessment in February, and right now we’re in the midst of completing a feasibility study.”
We have been very active there for three or four years and have been able to establish a pretty good relationship—and this might sound strange—with the cartel. You have to know who they are and inform them what you’re doing and where you’re moving to—Ian Ball
The November resource estimate shows 39.8 million silver ounces and 543,728 gold ounces measured and indicated and 19.7 million silver ounces and 23,764 gold ounces inferred.
“We’ve been trying to advance quickly,” he continues. “The project’s pretty simple from a mining standpoint, being all near-surface. So there’s no underground development to worry about. The infrastructure in the area is quite reasonable. You’re close to power, and the roads are well developed. It’s not in a remote area.
“There’s a former producing mine [the Magistral Gold Mine] five miles away, which we also own. It was shut down in 2005 by the previous owner. We bought it in 2007. From working in that mine, a lot of the people in the area are used to operating heavy machinery, such as loaders, haul trucks and excavators.
“We do plan on going back and mining what’s remaining there. There’s about a half-million ounces of gold remaining, running about 1.6 grams per tonne. It has a lot of infrastructure that we’re looking to utilize. It has an assay lab that we’re operating 24 hours a day, seven days a week. There’s a maintenance shop on site, and there’s administrative buildings. We’re utilizing all of them for our exploration, and we assume they will be the hub for the new El Gallo mine. A lot of that we wouldn’t have to re-incur. Rather than setting up a new assay lab, we’ll look to expand the current one, and that will save us a fair bit on capital.
“Right now, there are 11 core drills at El Gallo and five percussion drills that are doing reconnaissance-type exploration work. We have a budget of $25 million for this year. It does help if you have a larger treasury to do it.
“Originally our feasibility study was scheduled for release later this year,” Ball explains. “But it’s probably going to be 1Q of next year. A lot of issues involve drill findings. There have been a lot of cases where we wanted to place waste rock or the site of the mill on a certain location, then we hit mineralization below those planned buildings. So we have to follow up and see how much material is down there or whether it’s just a one-off occurrence. That’s been the main reason for the delay.”
The company plans to begin open-pit production in early 2014.
Referring to the location, Ball says, “There is violence in the area. A lot of that stems from the drug cartel. We had a truck stolen. We haven’t had anything where anyone’s ever been injured. That’s obviously a great relief working in that area. We have been very active there for three or four years and have been able to establish a pretty good relationship—and this might sound strange—with the cartel. You have to know who they are and inform them what you’re doing and where you’re moving to. You have to be more cautious when you’re working on early-stage prospects in new areas away from El Gallo. At El Gallo itself, it’s in the foothills of the Sierras, so you’re really not in any of the bad spots. But for some of the new prospects, you generally have to give the local community, as well as sometimes the cartel itself, a heads-up.
“We don’t really have any direct contact with them, but you do know various people who do have connections, so you just ask them, ‘Is it okay for us to go to this region between this and this time?’ And they’ll tell you yes or no. Mining is not really their concern. They don’t want you near their marijuana crops.
“We do have quite an extensive security policy,” he emphasizes. “We do have audits that are done by outside security, and they make ongoing recommendations on how we can continue to improve. We provide training for the employees; all that is ongoing. In Mexico, legally in order to have arms you are required to be a Mexican national. An American or a Canadian cannot bear arms. If you hire Mexican security to do that, they have to inform the local police. And a lot of times the local police can be corrupt. But we do have security out at the project.”
As for the company’s Gold Bar Project in Nevada, “We are in the midst of creating a prefeasibility study, which we’ll publish at the end of October. We will not be going to final feasibility, based on the small CAPEX that’s required—we’re in the $50-million ball park. So once we publish the prefeas, we’ll begin permitting with the Bureau of Land Management. Right now it takes about 18 months-plus to get something permitted in Nevada. So that’s what we will be undertaking in the fall.
“That deposit right now, all in, is about a million ounces at one gram per tonne, approximately 90% oxide material. We are envisioning an open-pit heap-leach process there.”
Last June, US Gold announced a planned merger with Minera Andes Inc. “It’s going slower than what was originally expected,” Ball says. “So rather than looking at late October, we’re probably looking at late November. That’s because the evaluations are taking longer than what we would have liked.
“With Minera Andes you have a mine that’s in production, that’s generating silver and gold. It has exciting exploration properties but no discoveries yet beyond the mine. Whereas El Gallo has some very attractive exploration but no cash flow. And so we thought, if you combine this pretty strong cash flow with something that’s growing in size and providing excitement, you are going to be combining the best of both worlds—benefiting from the higher prices of metals through the cash flow on the mine, which should be able to build the mine in El Gallo.”
Ball concludes, “We’re not expecting production at El Gallo until 2014, so you have this trough area that you try to fill with exploration news, but if you can offset that with a cash flow that’s been increasing with the rising prices of metals, that will hopefully eliminate any concern about future dilution to the financing. If you can generate interim cash flow to build a mine, it’s pretty attractive.”
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Ian J. Ball
by Greg Klein