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Exeter Spins Out Extorre to Capture Argentina Asset Value
By Claire O'Connor and James West
MidasLetter.com
Thursday, April 22, 2009
On March 18th 2010 Extorre Gold Mines Ltd. (TSX: XG) began trading as an independent company. Extorre is the spin-out entity of Exeter Resource Corporation (TSX: XRC) and with the fresh faced enthusiasm synonymous with only the newest of new-born establishments, Extorre is poised for some serious mining in Argentina’s Santa Cruz Province.
It was announced on March 23rd that Exeter shareholders had approved the proposal to undertake a spin-out transaction pursuant to which the assets of Exeter would be separated into two highly focused companies. As a result, Exeter transferred to Extorre Gold Mines the Cerro Morro and Don Sixto projects and its exploration properties in Argentina, together with approximately $25 million in cash.
Exeter Resource Corporation is a Canadian public company listed on the TSX and NYSE Amex exchanges. Its focus is the 24 million ounce Caspiche gold-copper discovery in Chile. It has retained $43 million in working capital.
Why Form A Separate Company?
So why did Exeter form Extorre? That’s the million dollar question, and Exeter Executive Chairman Yale Simpson has the $25 million dollar answer.
“At the time of the split , Exeter had 21 and a half million ounces of gold, of which 19.6 million were within one deposit called Caspiche in Chile. So the Argentine assets progressively commanded less attention by investors. We felt that if those assets were within a separate company, that company might have a market cap of $125 - $150 million dollars. Now that for the record Extorre is independent, you can see its valuation is even higher than we expected it would be. We now see Extorre benefiting greatly from being on its own, and as we increase the size of the Cerro Moro deposit in particular, it should quickly be reflected in the Extorre share price.”
Assuming the role of President and CEO with Extorre is Dr. Eric Roth. Roth has worked as a mine geologist on gold mines in Australia and Chile, and as an exploration geologist globally for BHP, the Rio Tinto Group companies and AUR Resources. More recently, he was Global Exploration Manager for AngloGold Ashanti. Roth has an excellent knowledge of the various styles of precious metal deposits in South America, with a bias towards the economic evaluation of advanced projects.
The Cerro Moro Project
Roth and Extorre will be focusing on the flagship Cerro Moro Gold-Silver Project in Santa Cruz Province, Argentina (east of AngloGold Ashanti’s big Cerro Vanguardia mine.) The project is 100% owned by Extorre, with the Santa Cruz Government Mining Company, Fomicruz S.E. entitled to a 5% participating interest, on completion of mine permitting.
Based on 2008 drilling, a NI: 43-101 Resource Estimate attributed Cerro Moro with 646,000 oz gold equivalent at 18 grams per tonne, of which 40% of the value is silver. However, Cerro Moro hasn’t exactly been festering inactively since 2008. Simpson relays the hard work Exeter have been putting into the property since then, and what it means for the future of the project;
“Since that time, there have been 327 additional holes drilled. Clearly, with 505 holes into the Escondida Vein alone, the definition of the deposit is far improved. Exeter has completed most of the metallurgy and is well along in our mine design, such that by mid 2010 we anticipate releasing a preliminary economic assessment that will set out the capital and operating costs for the project.”
A press release issued April 19th 2010, revealed the results of an updated NI: 43- 101 estimate on Cerro Moro. The property now boasts, in the indicated category, 612,000 ounces gold equivalent (590,000 t at 18.9 g/t gold and 805 g/t silver, for a gold equivalent grade of 32.3 g/t). The inferred category saw 390,000 ounces gold equivalent (190,000 t at 3.0 g/t gold and 190 g/t silver, for a gold equivalent grade of 6.1 g/t gold). Importantly, the two resource categories together take the project through the million ounce milestone.
According to the press release:
“The indicated resource is based on infill drilling completed on the high grade Escondida vein between April, 2009 and February, 2010. The 612,000 ounce gold equivalent indicated resource has a grade of 32.3 g/t gold equivalent, a grade considered exceptional by industry standards. The silver contribution is high, accounting for over 40% of the value.”
Additional inferred resources of 390,000 ounces gold equivalent are reported from the Escondida, Loma Escondida, Gabriela, Esperanza, and Deborah veins. The inferred resource totals 1.97 million metric tons (Mt) at a grade of 3.0 g/t gold and 190 g/t silver, for a gold equivalent grade of 6.1 g/t. This equates to 190,000 ounces of gold and 12.0 million ounces of silver, to total 390,000 gold equivalent ounces. This inferred resource contains new material not previously estimated.
Extorre’s President and CEO, Eric Roth, stated, “We are now able to raise our resource objective for Cerro Moro to 2 million ounces gold equivalent. We have two rigs on site extending the known mineralization and testing identified targets on the extensive vein system, which compares favourably with the multi-million ounce gold systems elsewhere in the province.”
Conceptual Mine Development Plan
Extorre’s Conceptual Mine Development Plan is to achieve:
- Ore production of 270,000 tonnes a year, for which they would produce 100,000 oz gold equivalent per year.
- Underground mining at Escondida and Loma escondida from years 1 – 8.
- Open pit mining commencing at Escondida Central (18 months) then move mining fleets to the Esperenza, Gabriela and Deborah veins.
Although obvious emphasis is on the Cerro Moro project, Extorre’s landholdings in Patagonia are extensive. Drilling for 2 sites beyond Cerro Moro in 2010 is already scheduled. Another asset, the Don Sixto Project, holds a NI:43-101 resource of 1.2 million oz gold, (all categories). Extorre intends to re-examine the Don Sixto resource to identify higher grade zones that could warrant reconsideration.
Properties previously owned by Exeter will also fall under Extorre’s ambitious radar.
“Because Extorre now is independent of Exeter, we anticipate beginning drilling programs on other projects within Argentina that were previously owned by Exeter but were inactive - simply because of our focus on Caspiche and Cerro Moro.” Simpson explains.
Fundamental Flow On The Way
Extorre have a lot going on at the moment and looking forward we can expect a consistent news flow from their camp. The highly encouraging updated resource estimate of April 19th is perhaps only a taste of what’s to come. From May onwards the company hopes to progressively announce results from the new Cerro Moro drilling. In mid year, a release of a Preliminary Economic Assessment and an Environmental Impact Assessment is on the cards.
Simpson sums up exactly why he believes in the Exeter/Extorre spin-out;
“It’s a unique situation where Extorre is a new company with a broad shareholder base that was inherited form Exeter (38% of our shareholders are institutions that are already positioned within the company, management and insiders still control 20% of the stock on an undiluted basis) and it’s an emerging producer. But because the Cerro Moro grades are so remarkably high Extorre has the potential to be one of the lowest cost producers in the sector - all in a company that has a current market cap of $200 million. It’s going to be a very dynamic story.”
DISCLOSURE: A fee has been paid for the production and distribution of this article and as such should be viewed in the context of advertising.
SOURCE: http://www.midasletter.com/news/100422_Exeter-Spins-out-Extorre-to-capture-argentina-asset-value.php
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