Gold junior transforms property into profitable mine
8/17/2011 12:51:36 AM | Andy Hoffman
stockhouse.com
Mineral Ridge is expected to
produce up to 100,000 ounces
of gold per annum as early as 2013
SILVER PEAK, Nevada –Most of us in natural resources are awestruck when we see an operating mine.
It is a time-consuming piece of work: complex. Sometimes problematic and expensive – producing an ounce of gold.
Scorpio Gold’s ( TSX: V.SGN, Stock Forum) Mineral Ridge in Nevada, roughly 10,000 acres, has barely been explored. Yet nearly 150 years of mine workings are visible throughout the property.
Scorpio Gold is led by mining veteran Peter Hawley. Mr. Hawley built sister company Scorpio Mining ( TSX: T.SPM, Stock Forum) into a mid-tier silver producer and continues to be SPM’s Chairman. He led the movement to spin off its assets into the dedicated gold miner Scorpio Gold.
Mineral Ridge is expected to produce up to 100,000 ounces of gold per annum as early as 2013, and at limited incremental expense. Mineral Ridge, located halfway between Las Vegas and Reno on the Walker Lane trend of Western Nevada, was discovered in the 1860s and roughly a century ago was one of the most active gold mining regions in the state. A total of 575,000 ounces of gold were historically produced at Mineral Ridge, including roughly 405,000 ounces underground in 1864-1942 and 170,000 open pit ounces from 1989-2005.
In 1942, all underground mining at Mineral Ridge was shut down by the L208 War Act, leaving the deposit to lie fallow for decades, until finally it was purchased out of bankruptcy by Zephyr Resources in 1989. Zephyr and several others attempted open-pit operations in the ensuing years, but a lack of capital, declining gold price, and inefficient mine methods did them all in. However, the last company to purchase the property, Golden Phoenix Minerals ( OTC:BB: GPXM, Stock Forum), sold a 70% interest to Scorpio Gold in early 2010, which has transformed the property into an operating, profitable gold mine in barely over a year.
All in, Scorpio paid roughly US$25 million to acquire its 70% stake, including the property’s cost, settlement of outstanding royalty rights, and capital expenditures to permit and build the mine. The mine commenced production in May 2011, just 13 months after the acquisition was closed, and is already producing at a run rate of more than 40,000 ounces of gold per annum. Consequently, the mine is expected to produce roughly 25,000 ounces in calendar 2011, putting it on schedule to pay back the entire acquisition cost (including initial capex) about a year’s time.
Scorpio’s stake in Mineral Ridge increases to 80% once commercial production is achieved (defined as 3,500 ounces per month for four months, in other words, a 42,000 oz/annum run rate), currently expected to be achieved by year-end. Golden Phoenix recently sold the rights to its 20% interest to Waterton Global Value LP, Scorpio’s off-take partner at Mineral Ridge, but it is anticipated that the stake will be acquired by Scorpio as well.
An NI 43-101 compliant resource calculation completed in May 2010, contained 357,000 ounces of gold (221,000 Measured/Indicated), with an updated report anticipated by year-end incorporating this year’s 13,000 meter drill program and selected data from the approximately 120,000 meters of historical drilling completed around the main pit areas by previous operators. Scorpio aims to triple the previous resource in this report, and ultimately believes the property could host several million ounces of gold, partly open-pittable and the rest underground.
The majority of historical mining was done underground, but the next three to four years will be all open pitted, mainly from the enormous Drinkwater (2,000’ long x 1,400’ wide x 670’ deep) and secondary Mary (1,475’ long x 725’ wide x 455’ deep) pits. The scale of these pits is quite impressive, as the myriad loading and dozing trucks looked like Matchbox cars aside the massive, terraced “benches” lining the pit’s walls. These pits are schedule to be widened and deepened over the initial three to four year mine plan, tentatively targeting production of roughly 25,000 ounces of gold in calendar 2011, 60,000+ ounces in 2012, and up to 100,000 ounces in 2013.
Mineral Ridge is currently operating at less than half its 6,000 tonne/day operating capacity, yielding a cash operating cost in the range of $700/oz. of gold. However, capacity is expected to reach 100% sometime in 2012, at which point operating costs are projected to decline to $450-$550/ounce.
From a shareholders’ perspective, Scorpio Gold has these hallmarks: Scorpio Mining still maintains a restricted 19% holding in Scorpio Gold, while eight major mining funds, including Sentry Select, Sprott and Tocqueville, and collectively hold 62% of the outstanding shares. Combined with management’s 7% holding, Scorpio Gold is a tightly-held company with a float of less than 15% of total outstanding shares.
Disclaimer: Thom Calandra edited this article for Stockhouse. Thom Calandra owns shares of Scorpio Gold and is a principal of Torrey Hills Capital. This article is provided by San Diego Torrey Hills Capital and www.babybulls.com to provide readers with information on selected publicly-traded companies. The reader should verify all claims and complete his or her own due diligence before investing in any securities of these profiled companies. San Diego Torrey Hills Capital has been retained to provide investor relations services for some of the companies mentioned in this profile/post and receives compensation for those services. San Diego Torrey Hills Capital/BabyBulls.com has the following compensation arrangements with the companies profiled in this Travel Dispatch: Scorpio Gold Corporation, $7000 per month and warrants to purchase two hundred thousand shares of common stock at a strike price of 68 cents per share; Golden Phoenix Minerals Inc., $6000 per month and warrants to purchase one million shares of common stock at a strike price of 12 cents. Further, San Diego Torrey Hills Capital and its employees and affiliates may own, or may purchase and sell, securities of the companies profiled. San Diego Torrey Hills Capital undertakes no obligation to inform readers about the ownership or trading activities of it or its employees or affiliates in the securities of the profiled companies. Neither San Diego Torrey Hills Capital nor anyone involved in the publication of this email is a registered investment adviser or broker/dealer. San Diego Torrey Hills Capital makes no recommendation that the purchase of securities of companies mentioned in this email is suitable or advisable for any person or that an investment in such securities will be profitable. In general, given the nature of the companies profiled and the lack of an active trading market for their securities, investing in such securities is highly speculative and carries a high degree of risk. An investor in such securities should be prepared and able to bear a loss of his or her entire investment. Nothing in this email should be construed as an offer or solicitation to buy or sell any securities of any profiled company.
ABOUT THE AUTHOR
Andy Hoffman
Andy Hoffman is a Chartered Financial Analyst at San Diego Torrey Hills Capital, and has more than 15 years of experience and expertise in energy and mining. He can be reached at ahoffman@torreyhillscapital.com
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