US Gold’s new El Gallo
silver discovery in Mexico
BY SUSAN KIRWIN
El Gallo, Mexico — US Gold (uxg-t,
uxg-x) is wasting neither time nor
money advancing its El Gallo high-grade
silver project in Sinaloa state’s Magistral
district.
The company, which is 21%-owned by
Mining in
LATIN AMERICA
chairman and CEO Rob McEwen, is
spending $18 million on exploration this
year with a plan to go from early-stage
exploration to starting a feasibility study
by year end.
Expect to see regular drill results over
the months to come as the company completes
100,000 metres of drilling on nearsurface
targets. US Gold has drilled more
than 20,000 metres already and will be
calculating an initial resource estimate
with drilling done before the end of
March and completing a preliminary economic
assessment with an updated
resource by the end of the year.
McEwen, the former CEO of Goldcorp
who first got lucky with the discovery of
a new high-grade zone at the Red Lake
BY SUSAN KIRWIN
US Gold is drilling 100,000 metres to advance its El Gallo near-surface, high-grade silver project in Sinaloa State, Mexico. The company is
now calculating an initial resource estimate and plans to complete a preliminary economic assessment and an updated resource estimate by
the end of 2010.
bought new drills that could drill on a 45-
degree angle.
“It’s quick and it’s cheap,” Ball explains.
“We can drill seven holes a day for the
cost of $350 a hole or $2 a foot.”
These cost-cutting initiatives were a
symptom of the times — back in 2008
the exploration industry was booming.
Juniors had a lot of trouble finding drillers
and when they did, they paid top dollar.
“The cost was through the roof,” Ball
says. “It was taking six to seven weeks to
get your assays turned around at the lab
and you could easily blow through half a
million dollars in drilling before you
knew what you were hitting.”
US Gold bought new equipment for the
old assay lab at Magistral and hired staff
to work in the lab 24 hours a day.
“Our objective was, if we drilled a hole
today, and we submit it to the lab, we want
those results back tomorrow,” Ball says.
“We don’t want to spend $5,000 testing a
theory when we could spend $300 to test
a theory.”
The results are mailed to the exploration
team’s Blackberry phones as well
as plotted on a map; much more efficient
than the three to four week turn around
in the industry now.
Ball notes that results from the blasthole
drill can’t be used for a resource
estimate but in the case of expanding
the near-surface mineralization at El
Gallo, it’s helping the company to drill
where it counts.
Of the first 73 holes drilled at El Gallo,
71 of those hit economic mineralization
(grading 75 grams silver per tonne or
higher).
Highlights from the most recent drill
results include 15.1 metres grading 647
grams silver in the central zone, 18
metres grading 228.3 grams silver in the
North zone and 16.2 metres grading 108.1
grams silver in the Western zone.
At the moment, US Gold is stepping out
from the Main and the Western zones to
see if they connect, and the distance
seems to be closing in.
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gold mine, is now poising himself for
another big find.
“Anyone who’s been part of a discovery
has a keen desire to do it again,” McEwen
says outside the El Gallo core shack.
McEwen doesn’t hold back about El
Gallo. He says he felt “fantastic” when the
silver discovery was made and says he has
a good feeling about where the project
is going. “It’s high-grade silver and it’s
going to be a mine and it’s going to be a
mine soon.”
The core shack is located at the pastproducing
Magistral open-pit gold
mine, which is part of the company’s
expansive 2,100-sq.-km property.
Queenstake Resources brought the
mine into production in 2002, then sold
it to Nevada Pacific Gold, which put
the mine on care and maintenance in
2005 after 70,000 oz. gold had been
produced.
El Gallo is about 5 km north of
Magistral and about 11 km northwest of
the historical Palmarito silver mine.
Palmarito was the biggest producer in
the state with about 15.3 million oz. silver
and 49,000 oz. gold mined until 1950.
US Gold acquired the Mexican property
when it bought Nevada Pacific (and
two other companies) in 2007. However,
the company’s focus wasn’t Mexico at the
time. It was consolidating land around
Barrick Gold’s (abx-t, abx-n ) massive
Cortez Hills gold project in Nevada.
“At the time my management didn’t
want to go to Mexico,” McEwen recalls.
“They said they were all Nevada people.”
But McEwen says he was interested in
exploring the property and expanding
resources at Magistral where measured
and indicated resources stand at 11.5 million
tons grading 0.04 oz. gold per ton for
502,000 oz.
Exploration began in 2008 and it wasn’t
long before one of the company’s
prospectors had found a new zone.
Scouring 2,100-sq.-km of dusty rolling
hills during the Mexican summer is not
for the faint of heart, something that US
Gold’s vice president of Mexico, Ian Ball,
realized. “How do you incentivize your
people to want to go out there and take
samples and find something, because it’s
summer, it’s hot, there are bugs and you
really aren’t motivated.”
To address this, US Gold created
prospecting teams and started a bonus
program for samples found. A sample
running 1,000 grams silver per tonne
would pay $1,000, 5,000 grams silver per
tonne, $5,000, and so on.
“All of the sudden you have people
thinking, I’m not just working for the
company, I’m working for myself, and
you are out there trying to make a discovery.”
So far the company has taken 11,500 soil
samples and 5,100 rock chip samples. It
was just a 100 gram silver sample (plus 1.5
grams gold) that led to the El Gallo discovery.
Consulting geologist John Reed
later visited the area with the prospector.
“We noticed an abundance quartz breccia
silicification essentially everywhere we
walked that day,” he says. “So our chip
sampling continued from there and as it
did the area of known anomalous silver
and alteration continued to grow as well.”
From there, US Gold brought out its
next secret to success, the blasthole drill,
also known as a percussion drill.
“This is a large land package and when
we came down here, we said, if we go out
there and make this property look like
Swiss cheese, we are probably going to
burn through our money very quickly and
find nothing,” Ball says.
Typically used in open-pit mines for
grade control and putting explosives into
the ground, blasthole drills aren’t common
in exploration. They usually only
reach a depth of about 30 metres and can
only drill vertically. It’s also hard to find a
drilling company that’d be willing to do
this type of work, but US Gold has made
blasthole drills a key tool for early-stage
exploration in the Magistral district. The
company adjusted the drills to go down as
far as 55 metres instead of 30 metres and
Ball says that the best core intercepts
at El Gallo have all been spread out in
different areas, not clustered together.
Some of the best drill results so far
include 117.9 metres grading 390.3 grams
silver (starting from 32 metres depth),
31.7 metres grading 1,082 grams silver
(starting from surface) and 40.9 metres
grading 638 grams silver (from 33.1
metres depth).
Although Mexico is the world’s no. 2
silver producer after Peru, the Magistral
district never became one of the more
renowned mining districts found in
Chihuahua or Sonora to the north or
Durango to the east.
El Gallo is a low sulphidation epithermal
system with a lot of breccia in the system.
That means there aren’t the typical
vein systems often seen throughout
Mexico.
The host rock is andesite and the
thickness of the host rock varies
throughout the project from a minimum
of 100 metres to about 220 metres as
you go along strike.
“We find that quite encouraging
because you find the mineralization
increases as the host rock gets thicker,”
Ball says. “Most of the mineralization at
El Gallo is located at or near surface,
occurring mostly between surface and
250 feet below.”
US Gold has encountered mineralization
as deep as 500 ft. (150 metres) and
the company is hoping that the long
intercepts starting from surface will
increase the odds that the project will be
economic to advance.
The nearest community to the project
is El Gallo where half of the 60 residents
work for US Gold. Contractors and permanent
employees total 150. The project
has power supply and good road access
and it borders on agricultural land
(which is not an Ejito farming co-op).
At presstime, US Gold shares were
trading at $2.78 apiece with a 52-week
trading range between $2.16 and $3.92.
The company has 115.7 million shares
outstanding and a market cap of $321.5
million.
US Gold is also spending $5 million
on its Nevada Cortez Trend gold projects.
The exploration program will
include drilling, airborne surveys and
sampling, however the emphasis for
now is on El Gallo in Mexico.
“We came upon it in the summer of
’08, started drilling it in November ’09,
and since then, we have one of the richer
silver discoveries in Mexico,”
McEwen says. “And this year we are
spending $18 million exploring, drilling
100,000 metres, which will make it one
of the largest drill programs in Mexico.”
usgold.com |
