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Analysis

Careful Progress Sets Up Positive Year Ahead, Goldgroup Mining

Wed, 10/21/2015 - 08:00

Based in Vancouver, Canada, Goldgroup Mining Inc. (Goldgroup) operates with a dedicated focus on gold production, development, and exploration, and holds a particular interest in Mexico. The company shows its commitment to the country with a number of projects situated in the states of Sonora and Sinaloa. Goldgroup has worked within mining projects such as Caballo Blanco, San José de Gracia, Cerro Colorado, and Cerro Prieto, all of which underwent significant changes in 2014.

In early 2013, Goldgroup entered into a binding agreement with Oroco Resource Corp in order to acquire a 100% interest in the Cerro Prieto project. The acquisition was completed in September 2013. Located in the Cucurpe Mining District of Sonora, the Cerro Prieto project is an open-pit, heap leach gold project comprised of a number of mineral concessions totalling 6,879 hectares. It started as one of Goldgroup’s smallest interests since the company began small-scale trial mining and leaching in late 2013. However, since the initial development phase ended in December 2013, the project has been producing gold at a substantial rate, hitting 4,174oz in the first nine months of 2014. That same year, Goldgroup saw its environmental impact statement approved, as well as receiving authorization for the change of land use and the explosives permit to begin mining operations. While 2014 was a decent year for Cerro Prieto, Goldgroup hopes to further increase its mining operations to reach commercial production rates. This will be made easier now that the company expects to receive a US$10 million from RMB Resources and Credipresto, which will go toward advancing operations at Cerro Prieto and the development of the company’s other gold assets in Mexico, according to its Chairman and CEO, Keith Piggott.

Goldgroup also owns a 100% interest in the Cerro Colorado mine, located in northern Sonora. The property consists of six mineral concessions covering the area of the mine itself and 44 concessions in the immediate vicinity, totalling a combined 33,767 hectares combined. Even though the mine produced 15,820oz of gold in 2013, Goldgroup ceased its mining operations at Cerro Colorado in September 2013 and continued to process gold from the leach pad. In July 2014, the company further reduced its gold production by halting the addition of reagents to the leaching process. The leach pads have now been rinsed and negotiations are being held with third parties for the right to perform a new round of exploration drilling at Cerro Colorado. The company is successfully transitioning equipment and personnel from Cerro Colorado to its latest acquisition, Cerro Prieto.

Alongside these, San José de Gracia, a Sinaloa mine owned by DynaResource de Mexico (DynaMex), is at an advanced gold production stage and is host to a number of high-grade gold deposits. The site has a low sulphidation, high-grade epithermal system with a historical production of more than 1 million ounces of gold, averaging 30-60 g/t. Goldgroup is a 50% shareholder in DynaMex, giving the company a stake in San José de Gracia. However, the two companies have been working through some legal disputes. Ongoing discussions are underway with DynaResource, with the government of Sinaloa acting as a facilitating party between the two companies in an aim to quickly bring the conflict to an end. With the process moving forward, Goldgroup intends to review its strategic development alternatives for San José de Gracia in 2015.

The biggest development for Goldgroup in 2014 came when it agreed to sell its 100% stake of its Caballo Blanco mine in Veracruz to Timmins Gold. Caballo Blanco was once Goldgroup’s flagship project but local hostility toward the mine and recurring environmental concerns sparked the divestment. Timmins Gold seems to be the ideal buyer for the mine, given that it has experience running a similar open pit, heap leach operation at its San Francisco mine in Sonora. Caballo Blanco is made up of 15 mineral concessions which cover over 54,000 hectares of land, and is estimated to contain around 1 million ounces of gold. It has the ability to produce 90,000oz annually at a cost of only US$800 per ounce. The settlement amounted to US$10 million in cash and 16.065 million of Timmins Gold’s shares. If Caballo Blanco’s environmental impact statement is approved, or there is a change in beneficial ownership of Timmins Gold greater than 50%, before October 2019, Goldgroup will receive either an additional US$5 million, more shares in Timmins Gold, or a combination of the two.

After these deals are tallied up, Goldgroup has a solid resource base of approximately 59,000oz of gold in measured resources, 236,500oz in indicated resources, and 602,500oz in inferred resources. Even with such foundations for growth, the company has, according to its financial reports, suffered losses over the past year. Starting off facing a net loss of US$6.98 million at the end of December 2013, and its ongoing legal, regulatory, and environmental challenges, 2014 was conclusively difficult for Goldgroup. Even so, with the income received from the sale of Caballo Blanco and real potential for additional revenue in the near future, the company has given itself greater leverage in order to deal with whatever the coming years may bring