In a recent article we briefly introduced Colossus Minerals (COLUF.PK) who are in the process of developing the Serra Pelada gold-platinum-palladium mine in Brazil. On February 7 Colossus released a detailed update on the development which prompted us to write this update on the company and their project.
Colossus Minerals are developing an underground mine at the site of the greatest gold rush in South-American history, the Serra Pellada mine, in JV with COOMINGASP (25%), a Brazilian cooperative company. Drill results from exploration included some of the highest grades recorded for ore of this nature. The geology is complex and building a mine at this location comes with a certain risk which is compounded by the presence of ground water. Moreover, Colossus took the highly unusual decision to develop the mine without prior release of a NI 43-101 reserve estimate. This important mile stone is being compiled for release at the start of Q2 2013. Sandstorm Gold (SAND) have endorsed the project by purchasing a gold and platinum/palladium stream in return for providing part of the development financing. Colossus Minerals is fully financed to reach production.
Colossus Minerals have been updating the market on mine development on a regular basis and with great detail. The latest update confirms that the company is on track to start production in the second half of this year at an initial mining rate of 250 tons per day (tpd) ramping up to 1000 tpd by the end of Q1 2014.
The underground development has reached the mineralised zone in December 2012 and the ongoing collection of a bulk sample from that zone is scheduled to be finalised before the end of March. At the same time the development of the mining faces is advanced through the mineralised zone. Colossus will need two developed faces to support the initial 250 tpd production and it is anticipated that six to nine faces will be necessary for the 1000 tpd target at the end of Q1 2014. Updates on this topic will be eagerly watched by investors who are aware of the geo-technical risks of the project.
Colossus also reports that dewatering of the existing artesanal pit is on schedule and is in fact 95% complete. Underground water inflow rates have been recorded at expected levels and remain manageable.
Construction of the plant and the tailings dam is reported to progress with a view to start commissioning early in the second half of 2013. Connection to the power grid is also anticipated to take place as planned.
In our opinion, this latest announcement indicates that the various development risks are being managed in a diligent manner, including water management and geological issues.
A number of catalysts are due in short order in the coming months:
- release of the NI 43-101 reserve statement,
- completion of the bulk sample and release of metalurgical results from the bulk sample,
- preparation of underground development for mining, and
- finalisation of the plant and connection to the power grid.
Every one of these catalysts will represent further de-risking and will set the stage for commissioning, and finally first production in less than 10 months time if everything continues to proceed according to plan.
The company has promised monthly updates from now on in combination with photographic documentation posted online.
Five analysts currently cover Colossus Minerals, two of which rate the Serra Pelada project a buy, two more rate it as a speculative buy and one remains neutral. Analysts' price targets range between $5.50 and $11.50 with the share price currently sitting just above the $4.00 mark trending downwards.
The chart as posted below is not conclusive at the moment for those looking for an entry point. We believe that the share price will drop and close two gaps that have been left open in the $3.00 to $4.00 range. We will provide a more in-depth technical analysis on our instablog and update this analysis regularly.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.