EnviroGold (ASX: EVG) has entered an agreement enabling the company to explore the highly prospective La Yagua and La Paciencia concessions in the Dominican Republic, where a previous grab sample included grades of 18% copper, 13 grams per tonne (g/t) gold and 29g/t silver.
Clearly, if the sample is anything to go by, as well as the property off axis to known mineralizing belts that host deposits such as the Pueblo Viejo gold deposit being developed by Barrick Gold (NYSE: ABX), there is significant exploration upside for EnviroGold.
If any gold deposits are discovered on the La Paciencia concession, which are likely to be in refractory ore they could be processed through EnviroGold's Las Lagunas plant.
The copper/gold concessions are located in close proximity to EnviroGold's Las Lagunas gold tailings project which has an expected life of about seven years at an annual production rate of 65,000 ounces gold and 600,000 ounces silver, and is expected to commence production in early 2011.
The shareholders agreement with Novus Gold Corporation (TSXV: NOV) will allow EnviroGold to subscribe for up to a 50% shareholding in Invercropolis SA, the Novus subsidiary which holds the La Yagua and La Paciencia concessions.
EnviroGold has the option to subscribe for US$10 million Invercropolis shares up to 30 June 2014 to establish the 50% shareholding.
EnviroGold has exercised its option to subscribe for an initial US$3.0 million of share capital, of which US$250,000 will be advanced by 31 July 2011, US$500,000 by 31 October 2011, US$750,000 by 31 January 2012 and US$1,500,000 by 30 June 2012.
Funds provided by EnviroGold will be used on exploration focusing on drilling copper/gold/silver targets on the La Yagua property, which is a 9,900 hectare mining concession located 40 kilometres northwest of Santo Domingo, the capital of the Dominican Republic.
Brian Johnson, EnviroGold's executive chairman, said that “the company would become an active explorer in the Dominican Republic, which is highly prospective for gold and copper, and would add a number of concessions to the La Yagua and La Paciencia properties including the wholly-owned 10,000 hectare Bahoruco copper/gold prospect which was applied for in February 2011.
“The country has great geological potential, is politically stable, with good infrastructure and an excellent workforce."
Known mineralising belts in the region host the Pueblo Viejo gold deposit being developed by Barrick, and the Cerro de Maimon mine recently purchased by Perilya (ASX: PEM).
Exploration programs carried out on the La Yagua property have identified significant base/precious metal mineralisation in five follow-up exploration targets.
High grade copper/gold/silver mineralized zones have been discovered in one particular target which is six kilometres long and open for expansion.
Mineralisation of the target is stratabound Volcanogenic Massive Sulfide (VMS) type as is the Cerro de Maimon mine, 19 kilometres to the northwest. The target should be drill ready in the fourth quarter.
The La Paciencia mining concession covers 8,600 hectares located 10 kilometres west of the Pueblo Viejo gold deposit reported to host over 25 million ounces of gold, and underlain by the same geology.
Exploration in 2011-12 will focus on drilling targets outlined by soil sampling, prospecting and geophysics.
EnviroGold has granted Invercropolis an option to purchase the Las Lagunas plant on completion of the Las Lagunas project at independent value but not less than US$30 million, subject to EnviroGold holding a minimum 50% interest in Invercropolis.
Novus will manage the exploration stage of Invercropolis development and EnviroGold will manage any resultant projects.
EnviroGold may increase its shareholding in Invercropolis to 60% between 1 January and 31 December 2015 by purchasing a 10% shareholding from Novus for US$10 million.
Meanwhile, EnviroGold has updated financial forecasts for its Las Lagunas tailings retreatment project.
Total capital costs for the development are expected to increase by about US$1.0 million to US$82.0 million as a result of increased construction management and financing costs, and unexpectedly high legal costs of the project’s financier which are passed on to the company.
EnviroGold said it will meet the cost overrun in addition to the US$36.0 million equity it has already contributed.
The project is fully funded by Macquarie Bank with a US$7.5 million advance against a 3% gold royalty, and a US$37.5 million project loan.
The company also has access to an undrawn US$5 million facility from Ban Reservas, a Dominican Government owned Bank.
Envirogold said the project economics are not capital sensitive and have been revised to incorporate reduced power costs which are indexed to falling US LNG prices, other reduced costs of consumables, increased cyanide costs, and a corporate tax rate increased last month by the Dominican Government from 25% to 29%.
Total forecast after tax profits for the 6.5 year project have decreased by 5% to US$202 million based on an assumed average gold price of US$1250 per ounce.
With the company about to commence an active exploration program of copper/gold and copper/gold/molybdenum prospects, the company is considering change a name change to better reflect its expanded objectives.
In 2013 free cash flow is expected to be in the order of US$52 million. The project loan should be repaid in approximately 18 months from the start of production, or sooner if current gold and silver prices persist.
The development of the Azuay project in Ecuador will be the company’s primary focus in 2012, together with drilling of the La Yagua prospect in the Dominican Republic and San Gerardo in Ecuador.
Cash generated from the Las Lagunas project should fund the exploration program and the US$22 million equity required for the Azuay project in 2012-13.