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Red Rock Resources procures US$2m for Colombian co-development partner

Red Rock Resources (LON:RRR) has procured a US$2m bank loan for Mineras Four Points SA (MFP), in accordance with the funding and co-operation agreement between the parties signed in June. MFP is expected to drawn down the first US$1m by 2 July 2010, and the balance will be drawn-down within the subsequent three months. 

According to Red Rock, the agreement provides a low-risk entry into two producing Colombian gold mines. The deal with MFP and its general director, Juan Camilo Florez Ramirez (JCF), will fund the investment in production and mining equipment at two mines in the province of Antioquia, Colombia.

The loan will carry interest at 5% per annum and it will be repayable on 30 June 2013. Red Rock said it will guarantee the loan via a separate back-to-back loan, and in respect of its obligations under the guarantee, Red Rock has been granted charges over the gold production of MFP and over the existing issued share capital of MFP.

In June, Red Rock was granted two options over MFP’s share capital. Firstly, the company is entitled to acquire 50% of MFP’s issued share capital for US$6.5m, this option is exercisable for two-years. Additionally, through the second option, Red Rock can acquire 1% of MFP for US$1m, exercisable for three years.

Also under the agreement, Red Rock will provide, for a minimum of 20-days per month, consultancy and technical support for MFP. The company will receive consultancy fees totaling US$2.96m, paid in quarterly incremental instalments over approximately 3 years. The fees will be paid in arrears, initially starting at US$200,000 and rising to US$350,000.

The El Limón mine, with over 60 years of mining behind it, has been producing an average of 15.3kg of gold per month in the period between January-May 2010. With 108 tons of ore being mined per month from two levels (6 and 7), a third level (8) is currently undergoing development 420m below the surface. Red Rock also noted that MFP is considering a new level between levels 6 and 7.

Furthermore, Red Rock noted that when El Limón’s current operator took over the project, the surface plant was in disuse and as such the current production is limited to high-grade ore, which is selectively mined and treated by cyanidation. The company said that MFP has already installed new safety equipment at El Limón, and the loan will enable it to upgrade the surface plant. Subsequently, the mine’s production capacity is expected to rise to 150 tons per day, and a further plant expansion could increase capacity to 250 tons per day.

In today’s statement, Red Rock highlighted that, over the past two weeks, fieldwork conducted by the consultant geologist, was able to demonstrate continuity of the mineralised vein to the south of the East-West fault - the mine currently ends.

“The vein was identified in outcrop and shallow workings on the other side of a fault breccia of approximately 50 to 60 metres, displaced 30m to the East and continuing Southward with a strike of 170 degrees and with a dip of 60 degrees West,” Red Rock stated.