Patagonia Gold: El Sabor del Encuentro
Issue 48, June 2013
“I would like to announce,” Patagonia Gold’s managing director Bill Humphries told the company’s AGM, “that we have reached full production at Lomada de Leiva. We are now self-sufficient.” The news brings into force a strategy laid down in 2008, as equity markets tumbled, to focus on low cap-ex, near term production, financing the company’s exploration.
Lomada has been slow in the offing. Earthworks began in August 2010, with recent delays caused by a wait for blasting permits that allow explosive magazines to be kept onsite.
Now however, the main heap leach is close to completion, due in July, whilst the trial heap leach has delivered 5,000 gold ounces to date. 14,000 ounces are expected in the second half of this year.
The company has bought its own fleet, lowering cash costs to $500 per ounce. The project pours cash flow into the company’s vast landholdings in Argentina’s province of Santa Cruz: over 220 property blocks, it holds 350,000 hectares on the prolific Deseado Massif.
Led by Bill Humphries and chief operating officer Matt Boyes, Patagonia Gold has discovered 1.9m ounces to date. Assays are due from its La Manchuria project, which hosts high grade narrow veins, whilst drilling is ongoing on the corridor between its high grade COSE deposit its flagship, Cap-Oeste.
The company’s prize asset however is Carlos Miguens Bemberg, chairman since City grandee Sir John Craven retired in January. The pair originally met over the sale for $1.8bn of Argentina’s national beer, Quilmes, owned by the Bemberg family since 1888.
Carlos Bemberg pumped proceeds from the deal into hydroelectric assets bought from France’s Total, which had struggled under Argentina’s regime of heavily regulated energy prices. He had meanwhile listed gold explorer Brancote Holdings, discovering the bonanza grade Esquel deposit in Argentina’s province of Chubut in a partnership with Australia’s media giant Kerry Packer.
When Esquel was sold in 2002 for $360m, Brancote’s residual assets were spun into Patagonia Gold, bolstered by land-for-equity swops with Barrick and Santa Cruz’s state mining bureaucracy, Fomicruz. Bemberg holds 14.6 per cent of the shares, whilst his wider family controls over 40 per cent.
“All this is going to pass,” he told shareholders at Friday’s meeting, referring to volatile gold markets and a share price that has dropped from 70p to 10p in less than 2 years. “This family group is going to support the company and it will be one of the survivors. We are progressing. We have the financial resources.”
Surrounded by a circle of Spanish speakers, he downplays his importance to the company in navigating Argentina’s bureaucracy. “It’s a team. I’m a beer man. I know Argentina, that’s it.”
The country has gained a reputation for resource statism since president Cristina Kirchner seized the oil and gas assets of Spain’s YPF Repsol last year. In Santa Cruz, governor Daniel Peralta has pitched for a state-controlled trust for infrastructure spending, funded by mining companies. Both are members of the leftist Justicialist party, currently split between Kirchnerists and dissidents. In October, the party faces losing legislative elections.
“Argentina is pro-mining,” Bemberg told Global Mining Observer. “It doesn’t have the history like Chile, but it has huge potential.” In 2010 for example, Canada’s Goldcorp paid $3.6bn for Andean Resources and its Cerro Negro deposit, surrounded by the gold rich acreage of the Deseado Massif. “We are the largest tenant,” says Bemberg, “and it is unexplored.”
Boyes estimates that 80 per cent of the company’s land remains untouched and is planning a first pass exploration campaign on the 100,000 hectares contributed by Fomicruz. Bemberg adds that with cash flow from Lomada, the company should aim to delineate 1m gold ounces per annum.
“The potential that Santa Cruz has,” says finance director Gonzalo Tanoira, “they have to take advantage of this.” He says the company has been buying bonds in New York to sell in Buenos Aires, maximising the exchange rate.
A former Bear Stearns banker and the president of lemon grower San Miguel, Tanoira is Bemberg’s nephew and the son of one of Argentina’s most admired polo players, a former teammate of Prince Philip and Kerry Packer. Fortuitously, the AGM coincided with the Queen’s Cup on Monday, dominated by Argentina’s Facundo Pieres.
“I’m not looking at the share price anymore,” Tanoira says. “I’m looking at the cash flow. We’ve struggled, we’ve had delays, but I genuinely think that this could be the foundation of a very, very big company.”
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