another article on Patagonia Gold whose Cap Oeste & COSE in El...

another article on Patagonia Gold whose Cap Oeste & COSE in El Tranquillo area is next to DEG's Sierra Morena.

"For long stretches of time Patagonia's shares traded below the 10p listing price, as investor patience, and interest, lagged."

February 03, 2011

Patagonia Gold Is Just A Whisker A Way From Production At Lomada, And Not Far Away From A Million Ounces At Cap Oeste.

By Alastair Ford / www.minesite.com

The autumn of 2010 was a very propitious time for a junior mining company to be putting out good news. The whole mining sector was undergoing a significant re-rating, and the gold price was powering ahead, onwards and upwards, to its ultimate peak of just over US$1,420 an ounce as the New Year commenced. During that time shareholders in Patagonia Gold must have been holding on to their hats, as it issued no less than 12 updates in the four month period between September and December. And, if anyone needs to ask whether those 12 updates contained good news or not, the company's share price graph provides the answer. Over the same period, September to December, Patagonia's shares soared, from 16p to 59p, as the market factored in news of significant exploration upside, and imminent gold production.

Fast forward to the present and the shares have now settled slightly lower, trading currently at around 50p, but even so, there's no doubt that autumn 2010 was a transformative time for the company. To paraphrase Wordsworth: "Bliss was it in that autumn to be alive, to be a young company, very heaven."

Patagonia is not that young, to be fair. But unlike some of the old lags still knocking around, this one's run by a team that's already delivered one major success within the last decade - the sale of Brancote to Meridian back in 2002. So when Richard Prickett and Bill Humphries decided to come back round to the market for another go a couple of years later, they already had plenty of willing backers. It wasn't always easy, of course, but then grass roots exploration only looks easy if you're sitting reading press releases in London. For long stretches of time Patagonia's shares traded below the 10p listing price, as investor patience, and interest, lagged.

But gradually the company assembled a portfolio of assets that, as the market began to show life once again last year, suddenly came into its own. First off, there's Lomada, a small scale gold oxide deposit in Santa Cruz province, Argentina, that's just weeks away from production. The initial start-up constitutes a trial, and will only produce around 2,000 ounces, but Richard Prickett, who's about to visit the site to have a look for himself, is hopeful that the company will be able to push the button on full production at 21,000 ounces by the middle of this year. You can certainly sense the optimism in his voice when he describes the situation down at site.

"All the pads are constructed. All the pads are loaded", he says. "The mining's been done. In March we'll be producing."

Once it gets going, Lomada should prove to be the ideal operation for a small cap miner with big ideas. Its total capital costs will run to a fairly modest US$8 million, of which US$2 million has already been spent. And with operating margins set to run at around US$1,000 per ounce using today's prices, payback ought to be pretty quick. The mine life as modelled in the Lomada scoping study runs for seven years, but it looks as the company ought to be able to push that out significantly.

The idea is that Lomada should pay for a large slice of all further exploration costs, as the company works up resources at its other projects. Two of these will be making the news very shortly. The first, the COSE project, awaits a the release of a NI43-101 report outlining the resource base there as well as the potential for mining via a decline using sub-level stoping. That report, according to Patagonia's latest release, is due out during the current quarter, so it won't be long now. Ahead of its release, Richard Prickett speculates that COSE might be able to deliver an extractable 70,000 ounces of gold equivalent very rapidly, which might mean a boost to cash flow to cover costs at the company's flagship Cap Oeste project, which is just a stone's throw away.

Cap Oeste currently boasts 800,000 ounces of gold in resource, but it's open in all directions, more than likely, according to Richard Prickett, to keep on growing. Recent drilling has continued to deliver high grade intercepts, and those numbers have yet to be modelled into the resource base. The speculation has to be that Cap Oeste will go over the magic million ounce mark before too long, and there's certainly not much doubt that a potential operation at the Cap Oeste site could operate on those parameters, as there's also ore available from the company's Manchuria project, some several kilometres away to the south east. It all adds up to an enticing prospect, and one which will have investors on the edges of their seats, awaiting further news.