Flagship Minerals moves to lock up big Chilean gold project
- James Pearson
- 3 days ago
- 4 min read
The price of Flagship Minerals (ASX: FLG) has jumped out of the gates this morning up as much as 45 per cent at 6.4 cent a share after making what the company says is a game-changing move to lock up an option to buy the one-million-ounce Pantanillo gold project in Chile’s fabled Maricunga gold belt.
The decision to move on the large-scale brownfields oxide gold deposit has come as gold prices have soared to more than $5000 per ounce.
Flagship has been busying itself with the company’s Rosario copper project, another low-cost oxide development in Chile it believes has massive potential.
It has now inked a final five-year option over Pantanillo with a local Chilean entity. Flagship paid a US$100,000 (A$160,000) deposit during the due diligence period.
With its latest boxes ticked, Flagship has paid an additional US$100,000 to the vendor, which will be followed by four further annual payments totalling US$1.4 million (A$2.33M).
Flagship could then buy Pantanillo outright for a final US$11M (A$18.3M) payment on the fifth anniversary of the deal.
If Flagship goes that way, full ownership will cost Flagship a total US$12.6M (A$21M) - or US$13 (A$21.5) per ounce – which is not a bad price for a metal currently selling at all-time highs.
There are no minimum spend or drill requirements.
Like many of the bigger gold mines in Chile, Pantanillo is a porphyry deposit with a thick oxide layer overlying a sulphide base, Flagship says.
A publicly available and preliminary technical study in 2009 of a 20,500m drill program by a previous owner, Fortune Valley Resources, drew up a conceptual pit shell of 1000m by 700m and 300m deep.
At the time, Fortune Valley said the pit contained 78 million tonnes of material grading 0.6 grams per tonne (g/t). By using a 1.62 strip ratio and an 85 per cent recovery rate, the deposit was capable of hosting 1.48M ounces of the yellow metal.
A 2012 preliminary economic assessment run by the next owner, Canadian-listed Orosur Mining, using a slightly higher cut-off grade concluded that the deposit hosts a 47.4Mt of oxide and mixed resources, grading 0.69g/t gold for 1.05M ounces of gold before making allowances for a similar recovery rate.
Orosur’s report established the ore was well-suited to low-cost, simple open pit mining. Since 46 per cent of the resource is classified as oxide and 52 per cent as mixed ore, the material would also be amenable to heap leach processing, potentially boosting its recovery rates.
Mineralisation is open down dip and along strike, with strong potential across the company’s 110 square kilometre licence area.
Pantanillo’s inventory is currently classified as a qualifying foreign resource estimate, which, although acceptable in Canadian jurisdictions under the country’s relevant standards, is still not applicable for ASX JORC compliance.
To bring the resource up to scratch with Australian regulatory requirements, some of Flagship’s first-year drill program will be used to convert and increase the existing foreign estimate to a JORC-compliant standard.
Further work will then be undertaken to explore for new mineralised zones and grow the resource base hand-in-hand with metallurgical test work.
The Maricunga gold belt is a prolific gold belt, with multiple large oxide gold projects. What attracts us to Pantanillo is the advanced stage of the project. Pantanillo is de-risked, it has all the merits of a strategically well-set project, it has the potential to be a low-cost heap leach operation and it positions Flagship well in the current price environment.
Flagship Minerals Managing Director Paul Lock
A stone’s throw from Pantanillo, TSX-listed Rio2’s Fenix Gold project is currently under construction. The project is a prime example of the huge low-cost production potential of oxide developments in the region.
The Fenix Gold project hosts 4.8M ounces at a head grade of 0.38g/t gold slated for processing using a large-scale heap leach operation – a process not often used to extract the yellow metal from big deposits.
When Rio2 completes its US$127M (A$200M) construction phase, its mine is forecast to produce 82,000 ounces of gold over 17 years and run at an uber-low all-in sustaining cost of US$1237 per ounce.
Using a conservative gold price assumption of US$2000 (A$3333) per ounce, the Fenix Gold project has a net present value (NPV) of US$380M (A$633M) after tax.
Factor-in the roaring gold price, and Rio2’s NPV for the project blows out to almost US$1 billion (A$1.666b).
These compelling numbers highlight just how big an opportunity Flagship has on its hands at its nearby Pantanillo project.
A major reason for its appeal is its key position in the highly coveted and rich Maricunga gold belt. The corridor hosts more than 65M ounces of gold and has some significant residents, including Newmont-Barrick’s spectacular 27M-ounce Norte Abierto gold mine, 40 kilometres southwest of Flagship’s grounds.
Kinross’ 10.7M-ounce Maricunga gold project is another huge deposit 25km west of Pantanillo, while Hochschild’s monster 11M-ounce Volcan gold project is even closer, just 10km northwest of Pantanillo.
The project’s proximity to key transport and power infrastructure supporting these major mining operations will also prove very handy in keeping Flagship’s future operating costs low.
At the end of last year, Flagship changed its name to reflect more accurately its strategic vision of securing high-margin, infrastructure-rich mining assets in a part of the world with established mining laws.
The move to put its foot on Pantanillo appears to be firmly in line with that vision.
With an aggressive exploration and development plan in place and a soaring gold price, punters are likely to be keeping a keen eye on Flagship’s progress as the company moves towards unlocking the full value of this promising asset.
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