Grenville Gold Corporation (TSX.V: GVG), (OTCBB: GVLGF), Frankfurt: F9I (WKN: A0KELU) is an up-and-coming, yet undervalued Canadian mining junior that is developing advanced-stage precious and base metals projects in Latin America with a near-term focus on low-cost production in mineral-rich Peru.
Having mostly underperformed in recent years, Grenville was reorganized in 2006 and infused with dynamic new management, which was assigned with assembling a compelling portfolio new projects, in Latin America.
Grenville's flagship project involves four past-producing silver mines (with co-existing gold, copper, zinc and lead mineralization) that span an expansive 3,959-hectare land package known as the Silveria Property in the historically mineral-rich San Mateo Mining District near Peru's capital, Lima.
Of special significance, the wholly-owned Silveria Property includes two of the highest grade silver producers that Peru has ever seen, albeit with modest production histories. Known as the Pacococha and Millotingo mines, these largely under-developed ore bodies have historically yielded around 498 grams per tonne (g/t) of silver over a 30-year period. This translates into 14.5 ounces per short ton. An impressive number, to say the least.
By revitalizing a well-established and richly mineralized mining camp with infrastructure already in place, Grenville is on the fast-track to near-term production. Especially since there is an abundance of ore grade polymetallic waste material stockpiled at surface due to past production inefficiencies. All of which is ready for processing at any one of several nearby mills.
At the same time, the fact that there has never been any meaningful exploration throughout the property presents plenty of blue sky opportunity to exponentially develop its under-developed resource base.
High-grade silver is not the only prize within Grenville's reach. The Company also intends to mine valuable co-existing base metals, with a particular emphasis on extracting high-grade copper. The presence of relatively modest quantities of ore-grade gold also helps to sweeten the overall economics in favour of profitably breathing new life into a mining camp that has languished for over 15 years.
This strategic acquisition represents the quintessence of Grenville's new business model: Step One involves scouring the length and breadth of Latin America for advanced-stage, yet poorly developed high-grade precious and base metals mining properties. Step Two entails the application of sophisticated North American exploration technology and mining acumen to maximize their previously unrealized potential.
The San Mateo Mining District constitutes a great starting point for the implementation of this high-octane growth strategy. The true potential of the Silveria Project remains a mystery, but with 39 million ounces of historical production, a neighbour (Goldhawk Resources) operating a commercial mine and a mining address that boasts mills operated by Glencore, Pan American Silver, Peruvian company Vulcan and a corporate buyout by Chinese interests of Peru Copper, there is much anticipation over the first serious exploration program which is soon to be launched by Joint Venture partner Journey Resources. Silver was initially targeted at relatively shallow depths based on the extensive networks of epithermal veins.
Again, untold quantities of co-existing copper, zinc and lead resources, with some smaller gold credits, promise to reinforce this project's potential to become a real 'company maker.
The story gets even better when considering that Grenville's goal of generating near-term cash flow in 2008 can be attained merely by processing ore-grade material from the property's numerous rock piles and its several tailings dams.
Achieving Strength through Diversification
Elsewhere in Peru, the Company's second most important mining venture to date is the sizeable 3,600-hectare La Espanola Project. This involves the rehabilitation and further development of two past-producing copper mines.
Located in the Coayllo District of Canete Province, the property is a mere 100 kilometres southeast of Lima. In a preliminary rock sampling program, Grenville has found plenty of encouragement by way 45 samples that average an especially impressive high grade of 2.51% copper.
Both the Silveria and La Espanola projects will receive more detailed coverage by SmallCapMedia in our upcoming monthly newsletters and corporate updates as these stories unfold.
Silveria Project: Capitalizing on a Lustrous History
Spanning no less than 48 square kilometres (3,959 hectares), this Silveria Project area encompasses four past-producing polymetallic epithermal deposits, namely the Pacococha, Millotingo, Silveria and Germania mines.
These mines operated from the early 1960's to the early 90's, when they were shut down due to financial difficulties resulting from falling metal prices, as well as a short-lived era of political insurrection in Peru.
Of the four mines, extensive records still exist for the Millotingo and Pacococha mines, which were the two largest producers. This is where 2.6 million tonnes of ore -- averaging an eye-catching 498 g/t (14.5 oz/ton) of silver with additional gold credits -- were mined over a 30-year time frame.
This translated into approximately 95,000 tonnes of concentrates containing about 39 million ounces of silver and 90,000 ounces of gold. These mines also yielded a further 97 million pounds of zinc and 44 million pounds of lead.
When the Millotingo mine was closed down due to political unrest, its operators had delineated a further untapped resource base, estimated at 661,000 tonnes grading an impressive average of 398 g/t (12.8 oz/t) of silver. However, these figures are for reference purposes only as they pre-dated the implementation of the NI 43-101 resource measurement protocol and due to continuous artisanal mining in the area, they cannot be relied upon.
Of particular note, the style and overall grade of mineralization at the Millotingo mine is believed to be analogous to the neighbouring polymetallic Coricancha mine that was recently reopened by Gold Hawk Resources. This high-grade mine, which is only four kilometres to the northwest of Millotingo, is expected to eventually yield up to 1.7 million ounces in gold equivalent.
Not a great deal is known about the histories of the two smaller Germania and Silveria mines but both were high-grade silver producers.
There is even a largely intact 350 tonne-per-day floatation mill on-site that was also initially mothballed at the time of the closure of the four proximal mines in the area in 1992 and re-started for a short time in 2001. It can be easily recommissioned at moderate cost. The mill is still owned by a local artisanal mining union that is expected to either sell or lease it to Grenville.
Alternatively, the Company may opt to build its own modernized mill at an estimated cost of only around $4 million. In the interim, there are several under-utilized mills in the surrounding area, meaning that the near-term processing of the tailings and other waste rock can be outsourced.
Near-Term Cash Flow at a Very Low Cost
Grenville's business model initially involves a commitment to generating a steady stream of cash flow, while concurrently expanding upon the Company's mineral inventory. The latter entails the systematic development of the four past-producing mines, particularly at depth, while also expanding their mineralized footprints along a lateral plane. More on this later.
In the near term, Grenville aims to take an inventory of 30 years worth of well-mineralized waste rock that has accumulated in large quantities on the property. (Previous operators focused mostly on just extracting the high grade silver content).
Much of this resource can be found at several tailings dams and numerous rock dumps. Then there's the ongoing process of removing rock debris from the various tunnel networks in order to conduct detailed sampling of the high-grade vein systems, to be followed by drilling at depth.
All told, approximately 86,000 tonnes of polymetallic material extracted to expand one adit has been targeted as an initial stockpile of valuable feed for any of the several other operating mills in the area as a bulk sample.
The Company's cash flow projections will be supported by a NI 43-101 resource estimate of the amassed waste rock. This should determine the extent of the economic viability of this pilot project by assessing the average metal grades, as well as the overall tonnage. In the early going, Grenville plans to process around 1,000 tonnes of mineralized rock per month, eventually ramping up to as much as 5,000 tonnes per month.
Initially, the Company plans to reprocess a 10-20 tonne bulk sample at the Millotingo tailings dam to determine the economics in favour of setting up a heap leaching operation program to recover the contained precious and base metals.
To date, estimates of these tailing grades range between 85 g/t (2.74 oz/t) and 567 g/t (18.2 oz/t) of silver. Significantly, gold credits are also shown to run between 1 g/t and 3 g/t, which are impressively high numbers. Especially so for mineralization rock that has already been mined and is now conveniently situated at surface.
There are other indications that the waste rock from all four mines combined will yield plenty of valuable polymetallic content. For instance, a total of 34 rock samples taken at random from the various waste dumps located near the mine entrances assayed an average of 212 g/t (6.8 oz/t) of silver, 0.41 g/t of gold, 0.69% copper, 5.43% zinc and 1.83% lead.
Highlights include grades running as high as 2,200 g/t of silver (70.7 oz/t), 2.63 g/t of gold, 3.9% of copper, 19.7% zinc and 7.15% lead. Most importantly, this sampling program attests to the fact that silver grades are consistently high.
The Big Picture --
Grenville has mapped 44 different veins so far, only 14 of which have seen any mining activity and which still host plenty of untapped high-grade mineralization. In other words, this expansive property still benefits from plenty of untapped mineralization that could add significant near-surface additional tonnage to the property's resource base.
The most extensively developed of the four emerging deposits -- the Pacococha mine – has already been thoroughly investigated by Grenville's geologists. This has allowed for the digital three-dimensional modeling of up to 45 kilometres of underground mine workings, all of which trace the strike lengths of the high-grade veins.
This modeling will help direct an underground channel sampling program, as well as help to determine optimal drill targets to probe the mine's deeper uncharted territory. Notably, none of the mine's veins have even seen any development below the 4,000-metre mark.
Additional silver veins elsewhere on the property are expected to be modeled in the same manner as the project further evolves. It is especially worth noting that the Company's geologists believe that only about 10% of the combined ore in the four mining properties has been mined to date. And there is a strong likelihood that other vein systems are waiting to be discovered.
Grenville has recently hired Joint Ventured the project to Journey Resources to sample underground workings throughout the existing networks of tunnels and stopes, especially at the Pacococha mine. This will allow for the calculation of an independent NI 4-101 compliant resource estimate of easily accessible ore-grade polymetallic resources.
The completion of this economic modeling will go a long way towards developing an NI 43-101 compliant inferred resource. Additionally, this resource estimate is expected to outline significant co-existing polymetallic content, with anticipated average grades of 1% copper, and 2.5% zinc. As previously mentioned, value-added gold credits will also be factored into the resource estimate.
Shrewd investors should take heart from the fact that the imminent mining of the known resource base at Pacococha and Millotingo will help ramp-up the Company's cash flow growth, following the processing of ore-grade material from tailings dams and rock dumps.
Building Major Tonnage by Tapping into Deeper Mineralization?
As previously mentioned, the greater depths of the four epithermal ore bodies have never been probed before either by way of drilling or tunnelling. This was simply too logistically challenging and expensive for the mine's previous operators. Only the easily-accessible high-grade veins were targeted.
This is very significant as it bears testament to the fact that these deposits have never before seen any meaningful exploration. This is why Grenville plans to conduct underground drilling, primarily to assess the vertical continuation of individual veins.
However, such deep drilling is also aimed at testing an exciting hypothesis about the potentially prolific mineral wealth of this emerging mining camp. Specifically, Grenville's management believes that a deep-seated, large-tonnage polymetalic ore body is likely the root source of the mineralization that has percolated towards the surface and manifested in the various overlying vein systems.
Indeed, it is not uncommon for deeply-buried intrusives -- such as porphyry or manto deposits -- to measure up to hundreds of millions of tonnes in size. Typically, they are proliferated with heavier metals such as widely-disseminated gold and copper mineralization, only a small percentage of which may find its way into the shallower vein systems.
Exploring the Frontiers of a Mineral-Rich Virgin Territory
Furthermore, there remains plenty of latitude to explore along the lateral extensions of the four mines and elsewhere within a property that encompasses 48 square kilometres. Grenville plans to grid sample across the entire project area to identify drill targets. Ground-based geophysics and metals-in-soil geochemical sampling should also work well in this fertile geological environment.
Additionally, the Company will drill test existing anomalies along the strike lengths of the known mineralization. On a particularly encouraging note, some preliminary ground-based geophysics conducted to the northeast of the Pacococha mine already suggests that its vein systems continue along strike for some distance and may even connect up with the Millotingo mine's workings to the northeast.
Importantly, the Company believes that the expansion of the various vein systems, particularly near surface, may make for mining operations that are amenable to cost-efficient open pitting (quarry-like excavation).
Ideal Infrastructure Underpins Robust Project Logistics
Much of the necessary infrastructure for cost-effectively revitalizing and expanding this mining camp's rich resources is already in place. For instance, the previous operators of the Pacococha and Millotingo mines outfitted them with connections to the nearest town's electrical grid.
Then there's the presence of several small floatation mills in the area that could readily accommodate feed from Grenville's mining operations. The camp also benefits from the availability of an ample water supply by way of Pacococha Lake.
Moreover, there is a well-maintained access road to the property that also services the Coricancha mine. In turn, this road leads to a main highway that makes Lima only a three-hour driving distance (about 100 kilometres). There is also a mining-savvy labour force nearby in the small town of San Mateo and the property can be worked almost all year-round.
Peru represents a very low risk environment for the North American mining industry. By way of explanation, Peru's federal and provincial governments are pro business and pro mining, especially since this mineral-rich nation has a longstanding mining tradition.
The transfer of sophisticated North American mining acumen and investment capital is being welcomed as this should help further fuel Peru's ascendancy as a future global mining powerhouse.
That said, Peru is already the world's pre-eminent silver producer. It also accounts for the planet's third largest output of both copper and zinc, and it also ranks the fifth largest gold producer. Yet remarkably, this emerging nation's mineral wealth is still considerably underdeveloped.
This is largely due to several factors. They include past political instability and a lack of investment capital for regional scale exploration. Then there's a legacy of protectionist mining laws and regulations – ones that have since been reformed to attract foreign investment.
Moreover, Peru is geologically comparable to Chile – which now benefits from a thriving and modernized mining industry. Peru is therefore on-track to emulate its neighbour's success, which is reinforced by the fact that it is destined to be a long-term supplier of metals to the supercharged economies of China and India.
Strong Management is Always the Key to Success
In a little over a year since being appointed the Company's President and CEO, Paul Gill has helped build significant intrinsic value into the Grenville's share price. During this time, the Company has developed a solid mineral asset base and is resolutely moving towards its mandate of becoming a near-term producer along an accelerated timeline.
Mr. Gill was formerly President of high-flying Norsemont Mining (TSX.V: NOM), which is readying its Peruvian Constancia polymetallic porphyry deposit for a production decision. One that promises to generate between 30,000 and 55,000 tonnes per day in output, based on a mineral inventory of up to 320 million tonnes.
Another key figure in Grenville's rising fortunes is Company Executive Chairman and fellow director Mr. Len De Melt, AscT, BA, HdM, who has held management positions with no less than 12 mining companies internationally over the past three decades. Notably, he has also been instrumental in the discovery and/or development of six major mines. They include Homestake's Golden Bear gold mine, BHP's celebrated multi-billion dollar Ekati diamond mine and Gulf Oil's Rabbit Lake uranium mine.
From a technical perspective, Grenville has approximately 32 million shares outstanding (approximately 41 million fully diluted). Such a relatively tight share structure, matched with positive news flow, typically acts as a potent catalyst to high share price valuations.
Such an eventuality appears to be a very strong likelihood in the coming months. Especially as Grenville emerges from the ranks of Canada's legions of exploration hopefuls to achieve the much-coveted status of an actual mining producer. One with a scalable, cash-flow driven business model that will allow the Company to achieve expedited growth without the need to seriously dilute its tight share structure.
Accordingly, SmallCapMedia believes that Grenville Gold Corporation remains an undervalued diamond-in-the-rough that will prove itself to be a strong performer in 2008 and beyond.