San Anton Resources controls what could be a monster...

San Anton Resources controls what could be a monster discovery

Just a handful of undeveloped deposits worldwide have defined gold equivalent resources in excess of 10 million ounces, and many of those are located in regions where infrastructure is limited, and capital expenses for development high.
Mexico remains one of the few jurisdictions where a junior mining company can still hope to uncover a large deposit and advance it to production within a favourable economic environment. During the last 3 years, Ocampo (Gammon Lake Resources), Mulatos (Alamos Gold), and El Sauzal (Goldcorp) have all begun producing, and an even larger deposit at Penasquito (Goldcorp) is under development. One more such monster deposit – Cerro del Gallo - may soon be joining this group.

Newly listed junior San Anton Resource Corp is aggressively advancing exploration at its San Anton property in the State of Guanajuato in Central Mexico. Rich discoveries are nothing new in the district, where estimated historical production is more than 6 million ounces of gold and 1.1 billion ounces of silver. So there are reasons to be encouraged that the project will advance to be just the latest in a long history of productive mining ventures in the area. The company owns 51 percent of the San Anton project, in a joint venture partnership with Goldcorp Inc.

Goldcorp currently operates several large projects in Mexico, so one can surmise that they know a thing or two about finding and developing mines. Interestingly, although Goldcorp owns a minority 49 percent interest in the San Anton property, they retain the right to operate a mine, if and when a production decision is made. In the meantime, San Anton is the operator of the project.

What makes the San Anton property special is the presence at Cerro del Gallo of a very large precious metals rich deposit, and the existence elsewhere on the property of more than 20 untested exploration targets, ranging from high grade epithermal vein-breccia systems, to large tonnage intrusion-related porphyries and skarns. Gold and silver are the primary metals of interest, but significant copper values are also present within the mineralization and are expected to contribute to the overall economic value.
At Cerro del Gallo, from a standing start in early 2005, a total NI 43-101 compliant resource of more than 11 million gold equivalent ounces was defined in less than twelve months drilling to December 16, 2005. However, aggressive exploration work continued and over 63,000m of infill and expansion drilling has now been completed. Many of the company’s best grades and intersections have come in the past year. Consequently, the implications for the new resource update calculation, presently underway, have to be positive.

In addition to the potential at Cerro del Gallo, preliminary exploration of several of the other high priority targets has already begun, and all will be subject to exploration work in the future. It is conceivable therefore, that the San Anton property could develop into a multi-centre, bulk tonnage gold-silver-copper play, with associated high-grade epithermal vein-breccia potential.

Yet despite the strong potential for the development of a world-class mining operation, the company seems to be flying below the radar of most investors. This is not surprising given the more or less twelve month exploration news blackout that accompanied the reverse take-over process that led to the creation of San Anton Resource Corporation, after Kings Minerals NL opted to roll their share of the property into a North American listing as a way of surfacing the value of the Cerro del Gallo asset.

Trading commenced on the TSX in December 2006, and the initial public offering successfully raised gross proceeds of more than $17 million. The company is now well financed, exploration work is ongoing, and the news has started to flow. Environmental baseline studies, and comprehensive metallurgical testing have already been completed. The process to update the resource estimate to include the results of more than 100 additional drill holes is underway, and a pre-feasibility study will commence thereafter.

All of this activity is starting to attract attention, and the mining analysts are starting to perk up – and starting to visit the property. Continued exploration success means that this company could become a very popular story indeed.
The economic considerations for Cerro del Gallo are excellent. The property is well served by local infrastructure in a region that is supportive of mining activity. Large tonnage, near surface deposits of lower grade gold-silver commonly lend themselves to low cost open pit mining techniques, while the higher grade vein hosted deposits typical of the historic workings on the San Anton property could to be developed as smaller underground mining operations. This is the approach that Gammon Lake successfully employed to develop the Ocampo Deposit, which is now one of the most profitable mines in Mexico.

While there are many hurdles that must be surmounted on the way to achieving production, I believe that San Anton stands a high likelihood of joining the ranks of large, modern operating mines in Mexico. The enormous tonnage of potentially economic mineralization that sits on surface at Cerro del Gallo could conceivably support an operation processing in the range of tens of thousands of tonnes per day, representing over 200,000 ounces of gold equivalent annual production.

The capital structure of the company is larger than I would like to see, with more than 130 million shares fully diluted, but considering the total resources at the current stage, and the strong potential for a much larger mineral inventory to be proven up as work continues, I still believe the company is cheap.

It’s also worth pointing out that of the roughly 104 million shares in the company outstanding, fully 75 million are held by Kings Minerals NL, a publicly trading entity controlled by the same people (Norm Seckold, Dudley Leitch, etc.) behind Palmarejo Silver & Gold. These people are considered miners in for the long haul, and don’t sell stock. Insiders and institutional investors control about another 23 million shares. This leaves only 6 million shares or so in the free trading public float. So, despite the large number of shares outstanding, they are tightly held.

In this day and age, where so few large new deposits are left to maintain the production levels for the senior producers, this project is going to have a very high priority for development. A strong partner, plenty of cash in the treasury, ongoing aggressive exploration work, and a steady stream of news flow in the months ahead, should all serve to ensure that the risk profile for San Anton is much lower than for other late stage exploration companies. The Mexico Mike Portfolio was created to seize opportunities offering high upside potential with lower risk, and San Anton is very attractive now while it still remains largely unknown in the market. I buy a double allotment of $20,000 for the portfolio.