Austral Gold sells Pinguino project in Argentina to ASX-listed E2 Metals

Pouring gold from Newmont’s Cerro Negro mine in Argentina, which is in the same geological formation as the Pinguino project being sold by Austral Gold to E2 Metals.

Austral Gold (TSXV: AGLD; ASX: AGD) is selling its Pinguino polymetallic project in Argentina to E2 Metals (ASX: E2M) for $10 million in cash and shares, the companies said on Friday.

The deal is for $5 million in cash, with $2.5 million paid on closing plus staggered payments of $750,000 on the first and second anniversaries of closing and $1 million on the third, the companies said in a release.

The rest is to be paid in options and shares amounting to 19.99% of E2. Austral also keeps its option to purchase all or half of the existing 2% net smelter return royalty on the Pinguino project. They expect the deal to close by the end of March.

“This transaction with E2 Metals will enable us to share in the project’s potential upside and use the proceeds from the sale to fund our exploration activities in Argentina and Chile,” Austral chief executive officer Stabro Kasaneva said in the release.

“We will become the largest shareholder in an ASX-listed company with a sound shareholder base and strong position in the mining friendly Argentine province of Santa Cruz.”

Melbourne-based E2 Metals reported drilling this month showing “encouraging” mineralization at its Conserrat gold and silver project, just 30 km from Pinguino. The company also owns other properties in Argentina and Australia.

The Pinguino sale marks another stage in the long-running silver, gold, zinc, lead and indium project in south-central Argentina. Austral, led by Eduardo Elsztain, one of the country’s most prominent business leaders with large real estate and agriculture holdings, joined the project in 2013 when it was run by the now dormant Argentex Mining. But exploration at the site stretches back decades. At one point a financing arm of the World Bank held 12% in Argentex, which acquired the project in 2003.

An indicated resource estimate from 2014 shows Pinguino has 6.3 million tonnes grading 103.4 grams silver and 0.58 gram gold per tonne, 0.77% zinc and 0.54% lead (or 132.3 grams silver equivalent per tonne) for 20.9 million contained oz. silver and 117,000 contained oz. gold.

Pinguino, located about 300 km southwest of the city of Comodoro Rivadavia in Santa Cruz, a province known for mining. Pinguino lies in the same Deseado Massif geologic structure as AngloGold Ashanti’s (JSE: ANG) Cerro Vanguardia mine and Newmont’s (TSX: NGT; NYSE: NEM) Cerro Negro mine, Austral said, while noting six other projects have been developed in recent years in the same province.

The strike length at Pinguino has intermediate sulphidation epithermal veins. The deposit has a near-surface silver-gold oxide zone with supergene enrichment and older intrusive-related sulphide epithermal veins with zinc, silver, indium, lead and gold.

E2 Metals also holds the Cobar copper and gold project about 600 km west of Sydney, 900 sqkm of titles in Argentina’s Santa Cruz province and 273 sqkm of land in Rio Negro province further north.

Deal specifics

In the details of the Pinguino deal, Austral gets 15 million options worth one share of E2, but they can be used only until Austral has 19.99% of E2. They have an exercise price of C$0.26 until the third anniversary of the closing.

Austral also keeps its 51% interest and option to acquire an additional 49% interest in the Sierra Blanca project, which is next to Pinguino, from Capella Minerals (TSXV: CMIL). Austral owns the Guanaco-Amancaya mines in Chile and the Casposo-Manantiales mine complex (currently on care and maintenance) in Argentina.

The company has non-controlling interests in the Rawhide Mine in Nevada, in Ensign Gold, which holds the Mercur project in Utah, and in Chile copper project developer Pampas Metals (TSXV: PM).

Shares in E2 Metals closed A$0.015 higher on Friday in Sydney at A$0.145, within a 52-week range of A$0.10 and A$0.36, valuing the company at A$28.9 million.

Austral Gold stocks fell C$0.01 each to C$0.035 on Friday, its lowest-ever price, valuing the company at C$21.4 million. It’s traded as high as C$0.09 in the past year.