By Steven Ralston
OVERVIEW: Brazil Resources Inc. (BRIZF) is a gold exploration company focused on the acquisition and development of a portfolio of gold projects, primarily in Brazil. Management has been aggressively acquiring development-stage gold projects since the company’s IPO in May 2011. Between October 2013 and January 2014, Brazil Resources filed a mended and re-stated NI 43-101-compliant technical reports and resource estimates on four of its projects: São Jorge, Cachoeira, Surubim (aka Jau deposit of Rio Nova) and Boa Vista. Also, during 2013, a NI 43-101-compliant Preliminary Economic Assessment (PEA) was updated on São Jorge, and an Environmental Impact Assessment report was completed on Cachoeira. Almost all of the company’s properties have historical and currently active, small-scale alluvial mining by garimpeiros (artisanal gold works) indicative of yet-to-be developed lode deposits that are amenable to open pit extraction. Management continues to pursue additional acquisition candidates.
The current portfolio includes:
· São Jorge, Surubim (aka Rio Novo), Boa Vista and Santa Julia in the Tapajós Gold Province of central Brazil,
· Cachoeira, along with the Montes Áureos and Trinta gold projects (51% interest), in the southern belt of the Gurupi Province of northeastern Brazil,
· Artulândia copper-gold project in Goiás State of central Brazil
· Batistão gold project in the Alta Floresta Province of central Brazil,
· Apa High mineral concession in the Republic of Paraguay near the Brazilian border, and
· Rea uranium project (75% interest) located in Alberta, Canada
In general, Brazil Resources acquires gold projects, many with substantial prior exploration, and some with pre-existing resource estimates. Building upon exploration and development work previously completed, the company advances the projects with additional exploration to better define the resources that contribute to updated NI 43-101 resource estimates. In addition, management employs a balanced approach having also pursued and been granted early-stage exploration licenses (such as Maua and Apa High). At all times management is keen on projects being accessible to infrastructure that can support further development towards the mining stage, especially access to a highway system and the electrical grid.
Initial acquisitions in 2010 and 2011 provided Brazil Resources with exposure to the southern belt of the Gurupi Province (Montes Áureos, Trinta and Maua). In late 2011, the company entered into an option agreement to acquire 100% interest in Artulândia copper-gold project in the Goiás State of central Brazil, and in 2012, Brazil Resources acquired 100% interest in the Cachoeira Group, adding an advanced gold project in the Gurupi Province. Also, the company acquired the Apa High mineral concession in Paraguay. In late 2013, the company completed a significant acquisition: the purchase of Brazilian Gold Corporation, which controlled the Brazilian gold projects of São Jorge, Surubim, Boa Vista and Santa Julia in the Tapajós Province, along with Batistão in the Alta Floresta Province and the Rea uranium project in Canada.
• September 10, 2010 Enter option agreement to acquire Montes Áureos in the Gurupi Province
• May 12, 2011 IPO of 3,800,000 shares at $0.65
• June 20, 2011 Amend option to include the acquisition of Trinta in the Gurupi Province
• September 15, 2011 Granted 3-year exploration license for Maua Project in the Gurupi Province
• December 8, 2011 Enter into an option agreement to acquire 100% interest in Artulândia
• September 25, 2012 Acquire 100% interest in the Cachoeira Group in the Gurupi Province
• October 4, 2012 Acquire Apa High mineral concession from the Republic of Paraguay
• September 30, 2013 Acquire initial 51% interest in Montes Áureos and Trinta Projects
• November 22, 2013 Acquire Brazilian Gold Corporation (São Jorge, Surubim aka Rio Nova, Boa Vista, Santa Julia & Batistão gold projects and the Rea uranium project)
The NI 43 101-compliant gold resources contained within the company’s portfolio of projects has increased dramatically over the last three years, both through acquisition and exploration programs. When Brazilian Resources filed its IPO prospectus, the company only held an option on the Montes Áureos property. By the end of 2012, the company's resource estimate from the Cachoeira Group totaled 667,300 ounces Au (446,000 Indicated and 221,300 Inferred). Today, the NI 43-101-compliant resource estimates on four of the company’s projects (São Jorge, Cachoeira, Boa Vista and Surubim) total 3,938,037 ounces Au (1,501,737 Indicated and 2,437,200 Inferred).
Currently, the company is in the process of advancing its two flagship projects: Cachoeira in the southern belt of the Gurupi Province and the recently acquired São Jorge gold project in the Tapajós Province. The Cachoeira resource is a group of three deposits, near-surface and amenable to open pit mining. During 2013, an Environmental Impact Assessment report was completed and submitted to the regional regulatory agency in December. Once approvals are received from SEMA/PA and DNPM, management plans conduct additional diamond drilling in an effort to upgrade and expand the resource laterally, internally and to depth. The São Jorge project is currently composed of a defined deposit that is 1.40 km long, up to 160 meters wide and up to 350 meters deep. The advanced project has a NI 43-101 I resource estimate of 1,750,000 ounces Au (715,000 Indicated and 1,035,000 Inferred) contained in an ore body amenable to open pit mining. An updated preliminary economic assessment (PEA) was filed during the first quarter 2013, and work was undertaken on an Environmental Impact Assessment (EIA) last year. Importantly, the São Jorge deposit remains open along strike to the southeast along a 2.5 km IP anomaly. Both Cachoeira and São Jorge have relatively easy accessibility to the highway system and electrical power. Also during 2013, an initial drilling program was completed at Artulândia, and exploration continued at the Montes Áureos and Trinta projects. Most importantly in 2013, Brazil Resources acquired Brazilian Gold Corporation with its significant projects of São Jorge, Surubim and Boa Vista, along with Batistão.
PROJECTS IN THE GURUPI PROVINCE: Situated in northeastern Brazil, the Gurupi Province is composed of the 1) northern belt close to the coast and the 2) southern belt (which includes the gold systems at Cachoeira and Montes Áureos). Most of the known gold deposits in the southern belt of the Gurupi Province are hosted by the regional Tentugal shear zone, which is extends continuously for over 120 km and is up to 30 km in width. Gold mineralization is predominately associated with hydrothermal alteration characterized by quartz veins and attendant mineralization disseminated in the altered host rocks.
From 2010 through 2012, management concentrated on increasing the company’s exposure and further developing its projects in the southern belt of the Gurupi Gold Province. Initially, the company entered into an option agreement concerning the Montes Áureos project with Apoio Engenharia e Mineração Ltda in September 2010, and later the option was amended to include the Trinta project. The company filed a NI 43-101 technical report of Montes Áureos in April 2011 and in September, a three-year exploration license was granted for the Maua project.
An initial gold exploration program at Trinta and Montes Áureos was completed in early 2012. Three gold targets were identified by soil sampling and trenching at Trinta during the investigation of seven anomalies within two prospectively attractive geophysical areas. At Montes Áureos, 10 diamond drill holes totaling 1,616 meters intersected 0.45 to 3.82 g/t over intervals of between one and 17 meters. The drill results indicate the presence of a continuous low-grade gold enrichment zone. During 2013, Brazil Resources earned a 51% interest in both Montes Áureos and Trinta by satisfying the conditions of the option agreement, namely incurring at least $1.75 million in exploration expenditures, issuing 325,000 shares and paying $25,000. Brazil Resources holds the option to acquire an additional 46% interest in Montes Áureos and Trinta.
Management acquired a fourth project in the Gurupi Gold Belt, the Cachoeira Group of deposits, which consists three mining licenses and three exploration licenses, from Luna Gold (LGC: TO; LGCUF: OTCQX) in September 2012. Total consideration for the acquisition amounts to approximately $12.0 million, payable in a combination of cash and stock over a period of four years. Located approximately 220 km southeast of Belém, the capital of the Pará State, the Cachoeira Group is composed of three deposits (Arara, Curuja and Tucano veins), all of which have NI 43-101-compliant resource estimates.
At acquisition, the combined Indicated and Inferred resource totaled 667,300 ounces of gold @ 0.35 g/t cutoff. However, in March 2013, Brazil Resources announced significant increases of the Indicated and Inferred resources that totaled 1,349,937 ounces of gold @ 0.35 g/t cutoff. The resource estimate conducted in 2012 was constrained by an open pit shell with a 45° slope angle; however, the 2013 estimate was constrained only by the geological models of the mineralized zones.
Indicated Mineral Resource: 17.47 Mt, average grade 1.40 g/t Au, 0.35 g/t cutoff (786,737 oz. gold)
Inferred Mineral Resource: 15.6 Mt, average grade 1.12 g/t gold, 0.35 g/t cutoff (563,200 oz. gold)
The gold mineralization is near-surface and amenable to open-pit extraction with Tucano holding the majority of the gold occurrences. The three deposits extend over 1 km along a 5 km north-to-south trending shear zone. Potential exists for the continuation of the gold mineralization between the three deposits and on strike further along the structural corridor of the shear zone. During the third and fourth quarters of 2013, a trenching program consisting of 1,049 meters was completed and the 1,149 channel samples have been sent for fire assay analysis. The primary purpose of the trench-sampling program was for metallurgical test purposes that will be utilized in the conceptual engineering studies to evaluate the optimal processing options. The in-fill drilling program (with tighter spacing than the current 60 meters) designed to potentially upgrade portions of the Inferred resource to the Indicated category has been postponed until the results of the metallurgical tests are evaluated.
An Environmental Impact Assessment report was completed during 2013 and was submitted to the regional Brazilian regulatory agency, Secretaria de Estado de Meio Ambiente/Governo do Pará (SEMA/PA) in December. Management anticipates that SEMA/PA will require 6 to 12 months to review the report. However, the mining licenses underlying the Cachoeira project require mining operations to commence in April 2014. The company is preparing an application to request a two-year extension from the Departamento Nacional de Produção Mineral (DNPM), which has previously granted extensions under similar circumstances.
PROJECTS IN THE TAPAJOS PROVINCE: Located in the Central Amazon Region of Brazil and straddling the border between the states of Pará and Amazonas, the Tapajós Gold Province has been a significant gold producing area since 1958. Though gold was first discovered in 1747 by Bandeirantes (colonial settlers), a major gold rush began in 1958, which continued through the mid-1990’s that produced between 20 million and 30 million ounces of gold, mostly from garimpeiros (artisanal miners). The Brazilian Geological Survey (CPRM) has documented 140 gold deposits. Historical mining has predominantly exploited placer deposits (formed by the accumulation of gold during sedimentary processes), but in recent years, lode deposits associated with magmatic (volcanic) events have been recognized, especially porphyry and epithermal styles of mineralization. Similar deposits have been discovered about 100 km to the south in the Alta Floresta Province, which contains 38 gold recognized deposits.
The acquisition of Brazilian Gold Corporation in November 2013 resulted in Brazil Resources controlling a significant portfolio of deposits in the Tapajós Province, namely the São Jorge, Surubim aka Rio Nova , Boa Vista and Santa Julia gold projects and a project to the south in the Alta Floresta Province, specifically Batistão. São Jorge is now one of the company’s two flagship projects. Situated approximately 80 km from Novo Progresso, the gold project is composed of 11 gold exploration concessions and applications encompassing 58,500 hectares. The gold mineralization is close to the surface and amenable to open pit extraction.
In 2008, an NI 43-101 report commissioned by Talon Metals Corp (TLO:TO) estimated the combined Indicated and Inferred resource totaled 937,000 ounces of gold @ 0.30 g/t cutoff. After Brazilian Gold conducted a 14,708 meter step-out drilling program (comprised of 37 holes) to complement the 22,446 meters (108 holes) of historical drilling results, an updated resource estimate was filed in October 2012. After acquiring Brazilian Gold, Brazil Resources filed another updated estimate of the Indicated and Inferred resources that totaled 1,750,000 ounces of gold @ 0.30 g/t cutoff.
Indicated Mineral Resource: 14.42 Mt, average grade 1.54 g/t gold, 0.30 g.t Au cutoff (715,000 oz. Au)
Inferred Mineral Resource: 28.19 Mt, average grade 1.14 g/t gold, 0.30 g/t Au cutoff (1,035,200 oz. Au)
The currently defined deposit is 1.40 km long with a width up to 160 meters and a depth up to 350 meters. The ore body is vertical allowing for an open pit mining scenario with a stripping ratio of 4.9:1. The São Jorge deposit remains open along strike, but especially to the southeast where a 2.5 km geophysical target (IP anomaly) was identified by an airborne magnetic survey conducted in 2006.
In July 2011, Brazilian Gold filed a preliminary economic assessment (PEA) on a portion (roughly 70% of the indicated resource) of the São Jorge gold deposit, which indicated that at $1,300 per ounce gold, the resource of 470,000 ounces with an average gold grade of 0.93 g/t could be mined at a LOM capital cost of $126 million, with a cash cost of $617 per ounce generating an IRR of 23%. The project is accessible by the mostly paved (80%) highway BR 163, providing access not only to the port of Santarem, but also to the workforce in Novo Progresso, reducing the need for a complete mining camp. Electricity is also readily available. In the first quarter of 2013, the PEA was updated and revised utilizing the gold price of $1,500 per ounce. When Brazilian Gold was acquired, work was underway on an Environmental Impact Assessment (EIA).
Brazil Resources also controls the Surubim and Boa Vista projects in the Tapajós Gold Province. The Surubim project is located along the Rio Novo River and has historically been known as the Rio Novo project (but not to be confused with the company, Rio Novo Gold). Several targets at the Surubim project had been investigated. A 20-hole drilling program totaling 6,203 meters on the Jau deposit defined a zone of gold mineralization approximately 800 meters in length, up to 50 meters wide and up to 280 meters deep, which resulted in a NI 43 101 resource estimate.
Surubim (Jau Deposit)
Inferred Mineral Resource: 19.44 Mt, average grade 0.81 g/t gold, 0.30 g/t Au cutoff (503,000 oz. Au)
The Jau ore body remains open at depth and to the west. Other soil and geophysical anomalies, along with surface disturbances produced by garimpeiro mining (Patoa, Tucunare, Colonia and other nearby targets), were explored by soil geochemistry, geophysics, auger drilling (511 holes totaling 5,863 meters) and diamond drilling (48 holes totaling 7,968 meters) during 2012. All targets at Surubim are amenable to open pit mining.
Brazil Resources holds an 84.05% interest in the Boa Vista project, which consists of three exploration concessions. Two phases drilling program consisting of 15 holes totaling 3,007 meters, along with a trenching program consisting of 2,299 meters, aided in defining a gold mineralized zone 500 meters in strike length, up to 85 meters wide and up to 150 meters below surface. The 3,339 assays from the exploration contributed to the filing of a NI 43-101 resource estimate.
Boa Vista (VG1 Deposit)
Inferred Mineral Resource: 8.47 Mt, average grade 1.23 g/t gold, 0.50 g/t Au cutoff (336,000 oz. Au)
The VG1 deposit is open at depth and along strike with the associated soil anomaly being approximately 2 km in length.
Numerous other targets were preliminarily explored during the two-phase drilling program, namely Jair, Almir, Zé da Leicha, Planalto and Pistinha (12 holes totaling 1,587 meters), while other intriguing areas with alluvial pitting and/or soil geochemical signatures (Perigoso, TG, TG5, Esmiril, Sierra LJ and Marron) may be targets of future exploratory work. The Jair target encompasses a soil anomaly 1.6 km in length and 400 meters wide, while the dimensions of the Almir anomaly are 1 km by 400 meters. Small-scale alluvial mining by garimpeiros has been recorded from the 1960’s to the present time, and many of the targets exhibit alluvial workings (pits and diggings).
BRAZIL: Brazil is recognized as a mining friendly country with a mature, stable political government which encourages foreign investment. A constitutional amendment enacted in 1995 grants foreign companies the right to hold majority ownership in Brazilian projects, along with equal fiscal and economic treatment. The rule of law concerning the granting of prospecting, exploration and mining licenses are clear, with the federal government as the sole authority. The country’s infrastructure can support mining projects with networks of roads, railroads and airlines. Brazil also has a low royalty rate of 1% on gold.
More specifically, Brazil Resources can benefit from the favorable fiscal regime in the Pará State, which has only a 15.25% corporate tax rate, and certain incentives and tax benefits offered by the Mato Grosso State. The company also can take advantage of the improvements to the regional infrastructure. In the Tapajós Province, including the mostly paved highway BR 163 and the availability of 10 MW power at the Novo Progresso substation, which is located approximately 80 km south of São Jorge. In the Gurupi Province, the port cities of Belém and São Luis are accessible by federal highways via a network of secondary roads.
FINANCES: The company enjoys a strategic alliance with the Brasilinvest Group (a Brazilian merchant bank founded in 1975 by Mario Garnero, a founding director of Brazil Resources). Brasilinvest helps promote companies operating in Brazil by providing access to capital, along with contacts with political and business leaders. Brasilinvest owns approximately 9.5% of Brazil Resources.
Subsequent to the November fiscal year-end, Brazil Resources completed an oversubscribed private placement of 11,650,620 Units priced at $0.55 per Unit. Each Unit is composed of one common share and one 5-year warrant exercisable at $0.75. Estimated net proceeds of approximately $6.18 million are earmarked for advancing the Cachoeira and São Jorge projects, exploring other properties in the company’s portfolio and/or pursuing the acquisition of additional mining properties.
CONCLUSION: Brazil Resources has assembled an impressive portfolio of mining projects, with Cachoeira and São Jorge being the more advanced. Both projects are on the cusp of the Preliminary License stage, since one has submitted an EIA and the other has one in progress. With combined Indicated Resources of 1,501,737 ounces Au and Inferred Resources of 1,598,200 ounces Au, these two advanced projects are primed to attain important milestones in 2014. In addition, the company has NI 43-101-compliant combined Inferred Resources of 839,000 at the Jau prospect of Surubim and the VG-1 deposit of Boa Vista. Future exploration programs at other projects have the potential to increase the resource base. In addition, management continues to be vigilant in the pursuit of additional acquisition opportunities after a 30%+ correction in the price of gold over the last 2 ½ years. Finally, the company has been very successful in obtaining capital, not only through equity private placements, but also as a result of a strategic alliance with the Brasilinvest Group.
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By Steven Ralston