Argentina's Gold Mining Boom: A Lustrous Trend

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Argentina is now the third most-prolific gold producer in Latin America—behind Peru and Brazil.

Since the overhaul of Argentina's protectionist mining laws in 1993, gold production has seen a parabolic rise from a paltry 36,000 ounces to 1.40 million ounces in 2008. (Data for 2009 has not yet been made public). This makes Argentina the third most prolific producer in Latin America. Only Peru and Brazil posted better numbers at 5.78 million ounces and 1.55 million ounces of gold, respectively.

However, of these three gold-rich nations, only Argentina has seen a dramatic rise in its output in recent years. In sharp contrast, Brazil's gold production peaked at 3.30 million ounces just over 20 years ago and it has since dwindled to about half that figure. Even Peru's prolific numbers have begun to dip a little lower over the last several years.

These statistics point to the fact that unlike its South American peers, Argentina's gold fields are far from mature in terms of their development cycles. Also, much of its wealth of buried gold has yet to see any meaningful development. All of which translates into a booming domestic gold sector that is still experiencing a pronounced growth curve.

This reality is especially well illustrated by how it now measures up against its equally geologically fertile neighbor, Chile. World-renowned for its huge copper/gold mines, Chile produced 1.35 million gold ounces in 2008—which was slightly less than Argentina. But Chile is struggling to keep pace with its nearest rival. As evidence, Chile's production figures have been mostly static for nearly 15 years, yet they still eclipsed Argentina's output for most of this time frame. And by nearly as much as 4,000% as far back as 1995.

Argentina's lustrous trend of exponential growth for its gold output should continue as a handful of Western mining companies, large and small, strive to monetize their gold discoveries in an environment of record bullion prices.

Among them is Yamana Gold Inc. (NYSE: AUY) (TSX: YRI) (LSE: YAU), a mid-tier Toronto-based high-flyer that is targeting a 2011 commercialization of its Agua Rica mine-in-the-making in Catamarca Province in northern Argentina. This world-class deposit hosts at least 6 million gold ounces and maybe as much as 10 million ounces, as well as copious amounts of silver, copper and molybdenum. Its mine life is projected to be over a quarter of a century and its initial gold output is anticipated to be 135,000 ounces per annum.

Another key gold discovery that is scheduled for a production decision as early as this summer is the extraordinarily high-grade Cerro Moro gold deposit in Santa Cruz Province in southern Argentina's Patagonia region. Discovered in 2006 by Vancouver-based Exeter Resource Corp. (NYSE.A: XRA; TSX:XRC; Fkft:EXB), Cerro Moro is in good company. It is situated only 130 kilometers from the Cerro Vanguardia gold-silver mine and benefits from a similar geological environment.

Hosting 5.7 million ounces of gold and 66 million silver ounces, Cerro Vanguardia is 92.5% owned by the world's second largest gold miner, Johannesburg-based AngloGold (NYSE: AU), with the balance owned by the regional government. It produces about 200,000 gold ounces per year and around 2.1 million ounces of silver.

Cerro Moro also exhibits the geological potential to become a multi-million ounce gold discovery, according to Exeter's management. To date, an inferred resource of 646,000 ounces of gold 'equivalent' (the value of the gold and silver combined) at a grade of 18 grams per ton (g/t) has been outlined.

The stated resource includes the deposit's jewel in the crown, the 'bonanza' grade Escondida vein, where 518,000 ounces of gold equivalent have been located, grading 34 g/t (which for readers in the U.S. amounts to over an ounce per ton).

Notably, there are not that many emerging gold discoveries around the world that benefit from such "well above-average (gold) grades," according to Wendell Zerb, a senior mining analyst for the Vancouver brokerage firm Canaccord Adams.

"This initial resource is a great start for a junior gold company," he adds. "From an early standpoint, there is a good possibility that they will be able to have a mining operation there.

"So it's a great start and if they have some additional success through exploration you can start to piece together a mining operation there. Also, that particular area is wide open for additional discoveries."

The existing resource estimate for Cerro Moro only factors in drill results for 2008 and earlier. All of Exeter's subsequent exploration work last year and in early 2010, consisting of nearly 25 miles worth of drilling over 327 drill holes, will form the basis of an updated resource estimate that is scheduled to be announced in mid-April.

Fortunately for Exeter, there has been a continuation of lustrous gold grades, including such highlights as 5.38 meters (17.7 feet) of 149.9 g/t (4.35 oz/ton) of gold equivalent, as well as other comparable drilling intersections. All of which should go a long way towards adding additional gold ounces in the ground.

Exeter's Chairman Yale Simpson says that his company will continue drilling with the objective of a resource upgrade to around one million ounces, but the deposit has plenty of further scope for expansion well beyond this figure. However, because Cerro Moro's rich concentrations of gold are near surface and are easily accessible, a production decision is likely to be made as early as this summer, he suggests.

"The deposit doesn't need to grow significantly in size to offer the prospect of becoming one of the most profitable gold mines in the industry, relative to its size," Simpson says.

Zerb concurs that globally there are a number of gold deposits of less than one million ounces that are very profitable and that: "A ten-year mine life at about 100,000 ounces a year is a nice round number that the investment community likes for a mining operation. With good grades at potentially high margins, that would be a very attractive scenario for (Cerro Moro)."

If all goes according to plan, the deposit is expected to be commercialized in 2012, with an initial production target of 100,000 ounces per year, Simpson says. Furthermore, the advent of steady cash flow should pay for the further expansion of the mine, with an ultimate target of three to five million ounces, he adds.

However, Exeter Resource already has its hands full with the development of its monster Caspiche gold-copper deposit in neighboring Chile. It weighs-in at 19.6 million gold ounces, 4.84 billion pounds of copper and 40 million silver ounces (or 33.7 million gold equivalent ounces). Furthermore 6 drill rigs are turning to further define the size of the discovery.

Hence, the company's shareholders voted earlier this month in favor of spinning out Cerro Moro and the company's other Argentinean gold projects into a newly-minted public company, along with a treasury of around $25 million. Named Extorre Gold Mines Ltd., it began trading on the Toronto Stock Exchange on March 18 under the symbol XG.

Again, Cerro Moro is not the only success story in-the-making in this part of the world. A handful of other TSX-listed exploration companies have also been making solid headway in recent years among Argentina's expansive mineral frontiers. They, too, promise to play key roles over the next few years in ensuring the continued ascendancy of this gold-rich nation as an emerging tour de force in the global mining business.

Marc Davis does not directly or indirectly own shares in the companies mentioned in this article.

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