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The Deal that Is the 'Envy of Every Explorer Interested in Bulgaria'
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Gwen  Preston Resource Maven Gwen Preston profiles a company that recently signed a key deal with its partner, a local mining company, that Preston believes puts it years of work and millions of dollars ahead as it pursues its goal of finding and developing gold in Bulgaria.

Access road on the Rozino property

News Note: After this article was written, Velocity Minerals announced a maiden resource for Rozino of "17Mt @ 1.15 g/t gold for 629,000 ounces at 0.5g/t cut-off grade." Velocity notes that "the mineralized system remains open for expansion and drill testing is ongoing."

Velocity Minerals Ltd. (VLC:TSX.V) was born last fall, part of a rush of new interest in the rocks of Eastern Europe. The area generated some of the best discoveries of recent years, including the high-grade upper zone and huge lower porphyry zone at Timok in Serbia and the very high grade massive sulphide deposit at Hot Maden, and explorers raced to the underexplored rocks of these post-Soviet countries to find more.

Bulgaria is a highly prospective country, but operating there is difficult. This deal bypasses the difficulties and puts Velocity on the fast track. Not only will the company now be exploring a portfolio of projects, it is also spending a mere $1 million on exploration to earn ownership of half an operating gold mine. And should its exploration efforts bear fruit, it can use the mine's plant to process ore from other discoveries.

Many have gotten nowhere. These are not easy countries. From property disputes to permitting delays, most foreigners trying to operate in Bulgaria, Serbia, Romania, and the like have found themselves taking one step forward and two steps back.

Except for Velocity Minerals.

Velocity loved the rocks in Bulgaria but entered with eyes wide open, realizing the country would be a challenge. So, they formed their entire approach around that challenge: they built a company that is more Bulgarian than Canadian and then they partnered with an established Bulgarian miner called Gorubso.

That partnership has opened doors like you wouldn't believe.

For starters, Velocity is earning ownership of its key project, Rozino, from Gorubso. It was able to start drilling mere weeks after signing the deal, because Gorubso had already been working on the permit. It's exactly the kind of project everyone is looking for in the region, returning results like 145 meters of 1.5 g/t gold from surface under a simple soil anomaly.

"Gorubso and Velocity have formalized their partnership—and the new deal takes something good and makes it great."

Rozino was a good start but now, after working together for eight months, Gorubso and Velocity have formalized their partnership—and the new deal takes something good and makes it great.

To understand the partnership, you have to understand the partners.

Gorubso is a small miner, having produced around 100,000 ounces of gold from the known veins at its Chala operation. With little exploration expertise, they have no ability to grow reserves or production, at the mine or at any of their nearby properties.

Velocity is the perfect contrast. The Velocity team is proven explorers with access to modern technologies and techniques. They have, for example, already digitized all the Chala mine data, created resource models, and generated all kinds of exploration targets.

Testing those targets is part one of the new three-part deal. By spending $1 million exploring for new resources around Chala, Velocity will get either 50% ownership of the entire mine or a 5% gross royalty on the new mine resources they discover. Yes, by putting a million dollars in the ground the company will get to own half of an operating gold mine.

The second part of the new deal applies Velocity's exploration advantage across Gorubso's portfolio by giving VLC the right to earn 70% ownership of any of Gorubso' projects within a 10,000 sq km exploration alliance area. Like with Rozino, Velocity will be able to get going on these projects quickly because Gorubso, as the underlying owner, will do the permitting. And since Gorubso has been picking properties up for years, its portfolio contains some of the best targets in southern Bulgaria.

The third part of the deal ties it all together. All of the targets within the exploration alliance area sit within 50 km of Gorubso's central processing plant and the third plank of the deal says Velocity can use the plant to process material from any future mine within the alliance. Having access to a permitted and operational process plant de-risks a new deposit in a very significant way, reducing capital to get the discovery into production and reducing permitting needs dramatically.

It's a great deal for both parties. Gorubso needs an exploration arm, a team that can find new resources at Chala and explore the prospective but ignored projects in its portfolio. Velocity wants to explore the prospective rocks of Bulgaria but needs an operational partner with good projects and the ability to permit and an operating cyanide process plant; locking that down puts VLC years of work and millions of dollars ahead.

Now Velocity has busy days ahead. It wants to keep drilling at Rozino, where it has already significantly expanded the historic resource and where good targets remain. It has to get started testing its new resource targets at the Chala mine. And it has to dig through the historic data on Gorubso's six projects within the exploration alliance to see which ones it likes the best.


The history at Rozino is one of those stories that highlights how politics and market cycles can mask a discovery for years. Work started at the asset in the 1980s, when Bulgarian state geologists drilled 86 vertical holes. The theory was that gold would be in a flat-lying body, hence vertical holes. Of course, the theory was wrong; steep structures actually control the mineralization at Rozino.

In the early 2000s two London-listed firms attacked it again. They drilled angled holes, but all their holes pointed the same direction—to the northeast—and it turns out they were testing parallel to the steep mineralized structures. On their very last hole they turned the drill 90 degrees—and hit 68 metres grading 3.15 g/t gold. But by then the market had lost interest and the companies moved on.

Gold at Rozino is epithermal in nature, hosted in steep southeast-trending structures. It sticks mostly to the sediments but sometimes structures carry gold down into the basement rocks.

The gold starts at or close to surface and is pretty darn consistent.

Velocity started by testing the Main zone, which is the cluster of drilling on the left side of the section above and the map below. Historic work made that the obvious starting point and it worked well, with holes returning 0.5 to 2.5 g/t gold over intercepts ranging from 10 to 90 meters, on average (with a few shorter, high-grade hits).

Then the company got a bit bolder and stepped north and east, to test soil anomalies and trenches that were as strong or stronger than those at the Main zone. It was a good decision: the new East zone returned 145 meters of 1.5 g/t gold from surface, one of the project's best results to date.

It is still early days for Velocity at Rozino—the company only acquired the project in August and has made strong progress since then. VLC has another 5,000 to 6,000 meters of drilling planned, with a focus on further testing the East zone, stepping to the north, and ensuring sufficient drill density to support a resource calculation and PEA.

"This deal makes Velocity the envy of every explorer interested in Bulgaria."

All that work should attract some positive attention, especially now that Velocity has secured the right to process ore from Rozino at the Chala plant. Having a built and operating process plant just 50 km away means Rozino doesn't have to be huge to make economic sense.

Proving that it makes economic sense is the short-term goal, as Velocity can earn 70% ownership of Rozino by completing a PEA. That is expected to be complete this year, only a year after starting the drill program.

Chala Mine

The mine has been operating since 2006, with an expansion in 2011 that saw Gorubso add a carbon-in-leach circuit. The operation taps into some fairly high-grade ore: historic resources were reported in 1998 at 1.5 million tonnes grading 9.8 g/t gold.

If you can believe it, over its 12 years of operation Chala has never had a digital resource model. A computer model of the mineralization, the structures, and the rock types is the foundation of every modern mine in the western world. The fact that Gorubso has mined there successfully for 12 years without a model points to the continuity of the veins, which they just keep chasing, but it also highlights the opportunity to find more.

By modeling structures and stratigraphies, completing some geophysics, and drilling, it is very likely that Velocity will find more gold right around the mine workings. For starters, the green shading below outlines an interpreted parallel vein that has barely been touched.

Velocity has hired a mining engineer with extensive experience mining similar deposits in Bulgaria and Russia, including 10 years at Dundee Precious Metals' Chelopech gold mine in Bulgaria, to plan the exploration attack at Chala.

The opportunity to own half of an operating gold mine by simply spending $1 million exploring for more ore is outstanding. It will take the market a little while to understand the weight of this deal but as VLC gets drilling at Chala and starts announcing high-grade hits, the impact will sink in.

Wrapping Up

This deal makes Velocity the envy of every explorer interested in Bulgaria.

There's good reason to be interested in Bulgaria. Geologically the same rich mineral belt—the Tethyan—that spawned some of the best discoveries of the last decade continue right into western Bulgaria. Cutting across the south of the country is the Tertiary copper-gold corridor, which offers epithermal gold and porphyry copper-gold deposits.

It's a country rich in mineral opportunity, but where there has been little modern exploration. Until the mid-1990s the state-controlled exploration and mining. State geologists certainly made some discoveries, but Bulgaria was bereft of international ideas and technology until the country opened up to foreign explorers.

Operationally the country makes sense, at least on paper. The mining law has been in place since 1999, with a reasonable set of updates in 2011. Mining royalties average 1% to 2.5%, which compares favorably to established jurisdictions like Canada and Peru. The corporate tax rate is only 10%. A history of mining means a population that understands the business and solid ranks of experienced mining professionals. And costs are low.

In practice, though, it's very hard to make progress in Bulgaria. From acquiring projects to permitting basic exploration, things are incredibly slow for foreigners. I know of one experienced and well-funded group that identified projects, applied for swaths of ground, set up a Bulgarian subsidiary. . .and after a year of effort simply walked away because it was just too hard to get anything done.

By partnering with Gorubso, Velocity has found a way around all the obstacles. It also helps that Velocity is almost Bulgarian itself. Setting up in this way was a very astute move by the Velocity team—one that has now paid off with a partnership deal rich in opportunity.

Velocity has 61 million shares outstanding (72 million fully diluted). At $0.20 per share, that gives it a market capitalization of $12 million.

That's cheap given the number of ways this could work out well. Rozino could—should—continue to grow, with a PEA planned for later this year. Chala mine drilling should return some nice hits, reinforcing to the market the value of Velocity's option on this operating, profitable mine. And of the six projects in Gorubso's portfolio that VLC will assess, it's likely one or two will stand out and deserve some exploration attention.

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With almost a decade of junior resource-focused journalism under her belt, Gwen Preston launched Resource Maven. Preston watches the wires, talks to her network and analyzes economics to identify resource news that matters and figure out how to profit. She focuses on early-stage exploration and development stories. Preston has been interviewed on CBC and in Financial Post.

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1) Gwen Preston: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Velocity Minerals. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Resource Maven disclosures below. I determined which companies would be included in this article based on my research and understanding of the sector. and Resource Maven disclosures below.
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