Newstrike’s Whittall on Guerrero gold

Richard Whittall has been near the forefront of discovery on Mexico’s prolific Guerrero gold belt for nearly two decades. The president and CEO of Vancouver-based Newstrike Capital knows all the players and has been involved in a long...

Richard Whittall has been near the forefront of discovery on Mexico’s prolific Guerrero gold belt for nearly two decades. The president and CEO of Vancouver-based Newstrike Capital knows all the players and has been involved in a long list of property transactions, as the region has gone from grassroots exploration to one of the most promising gold bearing trends in the world.

It all started when Mexican entrepreneur Enrique Miranda-Paz brought his extensive land package in Guerrero to Canada under the banner of his company, Miranda Mining. Whittall joined the board of directors at Miranda, and took the idea to Teck Resources, which promptly joint ventured properties that would evolve into multi-million ounce gold deposits.

Enter Ian Telfer’s Wheaton River Minerals, which bought Miranda for roughly US$39 million in late 2003, and would later morph into Goldcorp with its Los Filos mega project — now Mexico’s largest gold mine. Whittall was there as Teck sold off its Guerrero assets, witnessing the birth of Torex Gold and its 5 million oz Morelos deposit, and keeping his eyes open for an opportunity to get in on the action. Cayden Resources would eventually end up with Teck geologist David Jones and Miranda’s Nukay property.

Whittall’s opportunity again came in the form of Enrique Miranda, who started up a new regional play under the name Aurea Mining. Miranda staked an 800 km2 land package in the district, though things did not go smoothly the second time around.

"I was initially not a director of that because I was busy doing some investment banking. Enrique asked me to come on the board, and due to some health issues, he had asked me to take over the company," Whittall says over lunch, explaining that Aurea was only sitting on $500,000 in cash and had $800,000 in payable debt at the time. "It was a mess. So within about six months I proposed we merge with a Lundin family shell, and formed Newstrike."

Whittall says he doesn’t track the specifics, but muses that the Lundin family owns 40% of Newstrike’s 115 million outstanding shares.

"He’s been a great shareholder, and we touch base once a month. I mean, we’re in separate offices, and we aren’t part of the Lundin group of companies," he explains. "The thing I’m really grateful for is that they have left us alone to do what we need to do."

And Whittall needed to do a lot. He classifies himself as an investment banker, and labelled the Aurea situation a "turnaround." He cleaned house at the company, and brought in Gillian Kearvell to head up exploration efforts. Kearvell was another former Teck geologist, who had spearheaded large programs in Guerrero, and worked closely on resource delineation at Morelos.

"All I did was put the band back together. So most of Newstrike’s management and board of directors are ex-Teck people," Whittall says.

Newstrike management then turned its attention to the portfolio of properties that Goldcorp had acquired in the Miranda deal, but was not developing.

Whittall first attempted a deal with Telfer to pick up Goldcorp’s minority interest in Morelos. The deal fell apart when Torex exercised a first right of refusal and acquired the entire project. But as chance would have it, Newstrike received a US$2-million break-up fee from Goldcorp.

"So as I’m leaving the office, I ask Ian [Telfer] if they’d take that money right back for the grassroots stuff at Ana Paula," Whittall recollects. "It was really early stage at the time. I think they had punched eleven holes or so into it."

A deal was struck for US$1.6 million in cash and 600,000 Newstrike shares. Whittall was now off and running with a good piece of the Guerrero belt, and felt he had the technical people on board that could develop the wholly owned asset.

"My job is to keep the treasury strong," Whittall says. Newstrike is cash-rich, with roughly US$34 million in the bank. "I don’t take a lot of credit for what is happening on the ground because I’ve had the privilege of hiring some really strong geologists. I need to clearly outline what we’re doing and how it is going. The clearer I can be, the easier it is to finance the company. That just makes business sense to me."

What Newstrike’s geological team discovered at Ana Paula was a high grade, breccia hosted core zone that is surrounded by an alteration halo of lower grade mineralization hosted in intrusion, hornfels, skarn and sedimentary rock. The company started hitting the high grade zone with drill holes, and scored big with hole 11-37, which cut 317 metres averaging 5.8 g/t Au.

"In our case, the breccia was the host of the mineralization, so there were at least three passive events that mineralized the breccia zone," Whittall explains. "Now the fourth one was an epithermal overprint. So what happened to us was that the mineralogy at Ana Paula is identical to Los Filos and Morelos, we’re just later in the system and have a sulphide deposit."

Newstrike is resource drilling at Ana Paula, focusing on delineating the high grade breccia zone and optimizing an economic pit shell for its deposit. The company released results from the program in mid-September, with highlights including 175 metres carrying 5.45 g/t Au in hole 12-111; 58 metres averaging 2.3 g/t in hole 12-114; and 56 metres of 2.56 g/t in hole 12-115.

"My background is investment banking, so I’m looking at this from a return-on-capital point of view, and things like that," Whittall muses. "I think there is a big disconnect on the street with what we have. They love that we have a high grade zone, because that pays back your initial capital investment. But what we really like is that ocean of low grade. It’s easy to get at, and has great recoveries. That’s what gives you the life-of-mine."

Newstrike brought on Thomas Bagan as vice-president of project development, so its geological team can concentrate on exploring the company’s 890 km2 Aurea Norte land package surrounding Ana Paula. Bagan is a mining engineer with over 30 years’ experience, who formerly worked with Minefinders.

Whittall makes no bones about Newstrike’s intentions. He says the company is exploration based and has no ambitions about developing Ana Paula. He intends to de-risk the project as much as possible before hopefully taking it to auction.

The company is aiming to increase the grade and boost metallurgical recoveries leading up to the calculation of the deposit’s maiden resource. Whittall says that ideally, the resource estimate should hopefully come in at 3 million oz of gold with a grade of 2 g/t or higher, after dilution.

For now, Newstrike is using metallurgical work completed in the mid-2000s. A preliminary flotation test resulted in a concentrate with indicated gold and silver recoveries of 77.3% and 74.5%. To improve concentrate grades, it was recommended that primary flotation tests be carried out, followed by cyanide concentration and optimization tests.

"I’ve had a lot of years to look at this, and a big company really only buys you for ounces at a prevailing gold price, less a discount," Whittall explains over coffee. "And those discounts can be things like: Are you on the side of a mountain with a high strip? Are you refractory? Is the environmental work solid?"

Whittall says Ana Paula has favourable topography similar to Los Filos, plus power line access and a variety of water sources that should be relatively easy to permit. Newstrike has also focused heavily on community relations. Whittall says the company does not run overbearing security at site, explaining that "philosophically" it usually causes more harm than good with the local communities.

"When some of the producers up north were dealing with drought conditions and some cost overruns, I went to their guys and I said, ‘No one will ever get fired for buying Newstrike.’ I say that because what we really have is an easy to run project," he says.

With a greater understanding of the Guerrero mineralogy and a relatively greenfield land package, Newstrike is aiming to find another high grade breccia zone. Through geophysics the company has extended the mineralized footprint for 7 km, and is mobilizing additional drill rigs to the site for a program slated to start up by November.

"What was brilliant about it is that our basic Guerrero model has evolved into a more complex one, where we have a lot more knowledge of the system," Whittall says. "This was a structural control that jumped through a couple of faults, so we’ve run all sorts of geophysics on the property to see if we can find more zones. We’ve taken it up a notch, and we’re using our full toolkit."

Newstrike shares have been on a run over the past three months. As results have emerged from the company’s drilling, shares have skyrocketed 78%, or $1.05, closing at $2.39 at press time.

After Fred Stanford and his team at Torex raised US$350 million on Oct. 1 to fund development at Morelos, it is not a stretch to call Newstrike the premier mergers-and-acquisitions target on the Guerrero gold belt.

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