Touchstone looks to score in Colombia

MEDELLIN, COLOMBIA — Junior gold explorer Touchstone Gold (TCH-T) believes its high grade Segovia project in northwestern Colombia has the hallmarks to become one of the exciting mining stories out of the country, which recently...

MEDELLIN, COLOMBIA — Junior gold explorer Touchstone Gold (TCH-T) believes its high grade Segovia project in northwestern Colombia has the hallmarks to become one of the exciting mining stories out of the country, which recently transformed its tarnished image into one gleaming with promise.

Colombia is an interesting place, not only because it has such a great history in gold mining, but also because it has been closed to mining investment for decades due to civil unrest, leaving much of the country underexplored, says David Wiley, the company’s chief executive officer, in late April at his downtown Toronto office.

The gold rich nation was once the driving force behind the Spanish Empire and the top gold producer in the Americas until 1937. After which it slowly became paralyzed with drug violence and political corruption.

It was only recently that Colombia cleaned up its act, improving its security situation in the early 2000s, piquing the interest of many explorers and miners that exploded into a gold rush in 2009 and 2010, before cooling off.

“Nearly 15 years ago some of the very large companies like AngloGold came into Colombia and had very large budgets to do explorations and they were very successful,” Touchstone’s consulting geologist Alan Miller mentions over dinner during a humid April evening in Medellin.

“But there were parts of Colombia that were absolutely a no-go. And the area that Touchstone has was a no-go area,” Miller says, sitting in a straw roofed restaurant flanked by palm trees. The project area became safe to work in around 2007, leaving it relatively untouched until then, he adds.

The junior’s prized asset lies in the Segovia gold belt, some 150 km northeast of Medellin, Colombia’s second largest city and the modern capital of the Antioquia department.

“You’ve got an area that has been vastly underexplored and given the grade and the new found ability to go in and do active exploration, it is truly an exciting place to be,” Wiley says in his spacious boardroom. He adds: “High grade is the biggest differentiator for projects these days.”

Renewed exploration in Colombia centered on the Middle Cauca gold belt, one of the country’s three main gold belts, boasting large but low grade deposits, such as AngloGold Ashanti’s (AU-N) La Colosa gold project which averages 1 g/t Au, the company explains in a presentation during a site visit in early April.

Given the growing concerns around financing such capital-demanding projects, Touchstone claims the market is starting to favour high-grade projects similar to those found in the Segovia-Remedios gold district. It points to Gran Colombia’s (GCM-T) Segovia operations that host an average grade of 9.3 g/t Au as a prime example.

Touchstone’s Segovia gold project — bordered to the south by Gran Colombia’s operations— consists of 11 mining concessions that include the advanced Rio Pescado deposit and the promising San Miguel, Frontino Norte and El Cinco properties.

The Rio Pescado property is about 15 km north of the Segovia-Remedios gold camp and along the structural trend that extends northward from that district, known for its long history of gold production. Total gold content from that camp over the past 150 years has been estimated at 24 million oz, with roughly 5.5 million oz coming from the Frontino gold mines, including El Silencio and Providencia, which Gran Colombia acquired in 2010 and is currently operating.

“Looking at this district it’s certainly of scale, it has very large deposits and therefore the criteria from a historical point of view is that this is a gold district worth coming back to and looking at,” Miller notes in the presentation at the Segovia property.

Briefly outlining the recent history of the asset, Miller says around 2007 word got out that there were vein quartz boulders in the area. This attracted the Colombian government to come in and carry out a reconnaissance geological survey. Shortly after, Cambridge Mineral Resources purchased the land and for two years explored the area before handing it off to Touchstone in 2009.

At that time, Touchstone was a private firm founded by current director Ilyas Khan, a UK.-based investment banker, who was looking for a partner to take the company public.

Khan met with Robert Buchan, the founder, chairman and CEO of Allied Nevada Gold (ANV-T, ANV-X) and the founder and former CEO of Kinross Gold (K-T, KGC-N) who saw much potential in Touchstone’s original land package containing the Rio Pescado deposit. He contacted Wiley, co-founder and former CEO of Elgin Mining (ELG-T), to steer Touchstone forward under a new management in 2011.

The company listed on London’s junior AIM market in June of that year and then debuted on the Toronto Stock Exchange in December 2012. Currently, Touchstone’s senior management consists of: chairman Buchan, CEO Wiley, chief financial officer Brian Morales, chief geologist John Nicholson, consulting geologist Alan Miller, country manager Irene Meja, and senior vice-president of corporate development Tom Elkins. Its management and directors control over 40% of the junior’s 201.3 million shares outstanding.

Getting to the Segovia project from Medellin’s city airport via helicopter takes roughly 45 minutes, whereas by car the trek would take up to eight hours.

After a brief aviation safety video, the small group visiting the project hopped onto a chopper that ascended above the bustling city, flying over the surrounding mountains dotted with villages, passing a long stretch of undulating hills before landing near a forest reserve. More than half of the South American nation is covered by forests.

After disembarking the helicopter, Nicholson gave a brief tour of the camp facilities at Segovia.

The site is 6 km from the electric grid and near water supply, with elevation in the area ranging from 210 to 270 metres above sea level.

Over the years, the junior has modernized the camp adding new generators and fuel storage to support year-round exploration, as well as a new kitchen and air conditioning. The seven tent camp can house up to 60 employees, but currently services a workforce of 30.

The junior has also improved accessibility by punching in new access trails to the zones and upgrading the private road to the nearby village of Laureles.

Between here and Laureles, Nicholson says there’s about half a dozen farms and no indigenous groups in the area. Some cattle and horses are seen grazing on the rolling hills.

All of the zones on the 247-km2 property are accessible by mules or all-terrain vehicles, with the company primarily relying on the latter to get around the rugged terrain.

While several armed guards are visible on camp, Nicholas says there are about 60 military personnel at any given time patrolling the perimeter. This safety measure costs roughly US$100,000 to US$150,000 a year.

“There are FARC in the area,” Nicholas explains. “You just have to be aware of it. It's no big secret. Colombia is Colombia. You got FARC and ELN.” Fortunately, he adds there have only been two minor scuffles between the military and rebel groups in the area over the last three years, in which Touchstone’s staff and facilities were not affected.

“We’re sleeping with both eyes shut rather than one open,” Touchstone’s chief geologist says while guiding the group towards the exploration office.

“I think not just because I’ve worked here for two and a half years, but the project does possess tremendous potential,” says Miller, who’s a consulting geologist from GeoMinEx, a firm that Touchstone contracted to explore the property.

He explains when Touchstone’s new exploration team arrived in 2011 they visited as many mines as they could in the Segovia-Remedios gold camp to get a better understanding of the regional geology.

Touchstone’s property is in a terrane that has similar characteristics as the Segovia-Remedios camp, Miller says, noting it contains juxtaposed terrains, crustal-scale shear zones and major transposition along those fault zones. “That means generally there is a lot of fluid flow through these large crustal fault zones which are the hydrothermal systems that could make ore.”

Along with assessing the district, the geological team compiled all of the previous exploration data completed at the Segovia project. This included re-logging the core, examining Cambridge’s geophysics and re-interpreting the data to start building a model to understand the property.

Segovia’s gold mineralization is interpreted to be hosted in large, mostly fractured, lenticular zones of milky quartz with gold associated with sulphide mineralization comprising mostly pyrite and some chalcopyrite, sphalerite and galena and rare arsenopyrite, the junior explains on its website.

It adds a main north-south shear zone and a secondary northwest-southeast shear zone hosts vein mineralization with gold associated with nearly horizontal lenticular veins and nearly vertical veins on the property.

However, when Touchstone first started exploring it focused on the nearly flat veins that were being mined by artisanal miners at Segovia, but has now switched its efforts to the higher grade vertical veins.

In 2011, Touchstone’s exploration team conducted several geophysical surveys cutting over 100-line km of grid. This enabled them to gather over 2,400 soil samples which outlined potential gold targets. Subsequently, the team initiated two stages of diamond drilling, focusing mainly on Rio Pescado’s Pepas, Gap area, Filodehambre and the 1141 zones. It followed up on the results with a third drill program that concluded in early 2012.

Altogether it punched over 15,000 metres in 193 drill holes on the Segovia property, of which 8,300 metres in 74 holes were drilled on Rio Pescado from June 2011 to March 2012.

Highlights from the Rio Pescado deposit include: 28.3 metres grading 8.75 g/t Au 16.8 metres of 8.70 g/t Au, 21.8 metres of 5.84 g/t Au, and 8.4 metres of 14.07 grams. All of those intercepts started near surface.

Rio Pescado has an 800-metre drill tested strike length, while the larger Segovia project has a prospective strike length of over 15 km.

Also in 2012, Touchstone substantially expanded its original 31-km2 package through two acquisitions. In September of that year, it acquired the private company, Atlantis Gold Mines, to add the San Miguel and Frontino Norte projects. A month later, the junior scooped up Yamana Gold’s (YRI-T, AUY-N) 60%-held El Cinco property, immediately to the south and west of Rio Pescado. Touchstone holds a 60% to 100% interest on the amalgamated gold property.

Following the presentation at the exploration office, the group took ATVs to tour the fully drill permitted Rio Pescado property, stopping to observe the drillers working on the third hole of the 2013 program.

The junior intends to drill 15,000 metres throughout the year in three phases with a focus on expanding areas of known gold mineralization and testing advanced targets.

The first phase of the program will consist of 5,000 metres of infill and step out drilling, with a focus on Rio Pescado’s 1141, Tagual and newly found Bern zones.

The 1141 zone is a mesothermal gold zone that has returned the best values to date, such as 28.3 metres of 8.75 grams. It sits 200 metres south of the Filo de hambre zone. The Tagual zone contains a 1,000-metre by 400-metre gold geochemical signature that hosts gold-bearing quartz vein material. It sits east of the Pepas zone, named after the Pepas brothers, who are artisanal miners that operate on two hectares of the property.

The Bern zone lies southeast of Filo de hambre and contains a large gold-tellurium geochemical anomaly and is believed to continue south onto the El Cinco property, something Touchstone plans to test this year. It also aims to drill the San Miguel property, once it receives a drill permit.

San Miguel boasts the promising Coturu trend that hosts gold mineralization similar to that seen at Gran Colombia’s El Silencio mine.

Gold mineralization at the San Miguel area is associated with minor amounts of base metal sulphides, whereas Rio Pescado is contained within a gold-telluride environment, resulting in cleaner ore.

Back in Toronto, the company’s CEO notes once drilling wraps up it will calculate a resource estimate for Rio Pescado, expected by year end.

“We’d like to move Rio Pescado closer to production and continue to permit and do some work over in the San Miguel area. And like the Rio Pescado area it is also attractive,” Wiley says.

While it’s still early days at the Rio Pescado project, Wiley believes it will be relatively straightforward to build and mine.

The costs should be considerably lower than most because the project is shallow and high grade, he asserts. “We've talked about it like it is almost like building a highway. It's not a massive open pit as much as it is just a wide zone the width of a four-lane highway.”

Initial metallurgical tests on several samples from the Pepas zone returned recoveries of 87.9% to 95% gold in floatation concentrate with cyanide leaching producing recoveries ranging from 40.5% to 90.7%.

That project is estimated to start production in 2016.

Touchstone ended the first quarter with US$2.4 million in cash and equivalents. It closed June 5 at 4¢ at its 52-week low. The company reached a year high of 16¢ late last December.

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