Production has switched to Cap-Oeste in Argentina from the nearby Lomada mine.
Full leaching capacity was realised within the first three weeks of operation, with metal recovery in line with forecasts but importantly from a cost perspective cyanide consumption was half the original estimate.
Cap-Oeste lies on the El Tranquilo property and on its own holds 1.3 mln ounces of gold equivalent in the higher confidence indicated category with a further 385,000 ounces inferred.
It did have a potential satellite deposit in the nearby Cap-Oeste South East (COSE), but in a unexpected move the miner has now decided to sell and take an option on a site in Argentina’s Rio Negro province.
A subsidiary of Pan American Silver (NASDAQ:PAAS TSE:PAAS) will pay US$15mln for COSE, of which US$7.5mln is deferred, plus a 1.5% net smelter returns royalty.
In addition, Patagonia has been granted an exclusive option to purchase Pan American’ s Calcatreu gold-silver asset for US$15mln.
Patagonia will have six months to exercise the option.
The Calcatreu deposit is a low sulphidation epithermal style gold-silver deposit, 40km south of the town of Ingeniero Jacobacci.
A 2008 estimate suggested 6.6 mln ounces of silver at an average grade of 25.7 grams per tonne and 676,040 ounces of gold at an average grade of 2.63 grams.
In addition there is an inferred mineral resource estimate of containing 1.8mln ounces of silver and 226,050 ounces of gold.
Cap-Oeste production underway
Back at Cap-Oeste, first gold last year helped the junior post a maiden annual profit after tax of US$1.1 mln.
Revenues rose 15% to US$30mln from the sale of 24,572 ounces of gold equivalent at an average gross price of US$1,232.50 per ounce.
But there was heavy expenditure on the shift to Cap-Oeste and that reduced cash equivalents to US$735,000 at the year-end.
Lomada produced 22,770 ounces of gold, slightly up on the previous year, but has now ceased mining operations, although leaching continues.
Production from Cap- Oeste is now expected to be 186,800 ounces of gold equivalent over the next three years due to better pit optimisation, but It is still a short mine life.
“Calcatreu presents a new opportunity for Patagonia Gold to develop and produce from an asset with a potential mine life of over five years," said Patagonia chief executive Christopher van Tienhoven.
Externally, a new government in Argentina has meant the backdrop for miners in the country is much improved.
That might prove handy as in addition to Cap-Oeste there is the La Manchuria project around 60km north northeast of Gobernador Gregores in Argentina's Santa Cruz Province.
That hosts the Manchuria Main Zone gold and silver project and the better political environment will do no harm to Patagonia's attempts to find a partner for its acreage.