Aguila American Gold’s Angostura Project holds plenty of upside potential for small cap investors

Aguila American Gold (CVE:AGL, OTC:AGLAF) is a junior Canadian gold explorer that is focused on developing a major gold trend that has been identified on its flagship Angostura Gold Project, which is located in southwestern Peru.

Angostura lies within a highly prolific mining district that boasts total resources of over 1.6 billion tonnes of copper ore that are owned by mining giant Xstrata (LON:XTA), and include the Tintaya Copper and Gold Mine, and projects under development at Antapaccay, Coroccohuayco, and Las Bambas that may produce as much as 500,000 tonnes of copper per year.

The gold targets at Angostura are contained within a Cretaceous age sequence of limestones and sediments that has been intruded by the Lower Tertiary age Andahuaylas-Yauri batholith.  This same sequence of sediments and intrusive rocks hosts the Las Bambas copper gold porphyry deposits, the Constancia porphyry copper deposits and the Tintaya porphyry copper and skarn deposits, ,and all have mineralized intrusions with copper, gold, silver and molybdenum mineralization plus base metals occurrences. This belt also contains numerous iron-copper skarn deposits associated with the Andahuaylas batholith. This supports the exploration thesis that Angostura may host a very significant gold resource along with silver and base metal credits.

The Angostura property contains limestone replacement bodies that appear structurally related to the East-West trending Vilcabamba fault in the south of the property and may carry significant amounts of gold and silver mineralization, with possible base metal credits, within brecciated limestones being the main target. The host structure is a splay of the Vilcabamba fault and the contact between limestones of the Upper Cretaceous Ferrobamba formation and the older sandstones, siltstones and shales of Lower Cretaceous Mara/Soraya formation that encapsulate a low temperature gold system containing significant amounts of iron and manganese oxides and barite.

Angostura is located in the Department of Apurimac, in Garu Province and is 430 kilometres southwest of Lima, and 180 kilometres southwest of Cuzco. The property covers 4,869 hectares of fully titled concessions, and 2,965 hectares that are under application for title. Electric power and water are both available on the property, and access is provided by a paved highway and gravel roads that surround the concessions.

The central part of the project area is crossed by Angostura Creek that breaks the currently defined mineralized trend into two parts; with a westerly extension containing a 2,100 metre long oxidized gold bearing system, and a 2,700 metre easterly extension carrying the same style of mineralization.

Historic work programs completed from 1993 to 2003 included extensive sampling and trenching that identified an average of 5.63 metres at 2.45 g/t Au, with a maximum of 8 metres at 3.48 g/t Au, to the west of Angostura Creek. The strike on the easterly side of the creek recorded an average of 6.55 metres at 4.33 g/t Au, with a maximum of 17.5 metres at 5.24 g/t Au, with one section reporting an average of 3.67 g/t Au over 75 metres. The mineralized system is also pockmarked with small scale artisanal mine workings at multiple points along its surface exposure.

In 2010 a surface sampling program collected 13 samples from two areas identified as Zones 1 & 2. Zone 1 carries an exposed strike of 150 metres and a width of up to 30 metres carrying gold grades of from 1.2 g/t to 8.9 g/t Au, and lies to the west.  Zone 2 which runs to the east and is the focus of both exploration and more artisanal mining activity has a surface expression that extends for a length of 400 metres and an average width of 75 metres at an average grade of 3.67 g/t Au.

A sample weighing 400 grams and carrying a head grade of 1.00 g/t Au and 5.46 g/t Ag, was collected and subjected to preliminary metallurgical testing that confirmed a recovery of 97% of the gold and 76.20% of the silver content. Bottle roll tests were also completed on trench samples carrying head grades of 1.1 g/t to 7.33 g/t Au and 3.98 g/t to 12.22 g/t Ag, confirming recoveries of 94.5 to 97% of the gold and 69.6 to 81.2% of the silver content.

These initial tests confirm that the near surface gold content at Angostura is amenable to standard recovery techniques for oxidized gold mineralization at very acceptable levels.

The gold mineralization identified in Zones 1 and 2 carries both gold and silver within a mineralized system that has a northerly dip and is open in all directions along a total strike length of 4,800 metres.

A two phase exploration program has been designed that will commence with geological mapping, sampling and trenching that will be followed by a 3000 meter diamond drill program in 20 holes that will get underway in the fall of this year, and take approximately 4 months to complete.

The second phase drill program plans for the completion of 14 diamond drill holes to test the down dip extensions of Zones 1 and 2. This program will take 5 months to complete and extend into 2012. Further drilling could be recommended based on the results of the trenching and drill programs to test the extensions of the zones beyond the areas of outcrop of oxide gold mineralization.

Aguila American Gold has developed strong local community relations with the local population and administration, who have granted a preliminary access agreement so that the proposed exploration effort can get underway.

Peru recently elected a new center left government that is headed by President Humala, who is seen as a pragmatic leader who seeks a more equitable distribution of wealth that is generated by the mining sector. This sector currently contributes approximately 21% of the Gross Domestic Product of the country and is expected to play a larger part in leading Peru’s poorest citizens to a better lifestyle.

Check your facts: Peru pays a higher tax rate for mining then those on your list. GDP is high as well
This may play out in the boosting of royalty rates from 3% to 5%, and increasing the corporate tax rate to 35%, which will bring these rates into line with other major mineral producers such as Canada, Australia and Chile.

In the meantime major producers such as Xstrata, Peru Copper, Freeport-McMoRan (NYSE:FCX), Rio Tinto (NYSE:RIO, LON:RIO) and a host of other miners remain committed to investing over US$20.7 billion in developing a host of new mining projects. Glencore International (LON:GLEN) also has substantial interests in Peru, recently announcing an investment of US$475 million to acquire a 70% stake in the Mina Justa Project, affirming that Peru remains a favored location for development of major mining projects.

Aguila American Gold is led by John Huguet as CEO, who has more than 35 years of experience in the development of producing mines in South America, and led the Peruvian Business Council where he was twice decorated by the Peruvian Government.

Management support is provided by Christopher Verrico, who has 25 years experience in development and management of open pit mining; and James McCrea who has 20 years resource exploration experience in the Americas, and served in senior roles at Silver Standard and Cumberland Resources. 

Aguila American Gold carries a market capitalization of just $8 million and holds cash of $5 million. Insiders and institutions hold 40% of the 39 million issued shares, which provides a very tight share capital for rapid price appreciation in the event of a significant drilling and exploration results.