Mexico's $150 Billion Gold State
Two Mexican 'Gold State' Stocks
The sudden clamor for gold properties in Central Mexico is handing triple-digit gains to investors.
A recent bidding war over a mid-sized gold deposit in the Mexican state of Zacatecas has already yielded a +100% return for investors since the beginning of the holidays.
Long-term investors have seen much higher gains, however, with two recent discoveries in Zacatecas. These discoveries have uncovered approximately $150 billion worth of precious and base metals. It was all found in...
Mexico's Golden State
Zacatecas is a landlocked state in Central Mexico, best known for its historic gold and silver mines.
The state's incredibly rich silver deposits were first discovered by colonial Spanish explorers during the 16th century. One hundred years later, the mines of Zacatecas were producing nearly a third of Spain's silver and a fifth of the world's supply.
But despite having already produced the equivalent of about $2.5 trillion worth of precious metals for the Spanish, geologists are using modern exploration techniques to find new gold and silver deposits in Zacatecas today.
Recent discoveries at the Peñasquito and Camino Rojo projects — both located in northeastern Zacatecas — have revealed a total resource of 40 million ounces of gold and the equivalent of 5.6 billion ounces of silver.
The Peñasquito project is 100% owned by Goldcorp (NYSE: GG). It is home over 35 million ounces of gold, 2.4 billion ounces of silver, and $50 billion worth of zinc and lead. The Peñasquito mine will be Mexico's largest open pit mine once it is completed and commissioned in early 2011. The mine is expected to produce 500,000 ounces of gold, 30 million ounces of silver, and over 400 million pounds of zinc over its estimated 22-year mine life.
A half-hour drive to the southeast of Peñasquito is Canplats Resources' (TSX-V: CPQ) Camino Rojo project. The Camino Rojo ("Red Road") project is much smaller than Peñasquito, hosting almost 4 million ounces of gold and 70 million ounces of silver. A mine at Camino Rojo is expected to produce 122,300 ounces of gold and 902,100 ounces of silver over a 10-year mine life.
To gain control of the Camino Rojo project and expand operations in Zacatecas, Goldcorp made an offer to buy Canplats for ~$230 million back in mid-November.
Under the terms of the agreement, Canplats shareholders would receive 0.074 of a Goldcorp share and one share valued at C$0.18 in a new exploration company, representing a combined value of approximately C$3.60 per share.
Shares of CPQ instantly jumped 40%. And many investors walked away quite happy.
But the action in CPQ wasn't finished...
Minera Penmont initially offered C$4.20 in cash and shares of a new exploration company.
And again, shares of CPQ jumped instantly... this time by another 50%.
Goldcorp exercised a prearranged right to match the offer on Christmas Eve. But over the weekend, Minera Penmont increased their offer to C$4.60, which Goldcorp matched again on Wednesday.
The offer for Canplats now still stands at C$4.60 in cash and shares of a new exploration company. And with a bidding war still underway, shares of CPQ have already increased as much as 102% since Goldcorp's initial offer.
With such a frenzy of interest in Canplats, I decided to take a look at other companies that have gold projects in Zacatecas. Here are...
Two Mexican 'Gold State' Stocks
Our ability to get investment exposure to gold projects in Zacatecas is actually quite limited. Goldcorp and Canplats have the most substantial projects in the state. And Goldcorp has already made moves to secure other mining interests in Zacatecas, leaving them with partial interests. Here are two companies with gold properties in Zacatecas that Goldcorp has made agreements with...
Corex Gold (TSX-V: CGE)
Corex Gold's 40,000 hectare Zuloaga property is located less than 10 miles from Peñasquito. The company has mapped the property and collected a few samples, but the project remains under-explored. Despite the limited exploration, Goldcorp has already reserved the right to earn a 70% interest in Zuloaga by spending $4,000,000 on the property over a five-year period. Goldcorp can gain another 10% interest in the Zuloaga property by funding the full construction of a mine.
Quaterra Resources (AMEX: QMM)
Quaterra Resources controls five 100%-owned concessions totaling 69,034 hectares in Zacatecas and San Louis Potosi. These concessions are even less explored than those held by Corex. Nevertheless, Goldcorp recently acquired the right to earn a 65% interest in Quaterra's Zacatecas properties by funding a $10 million exploration program.
Investment access to gold projects in Zacatecas is limited. But geology does not abide by political borders. There are many other gold and silver projects in the surrounding states of Durango, Coahuila, Nuevo Leon, and San Louis Potosi.
As always, I recommend looking for companies with quality projects and strong management with experience in the full development of mineral projects.
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