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Gold Mining in Brazil

Written By Luke Burgess

Posted June 3, 2008

Believe it or not, the Brazilian equivalent to the Dow Jones has skyrocketed 306,622% in the past 15 years alone.

The Bovespa Index is the main indicator of the Brazilian São Paulo Stock Exchange and reflects the exchange’s largest and most heavily traded stocks. The Bovespa has increased almost unbelievably from 24 in April 1993 to almost 74,000 last week.

By comparison, the Dow Jones Industrial Average has increased a relatively meager 317% over the same time period and 4,531% in its nine decade history dating back to 1929. That means, throughout its entire history, the Dow has tasted only about 1% of the growth experienced by the Brazilian stock market since 1993.

The massive boom in the Bovespa stems from the development and exploitation of Brazil’s treasure trove of natural resources and sound macroeconomic policies that have bolstered international reserves to historically high levels, reduced public debt, and allowed a significant decline in real interest rates.

Brazilian GDP is now the highest of Latin America with large and still growing agricultural, mining, manufacturing, and service sectors, as well as a large labor pool.

Major export products include timber, aircraft, coffee, automobiles, soybean, iron ore, orange juice, steel, ethanol, textiles, footwear, corned beef, electrical equipment, and gold, which has recently become a major source of income for several countries of the Amazon region, especially Brazil.

Gold Mining in Brazil

With over 2,500 currently known gold occurrences within the country, Brazilian gold mining, development, and production is expected to continue increasing significantly in the foreseeable future, presenting us with a river of investment opportunities.

Over the past several months, I have been following many Brazilian gold projects. One of particular note is the Cuiú Cuiú project, owned by Magellan Minerals Ltd. (TSX-V: MNM), a recently listed and well financed Canadian-based junior exploration company focused on mineral exploration and development in the state of Para in northern Brazil.

The Cuiú Cuiú district is located about 180 kilometers southwest of the small city of Itaituba, the regional hub for the Tapajós Mineral Province in northern Brazil.

In its heyday, from 1972 to 1992, the Cuiú Cuiú district was a significant alluvial gold producer, yielding between 1.5 and 2 million ounces, and part of the largest gold rush in history. It’s been estimated that over a million people rushed to northern Brazil to seek their fortunes during this gold rush. Approximately 300,000 of these miners, or "garimpeiros", ended up working the rich alluvial deposits draining into the Tapajós River. It’s estimated that 5,000 to 10,000 people lived and worked in the Cuiú Cuiú area alone.

This frenzy of gold exploration activity attracted the attention of both major and junior mining companies, and in the mid to late 1990’s, several major mining companies as well as a handful of juniors arrived on the scene. During the period from 1996 to 1999, TVX Gold, Phelps Dodge, Rio Tinto and Altoro Resources all carried out work at Cuiú Cuiú. This work included gridding, soil and rock chip sampling and a small amount of shallow drilling. However, due to the inability of any of these companies to make satisfactory agreements with the majority of the local miners, and also due to the fall of the gold price in 1998, interest in the area waned.

In response to rising gold prices in 2004, Magellan Minerals acquired the exploration rights over a 47,000-hectare (116,000-acre) area from the Brazilian National Department of Mineral Production. A year later Magellan reached an agreement with the owners of the traditional surface rights whom have historically worked and lived at Cuiú Cuiú to explore the area.

To date the company has identified a mineralized structure that stretches for more than 17 kilometers across Magellan’s license area. The company has found five major gold-in-soil anomalies as well as several minor anomalies along this zone. The largest of these anomalies is the Central anomaly, which is approximately 450 meters wide and extends for 2 kilometers.

In late 2006, and prior to going public, Magellan completed a small Phase I 10-hole, 2,700 meter drill program at the Central anomaly. This initial exploration program returned significant near surface, bulk tonnage grade drill results including 159.0 meters grading 0.91 g/t gold in hole CC-02-06 and 134.5 meters grading 1.10 g/t gold in hole CC-03-06.

One year later the company initiated a Phase II exploration drill campaign that was increased to 7,000 meters after Magellan raised $11 million with its IPO in February. This Phase II exploration program has been recently completed and the final drill results were just released this morning. Highlights from the entire 41-hole drill program include:
  • 65.8 meters grading 3.54 g/t gold in hole CC-13-07, including 6.1 meters grading 23.53 g/t gold;
  • 179.6 meters grading 1.06 g/t gold in hole CC-15-07;
  • 174.2 meters grading 1.46 g/t gold in hole CC-16-07, including 59.0 meters grading 2.86 g/t gold and 2.0 meters grading 26.15 g/t gold;
  • 220.7 meters grading 2.02 g/t gold in hold CC-32-07, including 9.8 meters grading 17.91 g/t gold and 4.2 meters grading 25.69 g/t gold; and
  • 101.1 meters grading 0.79 g/t gold in hole CC-38-07.
These drill results suggest a large, untapped gold resource. To date, Magellan has spent over $2 million on exploration at its Cuiú Cuiú project. Based on Magellan’s success so far at Cuiú Cuiú, I expect that the company will begin a Phase III exploration drill program within the next few months followed by an NI 43-101 resource estimate calculation. Magellan Minerals is a company that I will be following closely over the next few months.

Brazil’s gold and mining sector is going through a phase of real growth. New mine projects and expansions in progress are expected to ensure that the country retains its leading position in global mineral commodity production for years to come. Brazilian gold explorers like Magellan Minerals should do very well over the next few years.

Until next time,

Luke Burgess

P.S. I’m currently putting together a new report on Brazilian gold that I will be offering to all Gold World subscribers for free. Keep an eye out for that report in the next two to three weeks.

P.S.S. My colleague Sam Hopkins has been bullish on Brazil since most other international newsletters were chasing down the China story. This has given his readers a pole position on superior returns in this underappreciated emerging market mammoth. Sam is fluent in Portuguese and is going to Brazil later this year to drum up some recommendations and meet with companies. He told me this morning that he’s already got a few triple-digit gains in Brazilian stocks. To learn how to invest with Sam in Brazil, simply click here.