Share Price: 0.12Gold (USD): 1242.55

Lavras do Sul

LAVRAS DO SUL GOLD DEPOSIT

Cut-Off = 0.3g/t Au Tonnes (mt) Grade (g/t) Ounces Au
Indicated 6.4 1.05 215,000
Inferred 12.9 0.74 308,000

Introduction

The Lavras do Sul project is centered on a 190 sq. km. granitic (monzonite) intrusion located in the extreme south of Brazil in the state of Rio Grande do Sul. The town of Lavras do Sul (approx. 8,000 population) lies roughly in the centre of the intrusion and is accessed by 320 km of sealed road from the state capital of Porto Alegre. To see the detailed location select the Google Earth and Google map buttons on this page.

The project encompasses some 19,000 hectares of exploration permits and private mineral holdings. Figure 5 shows the geology of the area. The gold at Lavras do Sul is hosted in structurally controlled alteration zones (marked grey on Fig. 5). There are two known zones of significant disseminated gold mineralization, Butiá and Cerrito. Local infrastructure is excellent and there are good farm tracks across the intrusion. The town has a mining history and there is modern strip mining of coal within an hour’s drive.

 

Figure 5: Geology of the Lavras do Sul area, Blue outline shows current land holdings, grey areas show currently mapped areas of old diggings and alteration. Red lines represent the more prominent silica veins. The Butia and Cerrito zones are identified.

Lavras do Sul (“diggings of the south”), was the subject of successive gold rushes in the 1880’s and 1930’s during which it is estimated that about 350,000 oz. of gold were extracted. There are numerous diggings and excavations throughout the area - all in the oxide/ soil horizons - where the gold was liberated and relatively easy to extract using the technology of the time. However, that technology was not adequate to deal with the gold bound up in sulphides and also probably ignored grades below 4g/t Au in the oxide. A state-owned company, Cia Brasileira do Cobre (CBC) drilled holes at the Butiá and Cerrito zones in 1985 and returned assays of around1 g/t gold in the sulphides. Rio Tinto was first attracted to the area in 2004 by analogy with Paracatu, a profitable Brazilian gold mine formerly owned by Rio Tinto. The concept was that there might be a large oxide gold blanket of less than 4g/t. Rio Tinto first spent time and energy accumulating mineral title in the area by staking ground themselves and making deals with underlying title owners. One of the reasons this area has not seen much modern exploration was the fractious land position. Obtaining a large land position in this area was a major achievement. Rio Tinto did this by entering into option agreements with the underlying land owners, consisting of two parties, CBC and Maria Lucia Vidal. To test the large oxide blanket concept, Rio Tinto drilled numerous short (up to 6m) core drill holes in the northwest sector of the intrusion shown as blue dots in Figure 1. This work did not indicate a large (>10 million ounce) oxide resource in that area. Prior to making the decision to vend the property, Rio Tinto drilled four holes into Cerrito and Butiá as a check on the work CBC had done in the 1980’s. This drilling confirmed CBC’s work by returning similar results. Rio Tinto used some of this core to conduct a preliminary metallurgical test, using a light crush, flotation and CIL process. The recovery was a net 85% from the two circuits. Much more work needs to be done, but this is an encouraging result. In April 2006, Rio Tinto offered the project for sale in an anonymous bidding process. In September 2006, Amarillo was notified that it had been successful above three other participants.

The Rio Tinto Option Agreement

In October 2006, Amarillo and Rio Tinto signed an option agreement which is summarized below. Under the agreement, Amarillo essentially assumes Rio Tinto’s position in its underlying option agreement with the mineral rights holders, repays Rio Tinto over time the funds spent to date, and pays additional amounts based on performance milestones.

Option agreement summary:

  • Amarillo made total payments of US$1,265,000 in several instalments through January 31, 2008 in order to acquire an initial 60% interest in the property.
  • Issue 2,000,000 warrants - exercisable at $0.50 - to Rio Tinto within 60 days of signing the final agreement. (these warrants expired in Feb-2010).
  • Amarillo spent US$750,000 on exploration of the property by October 31, 2007.
  • Form a joint venture with the underlying property owners upon completion of the foregoing payments. If the other parties do not elect to contribute to the project, then Amarillo will earn a 100% interest in the property and be required to pay a 1.5% Net Smelter Royalty on production to these parties; and
  • Amarillo may withdraw from the agreement by giving 30 days’ notice.

In addition, should Amarillo choose to exercise at least one of its options as set out in the option agreement with Rio Tinto, additional terms will apply, including:

  • Amarillo will make a payment of US$806,000 to Rio Tinto.
  • Amarillo will make a US $1,000,000 payment to Rio Tinto within 90 days of a bankable feasibility study being delivered.
  • Amarillo will make a US $6,500,000 payment for every one million ounces of recoverable gold reserves that is covered by the 60% equity in the Property over which Rio Tinto has an option.
  • Rio Tinto will have a back-in-right to acquire 70% of the Amarillo interest in the project by paying Amarillo three times their exploration expenditure in the event that Amarillo’s equity interest in the Property contains in excess of 7 million ounces of recoverable gold.

Exploration Rationale

Amarillo believes there is excellent potential for both oxide and sulphide gold in the Lavras do Sul project. The work completed by Rio Tinto and CBC has already demonstrated that the Cerrito and Butiá zones have gold mineralization, as summarized in Figures 5 and 6. A total of 46 holes were drilled by the two operators of which some of the best intersections are: LG003GD (RTM) 175m @ 0.75 g/t Au (Butiá) LG004GD (RTM) 181m @ 0.87 g/t Au (Butiá) BB-11-85 (CBC) 104m @ 1.03 g/t Au (Butiá) BB-01-85 (CBC) 184m @ 0.93 g/t Au (Butiá) BB-02-84 (CBC) 47m @ 1.04 g/t Au (Butiá) C-F06-86 (CBC) 65m @ 1.05 g/t Au (Cerrito) C-F10-84 (CBC) 90m @ 0.78 g/t Au (Cerrito) C-F07-89 (CBC) 101m @ 1.15 g/t Au (Cerrito) C-F04-86 (CBC) 71m @ 1.08 g/t Au (Cerrito) The gold mineralization at both zones is open in a number of directions. The mineralization is associated with pyrite and hosted in structurally controlled alteration zones within the granite. Most of the foregoing drill intercepts are from angled holes which tested the sulphide zone leaving the oxide zones largely untested.

 

Figure 6: Cerrito gold zone, showing previous drilling and gold intercepts. Note that the old excavations do not lie directly over the sulphide mineralization and that the mineralization is open ot the East, West and at depth.

Figure 7: The Butia Gold prospect, showing previous drilling and gold intercepts.

Amarillo began drilling on the Lavras do Sul project in December 2006. Three holes were drilled in the Butiá zone. These were drilled from the southwest to the northeast, in the opposite direction to the historic drilling, to further define the structural zone that controls the mineralization. Large diameter PQ core was used in the oxide and transition zone to try to ensure full recovery. Results from the first drill hole have been released, with the following intercepts: From surface to 157 meters at 1.05 g/t Au, which included the following surface or near-surface intervals: 0 – 12 .5 m @ 1.92 g/t Au in the oxide zone. 12.5 – 20 m @ 1.41 g/t Au in transition zone. Amarillo believes that the occurrence of gold in oxide above the sulphide zone is important. It shows there may be significant amounts of gold in oxide sitting above the sulphide mineralization. The sulphide mineralization is smaller, and more structurally focused than the broad clay and sericite alteration zones they occur within. The drilling at Cerrito is stepping out to the SE away from the known mineralization to test alteration and excavation trends. There are at least 10 separate zones of alteration with excavations from the gold rush times and with >1g/t rock float. As we do work, mapping is revealing more areas of alteration and workings. Only two of these zones, Butiá and Cerrito, have ever been drill tested, and both demonstrated interesting results. The most exciting aspect of the Lavras do Sul project is that there is no discernable difference between Butia and Cerrito, on the one hand, and the other areas of diggings, on the other. The Company believes there is good potential to find numerous zones of gold mineralization beneath these other areas. Orientation soil sampling over the Cerrito zone appears to outline the sulphide mineralization and suggest extensions to the mineralization. The Company intends to deploy this technique elsewhere as well. Amarillo has the following plan of work, in addition to meeting all its commitments under the Rio Tinto option agreement:

  1. Drilling in the Cerrito extension.
  2. Regional to local stream sediment sampling.
  3. Mapping and soil sampling in other areas of alteration.
  4. Flying airborne magnetics and radiometric to help map the alteration and structures.
  5. Undertaking ground IP/resistivity to map the alteration and areas of higher pyrite concentration.
  6. Drill testing the most promising areas revealed by this work.