Goldgroup Mining (GGA.TO) announced they entered into a binding agreement to acquire the Cerro Prieto gold project from Oroco Resources (OCO.V).

Cerro Prieto is a fully permitted gold project in the Sonora state of Mexico with approximately 380,000 ounces of gold and in excess of 300M pounds of zinc in the Measured and Indicated resource categories.

Oroco Resources has completed a PEA on Cerro Prieto in 2010, outlining an operation of 545,000t of ore per year for an initial capex of 22M and at a cash cost of $430/oz. Taking inflation costs into account it’s very likely we’ll see a big bump in opex and capex. We think Goldgroup will try to scale this project up towards a more respectable 1M tpa operation to benefit of the economies of scale.

We are happy with this deal as this will provide Goldgroup Mining with a continuing source of cash flow, now their nearby Cerro Colorado project will run out of ore this year. The company is still working on the Caballo Blanco and San José de Gracia projects, and the Cerro Prieto cash flow will be very useful to increase the cash position of the company again.

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Disclosure: The author holds no position in Goldgroup Mining Inc. anymore but will take a position again in the near future. Please see our disclaimer for current positions.

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