Antioquia Gold Inc.
TSX VENTURE : AGD

Antioquia Gold Inc.

August 17, 2010 17:33 ET

Antioquia Gold Inc.: A Strategic Partnership With Desafio Minero

CALGARY, ALBERTA--(Marketwire - Aug. 17, 2010) - Antioquia Gold Inc. (TSX VENTURE:AGD)

By Mark Weaver
WWW.JaysWatchlist.com
10 August 2010

Mark Weaver, of JaysWatchlist.com, is an independent analyst working in partnership with Jay Taylor of Taylor Hard money Advisors.

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Overview:

Desafio Minero, the exploration arm of Peruvian gold producer Consorcio Minero Horizonte, has offered Antioquia Gold a strategic partnership. This is not a project-specific joint venture so common among explorers within the junior resource sector. Antioquia's flagship property, Cisneros, was a focal point for discussion between the parties; especially, since Antioquia released highlights from its recent drill program which included up to 4.4 metres @ 16.6 g/t Au, including 1.0 metres @ 61.8g/t Au in the Guaico structure; and up to 24 metres @ 2.6 g/t Au, including 11.2 metres @5.4g/t Au and 1.6 metres @ 16.7 g/t Au in the Nus structure. However, this deal is more important and far-reaching than Cisneros. Subject to regulatory approval, Desafio offered $3.23 million dollars for a 19.9% stake in AGD. Rick Thibault, President and CEO of Antioquia, explained the significance of this deal by saying "the investment by Desafio provides Antioquia with a strategic partner who not only understands and mines similar geological structures in Peru as the Cisneros Project but also provides synergies between the two companies that can advance Cisneros towards production and allow both companies to further explore Colombia."

Background:

Antioquia Gold (AGD) has invested a considerable amount of money since 2007 accumulating a 32,000 hectare land package in Colombia. Only a small area of this property has been surveyed, sampled, trenched and drilled to date, and most of these efforts were focused at Cisneros which is located 70 kilometres northeast of Medellin.

AGD has located numerous high quality vein structures throughout its properties. This year, alone, AGD committed to a 10,000 metre drilling program. It has yet to identify a commercially viable resource but continues to reveal rich core samples. With less than one million dollars in its treasury and some 83.7 million shares outstanding on a fully diluted basis prior to the deal with Desafio, shareholders stand to benefit greatly from the additional experience and resources Desafio offers.

AGD shareholders can take great confidence in the fact Desafio Minero is not a fly-by-night junior company helping out another non-arms length junior explorer. Desafio is the privately-held exploration arm of Consorcio Minero Horizonte S.A. the fifth largest gold producer and second largest underground gold producer in Peru. Horizonte and Desafio are both controlled by the Navarro-Grau Group. The Navarro-Grau Group of companies produces approximately 200,000 ounces of gold per year and has 32 years of experience in the exploration, development and operation of underground narrow-vein deposits. The group has a strong pipeline of projects at the exploration and development stage, and is actively involved in expanding their operational footprint and developing new mining opportunities in Peru and Latin America.

Why I am Bullish on Antioquia At This Time

Prior to this deal with Desafio, AGD was in the process of arranging funding through an agreement with Union Securities. Like so many other juniors without cash flow, it appeared to be further diluting itself in order to secure the cash needed to continue its exploration and development activities. Then came Desafio; and the deal with Union Securities was cancelled.

The agreement with Desafio is not an ordinary venture. Desafio did not buy in at the project level. It made a strategic commitment. For me, the most startling part of the deal was Desafio's agreement to maintain its equity ownership in the corporation without the standard protections against dilution. The deal said, "at closing of the private placement, Antioquia and Desafio will enter into a strategic alliance agreement pursuant to which Desafio will be granted certain rights, including the right to maintain its percentage equity ownership interest in the Corporation." Should Antioquia consider an equity issue, Desafio is obligated to bring more capital to the table in order to protect its ownership interest. Desafio conceded further protections of its investment by only claiming "the right of first refusal in respect of the sale by Antioquia of any of its mineral property assets." In the event things do not unfold profitably, Desafio's only exit strategy appears to be selling-out its position to another party which they would likely do at a loss.

There are many mining projects in Colombia in which Desafio could have participated. Why this one and under such generous terms? Part of the answer, I believe, rests in comments from Felix Navarro-Grau Hurtado, Board Director of Desafio, who commented: "Antioquia's Cisneros property potentially hosts a deposit that is very similar to the one we have been producing from in the Pataz Batholith region for more than 32 years. This type of deposit could be characterized as high grade narrow veins with large horizontal and vertical extents. The respective management and technical teams at Horizonte and Antioquia will complement each other very well, and our financial capacity and experience in developing such properties will help expedite the advancement of their projects. This partnership also provides an attractive platform to position Desafio in Colombia and increase our presence in South America."

While AGD has developed its understanding of Cisneros' geology and its geometrical configuration since 2007, Felix Navarro believes he has seen it before. As the General Manager of Desafio's parent company, Consorcio Minero Horizonte, his company operates two mines in Peru. The Parcoy mine produces 180,000 ounces of gold each year and the Utica mine is increasing its production to 80,000 ounces in the 2010-2011 fiscal year based on structures similar to those Antioquia is exploring in Colombia.

2010 has so far been a rough year for investors in Antioquia Gold. Despite the high demand for gold, a spot price around $1200 per ounce, and other junior explorers' share prices hitting their highs, Antioquia's share price plummeted from a high of approximately $0.69 to the current level of $0.24. James West (Midas Letter, 07/29/10) wrote: Antioquia's ongoing successes... might be an opportunity for astute (and risk tolerant) investors. . .From the most recent press release, excellent grades were intercepted." The Gold Report Interview with Chris & Michael Berry (07/14/10) called this stock "very cheap...a good opportunity." Eris Eng (eResearch, 06/22/10) said AGD, with less than a million dollars in the bank at the time, had a "current cash balance ... sufficient enough to finance the company's 2010 exploration program, and identified a 12 month target of $0.80 CDN per share. The Desafio deal suggests there is now a basis for the enthusiasm felt by some earlier in the year. In my opinion, Rick Thibault was right to have said, "we view this placement (by Desafio) as a major vote of confidence in our exploration properties. This addition to our treasury comes at a critical point in our exploration program and places Antioquia in a solid position to continue to explore our existing projects."

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