Excalibur Resources is a junior exploration and development company with a focus on the Catanava Project in the Pinos District in Zacatecas, Mexico. The company is currently installing a 250tpd mill and they should go into production within the next few months.

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Excalibur Resources Ltd. – Developing Catanava

Business Description

Excalibur Resources is a junior exploration and development company with a focus on the Catanava Project in the Pinos District in Zacatecas, Mexico. The company is currently installing a 250tpd mill, and they should go into production within the next few months.

History of the Catanava Project

The Catanava Project in the Zacatecas State of Mexico is currently owned by Minera Catanava, which is a 51/49% Joint Venture between Minera Apolo and Excalibur Resources respectively.
The project is part of the Pinos District, which has been a producer of precious metals since the Spanish occupation in the 16th century. From then till the Mexican Revolution in 1910, reports suggest that over 5 million ounces of gold and in excess of 25 million ounces of silver were produced from an extremely high-grade vein system, with bonanza grades in excess of 60g/t. Minera Catanava is focusing on where three of the four vein systems come together (see map).

Going Forward

Back in 2010, Excalibur Resources closed a Joint Venture with Minera Apolo, a private company owned by Don McLeroy. Under the terms of the agreement, Excalibur funds the first $2M to construct a mill at the Catanava-project. Once this requirement is fulfilled and after two months of commercial production, both JV-partners will fund the remaining expenditures pro rata.
Minera Catanava is currently in the final construction phase; the 250tpd ball mill is being tested as we speak and commissioning has started, as low-grade ore samples are going through the mill. We expect this phase to take approximately 3 months and anticipate a formal start-up of operations by the end of August this year.
As Excalibur is still waiting on the explosives permit, they’ll start to mill the San Gil dump backfill material first. The San Gil dumps are estimated to be approximately 70,000 tons and are expected to have a gold equivalent of approx. 3g/t. Once the explosive permit is issued, Excalibur will start to mine the ore from the high-grade veins.

The production process and expectations

It’s important to emphasize here that this is quite an unusual operation; Excalibur Resources does not have a NI43-compliant resource estimate and didn’t complete an economical study on the project.
The approach of this project is old-school; Minera Catanava will just follow the vein structures, just like the Mexicans have been doing for centuries. This kind of operation is obviously very risky and the average grades throughout the production process will probably show a big variation.

Luckily enough, the project itself is pretty straightforward, the veins are 99% pure, free-milling quartz veins and recoveries are expected to average over 90%.
In our assumptions we estimate an average recovery of 90% and a grade of 2.5g/t Au and 20g/t Ag at San Gil and a grade of 5.5g/tAu and 45g/t Ag from the underground veins. We know the Infantita vein grades are approximately 15g/t, but we are taking conservative values here. We assume a cost of
$60/t for the San Gil ore and a $125/t cost for the underground operation and an average milling capacity of 225tpd for 320 days per year.

San Gil

At a $1500/oz gold price and a $25/oz silver price, we expect the San Gil cash costs to come in around $650/oz, and the production should average 5200 ounces, of which 2600 are attributable to Excalibur Resources, for an operational cash flow of approximately $2.2M per annum.

The Underground vein system

Assuming the same pricing, we expect the cash costs of the underground mining to come in at approximately $575/oz. Attributable production to Excalibur Resources should be approximately 5800 ounces, yielding approximately $5.3M per annum. We cannot emphasize enough that these numbers are back-of-the-envelope calculations and in no way NI43-compliant. In reality the grade can be higher or lower, which will obviously influence the cash costs and expected annual output.

[highlight1 variation=”silver”]Back-of-the-envelope Projections[/highlight1]

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Gold Price $1500/oz
Silver Price $25/oz
Volume 225tpd / 320 days
Recovery 90%[/one_half]
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San Gil grades
2.5g/t Au – 20g/t Ag
Underground grades
5.5g/t Au – 45g/t Ag[/one_half_last]
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The management team

Tim Gallagher – Director, Chairman & CEO

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Mr. Gallagher is a graduate in commerce from McMaster University, and holds a Master of Business Administration from York University and is a Chartered Financial Analyst. He has been Chief Executive Officer and Chief Financial Officer of Antamena Capital Corp. since incorporation in March 2007. He has been a director or senior officer of a number of public and private companies including Inflection Capital Inc., Water Capital Inc., Eminence Capital Inc. and Biorem Inc. Previously he was in institutional sales for Loewen Ondaatje McCutcheon and Union Bank of Switzerland (Canada). Mr. Gallagher has assisted a number of companies implement their growth plans primarily through the TSX Venture Exchange Capital Pool Program since 1997.[/fancy_list]
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Andrew Robertson – Director

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Mr. Robertson currently serves as a Vice President at Inflection Capital Inc. Prior to this position his career spanned 25 years in the debt financial markets with roles that included Senior Vice-President at GE Capital Solutions, Director, Private Debt Investments at Canada Life Assurance Company and Director, Loan Syndications at RBC Capital Markets. Mr. Robertson received a B.Comm(Hon) degree from Carleton University and an MBA from the University of Toronto.
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Charles Beaudry – Director

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Mr. Beaudry is a Professional Geologist with over 30 years experience in project generation, business development, exploration chemistry and hands-on project management. Charles previously held the position of General Manager of new business opportunities with IAMGOLD Corporation from 2008 until 2009, after having spent nearly 17 years in various positions for Noranda-Falconbridge-Xstrata.
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David J. Libby – Director

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Mr. Libby is a Mining Engineer and is currently a Senior Associate and Consultant with Behre Dolbear & Company Ltd., Toronto, Ontario. Mr. Libby served as Executive Vice-President, Mining and Vice-President Mining Operations-Chile with Aur Resources Inc. from 1994 until retirement in 2007. Mr Libby is a graduate of the Camborne School of Mines and a registered Professional Engineer in the Province of Ontario.
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What to Expect over the next 12 months?

• Start of commercial production in Q3 2012
• Uplisting to the TSX Venture exchange, which will create more exposure
• We have met both Don McLeroy from Minera Apolo and Tim Gallagher, chairman of Excalibur Resources at PDAC last March. We had the impression both companies might put the cashflow to work by entering into other Joint Venture agreements on Minera Apolo’s projects.
• Excalibur is expected to pay a maiden dividend

Conclusion

Excalibur is a high-risk high-reward play. There are no formal reliable studies, and right now Excalibur is nothing more than the owner of 49% of a mill and a piece of land. The proof of the value will be in eating the pudding.
As Excalibur currently has 64.6M shares outstanding and 98.9M shares fully diluted.The majority of the warrants are priced at $0.15 or $0.20 and are expected to be exercised over the coming year, which should add approximately $3-4M to the company’s treasury.
It’s interesting to note that insiders own almost 25% of the company and have advanced money to the company in the past. If we assume a 50% payout-ratio of the NPAT, we would expect distributions in the range of $2M per year, or in the range of 2.5-3 cents per Excalibur share.

But it doesn’t end here; Chairman Tim Gallagher explained that expanding the current production capacity is a serious option. Should Excalibur be able to secure an additional 500tpd mill, our projected earnings and dividend could easily triple from here.
In a nutshell, Excalibur Resources is a very high risk play, but the rewards might be extremely high as well. It’s a big vote of confidence that the management team has a lot of skin in this game and will be determined to make this a success.

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Disclosure: The author acted as placement agent and participated in three of Excalibur’s previous financings and owns shares and warrants of Excalibur Resources. Please see our disclaimer for current positions.