A look at the Guerrero Gold Belt...
MILLIONS of years ago tectonic events created significant gold and silver mineralization in the Guerrero Gold Belt in Mexico. Today, two gold companies have reported 16 Moz of gold there, and other discoveries are sure to follow. In this interview with The Gold Report, Merrill McHenry, an independent analyst and geologist, explains the region's geology and prospect potential.
The Gold Report: Merrill, speaking as a geologist, what makes the Guerrero Gold Belt in Mexico so highly prospective for gold and silver mineralization?
Merrill McHenry: Two words: plate tectonics. Two tectonic events in that area of sufficient scale to create an entire region filled with gold mineralization.
In more detailed terms, the Chortis plate, which was about the size of Colorado, impacted the western side of southern Mexico. The first event, about 140 million years ago, created "laramide" north-south extensional faults. That was followed, about 70 million years later, by a strike-slip to the southeast. As the strike-slip slipped and subducted under the southern portion—what is today Guerrero State—it rotated many of those north-south transitional faults and shear zones into roughly 40-degree and other angles, creating a chimney effect, which brought the mineralization, in liquid form, much closer to the surface.
In geological terms, this is called a metasomatic transfer. The strike-slip also created various low-angle extensional faulting allowing laterally displaced mineralization and improving strike-length potential.
TGR: How does the creation and mineralization of the Guerrero Gold Belt compare to the Carlin Trend in Nevada?
Merrill McHenry: Both had tectonic events that liquefied the subterranean minerals and resulted in events that could transport the minerals to the surface. The Carlin Trend, which is older, was formed underwater. On Carlin, hydrothermal channels were created and bubbled up for long periods. In the Guerrero Gold Belt, the minerals were liquefied and brought up as structurally controlled magmatic events along various intrusive zones.
Typically, economic mineralization is highest along these intrusion zones. (The structural control is a key to creating and allowing for higher-grade mineralization.) These systems are most fully developed either at (e.g., El Limon-Guajes) or below (e.g., Los Filos-Bermejal) the contact of the local Mezcala formation (shales and sandstones) with the underlying Morelos formation (carbonates).
In addition, the strike-slip and subduction that created the Guerrero Gold Belt arguably covered a larger area. To date the Carlin Trend is roughly 40–60 kilometers (km) long; mineralization in the Guerrero Gold Belt has been found along a 60km-plus range.
Another difference is that the Carlin Trend has been mined and prospected for well over 100 years, with the first large mine—Carlin—opening nearly 50 years ago. The first major mine in the Guerrero Gold Belt went into production in 2008 and most of the exploration remains to be done. So far, two companies have reported 16 million ounces (Moz) of NI 43-101 gold resources in the Guerrero Gold Belt. I expect a third project will report near 3 Moz of NI-43-101-compliant in-pit gold mineralization, and roughly 4.5 Moz in global resources, mostly to be included in subsequent pits, by the end of 2012.
TGR: What can you tell us about the kind of precious metals deposits discovered in the Guerrero Gold Belt so far?
Merrill McHenry: Because it is a long, intrusion-hosted system, much of the gold mineralization is at or near the surface. You can find the intrusions—an orange-red oxidized ore (retrograded calc-silicate skarn)—at the surface. Gold mineralization in the district tends to be in the most oxidized alkaline significantly reduced iron and magnesium host rock that conversely hosts increasingly higher gold values.
Essentially, you want heavily magnetite/hematite (iron) initial fluid flows, but later during the retrograde (cooling) phase, you want the magnetite to precipitate out and become more oxidized Calc-alkaline potasically altered and biotite rich. That is where the highest gold mineralization occurs.
Gold occurs either in chlorine complexes or in a variety of high-sulfidation complexes that are stable at lower temperatures, which tend to drop out at lower near-surface temperatures, usually because of some event that changes the oxidation state. Therefore, you can get multiple economic mineralization in the same hydrothermal system—higher temperatures and less fluid mixing at depth giving you gold, copper, and silver; and lower temps and magmatic/meteoric mixing as you move higher in the system, giving you gold with much less silver and copper.
TGR: It was exploration of the Carlin that led to the discovery of the Cortez Trend. Have similar high-grade trends been found in the Guerrero?
Merrill McHenry: Yes, that is one of the Guerrero's calling cards.
TGR: Are there advantages to mining the Guerrero over the Carlin?
Merrill McHenry: Many projects in the Carlin Trend are destroyed limestone—black rock formed by the hot springs upwelling mineralization while deforming the host rock—so you cannot distinguish what is gold mineralized. That makes finding the ore bodies difficult visually; in most respects, you are drilling blind without geophysical signatures other than the generalized trend to guide you. The intrusion-hosted mineralization in the Guerrero tends to be quite visible so you can see where you are likely to have potential gold intercepts.
Also, a fair amount of the ore in the Carlin Trend is refractory ore and a lot of that has to go through an autoclave. That process is expensive, and a lot of the cost of an autoclave is capital expense, not processing.
TGR: Mexico is now on the list of the top 10 gold-producing countries. What are some mines that helped it crack that list?
Merrill McHenry: Mexico also had the fastest growth of any gold-producing country last year, and the Guerrero had a lot to do with both accomplishments. Mexico is a very fertile country for gold production. In central Mexico, you have the volcanic trends for mineralization, which tend to be vein swarms and silver-oriented projects. Then, you have the unique mineralization of the Guerrero.
TGR: All of the mineralization created in the past is good news, but present-day Mexico has its troubles. What issues—security, nationalization, rising costs—might make Mexico a riskier jurisdiction?
Merrill McHenry: Mexico had its nationalization experiment with its national oil company. It was a jobs machine, but its production growth has been flat to declining because it is not operated efficiently or effectively.
There can be security concerns when a project is just starting up. For example, five trucks were stolen from one company at gunpoint last year. So, the company built its own security force. Other companies have taken a different route. Number one, they employ a lot of local Mexicans. Number two, they work on community relations, support the community and fund social projects. Number three, they just lay low and try not to attract attention.
TGR: Developing the Guerrero will depend on sustained high prices for gold and silver.
Merrill McHenry: Although not necessarily any more dependent than other gold regions in the world. Keep in mind Mexico has the lowest cash costs of any country, $325 versus $649 world average, according to Thomson Reuters.
TGR: What market signals do you think point to higher Gold Prices over the long term?
Merrill McHenry: Both the US and the EU have been printing money and doing quantitative easing (QE). As long as QE is in play and economies remain stagnant, gold will continue to do well. If you lag global money supply by three to six months, you see a significant correlation with the Gold Price. Recently a World Gold Council study indicated a US money supply to gold correlation of 90%.
I would also point out though that Q4 has the strongest by far gold seasonal of the year, finishing strong after typically having an October correction. Though rallies may be capital markets constrained, I would think from now until the end of the year the wind is at your back for gold exploration and gold development companies.
TGR: What wisdom can you offer our readers when it comes to playing precious metals companies?
Merrill McHenry: The more exploration companies you have, the more diversified your portfolio should be because there is no second guessing what is underground until the company actually drills.
TGR: Merrill, thank you for your time and insights.
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