cambridge mineral resources 1.75p - Minesite

15th July 2008 

Hichens Harrison & Co Plc is company broker to Cambridge Mineral Resources 

AIM - Mining 

cambridge mineral resources 1.75p 

Cambridge is developing a small high grade underground gold mine in a prolific gold 

belt in Colombia, (Quintana) which will be producing by the end of 2008. Thereafter, 

Cambridge intend to develop at least two similar mines using the same model as for 

Quintana. The funds for the first three mines are available thereafter self financing will 

be possible for further developments. Each mine is expected to produce revenue of over 

US$14m per year, using the current gold price of US$935 per ounce, with costs estimated 

to be substantially less than one third of the revenue. The first three mines should be 

operating by the end of 2009. However, we believe that the Colombian exploration 

portfolio offers the greatest potential for Cambridge. The company, currently valued at 

a modest £3.7m, offers exceptional value. 

London 

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The Quintana gold mine, a small high-grade 

underground gold mine is in development. The 

mine is expected to be in production by the 

year end and should be highly profitable. 

Following Quintana, Cambridge intend to 

develop at least two more small high grade 

underground gold mines. With 6 month 

construction time-lines, we expect the next 

two to be complete by late 2009. 

Finance for the first 3 mines has been completed 

by way of a gold loan from BlueCrest Capital. 

The mines are high grade and should provide 

a revenue to profit ratio of three to one. The 

mines together should provide over US$30m 

profit per annum. 

Security risk in Colombia has decreased under 

the Colombian government led by President 

Uribe, with the assistance of the US. Crime 

statistics in Colombia have been declining over 

the past 6 years. 

Cambridge has a large exploration portfolio in 

Colombia and Peru. Both countries are highly 

prospective for minerals, and we believe that 

for the market value of the company, a good 

risk/reward profile exists for the exploration. 

Latest Price 1.75p 

Shares 291.10m 

Market Capitalisation 

£3.66m 

Cash Position (August 07) 

£0.2m 

Debt (Project Gold Loan) 12,000 ounces gold 

Adjusted Market Cap. 

£3.46m 

Web : www.cambmin.co.uk 

Major Shareholders** 

Barclays client account 8.1% 

Alliance SE 6.9% 

RAB Capital 6.5% 

Management 2.0% 

Source: Hichens Harrison on company data 

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Introduction 

Cambridge Mineral Resources (CMR) is developing a number of small underground 

gold mines, mining high-grade veins in Colombia. Construction of the first mine 

Quintina is underway and production is expected in the final quarter of this year. 

Once Quintina is in operation a second mine will be developed. Colombia has a 

history as a large gold producer. There are a large number of local small gold mines, 

mining high grade underground veins. Funding for these projects has been hand 

to mouth, and it is CMR’s business plan to acquire these projects, and to develop 

them to international standards. Because of the limited access, as underground 

mines they will always be relatively small, but the high grade will provide for profitable 

production. 

CMR was originally focused on Bulgaria, Spain and Serbia in Europe. However the 

company has recently changed focus to South America. 

Concurrently with the mine development, CMR is undertaking regional exploration 

over some 64,000he of permits . The Colombian region is very prospective and is the 

source of overall South American gold production. A complex arrangement of three 

subduction zones has caused multiple gold mineralizing events with several styles 

of gold mineralization being recognised. Subduction zones are well known as the 

foundation of a majority of the large gold deposits worldwide. 

Colombia 

Since the election of pro-mining President Alvaro Uribe in 2002, Colombia has 

made huge strides tackling violence, improving security, and re-opening areas for 

exploration. Colombia, with the assistance of the United States, has taken an active 

stance in combating the drug cartels’ sponsored crime campaign. There remain 

some remote areas that are under the influence of the drug barons, but these are 

being slowly reduced. All crime statistics show a marked decline since 2002, and the 

country in general supports the crime busting exploits of the current government. 

The foreign investment in Colombia for 2007 was US$9 billion, compared to US$1.7 

billion in 2003. GDP growth for the same periods was 7.5% last year compared 

to 1.9% in 2003. Colombia is a major oil producer, and is a country with extensive 

mineral resources. 

Coal remains the backbone of Colombian mining, and coal majors like Carbones de 

Cerrejon Ltd (a BHP Billiton, Xstrata Coal and Anglo American consortium), and USbased 

Drummond Coal Inc have major expansion plans. Colombia is the 4th largest 

coal producer in the world. Cerro Matoso, a BHP company, produced over 70,000 

tonnes of nickel in concentrate in 2007. A number of recent major gold projects have 

been discovered. Anglogold Ashanti has reportedly a 13m ounce gold, La Colosha 

project in Cagamarca, in the Tolima region, and Greystar Resources the 8m ounce 

Angustura project in Norte de Santander. B2Gold has a JV with Anglogold Ashanti 

on the Gramalote (58m tonne at 1.14 g/t, 2.12m ozs) project in Antioquia region. 

Other major companies undertaking exploration in Colombia include Barrick Gold, 

Rio Tinto (which reportedly has dozens coal and polymetallic projects), Newmont 

Mining Corp, Antofagasta plc, and Vale. 

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Colombian Exploration and 

Exploitation Permits 

The Colombian mining regulations, Act 685 were published in 2001. A mineral 

permit is granted which initially encompasses exploration, but is extendable to 

exploitation. The permits are issued on a per hectare basis with a maximum size of 

10,000 hectares. An annual payment on a per hectare basis is payable in advance. 

The initial exploration permit is valid for 3 years but may be extended. All mining in 

Colombia, for small scale and larger operations, is under the same permit. Permits 

are freely transferable. 

The cost of an exploration permit is calculated from the minimum wage, currently 

461,000 pesos, per year. The cost is calculated on a sliding scale depending on 

the area. An area of less than 2,000 hectares costs 1 daily rate, up to 3 times the 

daily rate for greater than 5,000 hectares. The current rate on the smaller scale is 

approximately US$8.8 per hectare per year. 

Once in production, the permit stipulates the payment of a royalty of 3.8% of the 

sales revenue. The permit remains valid for the life of the mine. 

Regional Setting 

The Northern Andes of Colombia and Ecuador has a productive history of gold 

exploitation having produced the majority of the gold in the South American continent. 

The region is underlain by a wide geologic diversity, due to the highly active tectonic 

environment in which it formed. This has given rise to a wealth of hydrothermal and 

magmatic mineral occurrences (mainly gold, silver, copper, zinc, nickel and iron). 

Many areas of the Colombian Cordilleras have undergone extensive uplift and deep 

chemical and physical erosion due to the tropical high-rainfall conditions. This 

combination of processes has allowed a variety of mineralisation styles formed at 

depth to be exposed at the surface, and hence to be “discovered”. Additionally, the 

process of tropical weathering and erosion has created extensive gold concentrations 

within residual alluvial horizons, and has facilitated, from an historical through to 

modern artisanal perspective, the extraction and recovery of gold. 

The Andean Cordillera from which Chile, Peru and Ecuador source mineral wealth 

divides into three branches in Colombia, called the Eastern, Central and Western 

Cordilleras. An estimate of post-conquest Colombian gold production of over 80 

million ounces has been observed. Colombian gold production since 1985 has 

averaged in the region of 800,000 ounces per annum. 

About two-thirds of Colombian gold production comes from residual, colluvial or 

alluvial mines, and has been extracted via crude artisanal means utilising a minimum 

of expense or technology. Accordingly, the majority of present-day gold production 

comes from dozens of artisanal to semi-mechanised alluvial and hardrock mining 

camps mostly located throughout the Central and Western Cordilleras, and along the 

flanking intermontane and Pacific coastal valley systems. Conversely, approximately 

90% of Ecuadorian gold production comes from hard-rock sources. Principle 

producing areas include Nambija in the Cordilleral Real (southern extension of the 

Cordillera Central), and the Zaruma-Portovelo and Ponce Enríquez districts in the El 

Oro Metamorphic Belt. Interestingly, the majority of current producing areas in the 

Northern Andes exhibit colonial-era production histories and many enjoy multi-million 

ounce recorded gold production. Technically, few important “new” gold districts 

have been discovered for decades reflecting a lack of modern exploration activity. 

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The Figures below shows many of the notable hardrock and alluvial gold producing 

regions of historic through modern importance in the Northern Andes. 

Source: Cambridge Mineral Resources 

Planned Production Profile 

CMR is in the process of establishing a production presence in the country developing 

the first mine, Quintana, which should be in production by year end. Thereafter CMR 

expects to develop a second and third mine along using the Quintana model. At the 

same time CMRare undertaking project evaluation and early stage gold exploration. 

Quintana Gold mine 

The Quintana Project, which includes the Las Camelias property, is made up of 6 mining 

titles and one application and totals 7,667 ha. The Quintana Vein is a mesothermal 

quartz-sulphide gold vein dipping at 40 degrees to the east and averages just over 

1m true thickness in the mine. A 10 drillhole programme completed in 2007, proved 

the existence of the vein 300m down dip and returned higher grades than seen 

previously in the mine and also generally better true widths. Additional drilling is 

currently underway to seek to extend the resource base. 

Quintana has a JORC compliant resource statement which has defined 109,852 

tonnes at 24.58g/t gold, 19.85g/t silver (Measured, Indicated and Inferred) containing 

86,822ozs of gold. This resource is still open along strike and at depth below the 

deepest drill intersects. 

In June 2007 CMR completed a positive feasibility study based on a 50 t/d operation 

over 5.5 years and a gold price of US$600. The initial capital expenditure was 

estimated at US$ 4.54m, with an average cash operating cost of US$ 131/oz over 

the mine life. 

In January 2008, CMR completed the Project Finance, the BlueCrest loan, to allow 

commencement of the necessary plant and infrastructure construction at the project, 

with the aim of achieving gold production within approximately six months. Work 

commenced on site in February and is currently proceeding according to schedule. 

The Quintana Mine is expected to commence production in Q3 2008 at a rate of 

15,000 ozs of gold and 6,000 ozs of silver per annum. 

This is a relatively small mine, but with the expected grade should be very profitable. 



The mine was partially developed, and CMR has taken the existing structure, injected 

some modern equipment and practices and are expanding the mine. 

Quintana Gold-Mine Layout 


The graphic above shows the intended mine layout. The haulage decline is being 

extended. At the time of our visit the decline was just beyond level 2. A further 75 

meters still to develop. he ore body has a measured, Indicated and inferred resource 

of 109,852 tonnes at a grade of 24.6 gms / tonne gold, and 19.9 gms / tonne silver. 

At the current gold and silver prices (US$915 / oz gold and US$17.5 / oz silver) the 

in-situ value is over US$700 per tonne. 


Although the resources only provide for a 5 year mine life, additional ore is readily 

available, as can be seen from the previous mine plan layout. The ore body is a very 

distinctive quartz vein with very consistent dip and width. The average width of the 

ore body is 0.9 to 1.1 meters. This will allow for simple mining. The company expect 

the operating cost to be in the region of US$135 per tonne, excluding debt. 

Cross Section – showing the main decline, and projected development with drill hole 

data from down dip exploration. 

The mine is expected to be constructed within 6 months at a cost of less than 

US$6 million. Once complete and in production, CMR will instigate the second gold 

mine. 


Although the mine is relatively small, it should generate revenue of over 

US$14m, at the current gold price (US$936 / ounce) with operating costs 

in the region of US$5m per year, generating an operating profit of US$9m 

per year. These figures alone show the potential of modern mining and 

processing techniques on these high-grade mines. 

2 shaft viewed from the 2nd elevation 




Not only are the economics extremely interesting, but the time taken from initial 

negotiations to production compelling. For Quintana the initial mine site inspection 

was in November 2005 to the first gold pour before year end 2008. We believe the 

exploration/development portfolio has the potential to provide similar projects for the 

following mine, all to be developed in much the same way. 

CMR intend to use the Quintana model to finance and develop a second and third 

mine. Numerous potential targets are under investigation by CMR. The area has 

extensive small scale local operators, and CMR’s approach is to negotiate with the 

locals to acquire a second and third project. 

The initial mine would have initial development, by the local miner, and the mine 

would be permitted. The finance is available from the initial Blue Crest Loan. 

Subsequent Mines 

We are of the opinion that high grade underground mines will return as a 

profitable investment opportunity for gold investors. It was the low gold 

price that forced major gold companies to develop massive open pit mines, 

but as those mines are worked out, it will be the underground mines, and in 

a mining environment that encourages underground mining that will be the 

long term beneficiaries of the current strong gold market. 

Hichens Comment 

BlueCrest Loan 

BlueCrest Capital Management Ltd. are a hedge fund who have made available up 

to US$15m to CMR to finance mine development in Colombia. This is essentially 

sufficient to finance 3 new mines. Phase one provided a draw down of US$5.4m 

for the development of the Qintana Mine. Phase one will be repaid by way 10,450 

ounces troy gold payable over a schedule of 3 years starting in September 2008, of 

between 200 to 400 ounces per month. To date US$3.6m has been drawn down. 

Management expect the project to be completed within budget, but 6 to 8 weeks 

late due to legal delays at the start of the build. 

Phase 2 and 3 of approximately US$5 million each is available for the second and 

third mine at the option of CMR. 



Exploration 

CMR entered Colombia at the end of 2005 and holds its interests through its wholly 

owned subsidiary, Colgold Inc. During 2007 the Company acquired two further 

concessions within the world-class Frontino Gold Belt in the Antioquia Department 

of north-western Colombia. 

In total CMR now holds 52,745 ha, under concession or application in Colombia, of 

which 35,135 hectares is held for its potential to host copper and gold porphyries in 

the Cauca Department of south-west Colombia. 

CMR has 3 exploration blocks in the central cordillera. Projects are targeted on 

existing mines or extensions thereof. The quartz veins in the region are known to 

be very continuous, but difficult to expose on surface. The company are targeting 

existing small scale producers with an offer which includes international mine 

planning, finance and modern day equipment. 

CMR has a team of 7 geologists exploring over 3 exploration blocks comprising 

several permits each in the central cordillera. A number of large low grade gold 

deposits have been discovered in the Colombian cordilleras recently. However, the 

belt which extends into Equador in the south hosts one of the most exciting gold 

discoveries over the past two years, the Fruta del Norte deposit of Aurelian. CMR is 

targeting all styles of mineralization from high-grade underground vein type mines to 

larger scale epithermal and porphyry-gold targets. 



Frontino Gold Belt 

CMR continued to focus on the Frontino Gold Belt in the Antioquia Province, as 

this area has historically produced approximately 45% of the country’s gold and 

continues to do so. This belt is one of the world’s greatest mesothermal gold fields, 

with estimated production of 8-9Mozs from the Segovia-Remedios region alone. 

Mineralization occurs within extensive vein structures typically exhibiting widths from 

a few centimetres to several metres but typically in the 1 to 2m range. These veins 

either are near vertical or dip at 30-45 degrees and are formed by ribbon-banded 

quartz with subordinate pyrite, sphalerite and galena containing free gold and have 

simple metallurgical profile with excellent recoveries. Veins have been traced along 

strike for several thousand metres and at distances of up to 1,800m down dip. 

CMR has 3 main projects within a 20km radius of Segovia-Remedios; Quintana, 

La Rosaleda and El Cinco. The eventual construction of a central processing plant 

offers a rapid method to enable multi-mine start-ups and CMR plans to develop this 

to a capacity of in excess of 100,000ozs per annum over the next 4 years. 

El Cinco 

CMR completed the negotiation of the Colina Negra Project, to give it majority interest 

in a contiguous block of 7,400ha (6 concessions and one application) around the El 

Cinco and Colina Negra mines. 

Work on site in 2007 included the successful completion of the Chingale exploration 

programme, as well as commencing exploration on the Colina Negra vein system and 

other mineralized structures, and completing initial prospecting of the surrounding 

areas held by the company. 

At Colin Negra, the following results were obtained across the vein: 1.0m @ 114.31g/t 

gold, 1.0m @ 66.2g/t gold, 1.5m @ 35.2g/t gold, 1.0m @ 22.5g/t gold, 1.0m @ 

10.4g/t gold and 1.57m @ 10.1g/t gold. Prospecting results from the surrounding 

areas indentified five areas for further exploration, with results including 19.68 g/t Au 

and 40 g/t Ag over 0.7m in quartz float and 5.76 g/t Au and 10.2 g/t Ag over 1m in 

an outcrop of the main vein nearby, as well as 1.79 g/t Au, 318.4 g/t Ag and 20.23 

g/t Au, 7 g/t Ag from old waste dump piles of now abandoned trial workings. 

La Rosaleda 

The La Rosaleda project is CMR’s third project in the Frontino Gold Belt and comprises 

566.2ha in three concessions and three applications, to the immediate south of the 

Frontino Gold Mines in the Segovia-Remedios area. 

Initial exploration on the project commenced in May 2007 with a surface-prospecting 

programme. To date over sixty old artisanal mine workings have been identified, 

which reflect the three main structural trends seen in the district. In addition two 

currently active artisanal mines are located just outside the area of the agreement, 

returning grades of 6.89g/t gold and 57.6g/t silver over 0.9m. It is planned to move 

one of the projects in the area to the drill ready stage by the end of 2008. 


Corporate Activity 

Peruvian Exploration 

Peruvian Exploration 

CMR has recently completed a feasibility study on their Rasuhuilca deposit in Peru. 

Rasuhuilca is an underground gold/silver deposit in the high Andes. The altitude is at 

approximately 4,800 metres above sea level. The project was explored by Cominco 

in the mid 1980’s; who completed a significant amount of underground development 

to outline the mineralized body. The underground workings were rehabilitated and 

several hundred metres of vertical development and stope preparation was completed 

by CMR in 2007-08. 

The overall Rasuhuilca Main and West Zones contain 321,100 tonnes @ 2.15 g/t 

Au, 185.2 g/t Ag (252g/t Ag Equivalent) at a 75 g/t Ag Equivalent Cutoff. Additional 

potential to expand these resources exists to the west within the Rasuhuilca North 

West and Rasuhuilca South areas around the 4941m Level. 

Within this Resource a Proven & Probable Reserve (JORC Standard) of 168,700 

tonnes @ 3.05 g/t Au, 216 g/t Ag (368 g/t Ag Equivalent) has been defined in the 

mining plan for the Main Zone. Only this reserve has been considered in the feasibility 

study which concludes that the Rasuhuilca mine can produce silver at a net cost of 

US$ 5.73 per troy ounce or on a full capital depreciated cost of US$ 7.79 per troy 

ounce. 

Development of the project is expected to require a capital spend of US$ 3.08 million 

over a five month period. CMR is presently seeking the finance to develop the 

mine. 

Spanish and Bulgarian 

Exploration properties 

CMR has a number of projects from their previous incarnation in Spain and Bulgaria. 

The Bulgarian properties are being joint ventured with Electrum Gold, a significant 

private US-based international gold exploration company. The Spanish projects are 

expected to form the basis of a new float in Canada shortly with CMR retaining a 

substantial interest. 

Fiscal Environment 

Colombia has a history of mining with numerous small scale miners, as well as a 

number of larger mining groups in the country. BHP’s Cerro Matoso is a major 

nickel producer. Currently Colombia has a 4% royalty on gold production and a 

36% corporate tax rate. Value Added Tax is set at 16%. Mine and exploration title 

database is freely available via the internet (www.ingeominas.gov.co). As discussed 

previously mineral exploration and exploitation titles are one and the same. A 

mineral exploration title can be extended, but would then either be reclassified as a 

exploitation title, or dropped. 



Peer Group Comparison 

We have included our peer group comparison of the London’s AiM market junior 

exploration companies for comparison. As we have suggested before, it is difficult 

to compare junior exploration companies. But factors such as the area of operation, 

for both security if title and geologic potential are important, but mostly the quality of 

the management. 

Source: Hichens Harrison on company data 


A number of other junior exploration companies are also operating in Colombia, 

including Colombia Goldfields. Major discoveries of gold deposits have been 

made. The Colombian President leaked information on a 21m ounce gold deposit, 

Cagamarca in Tolema region, owned by Anglo Gold Ashanti. Greystar Resources, 

a Canadian and London listed company, with a market value of £92 million, is 

exploring the Angostura project which has an indicated resource of 7.9m ounces 

gold. Colombia Goldfields, listed in Canada, with a market value of £31 equivalent, 

has the Marmato gold project with 2.55m ounces gold. Colombia Goldfields have 

spent over US$30m on the project. 

B2Gold, a Canadian listed company with a market value of £70m equivalent is 

exploring for gold in Colombia, A Colombian alluvial gold miner, Mineros SA is listed 

on the Colombian exchange with a value of £96m equivalent is exploring a copper / 

molybdenum deposit in the south. 

Comparing CMR to equivalent gold producers also provides us with a compelling 

valuation. Serabi, a London listed South American gold producer producing at a rate 

of 34,000 ounces per year has a value of £26 million. 

Conclusion 

We believe the current market valuation of CMR of less than £4million, does not 

reflect the true potential of the company. The gold mining operations, although on 

the smaller side, will be highly profitable. Using the company’s estimate of 15,000 

ounces per year, the company will generate revenue of US$14m per year (using a 

gold price of US$935/ounce) with costs expected to be one third of that number. The 

mines are small underground mines, but close to the surface and simple to operate. 

It is an old adage in the mining industry, that the three most important factors in 

underground mining are grade, grade and grade. The reality is their delivered grade is 

the single most important factor in mine profitability. The delivered grade at Quintana 

should be high, a high grade in a 1m width vein, which will result in high profitability. 

The Quintana model will be easy to replicate – there are a number of potential targets 

in the area. Quintana and the next two mines are financed via the BlueCrest loan. So 

we believe the company’s interim target of 3 new producing high-grade gold mines in 

Colombia by the end of next year is very achievable. If that transpires, the company 

will have revenue of over US$40m per year, using the current gold price, and should 

be very profitable. 

For us however, the real potential value does not lie in the production units, but 

in CMR’s exploration potential. Colombia is a mineral rich country, with a limited 

amount of large scale exploration. Junior exploration projects have been limited due 

to the country risk. But we believe this is in the process of being reduced and we 

see CMR as having the first mover advantage. Exploration is at an early stage but 

the potential is massive. Given the company’s experience and the fact that they are 

established in the country, with a number of high potential exploration targets, we 

believe the current valuation is way too low. 

CMR share price is discounted because of their history of exploration in Europe. 

Those projects are in the process of being vended out to third parties, and CMR 

intend to focus on the new area of the North of South America. We believe the 

exploration portfolio alone exceeds the current market value. The small, potentially 

highly profitable gold mines are in the mix at zero value. 



NOTES 


NOTES 



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are included for indication only. Further, any valuations given in this brochure may not accurately reflect the 

values at which investments may actually be bought or sold and no allowance has been made for taxation. 

If you have any queries about your tax position, you must seek separate professional advice. 

[Hichens is an agency broker and therefore does not deal as principal in the securities mentioned herein]. 

This research note is confidential and is being supplied to you for information purposes only. They may 

not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, 

for any purpose whatsoever. Neither this document, nor any copy of it, may be taken or transmitted into 

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be unlawful to do so. Any failure to comply with this restriction may constitute a violation of relevant local 

securities laws. If you have received this document in error please telephone Martin Lampshire on +44 (0) 

20 7382 4479. 

Risk warnings are provided for your information and protection. We strongly encourage you to read them 

and to contact us if you have any questions about the features or risks of any investment or service. 

Telephone calls may be recorded. 


Hichens, Harrison Equity Research Team 

jeremy.chantry@hichens.com 

Head of Research 

Jeremy Chantry 020 7382 7791 


rhulf@hulfhamilton.com 

Energy 


Richard Hulf (Consultant) 07960 332 603 / 01923 831 754 

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Dave Paxton 020 7382 7758 


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