Indian mining firm Mesco Gold has expanded its partnership with Canadian mineral exploration firm Angkor Gold, entering into a joint venture to explore and develop Angkor’s Oyadao North tenement in northeastern Cambodia, the company said yesterday.

The agreement provides Mesco Gold – a subsidiary of Indian steelmaker Mesco Steel – with a green light to explore the entire 222-square-kilometre licence area in Ratanakkiri province. If Mesco can identify economic mineral deposits in Oyadao North, it will have the right to establish and operate a commercial mine on a portion of the tenement.

“Primarily Mesco’s interest is for gold, and [exploration rights to the Oyadao North tenement] was a natural fit for them,” said John-Paul Dau, Angkor Gold’s vice president of operations.

He said Angkor’s preliminary exploration in Oyadao North revealed similarities to gold-bearing anomalies in its adjacent Oyadao South tenement, where Mesco is set to put Cambodia’s first commercial gold mine into operation later this year at Phum Syarung.

“The geology in Oyadao North is strikingly similar to that of Phum Syarung,” Dau said.

Mesco, in turn, has agreed to sink at least $1.25 million into exploration of the tenement while Angkor retains a 15 per cent free-carried interest on the licence, according to Rajeev Moudgil, director of Mesco Gold (Cambodia) Ltd.

“In the event of a commercially viable mining operation starting in future, then a net smelter royalty at the rate of 3 per cent will replace the 15 per cent interest of Angkor in the joint venture on that part of the area where mining operations is started,” he explained.

Dau said letting Mesco take over exploration of Oyadao North would free up Angkor’s already-stretched resources to focus on its flagship Okalla West and Halo prospects.

“There is no cash component to this agreement,” he confirmed. “Mesco will have to come in and spend money on exploration. They’ll pick up the data that we’ve accumulated and take it from there.”

Moudgil said his company sees a high potential for gold in the tenement and synergies in developing its prospects.

“We expect continuity of mineralisation from the Phum Syarung deposit extending into Oyadao North, hence it makes sense to explore the area in the vicinity,” he said. “This would also enable use of some of the common infrastructure.”

The new joint venture is Mesco’s second partnership with Angkor Gold, having purchased the rights to the junior mining outfit’s Phum Syarung gold mine in 2013 in exchange for $1.2 million and a net smelter royalty (NSR) agreement. Mesco already has two inclines and a vertical shaft in place at the site, and expects to extract the first gold ore later this year.

Angkor Gold estimates that an underground mine built at the site could produce 10,000 ounces of gold a year over a 10-year mine life.

Under the original agreement, Mesco was to pay Angkor a sliding-scale royalty on any gold extracted – about 4.5 per cent at current spot gold prices.

A newly revised NSR reduces Angkor’s royalty on extracted gold to 2 per cent plus 0.25 per cent for every $50 that gold trades above $1,000, with a ceiling of 7.5 per cent. For other minerals, Angkor will receive a flat 7.5 per cent NSR.

Gold was trading at $1,082 per ounce as the Post went to press, which would put Angkor’s net smelter royalty on gold from the Phum Syarung mine at 2.25 per cent.

“We have reduced the royalty on this project, which creates larger potential for a higher volume mine,” said Dau.

Gold’s decline since peaking at over $1,900 an ounce in mid-2011 has jeapordised the future of many mining projects. Moudgil said Angkor’s royalty revision “reflects the reality” of today’s gold market and provides a way forward.

“The NSR is now variable with the price of gold, which gives comfort to both the parties as the objective is to ensure the viability of operations in adverse market conditions while sharing benefits in good times,” Moudgil said. “This is a win-win proposition for both Mesco and Angkor.”