Los Cerros forges services agreement ahead of drilling

Small cap gold exploration group Los Cerros Limited (ASX:LCL) has executed a Strategic Partnership Agreement for the provision of IP survey services, drilling services, drilling equipment, personnel and consumables with Hong Kong Ausino Investment Limited.

The key driver for seeking the SPA is to assist Los Cerros in driving down its in-country exploration costs, maintain cash, improve efficiencies and facilitate significant drilling and IP programs over the company’s 100,000 hectare holding in the prolific mid-Cauca gold belt of Colombia.

Under the terms of the agreement, Ausino will provide a new, fit for purpose, diamond core drill rig, drill rods, consumables and extended after sale support in the form of expert senior drillers on site to build the company's internal capabilities.

Ausino will also provide two sets of specialist Induced Polarisation (IP) equipment and a specialist geophysics team to conduct IP surveys over targets within the company’s portfolio.

Forging the strategic partnership and bringing more exploration capability in-house will give Los Cerros a significant long term advantage, as well as providing flexibility to navigate the immediate Covid-19 induced pressures that junior explorers are facing.

Under the structure of the SPA, the company is currently building its first purchase order for long lead time items while the technical team prepare for an IP survey over the priority Tesorito and Chuscal targets.

The IP program results are the last critical input before finalising the next drill program.

Management expects to be drilling early in the second half of 2020 under the SPA and subject to the progress of the Covid-19 pandemic and usual regulatory permits.

Longer term, Los Cerros has aspirations to extend the IP program over other targets within the Quinchia Project and within the 90,000 hectares of the Andes Project where the company has identified many compelling targets through extensive surface sampling and mapping.

Agreement preserves cash

Ausino’s willingness to accept shares at no discount to the VWAP (volume weighted average price) for capital items and services provided will allow the company to conduct significant exploration programs without the commensurate impact on cash reserves.

The agreement includes a 6-month trial period so both parties can test the concept of the agreement and the operating detail.

The agreement will commence upon the company placing the initial purchase order.

Management will assess prior to making each purchase order whether the order will be satisfied by way of share issue or cash, and whether such an issue will be made subject to shareholder approval or out of its placement capacity under ASX listing rules.

There is no obligation on the Los Cerros to issue shares under the SPA.

However, subject to shareholder approval, management will issue Ausino up to 12 million options if it satisfies minimum performance obligations under the SPA.

The options will be exercisable at either $0.04 or $0.07 depending whether Ausino completes 10,000 metres of drilling during the term.

COVID-19 field work restrictions lifted

In an important development, the Colombian Ministry of Mines and Energy has announced that mineral exploration work may now resume in Colombia, subject to the company complying with certain national health authority guidelines pertaining to the management and mitigation of the Covid-19 pandemic.

For Los Cerros, the immediate action is for the geologists to return to Tesorito to complete field work related to understanding the regional structure and the possibility of extensions of the Tesorito mineralised porphyry to the north and north east.

Field crews will also resume ground preparation for the IP surveys across Chuscal and Tesorito.