Cangalli An American Company Searches for an Ancient River of Gold

By James E. Bender

Four hundred years of mining history in the Tipuani gold district of Bolivia. Had  convinced  a small Denver explorer that  their 5,000  acre Bolivian property had showed  evidence of  an ancient river system holding large amounts of gold. Authorities questioned the theory. The company was  determined to approve them all wrong. True story recorded  by the author who later became a shareholder.

• Language: English
• Publisher: Bender Publishing Company
• Release date: Feb 20, 2017
• ISBN: 9781370638086

Book preview

PREFACE

Gold. Who among us hasn’t dreamed of gold, wished to strike it rich, longed to find its shiny countenance, or spent a lifetime in search of a fabled lost mine, hoping to be the one to finally find it? Stories of gold have captured the imaginations of men on all seven continents for several thousand years. No one knows which civilization was the first to find the shiny bits in a stream, but we know that ancient civilizations, the Olmecs, Maya, Inca, and Aztecs of South America; the Egyptians, Greeks, and Romans; the Indians, Chinese, and African tribesman, sought gold above all else. Men fought over it, worked for it, used slave labor to mine it, stole it, died for it, or killed for it.

In the United States, the first gold was found in Northern Georgia in 1928. Ten thousand people flooded into the state, eager to get a piece of the pie. The more famous U.S. gold rush began when gold was found at Sutter’s Mill in California in 1848. Within a year, 100,000 people had flooded into the area trying to strike it rich. In the end, most went home broke and disillusioned. In both cases, it was the merchants and shopkeepers who got rich, supplying desperate miners with food, clothing and equipment. But gold fever still resides in the hearts of treasure seekers today, and many are willing to risk it all for a shot at the mother lode.

My adventure began in 1998 after reading an article in USA Today about a gold mine located in Cangalli, Bolivia. Over the next several years, I read the gold message board daily. I developed online friendships with a number of individuals expressing views related to the current gold mine events. I became a shareholder when, in October 2001, the opportunity to tour the site at one’s own expense came from Golden Eagle International. This also provided an opportunity to meet other investors who posted on our chat board, including Terry Turner, president of Golden Eagle International, and Dr. Ronald Atwood, who would develop the mine plan for future production. Twenty shareholders planned to make the trip, but the tragic events of 9-11 in New York City, at the Pentagon in Virginia, and the crash of United Airline Flight 93 near Shanksville, Pennsylvania kept 16 of the 20 investors stateside. I had purchased my airline ticket well ahead, and decided to proceed as planned. Along with 3 other hearty souls, I made the long flight to Bolivia.

The company welcomed us to Bolivia. We stayed for one week at the Radisson Hotel in downtown La Paz for $35.00 a day and traveled to a few sites to view their production. Meals cost 8 to 12 dollars per person in La Paz. There was also an optional trip to Cuzco, Peru and Machu Picchu.

Six hours from the capital of La Paz, we arrived in Cangalli, and the mine shaft came into view. As we entered the township, our CEO explained details of possible secured funding and plans for the following months. At the end of the week, most of us went back to the United States, departing on Sunday or Monday morning.

As I was about to board the plane, my luggage was taken and examined by Bolivian authorities. The police pulled me out of line and escorted me to an area the size of a department store changing room. The police officer closed the curtain. His duty was to focus on drugs being smuggled out of Bolivia. He faced me, his badge hanging around his neck, and asked me why an American would come to Bolivia alone. I explained to him that I traveled here to invest in a gold exploration company about 8 hours north of La Paz and to meet the officers of the company. The cop looked confused as I continued to explain about the small town known as Cangalli and the Tipuani River. No doubt he thought I was establishing a drug route to the United States.

But bureaucratic hassles aside, we investors were excited. All of us entered into the venture with high hopes and expectations. We had no idea what was in store for us or what ups and downs the next several years would bring. But I digress. Things were happening in the background long before I traveled to Bolivia, and to understand the journey, one has to start at the beginning.

INTRODUCTION

It started with Beneficial Financial, a venture capital firm and the precursor to Golden Eagle International, that loaned money to start-ups and entrepreneurs. Ronald A. Knittle was Director, President and CEO. His wife, Mary Erickson, was Corporate Secretary. The following is a brief summary, given by Terry Turner, former President and CEO of Golden Eagle International to the investors, of how the Cangalli mining adventure began and a company update at the time of the communication (courtesy of Golden Eagle International and Terry Turner).

"I was appointed by the company’s board of directors as a director, president and CEO on February 14,1997. For more than a year prior to that time, from January 1996 until my appointment, I represented the company in Bolivia as its attorney. The company hired me at that time because I had the distinction of being the only attorney residing in Bolivia who was admitted to practice law in both the United States (Utah) and Bolivia (first and only North American attorney admitted to practice law in that country). Also I had 13 years of experience working in Bolivian mining with significant experience in the Tipuani mining district where the company’s operations are located. During that period of representation, I worked with the company’s management in Denver, Colorado and the company’s subsidiary’s management in La Paz, Bolivia on important legal and administrative issues regarding contract negotiations and doing general business in Bolivia.

"Three critical points on which I would like to update you as a shareholder in the Company are the obvious three that every shareholder has the a right to know: 1.) Recent History: Where has the Company been? 2.) State of Operations: Where is the Company currently? and 3.) Strategy for Growth: Where is the company going? I have to ask you at the outset to forgive the encyclopedic nature my response may appear to be in answering these three questions-my preference would have been to have had our first introduction be a short, courteous one. However, the Company has accomplished some incredible things in the recent past, is carrying out a clearly-defined operating program currently, and has some interesting strategic growth plans for the future; about all of which you have a right to be informed.

"In October 1995, the company management began reviewing mining opportunities in Bolivia. The Cangalli had been presented with strong credentials. Historically, the Cangalli area, which lies in the heart of the Tipuani Mining District, had been the largest gold-producing area in Bolivia. Government estimates, and those of geologists writing on the subject put the gold production of the Tipuani Mining District during its known history at 1,000 metric tons (32,150,000) troy ounces. The company’s management was able to verify these estimates as being accurate and has not relied upon them, but believes that they were made in good faith after an evaluation of all of the known records and information.

"In late 1995 the company decided to attend a mining conference in La Paz, Bolivia and examine mining opportunities in Bolivia. A representative of the Cangalli Cooperative introduced himself and talks began. Once back in Denver, The Company selected Albert Trites a geologist who resided in Denver, Colorado to evaluate the property to perform a low-key observation study and follow up with a full-feasibility study. The observation from Trites initial report was positive and a full pre-feasibility report was presented to Golden Eagle International in December 1995. Albert Trites a well-respected geological engineer in the mining industry graduated from the Colorado School of Mines and a Master’s degree in geology from Columbia University. His background included property evaluation and in general geology. Trites at the time had thirty-five years of experience in detailed mapping, exploration, evaluation, and feasibility studies of gold, silver, copper, uranium, molybdenum, lead zinc, and tungsten deposits in the U.S. and Mexico.

"Golden Eagle International, commissioned a report from Albert F. Trite that was received by the company in January of 1996. The report evaluated two target areas of Cangalli that surround United Cangalli concessions. Target one: Open pit prospect known as Chaco and Target two: the Cangalli shaft underground workings. Possible mineralization at Chaco estimated 109,996 ounces of gold. In the location of Cangalli shaft, a possible 5,413,505 ounces of gold. An independent consulting firm that was responsible for its accuracy calculated this report.

"The report also indicated that these two sites were among at least 15 other gold-bearing sites within the United Cangalli concessions. (The company cannot assure that this report is accurate, nor that the mineralization stated can be economically mined. The Management team did have the opinion that this data from the report did represent a telling a story of a large, gold-bearing deposit, of mineralized ore continuing trend, meaning geological continuity.) After receiving the favorable pre-feasibility report, company management negotiated the terms of an understanding and signed an initial Letter of Intent with the board of Directors of the United Cangalli Gold Mining Cooperatives on January 19,1996, in Cangalli, Bolivia. In the days that followed, the management team had formed Golden Eagle Bolivia Mining (GEBM). Total interest was 74 percent that Golden Eagle Bolivian owned. In the coming months the company increased its ownership additional 19% from its Bolivian partners to own a total of 93 percent. On January 25,1996, the officers of the newly formed GEBM signed a private contract with United Cangalli for exclusive mining rights to the 2,004 hectares (4,810 acres) owned by United Cangalli. The significant terms of the contact were as follows:

1. A 25-year term with option for an additional 25-year term.

2. An 18% percent gross royalty on all gold recovered payable to United Cangalli.

3. A commitment by GEBM to rehabilitate and operate the Cangalli shaft.

4. A commitment by GEBM to invest a minimum of 3 million in the exploration and development of the concessions with 420 days from the signing of the contract.

5. A commitment by GEBM to loan, interest-free, $100,000 to United Cangalli to assist in satisfying several of its pending obligations, with repayment to GEBM from United Cangalli’s gross royalty on production.

6. A commitment by GEBM to grant to United Cangalli, without further obligation of repayment, $100,000 to assist in satisfying pending obligations.

7. All ownership of equipment and machinery brought on-site for the exploration and mining of the concession remains vested in GEBM until GEBM withdraws because of lack of feasibility, completes its 25-year term and elects not to exercise its options, or exercises its option and completes another 25-year term.

8. A voluntary commitment on GEBM’s part to cooperate with United Cangalli, and the Cangalli village leadership, to improve fundamental health and medical treatment in the area; to review and improve the overall sanitary conditions relative to the potable water and sewer systems; and to contribute to upgrading the standard of education in the village.

"From these terms, a small gold exploration and mining company from Denver, Colorado had somehow negotiated and secured mining rights mainly because of the function of the mining cooperatives in Bolivia. I believe the answer is found in the idiosyncrasies of those mining cooperatives. The Tipuani Mining District had been labeled for several decades as ‘No Man’s Land’ for traditional mining companies precisely because gold mining cooperatives, made up of between 15 to 118 members with little or no existing administration, were judged to be difficult organizations with which to work. Each member of the cooperative was equal to the others in rank, vote, and authority. In addition, world politics during the 60’s, 70’s, and 80’s created a tendency in these cooperatives toward socialism and away from free-market concepts.

"Previously, when private mining companies entered into joint-venture agreements with cooperatives, the standard agreements were: 1.) The cooperative received 50 percent of gold production, 2.) only a 1- or 2-year contract term, and 3.) The cooperative kept all equipment and machinery at the expiration of the contract term. Significantly, these private companies were not required to, and therefore never did, invest anything back into the development of the community or its infrastructure. For that reason, the Tipuani Mining District is still extremely underdeveloped today, despite the many millions of ounces of gold that have been mined there.

"In late 1995, the Company’s management—principally the Company’s President at the time Ronald A. Knittle, and the Corporate Secretary / one of the Directors, Mary A. Erickson, had the vision to see, and the courage to pursue, this mining opportunity in light of changing world and local politics that would allow participation by American private enterprise. They also knew that the United Cangalli even with 118 members, was established as one of the oldest, well-organized and stable cooperatives in the entire Tipuani Mining District. However, the most important point by far was their attitude toward the people of United Cangalli and the Cangalli village. Their voluntary commitment, on the Company’s behalf, to include contract language providing time and resources to improve the daily living, medical and sanitary/health conditions, and standard of education for the cooperative members and their families, left United Cangalli’s Board of Directors deeply impressed, which resulted in a great deal of flexibility in a number of the contract terms.

"For example, a 25-year contract period, plus additional 25-year period, was a contract term unheard of in the Tipuani Mining District. But these terms allowed the Company the ability to plan advancing exploration and mining efforts well into the future. An 18 percent gross royalty, while rather high by North American standards, was less than half the normal royalty in the district. In fact, if the property proved to be as rich as indicated in the initial reports and sampling results, it would be a small price to pay.

"Also, the negotiation of a minimal initial investment on the loan and grant funds for United Cangalli, which was pursuant to the contract was stretched out over the first year and into the second…another reasonable feature of the contract.

"In retrospect, after 14 years of experience in Bolivia and several specific cases of negotiating with cooperatives, I believe that the foregoing analysis is the answer to the question of why this opportunity still existed, and why the Company was able to seize the moment.

"If you ever have the opportunity to meet Mr. Knittle or Ms. Erickson, you might want to thank them for their important accomplishment on behalf of the Company and its shareholders. Mr. Knittle is no longer with the Company; however, Ms. Erickson, after recently serving several months as the Company’s President, has accepted an appointment again as Corporate Secretary and continues to serve as one of the Company’s Directors.

"Changes in Company management during 1996 included Ronald A. Knittle, who had served as a Director, President, and CEO of the Company since November 1994, resigned from those positions in May 1996. As stated above, Mr. Knittle was instrumental in the negotiations that resulted in the acquisition of the United Cangalli mining rights. Mr. Knittle is now working independently to address the serious medical, health, education and housing needs in Bolivia that he experienced first-hand while working here. Ronald Sparkman was appointed interim President in May of 1996 and served until July 4,1996.

"Mary A, Erickson, then serving as Corporate Secretary, was appointed as President on July 4,1996 and served in that capacity until February 14, 1997. She has again assumed the position of Corporate Secretary. Although it may seem to be repetition of the praise for Ms. Erickson already given above regarding the acquisition of the mining rights on the United Cangalli concessions, I think that the Company’s shareholders should be aware of Ms. Erickson’s additional contribution to the Company’s welfare during her term as President.

"During some very critical times in the key development stage of the Cangalli properties, Ms. Erickson was able to secure loans to the company, on a very personal guarantee from her. The opportunity was to obtain bank line of credit of for 1 million that was approved for the company in the first quarter of 1997. The majority of her personal stock had to be pledged

"On September 18, 1996 the company issued a Form 8-K current report indicating that the company subsidiary had ‘reached the paleo-canal inside its exploratory shaft on the Cangalli prospect in Bolivia.’ The Paleo-canal is sometimes also referred to as the paleo-channel, the paleo-Tipuani or the ancient riverbed. This ancient course of the Tipuani River was filled with the conglomerate material known as Cangalli. An independent mining engineer and geophysicist retained by the Company to study the Cangalli concessions described the Paleo-canal and its subsequent refilling as follows: ‘Over the Paleozoic Basement lies the Cangalli Formation of the late Tertiary age Miocene-Pliocene, named after the village on the Tipuani River where this conglomerate, generally hardened, forms the surrounding hills where United Cangalli has its concessions, and Golden Eagle’s subsidiary its center of operations. The thickness of the Cangalli varies from 500 to 2,500 meters (1,640 ft. to 8,202 ft.)’

"The importance of this event was the confirmation of the subsidiary’s mining labors directed toward reaching the floor of the Paleo-canal. For over 50 years, miners in the Tipuani Mining District have sought to reach the floor of the Paleo-canal in various locations along its course. The Company’s consulting mining engineer and geophysicist explains why in his recent report.

"The ore grades mined were usually very high-from a few tenths of grams to many troy ounces per cubic meter. As much as 125 kilograms (4,019 troy ounces) of coarse gold have been recovered from as little as eight cubic meters (10.5 cubic yards) of gravel found in a pocket in a small bedrock depression. This was based on information well-documented in the Aramayo Company records. This company also reported that in 1944 Tujujahuira, a single sampled yielded 112 kilograms or (3,600 troy ounces of gold in 12 cubic meters (15.7 cubic yards) of material. Courtesy of Gold Distribution in Tipuani and Mapiri Basin Report.

"On October 2,1996, the company formed a new majority-owned operating subsidiary, Eagle Mining of Bolivia, Ltd. (Eagle Mining). The Company owns 84% of the subsidiary’s stock. Mary A. Erickson, former President and current Corporate Secretary and Director, owns 3 % and Rene Velasquez, Eagle Mining President, owns 13%. The company’s newly formed operating subsidiary entered into a public contract with United Cangalli. In October of 1996, Eagle Mining assumed GEBM’s contract rights and renegotiated its contract with the United Cangalli. The new contract was protocoled or recorded, with the Notary of Mines in La Paz on November 11,1996. The new contract provides for a gross royalty of 18% of the gold production for United Cangalli, as it did previously. However, all other performance dates were changed so that Eagle Mining committed to complete first-phase exploration and open one work front, in addition to the Cangalli shaft, by April 20, 1997; to open two additional work fronts by December 6,1997; and to invest a minimum of 3 million in the project.

"The company had recently opened an additional work front in the Cangalli open pit and is working toward its 3 million commitment. To date, the company has expended substantial sums toward this commitment, including the acquisition of 1 million worth of recovery and other mining equipment. Additional funding sources were obtained earlier in year through private stock purchases and the extension of a one-million-dollar line of credit from a Texas bank, we believe this commitment has, in large part, been met.

In addition, Eagle Mining committed to provide to United Cangalli a $200,000 for reduction of United Cangalli’s prior obligations. One hundred thousand in the form of a loan and $100,000 in the form of a grant. Eagle Mining completed funding of the $100,000 loan to United Cangalli prior to year-end 1996, and as of this date has substantially completed the additional $100,000 grant. Company’s Management decided to further understanding of the deposit by signing on an independent geological resource and mining feasibility study of the concessions under contract. In early December 1996, the company commissioned Guido Paravicini, M. A.; Eng., a Bolivian mining engineer and geophysicist, for further study of the Cangalli gold property.

As renegotiations of the mining rights for the Cangalli gold deposit owned by the Cangalli Cooperative continued in December of 1996, the company commissioned Mr. Guido Paravicini to begin his study of the Cangalli gold concessions after those contract rights had been consolidated on the property through Terry Turner in his tenure as counsel to Golden Eagle in 1996.

CHAPTER ONE

WE HAVE A GOLD MINE

GOLD PRICE $345.50-$359.60

On January 31, 1997 at 3:47 p. m.., Golden Eagle International had just filed their form 8K, an annual report. The report showed shareholders and the Securities and Exchange Commission (SEC) a resource of 60,771,000 ounces of gold for economic extraction. It indicated a resource of 111,414,800 ounces of gold from reliable exploration to support mine planning, from trenches (pits showing grade continuity). Trites’ findings were certainly dead on as noted in his Cangalli report in 1995.

It is believed that the Cangalli stream channel can have a width of a thousand feet. At a vertical distance of 915 feet, a width of 1,000 feet, and a length of 900 feet, a reserve block at the Cangalli mine would have a total of 823,500,000 cubic feet or 30,500,000 cubic yards. At 5 grams per cubic yard, this volume would equal 152,500,000 grams or 4,902,908 ounces of gold valued at 1,696,042,750

There were no calculated numbers in the proven category. The Cangalli report also included the Chaco deposit. Giovani Viscarra estimated the remaining undisturbed Chaco reserves as double those estimated in the tailings. The total estimated Chaco reserves were, therefore, 2,851,052 cubic yards containing a total of 219,992 troy ounces of gold. This gold would have a value of $76,997,200 at a gold price of $350 per troy ounce. Mr. Paravicini’s team consisted of field geologists, samplers, panners, and other auxiliary people. These were the personnel conducting the field studies, and their sampling work suggested more exploration was needed to establish mineralized material.

Golden Eagle International decided to send a pilot processing plant with a couple of drilling rigs to Cangalli, a six-hour drive from La Paz, Bolivia. The plan began as an open pit. Then it advanced to a second stage with professional mining equipment and centrifugal force performing fine gold recovery. The company needed no extra financing. The Bolivian property was considered a low-cost river deposit from past studies of the Tipuani district.

Several mining companies looked at Golden Eagle International as a takeover target. These companies decided to send their own in-house geologists to do their due diligence on the property. A sample study from the United Nations had studied the property and indicated that there were large quantities of gold in the Cangalli area. The outstanding shares Golden Eagle International held in their possession verified fifty-two million shares outstanding and not eight hundred million, which was the total number of shares approved by the SEC.

The stock didn’t trade at a dollar with this possible find. The SEC financial website, known as EDGAR, confirmed a large accounting firm had lost a number of Golden Eagle’s financial documents. These financials needed to be completed by March 31, 1997 to avoid a delisting. The NASD, known as the police of the SEC, allowed fifteen days for a company to file a short