Vueltas Del Rio reserves halved

A independent review of mining results and the economic and technical parameters used in the 1998 feasibility study and mine plan at Geomaque Explorations‘ (GEO-T) Vueltas del Rio mine in Honduras, has more than halved reserves.

At 2.1 million tonnes averaging 2.47 grams gold per tonne, proven and probable reserves, as of the end of 2001, are 53% lower than previously reported (5.1 million tonnes running 2.51 grams gold).

The reduction is thanks mostly to higher mining and processing costs and lower estimated recoveries than those assumed in the original feasibility study. Also, drillhole intercepts in the sulphide portion of the original pit are believed to have been overstated.

In response, a new smaller optimal pit and mine plan have been designed. The smaller pit comes with an improved waste-to-ore ratio (2.09 versus 3.40), which will help to offset the reduced reserves.

Measured and indicated resources at Vueltas at the end of 2001 were 23.6 million tonnes of 0.75 grams gold, about 15% less than the original resource after deducting about 800,000 tonnes mined during the year.

A 1,300-metre reverse circulation drilling program slated for late April will aim at increasing oxide reserves.

Since Vueltas started up in March of 2001, Geomaque has struggled to meet production estimates (60,000 oz. at cost below US$200 per oz.) set out in the feasibility study. Leach pad 1 has suffered from poor stacking and operational procedures, but produced 31,632 oz. of gold to the end of March 2002. The company continues to recover as much gold as possible from the circuit.

Mining and stacking of ore on the second pad began in early February, 2002. Leaching began in mid-March, and gold production is expected to begin this month. By July, loading of the pad will be gradually increased to 90,000 tonnes per month from the current monthly rate of about 50,000 tonnes.

Geomaque’s exploration plans around the Vueltas mine property will focus on the prospective satellite Zapotel gold deposit and the Rio Blanco gold property.

Late last year, Geomaque reached an agreement with Resource Capital Fund II, to whom it owed US$2.9 million, to restructure its debt with interest effectively paid out of cash flow from Vueltas del Rio. Principal on the loan is being repaid in seven quarterly instalments starting at the end of September 2002.

Resource Capital also receives 40% of net cash flow from Vueltas until it has recovered a net 40% internal rate of return on its US$2.9 million in advances to Geomaque. After that, it retains a 10% net cash flow royalty.

A US$1.7-million debt to the contract miner at Vueltas, Sococo de Costa Rica, is being paid off over 10 quarterly instalments starting at the same time as payments begin to Resource Capital. Sococo, equipment distributor Butler Machinery, and investment house Haywood Securities all accepted shares as payment of debt in October, and will be large shareholders in the restructured company.

In late February of 2002, Geomaque completed a private placement of 39.7 million shares at a nickel apiece with Resource Capital and two other institutional investors for gross proceeds of about $2 million. Including 720,000 shares issued to RCF as a fee in connection with the company’s restructuring, Geomaque now has more than 116.6 million issued and outstanding shares. Resource Capital owns about 20 million.

Coincident with the restructuring, John Hick has become the new president and chief executive and leads a new board of directors.

In Mexico, decommissioning of the heap is underway at the San Francisco mine. With no further cyanide being added to the heap, minimal gold will be recovered over the next several months. Results of a study considering reprocessing some or all of the heap are expected by the end of the second quarter.

In mid-afternoon trade on the Toronto Stock Exchange on Tuesday, Geomaque shares were off 3 or 25% at 9.