Queenstake moves Magistral forward

Vancouver With construction well underway on its 50% held Magistral project, Queenstake Resources (QRL-T) expects the latest bout of drilling to boost the overall economics of the advanced property in Mexico’s Sinaloa state.

"We are delighted with the results of this drilling campaign, both in terms of the results generated and the understanding of this structure that has been gained," says Queenstake’s Vice President of Exploration, Dusty Nicol.

The 8,500-metre program tested the mineralization at 25-to-30 metre spacings. The results indicate that the higher-grade zone remains open to the southwest and to the north. Highlights from the drilling include:

• Hole 749 6 metres grading 1.1 grams gold per tonne,
• Hole 752 6 metres grading 1.32 grams gold,
• Hole 734 10.5 metres grading 4.83 grams gold,
• Hole 737 7.5 metres grading 2.58 grams gold,
• Hole 739 9 metres grading 5.11 grams gold,
• Hole 735 18 metres grading 5.61 grams gold including a 15 metre portion running 6.57 grams gold,
• Hole 728 – 28.5 metres grading 5.68 grams gold, including a 7.5 metre section running 16.66 grams gold,
• Hole 744 – 34.5 metres grading 6.47 grams gold, including a 21 metre portion running 9.45 grams gold,
• Hole 736 33 metres grading 6.61 grams gold, including a 21 metre section running 9.99 grams gold, and
• Hole 748 – 40.5 metres grading 5.01 grams gold, including a 25.5 metre section returning 7.02 grams gold.

Based on the results, Queenstake is having both the resources and reserves updated, with the latter using the current pit design developed in the 2000 feasibility study. In addition, the higher-grade zone will be modeled to examine the prospects of mining this portion by underground methods.

Construction work at the site is progressing, with the completion date slated for late July. Earthworks for the leach pads are nearly done, the foundations for major buildings poured, water wells and pipeline complete, the primary crusher retaining wall approaching completion and the gold recovery plant is being installed. The company aims to enter production by October at the latest.

The facility is being built to treat 1 million tonnes of ore per year resulting in annual production of 40,000 ozs at a life of mine cash cost of US$180 per oz. The current projected mine life stands at 6.5 years.

Based on current reserves and a US$300 gold price, the project should generate US$24 million in net revenues after pre-production capital expenditures. The strip ratio comes in at 5.6-to-1 with recoveries averaging 73%. The ore will be mined from four discrete pits known as San Rafael, Samaniego Hill, Sagrado Corazon and Lupita.

Last year, Queenstake managed to move the project into the development phase by inking two separate deals.

The first deal provided the company with the US$6.125 million required to move the project forward. Private company Midwest Mining agreed to supply the capital in return for a 50% stake in the Magistral joint venture, as well as 15% of Queenstake’s US subsidiary Pangea Resources. Pangea owns the shares of the Mexican company that holds the Magistral property. Midwest will receive preferenctial payback from 70% of the cash flow generated from the operation until its contribution plues an intial return of 12% has been paid. A penalty clause is in place if the payback is not achieved in five and a half years. A production descision must be reach within nine months or Queenstake will repurchase Midwest’s interest for US$750,000 payable in cash or stock.

In an effort to trim equipment costs, the joint venture acquired a six-month option over all the shares of Campbell Resource’s (CCH-T) Mexican subsidiary Oro de Sotula, which owns the past producing Gertrudis gold mine in Sonora, Mexico. Option payments are pegged at US$25,000 per month, with a total purchase price of US$2 million. Oro’s mining equipment at Santa Gertrudis is appropriate for use at Magistral with the exception of the lack of secondary and tertiary crushing equipment.

A production decision was made using the last available reserve calculation of 6.15 million tonnes grading 1.86 grams of gold with capital costs slated to hit US$6 million.