Uruguay Minerals revises San Gregorio guidance

With about 20 exploration projects on the go, it would be easy for Uruguay Mineral Exploration (UME-V, UGY-L) to lose focus.

The leading exploration company in Uruguay, Uruguay Mineral has been able to amass more than 6,400 sq. km of prospective ground there and a sizable geological database. But the company also owns the only producing gold mine in the South American country — the San Gregorio mine in the country’s north – and finding new ounces that will translate into near-term production and generate cash is its No. 1 priority.

The plan at the 1.2-million-tonne-per-year San Gregorio open-pit operation is to find high-grade resources to blend with current resources to maintain production at a targeted annual 100,000 oz. gold for another three years. The company is looking for additional high-grade open-pit ounces that can contribute to production within the next two years and underground resources at San Gregorio that can be brought into production within the next three. About 50,000 metres of drilling is planned toward that end for the current fiscal year on the 110 by 40-km Isla Cristalina Belt that hosts San Gregorio.

As of June 2008, total measured and resources in the Isla Cristalina Belt (including the three open pit deposits that constitute San Gregorio, plus five smaller ones) totalled 19.6 million tonnes grading 1.22 grams gold per tonne for 773,600 oz. gold. Uruguay Minerals wants to eventually prove up reserves of at least 700,000 oz. gold to support a 10-year mine life.

During the most recent quarter ended Nov. 30, the company produced 15,837 oz. gold at San Gregorio instead of a targeted 20,500 oz. gold. While it originally expected to produce around 80,000 oz. at San Gregorio this fiscal year, lower grades at the Arenal open pit mean that will be closer to 72,000-75,000 oz. gold for the year.

“While the mine plan for Arenal was based on an independently estimated resource model, drill density where the production shortfall occurred was lower than in other areas of the resource model,” said David Fowler, Uruguay Mineral’s chief executive in a statement.

Resources to be mined during the second half of the fiscal year have a higher drill density, the company says.

The lower grades at Arenal also inflated cash costs to US$811 per oz. gold for the last quarter – officially the second quarter of Uruguay Mineral’s fiscal 2009. That compares with US$374 per oz. the same period a year earlier, or US$792 in the previous quarter. The company now expects cash costs for the year to average US$600-630 per oz.

The fact that San Gregorio generates cash for the company puts Uruguay ahead of many other juniors in a volatile marketplace, but its most recent quarter wasn’t as profitable as expected. At the end of its most recent quarter ended Nov. 30, Uruguay Minerals had US$6.5 million in cash, considerably lower than the US$9.5 million it had budgeted.

Uruguay Minerals posted a net loss of US$7.9 million for the quarter on revenue of US$11.7 million, compared with net income of US$4.3 million on revenue of US$21.2 million in the same quarter a year earlier.

To improve its financial footing, the company has implemented a cost-cutting plan that will shear US$1.25 million off its US$11 million exploration budget for the year, and is reducing its staff by 20%.

It’s also moving forward with plans to interest other companies in its non-gold properties. Negotiations to joint venture the company’s Cinco Rios diamond properties are under way. Uruguay is also looking at potential acquisitions outside of Uruguay that could raise its production profile.

Uruguay Minerals bought San Gregorio from Crystallex International (KRY-T) in October 2003 for US$2 million in cash, plus payment of US$2.7 million in debt and hedging obligations. The mine has been in production since 1997, when it was owned by Rea Gold.

San Gregorio is a shear-hosted gold deposit located in the Isla Cristalina Belt, an erosional window of Proterozoic granites and greenstones. Anomalous gold mineralization, which occurs along the entire belt, is associated with the Rivera Shear Zone. The principal alteration consists of chlorite-carbonate-sericite-silica-pyrite. The mineralized system at San Gregorio covers a 7-km shear zone.

On its second-quarter results, Uruguay Minerals traded down 5¢ today at 40¢ per share. It has traded in a 52-week window of 21¢-$3.55 and has 48.7 million shares outstanding.