Gammon bullish at Northeast Ocampo (June 23, 2003)

An independent scoping study of Gammon Lake Resources‘ (GAM-T) Northeast Ocampo project in Mexico paints a robust picture.

Completed by Nevada-based Kappes, Cassiday & Associates (KCA), the preliminary study focuses on underground resources, which, in the measured and indicated category, are pegged at 3.5 million tonnes grading 5.9 grams gold and 302 grams silver per tonne. That’s equivalent to 1.2 million contained gold-equivalent ounces, based on a silver-to-gold ratio of a 65-to-1, a cutoff grade of 3 grams gold-equivalent per tonne, a gold price of US$300 per oz., and a silver price of US$4.61 per oz.

The study envisages a 1,400-tonne-per-day underground mine with a life of seven years. Annual production is projected to be 92,400 oz. gold and 4.6 million oz. silver at cash costs of US$84.93 per oz. gold-equivalent.

Plans call for narrow-vein block-caving with ore subjected to conventional cyanide milling and processing. The proposed recovery circuit would use the Merill-Crowe process, with gold recovery pegged at 96% and silver at 93%.

The project would generate a pretax net cash flow of about US$35.8 million annually. At that rate, the mine would pay for itself in about five months. The internal rate of return (IRR) is 247% and the net present value (NPV), at a 10% discount, is US$138.7 million. The initial capital cost comes to US$14.5 million.

When 4.5 million tonnes of inferred material grading 6.1 grams gold and 298 grams silver (or 1.5 million oz. gold-equivalent) are added to the mix, the mine life is extended to 16 years.

Operating at the same daily rate, annual production is estimated at 94,600 oz. gold and 4.6 million oz. silver. Cash costs slip slightly to US$83.67 per oz.

Under this plan, the IRR comes in at 252% and the NPV (at a 10% discount) is US$244.8 million. Pretax cash flow is pegged at US$36.6 million per year. The payback period and initial capital cost remain unchanged.

Both proposals are based on a gold price of US$325 per oz. and a silver price of US$4.60 per oz.

The study does not include 2.4 million tonnes of near-surface resources grading 1.32 grams gold and 55 grams silver, or 168,000 oz. gold-equivalent. Some 1.1 million tonnes averaging 1.12 grams gold and 47 grams silver, or 66,000 oz. gold-equivalent, are classified as inferred. The surface resource employs a cutoff grade of 0.4 gram gold-equivalent.

Gammon intends to carry out infill drilling in an attempt to convert inferred resources to the measured-and-indicated category. Additional metallurgy and test mining are also planned.

Meanwhile, at the adjacent Ocampo joint venture, Aussie junior Bolnisi Gold is putting the finishing touches on a final feasibility study. The company has also begun negotiations for bank financing to put the open-pit project into production.

Under an early 2002 earn-in agreement, Bolnisi can take a 60% stake in the Ocampo gold project by bringing an open-pit operation into production at no less than 1.25 million tonnes per year by September 2003. The deal includes a $100,000-per-month penalty past that date. Also, Bolnisi will fail to earn its stake if the minimum production level is not met by March 25, 2004.

At last count, Ocampo’s measured and indicated resource stood at 21.7 million tonnes running 1.44 grams gold and 57 grams silver per tonne. An additional 5.8 million tonnes of inferred resources grade 1.7 grams gold and 86 grams silver.

The concessions optioned by Bolnisi — Plaza de Gallos, Refugio, Conico, Picacho and La Estrella — contain a total resource of 21.5 million tonnes averaging 1.29 grams gold and 50 grams silver.

An independent preliminary engineering and economic analysis of the project by Pincock Allen & Holt in early 2002 pegged the Ocampo project’s IRR at 139%, based on a gold price of US$300 per oz. and a silver price of US$4.60 per oz. The study also suggests Gammon’s share of gold-equivalent production would be around 42,000 oz. per year over five years.