Antofagasta, Chile — With just over three years of high-grade reserves left at El Peon,
Since 2000, when commercial production began, El Peon has produced over 1 million oz. gold at a cash cost south of US$50 per oz., net of silver credits. The pace continued in the recent second quarter, with the mine cranking out 78,000 oz. at a cost of US$48 per oz. By year-end, Meridian expects to have produced 320,000 oz., all at a cost of US$54 per oz.
“At the beginning, when we started this whole process, we had two years planned at 300,000 oz.,” Vice-President Wayne Hubert told The Northern Miner, which visited the operation in early August. “Right now, we have four years [at that annual rate] under our belt, so it is important that we find more high-grade. If we don’t, we may have to look at increasing throughput to offset the grade-loss.”
At the end of 2002, reserves stood at 5.1 million tonnes grading 11 grams gold and 176 grams silver per tonne. This, combined with 3.9 million tonnes of resources at 8.25 grams gold and 166 grams silver, translates into 10 years of millfeed, though current production rates are all but guaranteed to taper off after 2006 unless more high-grade material is found.
To be sure, El Peon owes much to its grade, but the proximity of the orebodies to surface lends itself to relatively inexpensive ramp-and-haulage extraction. Furthermore, strict control on grade and dilution keeps costs at bay, and additions to the plant have pushed gold recoveries past 96% and silver recoveries past 91%.
Still, if grade is to be a deciding factor, Meridian geologists seem up to the task. Their track record includes four years of continuous reserve replenishment, and more recently, they have extended known orebodies and added a new promising vein to the list.
“At this time, we expect to replenish mined reserves in 2003,” said Edgar Smith, general manager at El Peon.
Situated a short drive from the port city of Antofagasta, El Peon sits in the Longitudinal Valley of northern Chile, between the Mesozoic-aged magmatic arc that forms the Coast Range and the Domeyko Cordillera to the east. Gold and silver are contained in low-sulphidation epithermal quartz-vein structures, with intermediate to rhyolite volcanics and volcaniclastics forming the hanging wall and footwall.
The main control on mineralization is a series of north-striking normal faults, and, to a lesser degree, northeasterly faults. Grade continuity and values are better in the dip-slip structures, but lithology determines the ultimate shape and vertical location of the orebodies in both sets of faults. “There is a less defined but apparent spatial association with rhyolite vent features,” said Chuck Robbins, who is credited with the discovery of El Peon.
Smith’s confidence in Robbin’s geological prowess is backed by results. Aside from past accomplishments, he and his team recently extended the high-grade Quebrada Colorado vein, one of main drivers behind the current production rate and current contributor of two-thirds of the underground ore delivered to the mill.
Work began in the first quarter with the driving of two sublevels some 135 metres into the structure, from where it intersects the northeasterly Discovery Wash vein. Channel sampling along the drifts yielded an average 12.3 grams gold and 524 grams silver over 1.04 metres on Level 1625 and an average 25.7 grams gold and 886 grams silver over 1.38 metres on Level 1675. The results are said to be significantly better than earlier resource modeling had predicted.
Follow-up drilling went a step further by pushing the structure 250 metres beyond the resource block. The new extension comprises four shoots in a dacite unit that averages 14.3 grams gold and 258 grams silver over 1.91 metres true-width — equivalent to current mining grades and widths. Results include:
— hole 430, which averaged 16.18 grams gold and 215 grams silver over 1.6 metres true width (starting at 269 metres down-hole);
— hole 435, which averaged 42.2 grams gold and 170.1 grams silver over 2.6 metres (at 246 metres);
— hole 438, which averaged 80.5 grams gold and 146.8 grams silver over 1.6 metres (at 249 metres);
— hole 445, which averaged 16.15 grams gold and 960.1 grams silver rover 1.2 metres (at 117 metres); and
— hole 440, which averaged 12.66 grams gold and 306.5 grams silver over 1.5 metres (at 227 metres).
Also in favour of the new zone, dubbed Quebrada Colorado Norte, is its location between 75 and 150 metres below surface, which makes it easily accessible to future development.
Stepout drilling also bore fruit in the Martillo Flats area to the northeast, not only in terms of grade and width, but also in extending the El Peon epithermal system across a major east-west drainage basin that had been thought to mark its northerly boundary. By July, 6 holes, spaced over a strike length of 200 metres, had yielded an average 17.9 grams gold and 902 grams silver over 2.4 metres true width.
There, mineralization is hosted by a rhyolite unit that lies 80 metres beneath an overlying dacite, underscoring the indifference of the gold-bearing fluids to host lithologies. Said Robbins: “Unfortunately, we don’t have an obvious favorable host rock everywhere; there may be some areas where there are similar situations, but each one can be different.”
Fortunately, some of the gaps can be filled by geophysical and trace element data. For example, Cerro Martillo, to the east of Martillo Flats, was first detected as a very-low-frequency electromagnetic anomaly, and mushroom-shaped arsenic anomalies occur in the bedrock around the Quebrada Orito and Quebrada Colorado veins.
At Martillo Flats, hole PS-521 returned the best grades — 50.7 grams gold and 2,715 grams silver over 2.3 metres true width, starting 261 metres down-hole; hole 489 pulled up the widest mineralized interval, a 3.1-metre true width running 19.3 grams gold and 675 grams silver.
Also, in the hanging wall of Martillo Flats to the south and east, drilling intersected nine mineralized shoots over a strike length of 800 metres. All are less than 330 metres from planned underground development, so drilling will continue over the remainder of the year.
At the southern extension, gold values in the three mineralized intervals reported varied from 8 to 17 grams per tonne over true widths of 1 to 2.3 metres. Silver grades ran between 390 and 1,237 grams, with the highest associated with the richest gold interval.
Situated 50 metres to the east, the Hanging Wall 1 structure averaged 30.3 grams gold and 1,947 grams silver per tonne over 1.6 metres true width (at 170 metres), 3.9 grams gold and 1,874 grams silver over 1.4 metres true width (at 183 metres), and 25.9 grams gold and 1,385 grams silver over 3.3 metres true width (at 222 metres).
Another 50 to 80 metres further to the east, Hanging Wall 2 returned generally lower gold and silver values but over greater widths. The widest section intersected in drilling was 4.3 metres true width and carried 10.3 grams gold and 607 grams silver.
Even the original discovery at El Peon, Quebrada Orito, has some surprises left. Underground drilling beneath the Amatista pit, near the structure’s intersection with the northeast-striking Vista Norte vein, yielded gold grades ranging from 5.9 to 25.3 grams per tonne and silver grades of 37 to 51 grams; the true widths of the intersection were between 1 and 6 metres. The shoot’s strike length is 60 metres, and its vertical extent, 80 metres.
Meridian notes that several of the mineralized intervals correlate with those from the Vista Norte vein. Still, drilling over the remainder of the year will focus on down-dip and strike extensions to the south.
Meridian is not restricting its efforts to known structures and in fact has discovered a new vein, dubbed Al Este. The best result was 85.9 grams gold and 4,503 grams silver per tonne over 6 metres, starting at 280 metres below surface, and by the time of the Miner’s visit, the vein had been traced over a strike length of 240 metres.
“We have enough holes to think [the vein] runs north-south and dips to the west, but it’s preliminary stages,” said consulting geologist William Wulftange. “What is really exciting is that it was really a blind target and has good grade in the holes for which we have results.”
Al Este sits between Martillo Flats and Borde Norte to the east. Both of those veins run north-south, suggesting that a new structure sat in between, an idea supported by gravity data.
“The vein remains open to the north and south, but we don’t know where it ends nor if it blossoms into something better,” said Wulftange. “You can see similar grades at the ends of other major structures at El Peon, where you have a narrower vein but still some grade.”
Here, Wulftange is referring to lacklustre results obtained from a second fence of holes collared 200-odd metres to the north. Three holes each cut 1 metre of mineralized rhyolite, returning 2 to 4.5 grams gold and 115 to 330 grams silver — above the cutoff for the pits but still south of the underground minimum. “It’s an exploration play, but it’s very encouraging,” added Wulftange.
Indeed, to date, Meridian’s exploration program has covered just 10% of its total land holdings around El Peon. “We may have up to 6 km of extension to test for more mineralization,” said Robbins.
Not bad for a project that began a decade ago with a geologically curious float sample in an area having no previous record of precious metal occurrences.
Meanwhile, the Esquel gold project in Argentina, which Meridian purchased in mid-2002 to write the next chapter in its storied history, has turned into a bad case of writer’s block. Reserves of 7.5 million tonnes grading 9.7 grams gold and 16 grams silver rival that of El Peon, but whether any will be turned into dore bars remains uncertain.
Meridian wants to build an open-pit mine using a carbon-in-leach (CIL) cyanide processing circuit to recover the gold, and an independent feasibility study has lent its support. The operation would turn out 300,000 oz. in each of the first five years of production, and life-of-mine cash costs, projected at US$108 per oz., would ensure the company remains a low-cost producer.
So what went wrong? According to a recently commissioned independent review, communication — or rather lack thereof. The report, authored by Business for Social Responsibility (BSR), said that Meridian failed to adequately explain what it intended to do, how this would provide anything more than a few hundred jobs and whether it would protect local waterways from toxic pollution.
Esquel is partly a victim of location: it sits in pristine mountainous terrain some 6.3 km from Esquel, a city of 35,000, in the country’s Patagonia region. Surrounded by the mountain slopes of the Chubut range, tourism is among the area’s main income generators, drawing visitors to the ski runs of La Hoya, 6.5 km northeast of the project, and to Los Alerces National Park, 40 km to the northwest.
“I think, so far, the reception has been good,” said Meridian President Brian Kennedy. “It’s a report written by BSR, [Meridian] has read the report and [Meridian] accepts the findings of the report.
“We spent the last two months listening to this community and this is what they said, and we accept what they said. We apologize to the community for the findings that we have found and for our failure to communicate, and we take full responsibility.”
Added Kennedy: “I think another thing you should know is that we have always been committed to doing this project in an environmentally safe manner. That was not communicated properly because some of the other issues got to a point where we couldn’t communicate them. Just recognize that the project that we have in the environmental review meets all world standards, and whatever we ultimately wind up with, if we get a chance to wind up with a project, will meet those standards.”
Kennedy also noted that the project management has changed, with Vice-President Edward Colt now heading up the team. A total of 60 people remain Esquel, of which only 3 are expatriates.
“The changes we are making are really to put a different face on this project so that we can improve the interaction with the community,” said Kennedy. “We will continue to evaluate our options, but we will not go forward without the support of the community of Esquel.”
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