The best interval occurred in hole 124, at the intersection of the high-grade La Esperanza and San Juan structures: 9 metres (beginning at 69 metres below surface) grading 17.1 grams gold and 1,424 grams silver per tonne, including a 1-metre section of 43 grams gold and 3,860 grams silver.
Other highlights are as follows:
— hole 101 — 3 metres (from 31 metres below surface) grading 19.6 grams gold and 291 grams silver, including 1 metre of 40.6 grams gold and 714 grams silver, in the Aventurero structure;
— hole 103 — 2 metres (from 48 metres) of 22.8 grams gold and 818 grams silver, including 1 metre of 42.1 grams gold and 1,590 grams silver, in the Chica Rica zone;
— hole 106 — 1 metre (from 72 metres) grading 14.6 grams gold and 892 grams silver in the Chica Rica zone;
— hole 114 — 3 metres (from 90 metres) averaging 15.3 grams gold and 314 grams silver, including 1 metre of 28.5 grams gold and 622 grams silver, in the La Esperanza zone;
— hole 122 — 1 metre (from 28 metres) grading 80.9 grams gold and 416 grams silver in the Aventurero structure.
In all, the 30 new holes yielded 48 intervals exceeding 3 grams gold-equivalent. Gold-equivalent values are based on 65 grams silver to 1 gram gold.
The latest holes represent the sixth round of drilling in a 65,000-metre campaign aimed at the Northeast underground project area. Included are results from the newly discovered La Esperanza and Chica Rica structures, which were encountered during the development of 4.5 km of underground ramps and tunnels at Ocampo Northeast.
So far, drilling on La Esperanza has returned average grades of 12.3 grams gold-equivalent per tonne over widths averaging 1.9 metres. Gold-equivalent grades in the Chica Rica structure average 19 grams over average widths of 1.2 metres.
The recent drilling also included two holes designed to test for other new high-grade structures at Ocampo. Hole 128 managed to cut three new structures between the Las Animas and Aventurero structures, and yielded 1 metre (from 33 metres) running 7.6 grams gold and 93 grams silver, plus 1.5 metres (from 67.5 metres) of 6.5 grams gold and 28 grams silver.
Hole 130 also cut newly identified splay structures branching off of the high-grade Las Animas structure, encountering 5 metres (from 76 metres) averaging 4.5 grams gold and 430 grams silver, including 1 metre of 14.7 grams gold and 1,455 grams silver.
Gammon expects the new results to boost Ocampo’s resources and reserves, which will be updated later this year.
At last count, Ocampo had proven and probable reserves of 33.6 million tonnes grading 1.25 grams gold and 52 grams silver per tonne, or 1.3 million oz. gold and 56.2 million oz. silver. About 67% of the reserve’s ounces are in the open-pit area, with the remainder found in the Northeast underground area.
The estimate employs a cutoff grade of 3 grams gold per tonne for the underground reserves, and cutoff grades of 0.6 gram gold-equivalent and 0.2 gram gold for the high- and low-grade open-pit reserves. Prices of US$400 per oz. gold and US$6.50 per oz. silver were used in the calculation.
Based on those reserves, Gammon expects to begin producing (in the first quarter of 2006) at the daily rate of 11,400 tonnes from the open-pit area and 1,500 tonnes from the Northeast underground area. The project’s bankable feasibility study, released late last year, estimates annual production of 270,000 oz. gold-equivalent over the first seven years of mining. Cash costs are projected at US$151.74 per oz., whereas first-year production will likely exceed 300,000 oz. gold-equivalent.
Ocampo’s high-grade ore will be subjected to three stages of crushing. The low-grade ore, which must be excavated in order to reach the high-grade, receives only primary and secondary crushing. Mining and processing costs ring in at US$5.71 per tonne for the open-pit material, and at US$25.59 per tonne for underground.
Gold and silver recovery rates for Ocampo’s high-grade open-pit reserves are expected to average 87% and 72%; those figures fall to 77% and 46% for the low-grade reserves. Meanwhile, recovery from the underground material is expected to hit 96% for gold and 93% for silver.
The project carries a preproduction capital cost of US$104 million, and with an impressive after-tax internal rate of return of 52%, payback is expected in just 1.6 years. The project’s net present value (at a 5% discount) is US$270 million; the after-tax cumulative net cash flow comes to US$258 million.
Gammon is investigating financing options for the project. Late last year, the company raised $110 million via the private placement of 15.7 million special warrants priced at $7 apiece. Each warrant is exchangeable for one Gammon share by April 17.
The company expects to begin site preparations for the mill and heap-leach facilities early this year.
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