Metallica, Xstrata upgrade El Morro copper-gold resource (November 27, 2006)

Metallica Resources (MR-T, MRB-X) has announced a substantial upgrading of its La Fortuna copper-gold deposit at its El Morro project in Chile.

The updated estimate on the La Fortuna deposit was completed by Metallica’s joint-venture partner Xstrata (XSRAF-O, XTA-L ), which owns 70% of El Morro.

Measured and indicated resources now stand at 488 million tonnes grading 0.59% copper and 0.52 gram gold per tonne using a lower cutoff grade of 0.3% copper.

With all measured, indicated and inferred resources combined, the latest estimate represents a 7% increase in total tonnage, a 7% increase in copper and a 15% increase in contained gold over a 2005 resource estimate.

About 70% of the La Fortuna resource is now classified in the measured and indicated categories; in 2005, only 38% was indicated with the remainder inferred.

The new resource estimate is part of Xstrata’s $40-million prefeasibility study, to be completed by early 2007.

The resource classification is based partially on a simulated mine pit and metal prices of US$1.20-per-lb. copper and US$400-per-oz. gold.

A 1,150-metre underground decline is also in progress for geotechnical characterization and bulk metallurgical sampling as a part of a final feasibility study due by mid-September next year.

The news comes as Metallica gets construction back on track at its Cerro San Pedro silver-gold pro-ject in Mexico. Suspension of the company’s explosives permit in April held up construction of the haul road, prestripping in the pit area and the placement of ore and leach pads, delaying production from the mine.

According to its third-quarter results, Metallica will have to get working capital financing until the mine generates enough cash flow from operations.

Construction at Cerro San Pedro, which has attracted the bulk of the company’s spending this year, is expected to be finished in December.

Metallica reported a loss of $600,000 (1 per share) for the third quarter compared to a net income of $9.66 million (12 per share) for the third quarter in 2005. The company blamed the decrease in net income on a one-time, $10-million earn-in payment from Xstrata in 2005 for El Morro. The payment boosted Metallica’s income to $8.35 million in last year’s third quarter and resulted in a $1.4-million decrease in foreign exchange gains on cash balances held in Canadian dollars.

For the first nine months of 2006, Metallica was $960,000 in the red, a loss of 1 per share, compared with a net income of $7.94 million, or 10 per share, for the nine months ended Sept. 30, 2005.