Glencairn works to get Nicaraguan gold projects on track

SITE VISIT

Managua, Nicaragua — Toronto-based Glencairn Gold (GGG-T, GLE-X) has been growing recently, supplementing its original gold producer — the Limon mine in Nicaragua — with the La Libertad mine purchased in July 2005, also in Nicaragua, and bringing the Bellavista mine in Costa Rica into production last December.

To manage the increased operations, the company hired engineer Peter Tagliamonte as president and CEO in May of this year. The Canadian executive’s previous assignment was bringing the Jacobina underground gold mine in Brazil into production for Toronto-based Desert Sun Mining, since acquired by Yamana Gold (yri-t, auy-x). Tagliamonte says his job is to “focus on being good miners and return value to shareholders.”

The company next hired Graham Speirs, an engineer with extensive experience in mine development and operations in both North and South America, as the chief operating officer in September. His breadth of knowledge will be useful as operations at each of the three mines are different.

Glencairn’s 100%-owned Bellavista mine in northwestern Costa Rica is an open-pit, heap-leach operation that began production in December 2005. Since then, it has been undergoing fine-tuning to maximize production and efficiencies. Like the Limon and La Libertad mines, Bellavista is a low-sulphidation epithermal gold deposit that is only several hundred metres thick.

The mine is about 120 km by paved road from the capital, San Jose, on a hillside overlooking the Pacific coastal plain and the ocean in the distance. It is in a historical gold belt where mining has taken place for over 100 years. The Bellavista property was mined intermittently between 1914 and the 1960s. Between 1984 and 1996, Toronto-based owner Rayrock Yellowknife Resources defined a bulk tonnage deposit. The property was held by Wheaton River from 1997 to 2002, during which time a positive feasibility study was completed. Glencairn acquired the property in 2002.

The government of Costa Rica is strongly committed to protecting the environment. As such, authorities required Glencairn to obtain 267 permits in order to get the mine up and running, according to Garry Biles, the mine’s general manager. Environmental responsibility is not a burden for the company, but part of its operating ethos, Biles says. Careful water management to cope with the 3 metres of annual rainfall and an extensive revegetation program ensure that the operation coexists in harmony with the surrounding tropical environment. A company nursery supplies the mine site with plants for revegetation. This is particularly noticeable on the waste rock dumps and around the edges of the leach pad. Due to the climate, vegetation takes root easily and within a year, the bare slopes of waste are covered in greenery.

When the mine obtained its operating permit in December 2005, using a cutoff grade of 0.5 gram gold per tonne, the mine had proven and probable reserves of 9.6 million tonnes grading 1.5 grams gold (containing 459,000 oz. gold) and measured and indicated resources of 11.1 million tonnes grading 1.18 grams gold (for 21,300 oz. gold).

Mining from the open pit is done around the clock on two 12-hour shifts, seven days a week. The daily mining rate varies from 3,000 to 5,000 tonnes of ore and 1,000 to 20,000 tonnes of waste rock, depending on the season. Most of the waste rock is moved during the dry season, from November to April. The bulk of the ore is hauled to the crusher, where oxide cap, transitional and low-grade ore are crushed to varying sizes. The mill operates 18-20 hours per day at a rate of 350 tonnes per hour. The ore is agglomerated with cement (10 kg of cement per tonne of ore) and then transferred to the leach pad. Gold recoveries range from 45% to 50%.

High-grade ore (2.7 grams gold per tonne or higher), which is about 15% of the ore, is now being treated in the grinding mill, which was commissioned in October. The ore here is ground to 80% minus 65 mesh enabling 80% gold recovery. After grinding, this ore is also sent to the leach pad where all the ore undergoes a minimum 120-day leach cycle.

Although the ore grade is meeting expectations, gold production of 30,479 oz. for the first nine months of 2006 was lower than expected, primarily due to the delay in commissioning the grinding mill. Gold is being produced at a cash operating cost of US$306 per oz. There is a 7-year mine life from current existing reserves.

The Bellavista operation is designed to produce an average of 60,000 oz. gold per year. Management is now looking at means to increase reserves, production and recoveries, while at the same time decreasing costs for consumables and in the mining process itself.

Nicaragua

Glencairn’s other two producers are in Nicaragua, a country that in recent memory suffered a civil war and was not investor-friendly. Former president Daniel Ortega and his Sandinista party were elected in the fall and will assume power in January.

Those with long memories must have felt a chill go down their spines when the election results were announced. Ortega’s previous tenure as president resulted in the nationalization of many foreign-owned enterprises and was marked by the civil war. This time around however, a chastened Ortega and the Sandinistas are going out of their way to reassure foreigners that Nicaragua is open for business. In meeting with Glencairn officials, analysts and the media in Managua in early December, Manuel Coronel, a senior Sandinista official, reassured everyone that Nicaragua needs foreign investment to reform the economy and improve the standard of living. A similar presentation was given in Toronto a week later by another Sandinista official to the financial community on Bay Street.

La Libertad

The 100%-owned La Libertad mine, 150 km by paved road, plus 30 km by dirt road from the Nicaraguan capital of Managua, was purchased by Glencairn from Yamana Gold in July 2006. Production from the 90-metre deep Mojon open pit at Libertad began in 1997, and so far totals 490,000 oz. from ore averaging 1.76 grams gold per tonne.

Glencairn management knew that the mine had been undercapitalized and plagued by maintenance problems. They believe that with proper funding and management, the mine can achieve a substantially higher production rate.

Ore is extracted from an open pit, crushed, agglomerated and put on one of eight leach pads, then sprayed with a cyanide solution. About 2,400 tonnes of high-grade ore (greater than 6.7 grams gold) has been stockpiled. About 800 tonnes of that has been trucked to the Limon mine for milling, where recoveries are about 85%. The Limon mine is about a 5-hour drive from La Libertad. Two haulage contractors move ore about 1.7 km from the pit to the crusher, and waste rock is hauled nearly 1 km.

About 9 kg of cement is added to each tonne of ore prior to its distribution on one of the pads. The leach cycle is 110 days and gold is recovered in a carbon-in-leach (CIL) plant. Gold recoveries at La Libertad are about 45%, but could be improved if the ore were crushed finer.

By year-end 2006, it is expected that 1.32 million tonnes of ore grading 1.48 grams gold will be treated, to produce 28,219 oz. gold. The waste-to-ore stripping ratio was 6.91:1 for 2006 and the cash cost is projected at US$748 per oz. This means that gold is being produced at a loss, but management was aware that initial production costs would be high due to the work required at the mine to make it profitable.

The main producing pit (Mojon), is being deepened, which requires pushing the pit wall back, resulting in the current high strip ratio. This will remain the same for 2007, but as the pit deepens, grades will increase. To improve grade control in the pit, trench sampling has replaced borehole sampling. As well, three new open pits are being developed to provide the bulk of the ore for 2007.

Consumables such as cement, cyanide and explosives are being used more efficiently. Costs are decreasing in the
recovery plant, and lower fuel consumption is expected with the recent introduction of new, fuel-efficient haul trucks. Power for the operation is generated on-site by diesel generators. Operating costs are expected to decrease to US$540 per oz. from US$777 once these measures take effect.

The possibility of installing a mill to increase recoveries is being studied by the consulting firm AMEC. If a mill is feasible, then 8.1 million tonnes of leached ore grading 0.95 gram gold will become a resource available for processing. It is estimated that by using a mill, recoveries will increase and processing costs will decrease by about US$3 from the current US$16.05 per tonne.

About 450 workers including 150 contractors work on site and commute from the nearby town of La Libertad.

Limon mine

The Limon mine is Glencairn’s only underground operation, and has been in continuous production since 1941. Glencairn’s October 2003 acquisition of a 95% interest has given the mine a new lease on life because of the development of the Santa Pancha deposit. The mine was acquired from Blackhawk Mining when the two companies merged and continued operating under the Glencairn name.

The mine is 140 km north of Managua — 119 km by paved road and the rest by well-maintained dirt road.

Since 1941, Limon has produced about 3 million oz. gold. In 2006, production will be 35,000 oz. and in 2007, it is estimated that will increase to 43,000 oz.

The primary source of ore is the Talavera zone, but development has been taking place on the Santa Pancha zone, which will become the main source of ore in the future. Both zones are accessed by ramps.

Mining and milling is carried out six days a week, with three 8-hour shifts per day. The mining rate varies with the season but averages 1,021 tonnes per day of ore and 542 tonnes of waste. The mill has a capacity of 1,400-1,500 tonnes per day. Some of this spare capacity is utilized by the high-grade ore from La Libertad; the remaining capacity is available for ore from the company’s Mestiza exploration project, should it go into production.

For the nine months ending in September, the mill processed 227,756 tonnes of ore grading 4.3 grams gold. Recoveries were 83.4% for a total of 26,100 oz. of gold produced. The cost per ounce was US$426.

The largest single expense at the mine is electricity. The company is negotiating to reduce the cost to US7 per kilowatt hour from US11. If successful, the new rate will go into effect in March 2007. Another area where costs are being reduced is in purchasing. Currently, supplies are sourced from a supplier in Florida, however, the company is investigating sourcing supplies elsewhere.

Operations at Limon were interrupted a few times early in 2006, the result of grievances by union members who were acting without the support of their union. The dispute has been legally resolved and the mine and union are co-operating to ensure that production is not interrupted again. These work stoppages coupled with lower-than-projected grades led to lower-than-expected 2006 gold production.

Proven and probable reserves at the end of September 2005 were 1.3 million tonnes grading 5.34 grams gold for 223,100 contained ounces. Measured and indicated resources were 356,500 tonnes grading 5.99 grams gold for 68,700 contained ounces. At the end of September 2006, there was ore for about four years of production left, but all the ore mined in the first nine months of 2006 has been replaced.

In addition to its operating mines, Glencairn has two advanced exploration projects. The Mestiza project is 70 km by road from the Limon mill. It hosts a 2.4-km-long vein containing 228,000 oz. gold in ore grading 10.3 grams. Drilling will begin on this project in early 2007. The second project is located in Panama.

With his hands full overseeing the three different projects, Tagliamonte says: “The focus is to maximize the efficiency and operation of the mines. From the president down to the mine managers, the company has put in good operations people, and we have the capital.”

Tagliamonte feels that after 18 months to two years the operations should be on track to profitability and working to their full potential.