Farallon Working Away At Campo Morado

VANCOUVER — With a $10-million financing and a US$30-million loan, Farallon Mining (FAN-T, FRLIF-O) has restructured its balance sheet, replacing short-term liabilities with long-term debt, while it works at improving throughput and recoveries at its Campo Morado polymetallic mine in Mexico.

Farallon achieved commercial production in April at Campo Morado, a high-grade underground mine in Guerrero state.

The processing facility at the zinc-copper-silver-gold-lead mine is designed to handle 1,500 tonnes of ore each day and but maintenance issues lowered average throughput in the second quarter to 1,260 tonnes.

The other major issue is recovery levels. Recoveries for precious metals are actually slightly above expectations — 52% for gold and 47% for silver — but base metal recoveries are still lower than expected. In the second quarter recoveries averaged 77% for zinc, 55% for copper, and 20% for lead. An optimization program is under way to boost recoveries to 85% for zinc and 70% for copper.

Nevertheless, in the second quarter the mine processed 114,640 tonnes of ore to produce 21.3 million lbs. zinc, 1.7 million lbs. copper, 588,000 lbs. lead, 284,350 oz. silver and 4,440 oz. gold. Farallon is targeting annual production of 120 million lbs. zinc and 15 million lbs. copper.

The Campo Morado mine taps into the G-9 deposit, which is composed of four zones of massive sulphide mineralization that occur over an area roughly 1 km by 650 metres. Zones can be as wide as 45 metres, though widths average 10 to 20 metres. The deposit is inside a steep hill; a decline from the bottom of the valley provides access to the underground operations.

All told, the G-9 deposit hosts 2.2 million measured and indicated tonnes grading 11% zinc, 1.48% copper, 1.32% lead, 3 grams gold and 209 grams silver per tonne. Inferred resources add 1.6 million tonnes averaging 9% zinc, 1.11% copper, 1.24% lead, 2.72 grams gold and 178 grams silver.

The last resource calculation was completed in 2008. Since then, the company has both depleted and added resources — in driving the decline towards the North zone, Farallon intercepted and mined the West Extension zone, and it has also discovered and mined a zone known as the Northwest Extension.

Surface exploration drilling has been on hold for more than a year, while the company focused on developing its underground drill program and commissioning the mill. Farallon plans to restart exploration drilling before the end of the year in a program aimed at increasing resources at G-9, investigating a nearby target known as the Abajo horizon, and testing explored gravity anomalies of the south for new zones.

And the company’s recently announced $10-million bought-deal financing will give it the funds it needs for that exploration program. The financing is the final step in a lengthy process to restructure Farallon’s balance sheet and replace high-interest, short-term liabilities with low-interest, long-term debt.

The main step in that process occurred in June, when Farallon signed onto a US$30-million term loan with Credit Suisse. A large chunk of the four-year loan was used immediately to repay promissory notes due to mature in September, which Farallon had issued a year earlier to finance mill equipment purchases. The promissory notes carried a 15% interest rate; the new term loan bears a 6.97% interest rate.

And in another interesting Farallon development, the company and its president Dick Whittington have filed a libel lawsuit against an Australian man, David St. Eloi, over defamatory posts he allegedly made on forums on the investor website Stockhouse.com.

The suit alleges St. Eloi, using the alias “campokid”, accused Farallon and Whittington of stealing the Campo Morado property and manipulating the company’s stock price. Among other things, Campokid’s posts called Farallon “the biggest scam since Bre-X” and accused the company of being “involved in the biggest bribery scandal in history.”

The suit seeks damages for libel, a permanent injunction preventing St. Eloi from publishing further defamatory material, damages, and court costs.

The accusation of “stealing” Campo Morado relates to a now-resolved dispute over ownership of Campo Morado. In 2004, David Hermiston sued Farallon and others in Mexico over the rights to the property, alleging he had been defrauded of his interest in the Mexican company that owned the ground prior to Farallon. Hermiston lost the case in mid-2007 and then lost several appeals. His final appeal was dismissed earlier this year and Farallon has since received a clean certificate of title to the property.

Farallon’s shares are currently trading at just over 40¢. The company has a 52-week trading range of 10-46¢ and 443 million shares