Positive economics for Andean’s Cerro Negro (July 07, 2010)

Vancouver – A feasibility study on Andean Resources’ (AND-T, AND-A) Cerro Negro gold-silver project in Argentina has outlined a healthy mine plan while the company predicts further growth for the property.

Andean’s wholly-owned project in Santa Cruz province is designed as a multi-stage operation, starting with a high-grade underground mine on the Eureka West deposits then moving to the underground Bajo Negro and open-pit Vein Zone deposits after five years.

The company, however, expects to incorporate the high-grade Marianas and San Marcos vein systems, which were not included in the study, into a mine plan sometime late next year. Andean expects to establish resource estimates on the zones by the first quarter of 2011.

“This feasibility study represents a solid foundation upon which we will build and expand Andean,” said company president and CEO Wayne Hubert in a statement. “The new discoveries at San Marcos, Mariana Norte, and Mariana Central will very likely enhance and expand our production and reserves at Cerro Negro.”

The most recent drill results from Mariana Central include 12.2 metres grading 19.5 grams gold per tonne and 139 grams silver per tonne, 16.9 metres carrying 16.6 grams gold and 128 grams silver, and 5.1 metres averaging 39.3 grams gold and 90 grams silver.

At Mariana Norte the company hit 4.2 metres carrying 5.8 grams gold and 31 grams silver and 8.7 metres carrying 11.7 grams gold and 107 grams silver. At San Marcos it cut 7.6 metres returning 14.9 grams gold and 142 grams silver and 8 metres averaging 10.4 grams gold and 97 grams silver.

The company has two drills working on the property at roughly 750 metres elevation in Patagonia despite the winter conditions. The low-sulphidation, epithermal gold is hosted within quartz veins and associated stockworks.

The current feasibility study, meanwhile, sets out a 10-year mine life operating at 1,850 tonnes per day and producing an average of 200,000 oz. gold per year.

The study is based on probable reserves of 7.14 million tonnes grading 9 grams gold and 90 grams silver for 2.1 million oz. gold and 20.6 million oz. silver over the three deposits. The bulk of the resource is hosted in the Eureka deposit, with 2.93 million tonnes grading 13.6 grams gold and 198 grams silver.

The newly-released resource estimate for the Vein Zone has 8.4 million indicated tonnes grading 2.21 grams gold and 4.9 grams silver, of which 2.4 million tonnes at 4.3 grams gold and 9 grams silver were converted to reserves.

Capital costs are estimated at US$275 million including a US$82 million processing plant and US$31 million in contingency with a payback period of a year and a half. Assuming US$850 per oz. gold and US$14 per oz. silver, the study estimates an after tax net present value of US$402 million using a 5% discount rate and an internal rate of return of 43%. The company notes that the project economics improve considerably using current spot prices.

Mining of the higher-grade Eureka West deposit in the first five years is expected to produce 285,000 oz. per year at an average cash cost of US$60 per oz. gold, including significant silver by-product credits. Over the current 10-year mine plan, cash costs are expected to be roughly US$168 per oz. gold, again factoring in silver by-product credits. Silver is estimated to account for roughly 13% of total revenue.

The company will use cyanide leaching to recover the precious metals, with metallurgical testing showing 95% gold recovery and 86% silver recovery. Ore from the Eureka zone will have to be milled to a finer grade than the other two deposits to achieve equal recovery.

Andean has committed to donate 1% of after-tax profits to a sustainable development fund for local communities.

The company has submitted an environmental impact assessment to the Argentine government and should have a response within 60 days.

Andean’s share price was up 22¢ or 8% on the news to close at $2.97. The company has a 52-week share price range between $3.42 and $1.56 and 468 million shares outstanding.