McEwen Mining grows El Gallo

The first phase of production at McEwen Mining’s (MAQ-T, MUX-N) El Gallo deposit in Sinaloa, Mexico, is scheduled to start during the third quarter, but in the meantime the Toronto-headquartered company has grown the measured, indicated and inferred silver resource at the project by 33% and 57%, respectively, while the gold resource has expanded by 4% in the measured and indicated category and by 1,040% in the inferred.

The El Gallo complex is nestled along the foothills of the Sierra Madres. McEwen Mining discovered the deposit in 2008. The complex includes the El Gallo and Palmarito silver deposits and the Magistral gold deposit, all within a 13 km radius.

Measured and indicated gold resources stand at 34.4 million tonnes grading 0.51 gram gold per tonne for 566,509 contained oz. gold, while inferred gold resources add 27.7 million tonnes grading 0.31 gram gold per tonne for 271,081 contained oz. gold.

Measured and indicated silver resources stand at 24 million tonnes grading 68.9 grams silver for 53.1 million contained oz. silver. Inferred silver resources add 27.4 million tonnes grading 35.1 grams silver for 31 million contained oz. silver.

El Gallo is being developed in two phases. Phase one is permitted for mining and scheduled to begin production during the second half of 2012. Phase-one production is expected to average about 30,000 oz. gold per year.

The company is finalizing production plans for phase two, which will include the El Gallo and Palmarito deposits. Results from a feasibility study on phase two are also expected mid-year.

Meanwhile, exploration on the property is proceeding at a brisk pace. In March the company made a new silver discovery 2.5 km east of the proposed mill location that it has called CSX. The mineralization starts from surface, and one intercept returned 629.4 grams silver per tonne over 6 metres.

While the surface signature at CSX appears smaller than it does at El Gallo, the company says the geology seems similar, made up of shallow-dipping siliceous breccia bodies, hosted within andesite volcanic rocks and quartz porphyry. The company has intersected higher grades that could be milled, and lower grades that could be heap leached.

The zone measures 200 metres in length and 50 metres in width. The majority of the intercepts occurred at or near surface, which could allow for open-pit mining. The zone remains open to the east and south.

In the new resource estimate announced June 5, the calculation is based on a cut-off grade of 12 grams silver per tonne and using heap-leach recovery. Cut-off grade mineralization that would be processed at the mill is 23.75 grams silver per tonne. A US$28.50-per-oz.-silver and US$1,500-per-oz. gold price is used to establish the in-pit resource.

Mining costs for mineralized material are estimated at US$1.75 per tonne and US$1.65 per tonne for waste material. These costs are based on actual mining costs at El Gallo’s phase one, the company says. Silver and gold processing costs for milling are estimated at US$18.50 per tonne. Silver heap-leaching costs are estimated at US$6.50 per tonne and US$13.20 per tonne for gold heap-leaching.

Rob McEwen, the company’s president and chief executive, owns 25% of the company’s shares. As of March 31, McEwen Mining had cash and equivalents of US$66.7 million, made up of US$41.1 million in cash, silver and gold bullion, with a market value of US$21.4 million, short-term investments and marketable securities of US$4.4 million.

At presstime McEwen Mining traded at $2.69 per share within a 52-week range of $2.02 to $6.86. The company has 268 million shares outstanding.