Cusco, Peru — With four months of commercial gold and silver production from the Open Pit zone under its belt,
Situated 550 km southeast of Lima, the 134-sq.-km property consists of 17 mining concessions which sit at an average elevation of 3,900 metres above sea level. The topography is moderately rugged, and the infrastructure allows for easy access to water and power. The property is accessible via 360 km of paved and dirt roads which wind westward through the mountains from Cusco.
The company’s heap-leach operation is running at 900 tonnes per day, in conjunction with a carbon column recovery process. Five trucks haul ore 2.8 km from the Open Pit zone to the processing plant on a 12-hour shift. The pilot plant became fully functional in July 2001 at a capital cost of US$1 million, including pit development.
Andean American is expanding its crushing capacity to handle up to 3,250 tonnes per day. Once the new crusher is installed, daily production will be ramped up 2,000 tonnes. The company hopes to achieve this target by August.
At that capacity, the junior expects to produce 12,000 oz. gold per quarter at an average cost of US$110 per oz., net of silver credits. The capital cost of installing the new crushing plant is pegged at US$350,000. Plans also call for the installation of a silver precipitate circuit and expansion of the leach pad. When all is said an done, the capital cost of the total mining operation is expected to approach US$2 million.
“We did it with low overhead and a tight plan, with Peruvian personnel, contractors and engineering,” said President John Huguet, who spoke with The Northern Miner on-site. “All the costs were tightly negotiated and controlled.”
In recent years, Andean American’s management have tried to achieve positive operating cash flow so as to clean up its balance sheet and explore and develop its projects without seriously diluting its stock through cheap financings. Andean American has 21 million shares outstanding.
“We looked at the costs of putting a mine into production based on the original resource estimate,” said Huguet. “There was a fundamental base that allowed us to pay off our debtors and have a small return left for our shareholders, if there were nothing there except the original resource. If we had gone the traditional route, we would have had to find someone to finance exploration, and that would have at least doubled the number of shares outstanding.”
Commercial production began in March 2002. During that month, 13,308 tonnes of ore were placed on the leach pad at an average grade of 2.96 grams gold per tonne. Operating costs totalled US$159,156, net of silver credits. During April, Andean American sent 18,994 tonnes of ore to the leach pad at an average grade of 2.62 grams gold per tonne, and total operating costs amounted to US$187,333, net of silver credits. In May, about 20,000 tonnes were put on the pad at an average grade of 2.58 grams gold. The total operating costs were US$196,386, net of silver credits. The slippage in grade during April and May was the direct result of a 6-week shortage in explosives, which in turn was a consequence of security measures during U.S. President George Bush’s visit to the country.
Explained Huguet: “At 1,000 tonnes per day, Andean American’s costs are about US$10 per tonne. At 2,000 tonnes per day, they’re less then US$8 — closer to US$7. At 3,000 tonnes per day, they’re less then US$7. When we include silver credits, our operational costs fall to below 35% of revenues. So it’s a pretty handsome piece of economics. It’s a small-scale operation, and we may not have many zeros on the balance sheet, but the earnings per share are going to look pretty good.”
The Santa Rosa property is within the southern Inter-Cordilleran belt of the Peruvian Andes, along a large structural trend known as the Abencay flexure. The Open Pit zone represents one of 19 mineralized gold anomalies identified on the property to date. Of these, 14 occur within an area that measures 15 by 4 km and are co-incident with a regional, northeast-trending fault known as Matara. Most deposits and prospects discovered along this zone are situated along northwest-trending cross-structures which cut the Matara fault.
Geological mapping and sampling at the Open Pit zone have confirmed that the major controls of mineralization are northwest-striking, steeply dipping structures in the limestones, which host gold and silver mineralization in low-sulphidation, epithermal veins and in siliceous replacements.
The primary exploration and development targets on the Santa Rosa property include the Santa Rosa Dome, Carelo and Virundo zones.
Santa Rosa Dome
The Santa Rosa Dome consists of the Open Pit, Northeast and North zones, all of which lie in an area that measures 700 by 450 metres. The Open Pit zone represents a structurally controlled epithermal gold-silver deposit at least 400 metres long by 250 metres wide and 60 metres deep. The structure is so named because because it was the location of the previous mining operations. Between 1983 and 1992, about 450,000 tonnes of oxide material averaging 6.2 grams gold were mined and heap-leached from this location. Andean American plans to incorporate the previously leached oxides, now averaging 2 grams gold, into its mining operation.
The Open Pit zone hosts an indicated resource measuring 544,000 tonnes grading 4.23 grams gold and 80.73 grams silver per tonne. The inferred portion of the resource adds 1 million tonnes grading 3.85 grams gold and 86.4 grams silver. This resource was based on 143 reverse-circulation drill holes (14,000 metres) and was calculated at a gold price of US$250 per oz.
Agglomeration and column metallurgical recovery tests performed by the Independent Engineering University yielded 76.85% and 78.12% gold recovery after 30 days, with recoveries accelerating at the 30-day mark.
Once in production, Andean American determined that if it increased its crush size by a factor of four and halved the stacking height of the ore on the leach pad, it could achieve gold recoveries as high as 87%. Typically gold recovery is 80%; silver recovery, 50%.
Northeast zone
The Northeast zone, immediately northeast of the Open Pit zone, measures 200 by 200 metres. In February 2000, 98 chip channel samples were taken every 5 metres along existing access roads. Highlights included 20 metres grading 0.53 gram gold and 69.2 grams silver; 25 metres averaging 1.02 grams gold and 4.7 grams silver; 25 metres of 1 gram gold and 85.4 grams silver; 40 metres of 1.28 grams gold and 134.4 grams silver; and 8 metres of 1.58 grams gold and 18 grams silver.
More recently, a bulldozer cleared an access road and uncovered silica mineralization averaging 2.69 grams gold and 247.1 grams silver over a 2-metre interval. A sample from a lower road-cut assayed 6 grams gold and 128.1 grams silver over 5 metres.
The Northeast zone has not been mined previously, and the near-surface rock has been strongly weathered and possibly leached. Andean American plans to drill 20 percussion drill holes at a depth of 20 metres in order to delineate the zone.
North zone
The North zone is 300 metres northwest of the Open Pit zone. Andean American has identified an area that measures 35 by 55 metres, where sampling has produced grades constantly in excess of 1 gram gold per tonne. This zone remains open to the north and east, as well as at depth.
Andean American recently dug 10 shallow test pits in the North zone area and collected 14 samples. Results returned strongly anomalous values of up to 0.35 gram gold per tonne. The three westernmost pits encountered argillically altered, fine-grained intrusive rocks similar to those that underlie the Open Pit zone. The remaining pits encountered strongly altered clay-rich mineralization containing hematite and goethite, as well as manganese oxides. Silica fragments, as well as scorodite and jarosite, can be found sporadically thr
oughout the area. Andean American plans to extend an access road into the zone in order to expose and sample the mineralization.
One of the primary targets outside of the Santa Rosa Dome area is the Carelo zone, which is 500 metres northeast of the Open Pit area and 1.1 km away from the crushing facility. The target area measures 300 by 300 metres and forms a small hill with steep exposures on three sides. Carelo hosts mineralization similar to that found at the Santa Rosa Dome Open Pit zone.
In February of this year, Carelo was the subject of an exploration program that included geological mapping and sampling. Fifty-eight samples were assayed, 36 of which returned values above 0.4 gram gold per tonne. The average grade of the 36 samples was 3.35 grams gold and 19.5 grams silver.
In the southwestern portion of the zone, the mineral orpiment (an exclusively epithermal mineral) was found within massive quartz and strongly altered limestones. A 2.5-metre sample of the exposure returned grades of 20.73 grams gold and 28.8 grams silver. In addition, nine samples were taken from a silica breccia that measured 10 by 30 metres. A weighted average assay of the samples returned 1.22 grams gold and 44 grams silver, with one 6-metre sample averaging 2.91 grams gold and 42.3 grams silver. All the mineralization encountered to date is strongly oxidized. The presence of the mineral barite, combined with widespread altered limestones which host silica stockwork, suggests that the Carelo zone represents the upper portion of a large mineralized system.
Virundo zone
Another target that has captured the interest of the company is the Virundo zone, which is 1 km west of the Open Pit zone (or 8.5 km by road). The zone is characterized by altered outcrops of limestone and measures 2 by 1.1 km. It remains open in all directions.
Andean American recently tabled the results of samples taken from a road cut and from two trenches in the southern portion of the prospect. The access road cuts across 210 metres of altered limestone, which is cross-cut by fingers of strongly altered intrusive rocks. The limestone alteration consists of predominately clay, local quartz veining and quartz fragments, plus a weak stockwork containing manganese oxides.
The first 20 metres of this road-cut were sampled, resulting in an average grade of 0.52 gram gold per tonne. The highest 2-metre sample interval averaged 2.02 grams gold, and the lowest returned less than 0.03 gram gold. Mineralization is said to be variable through these altered zones, and geologists have determined that the altered intrusive fingers rarely carry gold values.
Andean American also dug two trenches above the road cut. The lower trench cut through altered limestones and intrusives, similar to the road cut. But the results were anomalous, with values of up to 0.53 gram gold. The upper trench, however, cut 25 metres of siliceous mineralization, which averaged 2.33 grams gold and 29.5 grams silver. The 2-metre-long samples ranged from a low of 1.13 grams gold to a high of 3.86 grams gold. This mineralized zone is hosted within silica-replaced limestones and minor siltstones, with massive vuggy silica and clay.
Exploration at Virundo has enabled Andean American to identify three more priority target areas. These areas are 500 metres north and 160 vertical metres above the previously described trenches. Combined, they are known as the Central Virundo. Trenching and sampling are ongoing.
The Virundo area has seen previous small-scale historical production. Three separate areas on the western portion of the prospect contain old workings. Andean American geologists have discovered 23 old adits, which date back to colonial times.
“We will have one exploration crew working on the Santa Rosa Dome and the Carelo zone, and another will focus on Virundo,” said Huguet, adding that the company will spend 25% of its cash flow on exploration at Santa Rosa.
Andean American will continue to trench and pit the Virundo target in an effort to understand and delineate mineralization on this large prospect.
At the community level, Andean American has been an active participant. “We have two communities that are directly involved in the work, Virundo and Pipay, and our community agreements and our environmental impact assessments were all done with their full support. We continue to work with the communities and listen to them to find out what their needs are and incorporate them into the way we do mining.”
Toward that end, Andean American has built three schools. It is financing school supplies and teachers’ salaries, as well as supplies for an orphanage.
History
Elias Garate, now the mine manager for Andean American, discovered the Santa Rosa deposit in 1978, and put it into production five years later. In 1992, Southern Peru Copper optioned the property and halted mining operations while it explored the area. The option was dropped a few years later. Andean American’s predecessor company, El Misti Gold, picked up the ground in 1996. The company immediately performed a reverse-circulation drill program, which outlined the Open Pit zone. In October 1999, the company changed its name and management. In January last year, Placer Dome struck a deal with Andean American to earn a 55% undivided interest in the property by spending US$5.8 million over three years. The deal did not include the Santa Rosa Open Pit zone. According to the agreement, if Placer found less than 2 million oz. gold on the property, it would return it to Andean, and Placer would recoup its expenditures via a net smelter return royalty. If Placer found more than 2 million oz. and funded a full feasibility study, it would earn an additional 10% interest.
Placer Dome spent a total of US$700,000 and completed geological mapping and geochemical sampling. The program investigated all of the known mineralized targets and discovered two additional ones. The highest-priority targets were: Carelo, Titiminas Mauser, Virundo and Carimpay.
Huguet believes that Placer dropped the property because it was still at the grassroots stage.
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