Andean busy at Santa Rosa

Vancouver — Junior producer Andean American (AAG-V) has focused its efforts over the past year on expanding production and lowering operating costs at wholly owned Santa Rosa gold mine in Peru.

The mine is at the southern end of the Santa Rosa Dome and represents one of 20 mineralized targets. The property is in the Southern Inter-cordilleran belt of the Peruvian Andes, 550 km southeast of Lima and 3,900 metres above sea level.

For its first full year of commercial production, Andean reports that the Santa Rosa mine produced 13,521 ounces of gold over the year ended March 2003. Average cash costs including silver credits tallied to US$151.88 per ounce. Total costs were US$196.88 per oz.

The mine sent 226,329 tonnes of ore to the leach pad averaging 2.65 grams gold per tonne over the past year. Gold recoveries averaged about 70%.

The company also recycled 26,730 tonnes of previously leached ore averaging 1.59 grams gold per tonne and recovered 748 ounces gold at a cost of US$18.41 per oz.For the year the company sold 7,770 ounces of gold and generated $4.09 million in revenue. The junior posted a net loss of $1.49 million, or 6 per share, for the year. This compares with a net loss of $1.23 million during year earlier period. The presence of pervasive clays reduced gold recoveries and added to operating costs during the fiscal year.

Andean managed to reduce its working capital deficit from $6.5 million to $3.3 million.

During the second quarter this calendar year, Santa Rosa produced 5,165 oz. of gold at cash and total costs of US$100.00 and US$145.66 per oz., respectively. Only 3,570 ounces of gold were sold into the market.As of March, the mine was operating at about 2,000 tonnes per day utilizing a newly installed crusher that has a design capacity of 3,250 tonnes per day.Heavy El Nino rains during the first six months of 2003 hampered production and recoveries. Andean has been battling with the pervasive presence of clays in its ore and recently stated that it has finally solved this problem.

The clays in the open pit zone, at Santa Rosa, average 1.5 to 6 grams gold, and cause recovery problems on the leach pads since thy compact easily and inhibit percolation of the leach solution.

After trying a number of different treatment methods, Andean has decided to isolate the clays completely from the other pit materials and treat the gold recovery as a separate process. Field tests indicated a 75% improvement in gold recoveries when clays were isolated from coarse mineralization

The objective will be to maintain a highly disciplined leach pad operation that will allow for the treatment of three ore types; Coarse ore and fines at 3 inch minus mesh; clay ore and fines following agglomeration and curing on separate pads; current existing ore on pad. The current ore will have to be reprocessed and reformulated to separate and recover gold and silver from the contained clay ore. Andean estimates that there is over US$11 million in gross metal value sitting on the leach pads as of the end of July.

The company is currently installing a new clay treatment facility which will initially have a 300 tonne per day capacity. An agglomerated clays/fines circuit is also being added to the crushing plant to further isolate the clay material. Start-up of this new process is scheduled for 2004. Currently clays and fines are being transported to a clay stock pile. Laboratory tests of the clay material using an agitated leach system recovered over 90% of the contained gold. Recycled production is estimated to yield a 50% recovery rate.

In addition, Andean reports that its crushing facilities have been expanded and can now easily handle the 1.2 million tonne-per-year permitted production rate. Additional leach pads are being constructed, 15,000 sq. metres in total which will effectively triple the pad area. Also, the ADR plant is being upgraded to handle at least 3 kg of gold recovery per day.

The company is also in the midst of a two and a half month stripping program that is designed to remove about 400,000 tonnes of waste from the southern structure of the Santa Rosa mine. Based on the original drilling program and resource estimates, this should open up 100,000 ounces of gold to production over the next couple of years.

At the Carelo North and South zones, 500 metres north of the Open Pit zone, Andean plans to remove 120,000 tonnes of waste in preparation for mining.

Earlier this year Andean reported results from 78 percussion drill holes drilled on a 2 metre square grid pattern on the Carelo North zone. The holes were drilled to an average depth of 9.7 metres and all together averaged 4.97 grams gold per tonne. A few individual hole highlights include; 10.5 metres averaging 9.7 gram gold per tonne; 10.0 metres averaging 9.13 grams gold and 10.0 metres averaging 10.96 grams gold.

Most of the holes ended in mineralization. So far the Carelo zone has been defined over an area measuring 300 by 200 metres and remains open to the north and east as well as to depth.

In September, subject to financing, Andean plans to commence a diamond drill program in order to better define resources at the Carelo zone as well as in the Open pit zone.

Earlier this year Andean inked a deal with Newmont Mining (NMC-T) which allows Newmont to initially earn a 51% interest in 177 sq. km of ground around the Santa Rosa operation in return for US$7 million spent on exploration over four years and buy US$600,000 worth of shares and a share purchase warrants from Andean.

Also, Newmont is required to identify an inferred gold resource of at least 1 million oz., a portion of which shall meet the definition of a measured and/or indicated resource. If the major defines less than 1 million oz. but more than 500,000 oz., Newmont can earn a 49% participating interest. If less than 500,000 oz. but more than 250,000 oz. are identified, it can earn a 3% net smelter return royalty.If Nemont earns a 51% controlling interest in the joint venture, the major becomes the operator. Also, at Andean’s discretion, Newmont would have a one-time option to earn an additional 9% undivided interest by spending an additional US$3 million over two years.

Andean retains full interest in 3,300 ha around the operating Santa Rosa mine for mine development and exploration. This includes; the open pit zone, the north and northeast zones and the Carelo zone.

Included in the Newmont agreement is the option to acquire the Santa Rosa mine site outright. Newmont can do so if Andean has discontinued production for two years or more or if a feasibility study indicates that average quarterly cash flow to Andean (as a joint-venture participant) during the first three years of production is higher than the mine’s average cash flow during the four quarters that immediately precede any production from the joint venture.

Andean also holds the Sinchao gold property which is located in the Yanacocha-Hualgayoc mining district in northern Peru, about 640 km north of Lima and 30 km northwest of the Yanacocha mine.

The junior says that while it has been developing the Santa Rosa property it has not performed any exploration at Sinchao and states that this does not reflect a lack of merit in the property.

The last technical report prepared for the project in 1998 recommended a detailed exploration program costing US$3.5 million. The Sinchao property has seen over 8,000 metres of drilling and Andean believes it has the potential to contain at least one multi-million tonne bulk mineable deposit.

Previous drilling identified four distinct styles of mineralization: copper-gold-zinc (silver) skarn system, a copper-gold-silver mineralized fault and breccia zone, a high sulphidation copper-gold epithermal mineralized zone, and a copper-gold-silver replacement manto type massive sulphide.

Andean has recently petitioned to increase the size of the Sinchao property by up to 440 ha, effectively doubling its current size.