El Callao, Venezuela —
A feasibility study in 2003 proposed production of 20,000 tonnes per day over a mine life of 34 years. The average cash cost was estimated at US$190 per oz. In each of the first five years, 300,000 oz. would be produced, followed by 270,000 oz. in each of the remaining years.
In 2004, Crystallex drilled 18 holes (7,120 metres) in an attempt to firm up inferred resources. Drilling tested the Conductora-Cuatro Muertos (CO/CM) deposit, as well as the Sofia deposit, which hosts the Mesones pit.
One hole intersected 175 metres (true width) grading 1.57 grams gold per tonne, including 104 metres of 2.2 grams gold (and within the 104-metre intercept, 22 metres of 3.5 grams gold).
In November 2004, Mine Development Associates of Nevada estimated resources at Las Cristinas in two separate areas. The CO/CM area had a measured resource of 54.3 million tonnes grading 1.22 grams gold per tonne, an indicated resource of 360.9 million tonnes grading 1.09 grams gold, and an inferred resource of 151.9 million tonnes grading 0.88 gram gold. The Mesones-Sofia (MS) area had a measured 9.4 million tonnes grading 1.22 grams gold, an indicated 37.6 million tonnes at 0.91 gram gold, and an inferred resource of 10 million tonnes at 0.65 gram gold.
These estimates are based on cutoff grades of 0.4-0.8 gram gold per tonne, depending on the type of material, and a gold price of US$350 per oz. The average stripping ratio at CO/CM is 1.43:1, and the pit was designed to reach a depth of 390 metres.
The in-pit proven reserve at CO/CM was 46.7 million tonnes grading 1.3 grams gold per tonne. The probable reserve was 263 million tonnes grading 1.18 grams gold. The pit outline at US$325 per oz. gold was estimated to be 1 km wide by 3 km long (the MS pit is about 1 km by 750 metres).
Conductora mineralization is still open downdip and along strike to the south.
The deposits are hosted by north-northeast-striking, westerly dipping intermediate volcanic rock. Gold is associated with disseminated and veinlet-hosted pyrite and chalcopyrite, which is generally sub-parallel to the foliation. Some free gold is found in quartz.
MS has a probable reserve of 23.6 million tonnes grading 1.17 grams gold per tonne with a stripping ratio of 1.18:1.
The Sofia and Mesones deposits are associated with pervasive tourmaline alteration in intermediate volcanic rock adjacent to diorite intrusions and breccia pipes. The two deposits are separated by a 45-metre-wide sub-vertical mafic dyke.
Gold is associated with 5-30% disseminated (and veinlet-hosted) pyrite and chalcopyrite.
Las Cristinas has a total proven and probable reserve, at a gold price of US$350 per oz., of 333 million tonnes grading 1.2 grams gold per tonne, or 12.85 million contained ounces.
The stripping ratio in the first five years is pegged at 0.6:1; the total cash operating cost, at US$128 per oz. gold. Over this period the internal rate of return (IRR) is estimated to be 15.7%, assuming a gold price of US$325 per oz. At US$350 per oz., the IRR climbs to 17.7%.
The rate of return does not take value-added tax into account. Crystallex has applied for a VAT exemption (Placer Dome had been given this exemption in the past).
In March Richard Marshall, vice-president of investor relations for Crystallex, said that in the past three months 8,000 metres have been drilled into inferred resources within the pit and a new reserve will be calculated.
The company is now considering a 40,000-tonne-per-day operation, in which case, the mine life would still exceed 20 years.
Las Cristinas is about 250 km south of El Callao. A paved highway runs within 19 km of the property and a gravel road leads to the site. The Northern Miner flew to the site and landed on an extended, freshly paved runway.
From the air, the site appears as an orange-red dirt clearing surrounded by forest. Within the cleared area are hundreds of blue tarpaulins covering basic shelters erected by artisanal miners. The company told us there were about 10,000 illegal miners in early 2004 (currently there are 400-500). Venezuela’s National Guard helped evict them (more than half were illegal immigrants), and along with a private security force, they make sure new miners do not set up shop.
Las Cristinas does have some areas that grade more than 1 oz. gold per tonne over 1 metre in core, and it is these grades that attract the artisanal miners.
The government of Venezuela gives artisanal miners 10 hectares to work, and grants concessions of at least 500 hectares (5 sq. km) to companies (Las Cristinas 4 and 7 together cover 2,500 hectares, or 25 sq. km).
Crystallex plans to employ some of the artisanal miners when its operation begins. The company expects to have about 400 full-time unionized workers (a 3-year agreement was signed with the union at the beginning of July 2004), and 40 expatriates will help to run the operation.
Three communities — Las Claritas, Santo Domingo and Nuevo Claritas, with a combined population of 15,000 — are within 6 km of the site, and Crystallex has built three water treatment plants to serve them.
The company has also built 30 houses, put in a sewer system, upgraded roads, and improved the local hospital.
Engineering
SNC Lavalin was given the engineering and construction management contract, and the engineering portion is 90% complete.
Crystallex has awarded 99 equipment orders, and US$66 million has been committed in long lead-time items. In March, the company had commitments totalling US$91 million.
In 2002, Crystallex was given the right to exploit Las Cristinas for up to 40 years. The government of Venezuela owns all Venezuelan mineral rights; therefore, state-owned
The Las Cristinas property consists of four contiguous concessions over which runs a river, which will be diverted.
Crystallex secured a land occupation permit in August, and once the environmental permit is secured (probably in May), construction can begin. Four construction contracts have been awarded.
Between 1992 and 1997,
Meanwhile, Crystallex is increasing gold production and reducing costs at its Tomi concession, 16 km northeast of El Callao. The concession, which hosts two open pits and an underground mine, produced 42,000 oz. gold in 2004.
Crystallex has more than doubled production in the past few years, and costs have been cut by about 25% to just under US$330 per oz. gold.
The underground mining method is changing to open stoping from cut-and-fill. The switch should result in considerable savings compared with costs predicted in the scoping study.
“The original feasibility study had an underground cost of about forty-five U.S. dollars per tonne,” says Sadek El-Alfy, Crystallex’s vice-president of operations. “We are down to twenty-eight U.S. dollars per tonne and there is still room to lower this.”
The company has acquired a long-hole stoping machine, and once it starts using it, costs should be lower.
Gold at Tomi is associated with fine arsenopyrite and pyrite. Visible gold is rare. The high-grade veins pinch and swell.
Reserves at the current open-pit mine are nearing the end, though another deposit, Fosforito, is be
ing eyed for potential production.
At the time of our visit, miners were just entering level three and opening it up. Said El-Alfy: “We won’t be at six-thousand tonnes per month until the second quarter.”
In 2003, the Charlie Richards mine produced 12,698 tonnes grading 8.3 grams gold per tonne, equivalent to 2,753 oz. The open pits produced 268,169 tonnes grading 3.5 grams gold per tonne, or 24,360 oz.
Gold is associated with pyrite-bearing altered zones of metagabbro, peripheral to quartz-carbonate veins.
Charlie Richards has an indicated resource of 868,000 tonnes grading 5.34 grams gold and a probable reserve of 162,730 tonnes grading 14.5 grams gold. The deposit is still open down-plunge.
Revemin processes about 40,000 tonnes of ore per month. Between 2,000 and 5,000 tonnes per month are bought in from small miners of surface-laterite.
Until late 2003, Revemin also processed ore from the La Victoria mine, 3 km north of El Callao and 10 km from the mill. Crystallex owns 79% of El Callao Mining, which in turn owns a 51% of La Victoria. The company suspended mining at La Victoria because gold recovery fell too low as mining switched from saprolite to sulphide ore.
A pilot plant is testing the feasibility of treating the refractory ore by bio-oxidation prior to passing it through the carbon-in-leach circuit.
In 2004, Crystallex drilled 8,600 metres (61 holes) at La Victoria. The highlight was hole 22, which intersected 28 metres (true width) grading 7.5 grams gold per tonne. Included in that hole was a 4.9-metre interval of 11.5 grams gold plus 8.2 metres of 12.6 grams gold. The drilling helped Crystallex delineate the southern half of the deposit.
In December 2004, Crystallex received a notice of arbitration from Corporacin Vengroup, which holds the remaining 49% indirect interest in La Victoria. Crystallex reported that Vengroup was seeking a cash-payment award from Crystallex based on La Victoria’s predicted, rather than its actual, gold production. Crystallex is disputing the claim.
Crystallex has reduced its gold hedge book by 360,000 oz. in the past 18 months; 51,000 oz. of hedged gold fell away this January, and further cuts are planned. Just over 110,000 oz. were hedged at presstime.
Last summer, Crystallex started developing the Albino underground mine, which is on a property contiguous with Las Cristinas. Production should begin in the third quarter of this year. Albino is expected to produce 20,000 oz. gold annually over five years at a cash costs under US$200 per oz. gold.
The mine’s proven reserve is 120,620 tonnes grading 12 grams gold; the probable reserve is 148,790 tonnes of 12 grams gold; and there is a resource of 3.3 million tonnes grading 4 grams gold in the measured-and-indicated category. The reserves were estimated using a cutoff grade of 5.9 grams gold per tonne, whereas 0.5 gram was used for the resource.
The company had operated a small open pit on the Albino 1 alluvial concession in the mid-to-late 1990s and recently received environmental and explosives permits to resume development work. However, in February 2005, the country’s mines ministry called for an end to work on the Albino 1 alluvial concession, as well as the Albino vein concession. Crystallex will appeal the decision.
All the equipment for the Albino underground mine has been received and is sitting at the Revemin mill site.
In December 2005, Crystallex entered into an underwriting of units worth US$100 million. A unit consists of US$1,000 in senior unsecured notes due in December 2011 plus 65 shares. The notes will bear interest at 9.375% per year and not be convertible. Proceeds are earmarked for development at Las Cristinas.
Marshall says Crystallex expects “to be in a position to structure a project debt loan toward the end of the third quarter.”
Crystallex produced 48,973 oz. gold in 2004, up 40% from 2003. The total cash cost of production was US$365 per oz. whereas the average realized gold price was US$409 per oz.
The company lost US$60.7 million (or US35 per share) last year, mainly because of property, plant and equipment writedowns. Most of the US$51 million in capital expenditures were made at Las Cristinas. Crystallex used more than US$19 million to settle gold sales contracts.
In related news, arbitration is ongoing between the government-owned Corporacin Venezolana de Guyana and
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