Minefinders ends blockade; sets production estimates for Dolores

Two years ago, Minefinders Corp. (MFL-T, MFN-X) negotiated an agreement with the local Ejido community in which both parties agreed to work cooperatively in the development and operations of the company’s Dolores mine project in Mexico’s Chihuahua state.

Under that agreement the company spent US$6 million on a new village with electricity, water and sanitation services that were not previously available to the local population, as well as on a new primary school, a church and community center.

The Vancouver-based company also took US$3 million in cash and distributed it equally among the 230 members of the Ejido community. Those whose lands were disturbed received additional cash payments totaling an extra US$ 1 million in compensation on top of that amount.

But on May 24, a group of protestors blockaded an access road to the mine site and forced the company to temporarily suspend operationsdelaying the mine’s scheduled first gold pour from late June until the middle of July.

Most of the individuals in the demonstration are thought to come from outside of the region and include only a small fringe group from within the local Ejido community, according to the company’s president and chief executive Mark Bailey.

“There are about three Ejidos and the rest are from somewhere elsethey were brought in,” Bailey argues during a telephone interview. “I think it’s a leftist group out of Mexico City.”

In response to the blockade, the company says more than 60 Ejido members signed a letter to state and federal authorities on June 3 condemning the protest.

On June 5, the blockaders re-opened the road and mining and processing operations recommenced.

Many Ejidatarios work at or provide services to the mine. Over 76% of the total workforce at Dolores comes from the state of Chihuahua, with more than 29% from the towns of Dolores and Madera. Dolores and Madera residents make up 44% of the mine’s workforce.

According to Bailey, despite signing off on the project, a small handful of local Ejidomanipulated by “leftist groups” from outside the community, claim the company is destroying the environment and using more land than the investment agreement called for.

“They say we’re destroying 3500 hectares but we’re only on 250 hectares,” Bailey notes. “The claims aren’t valid because none of the things they say are true.”

“It’s an extortion attempt–they just want money,” adds Mike Wills, head of investor relations in Vancouver. “It’s frustrating for us because we followed through with everything and it’s frustrating for the Ejidos down there because it’s interfering with their pay checks.”

A statement from Ejido Huizopa suggests otherwise, however. According to Bill Weinberg, publisher of the blog World War 4 Report, the protestors claimed that the company gained title to the land from “corrupt leaders” of the ejido.Weinberg is the author of a book called Homage to Chiapas: The New Indigenous Struggles in Mexico, and also works as a correspondent for Native Americas, the quarterly journal of Cornell University’s American Indian Studies Program. Weinberg could not be reached to verify those claims.

Wills of Minefinders denied the statements from Ejido Huizopa cited on Weinberg’s blog.

Mining activities commenced at the 18,000 tonne-per-day heap leach facilityabout 250 km west of the city of Chihuahua–in the fourth quarter of 2007.

With the blockade now over, Minefinders has set an initial production estimate for Dolores.

The company anticipates gold production from Dolores will amount to 40,000 oz. this year, 128,000 oz. in 2009 and 129,000 oz. in 2010. Silver production is expected to reach 1 million oz. in 2008, 3 million oz. in 2009, and 4 million oz. in 2010.

Minefinders expects to report positive cash flow starting in the third quarter of 2008, which will be the first operating quarter.

The minein the Sierra Madre Occidental range of northern Mexicois expected to operate for fifteen years as an open-pit operation but also has the potential to run as a high-grade underground mine in the future.

Excluding royalties, at a 52-to-1 silver to gold ratio, cash costs are expected to average US$403 per gold equivalent oz. this year and decrease going forward to the forecasted life-of-mine average cash cost of US$297 per gold equivalent oz.

More than 7 million tonnes of ore and waste material has been mined so far and currently mining is approaching a sustained rate of about 100,000 tonnes per day.

Two of the three tertiary crushers have been commissioned and Minefinders is processing and stacking capacity of 12,000 tonnes of ore per day.

Final commissioning of the third tertiary crusher is targeted for the middle of June and is forecast to bring the crushing and conveying circuit to the feasibility run rate of 18,000 tonnes of ore per day.

Mine expenditures, including pre-commercial production operating expenditures, as of March 31, totaled about US$160 million. The remaining expenditures are estimated at US$32 million, which will be incurred over the course of 2008.

As disclosed in the first quarter financial results, as of March 31, Minefinders had US$5.5 million in cash and cash equivalents, net working capital of US$12.3 million and US$44 million available from a US$50 million revolving three-year term credit facility with Scotia Capital.

The Dolores Mine has a well-defined deposit containing proven and probable reserves of 99.3 million tonnes grading 0.77 gram gold per tonne (for total contained gold of 2.44 million oz.) and grading 39.67 grams silver per tonne (for total contained silver of 126.6 million oz.) with exploration upside and an open pit mine life of over 15 years.

This year Minefinders plans to complete a preliminary feasibility study on the potential for the addition of a flotation mill to enhance recoveries from high-grade ore in the open pit, to process additional underground ore and to increase production capacity.

In terms of the mining economics, the Vancouver-based company released an updated National Instrument 43-101 technical report on the Dolores project in late March.

According to the report, life-of-mine production has increased to 1.76 million oz. gold, 64.35 million oz. silver or 3 million oz. gold-equivalent silver at base case prices of US$675 per oz. gold and US$13 per oz. silver.

Initial capital and pre-commercial production operating costs are estimated to be US$192 million, including a US$10 million contingency.

Whether Minefinders’ problems with blockades are over, however, remains anyone’s guess.

Bailey argues that while the federal government has been very good and working hard for the mining sector, “they don’t like to stand on the state government’s toes.””If somebody can come out and block a road and the state government doesn’t uphold the law, what do you do?<" Bailey says. "That's the problem right now in Mexico. There's all this investment--but as you start making money or start producing something--someone can come along and say you're destroying the environment, hurting people, and you owe us more money."

Adds Bailey:”We’ll get this one resolved but I can’t say we won’t get blockaded again at some time in the future. They’ve done it to just about every mine in Mexico.”

In mid-afternoon trading in Toronto, Minefielders was trading up 2 per share at $10.65 on a trading volume of 105,667.

The stock trades in a 52-week range of $8.11-$14.05 per share. The company has 49.5 million shares outstanding.