Newmont inks deal with Andean (May 12, 2003)

Vancouver — Newmont Mining (NEM-N) has signed a letter of intent with Andean American Mining (AAG-V) to earn up to a 60% interest in the junior’s Santa Rosa gold-silver property in Peru.

The agreement encompasses most of the 189-sq.-km Santa Rosa property but excludes the Santa Rosa mine and Andean’s current exploration areas around the mine site.

Santa Rosa has been producing since July 2002. The heap-leach operation is running at about 1,000 tonnes per day using a carbon column recovery process. During the recent January-to-April period, the junior tabled its first quarterly profit: US$118,500 after expenses. Cash from operations amounted to US$596,400 (or US2 per share), based on 34.6 million shares.

The mine is at the southern end of the Santa Rosa Dome, one of 17 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.

Once the definitive agreement is signed, Newmont stands to earn a 51% undivided participating interest in the property. It is required to spend US$7 million 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 it earns a 51% controlling interest in the joint venture, Newmont would become the operator. Also, at Andean’s discretion, it would have a one-time option to earn an additional 9% undivided interest by spending an additional US$3 million over two years.

Included in the 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.

The operator of the project will provide programs and budgets for the calendar year; the non-operating party will have 60 days to decide if it will participate, withdraw or be diluted. The penalty for stating participation and failing to contribute is a doubling of the amount of dilution. If a non-contributing party dilutes itself below a 10% interest, that party will be converted to a 3% NSR, and the other party would then hold a 100% participating interest in the property.

Andean is operating its new crusher facility at the Santa Rosa mine at the daily rate of 2,000 tonnes. Owing to bad weather and mechanical problems in the first quarter, Santa Rosa only produced 12,605 oz. gold at US$163.25 per oz. About 208,320 tonnes of ore were mined at an average grade of 2.69 grams gold per tonne.

The gold recovery was 70%. Andean is working to increase its recovery rates by increasing the ore crush size and reducing cyanide and cement content.