SAGC raises Pimenton funds (December 22, 2003)

Aiming to restart the Pimenton gold-copper mine in Chile, South American Gold & Copper (SAG-T) has raised $3.5 million by privately placing 49.88 million units at 7 apiece.

On a daily basis between 1995 and 1997, SAGC mined upwards of 120 tonnes of underground development material to feed a pilot plant. Operations ceased in early 1997, when a harsh El Nino winter set in and was followed by a drop in gold prices.

Based on a recent independent study, operations can be resumed with a capital investment of US$4.3 million. Some of the funds raised will be used to rebuild and expand the existing plant to a daily capacity of 250 tonnes.

The mine is expected to crank out 22,210 oz. gold-equivalent in 2004 and 33,817 oz. in 2005. Thereafter, assuming that resources and currently undefined mineralization is proven up, production rises to 46,448 oz. in each of the following five years.

Life-of-mine cash costs are estimated at US$166 per oz., net of copper credits.

Including closure costs, the 7-year operation generates an internal rate of return of 117% and a net present value of US$15.9 million. The latter is based on a 10% discount rate, and both estimates assume a gold price of US$320 per oz.

Payback occurs in 18 months.

Reserves at Pimenton stand at 67,777 tonnes grading 18.7 grams gold and 1.6% copper per tonne, whereas 37,229 tonnes of material within 40 vertical metres of the blocks are classified as inferred and average 18.6 grams gold and 1.5% copper. An additional 171,000 tonnes at 19.4 grams gold and 1.6% copper also are classified as inferred, though this estimate is based mostly on deeper drill data.

Each unit in the private placement consists of a share and half a warrant. A full warrant entitles the holder to buy another share over the next two years at 9.

Proceeds will be used to augment a US$2.8-million loan the company is arranging through Overseas Private Investment Corp., a U.S. government agency that sustains itself by charging market rates on its loans. The loan will be secured by a mortgage on the property and by shares in a U.S.-based subsidiary through which South American Gold owns the property.

South American Gold has 316 million shares outstanding.