Terra turns attention to Mexican gold bet

The interior of a large cathedral in this thriving Mexican town boasts silver- covered arches reminiscent of an earlier and even more prosperous age. In terms of recorded silver production, the area rivalled Canada’s famed Cobalt camp although actual production was probably higher.

For Edmonton-based Terra Mines and its Mexican partner, Industrias Penoles, S.A. De C.V.(or Penoles for short), the search today is for something a bit more elusive — gold. And the companies feel they may have found what could become Mexico’s first large scale, gold heap leach producer about 20 miles northeast of here.

Although Terra has been producing gold from its Bullmoose project east of Yellowknife since early 1986, the company has generally been known as a silver producer — an image it wants to shed once and for all. Terra has a dormant silver mining operation near Port Radium, N.W.T., which would require $10-$12(US) silver to be reactivated. Meanwhile, it’s Bullmoose mill, which has been functioning as a test plant, should run out of feed this summer. But there is a potential feed source on the nearby Lightning Minerals property which is 37.9% owned by Terra.

Activities at Bullmoose have been funded by flow-through shares which the company admits have tended to dilute its stock. On a fully diluted basis the company will have about 19 million shares outstanding and it has no desire to increase that. Terra has over $4 million in its treasury which would be sufficient to cover its share of development costs in Mexico, notes Robert Evans, president.

The operation is known as the Las Minitas gold project, and Penoles (which is celebrating its 100th anniversary) has code-named the operation P-100, reflecting its high priority. Incidentally, Penoles is now the largest mining company in Mexico and it acts as operator for Lacana Mining whose success has largely been based on its holdings there. Penoles is a public company (not government owned) and Amax Inc., the giant U.S. based and precious metals company, holds a 5% equity in the company.

Terra became involved with Penoles last year when it negotiated a deal to supply material from its tailings dumps in the area at a cost based on silver prices. The venture later proved to be uneconomic because of low silver prices. But the arrangement established a working relationship which has since been expanded to include the Las Minitas properties.

Under their agreement, Penoles is required to spend $484,000(U.S.) on the properties which have since been rolled into a new company owned 60% by Penoles and 40% by Terra. (Of that expenditure, $125,000 remains to be spent). Mexican law prohibits any foreign corporation that has operated in the country for more than 10 years from owning any more than that.

Profits from their mining operations would flow into the new company and Terra would receive its share of profits through dividend payments. Mr Evans confirms that Terra has received word from its accountants that there won’t be any problem repatriating profits through dividends. The returns would probably be in U.S. dollars or gold, he points out.

There was plenty of action on the Las Minitas property when The Northern Miner visited the project. Shallow exploration shafts were being sunk and lateral development headings were being advanced into the 115 ft wide shear zone hosting the gold mineralization.

The Las Minitas gold project represents a typical epithermal type gold system, according to Alfonso Rosas, regional chief geologist for Penoles. Gold mineralization occurs in fracture systems associated with a regional tensional graben or collapse structure which the Harvard-trained geologist says is evidence of magmatic activity. Many of the narrow veins have averaged better than 0.4 oz gold per ton, he notes.

Two major fault zones occur along the graben and associated shear zones with gold values ranging from 0.044 oz to 0.073 oz g. Exploration shafts have been sunk into the shear structure over the years to depths of 225 ft but drilling has shown that the oxidation layer reaches at least 245 ft.

Diamond drilling has proven to be a relatively ineffective method of establishing reserves and grade so two reverse circulation drills are being brought into Mexico. In the meantime, Mexican gambusinos are bulk sampling the San Francisco zone and grades in the mine shafts have been averaging around 0.05 oz, which Mr Rosas says correlates with trenching results.

Compared to initial drill results, the bulk sampling program has been twice as good; and he feels they are losing values because samples are being prepared by hand, suggesting the actual gold content could even be higher. Indicative of a possible additional upgrading, many of the zones have been high graded over the years so unworked areas may yield better results.

Present plans call for a heap leach test on the property sometime in June. So far, trenching has yielded about 40,000 tons of material which will be used for the test work. In The Northern Miner’s view, Penoles has been conservative in assessing the geological potential at 10 million tonnes given that good continuity has been demonstrated to the north.

Terra is pushing for a rapid development program for the property which at this point appears to be capable of supporting at least a 5,000 tonne-per-day mining operation excluding stripping. The strip ratio is about 1.5 to one; there is power on the property (a major hydro electric dam exists a few miles away) and ample water. Road access is good but would require some upgrading to bring in mining equipment which Penoles has in abundance. (A number of its mines have closed in recent years).

Development costs, which they feel are extremely conservative, should be around $8 million(US) and production would be one year from test leaching or mid-1988. Terra will be making representations to Penoles to speed up the development process which appears to be somewhat long by our standards.