Tough times between the Gulf and the Pacific

Depressed gold prices are leaving producers little room for error these days, nowhere more so than in Mexico and Central America.

Greenstone Resources, dead at the age of 17 years from financial asphyxia, may be the extreme case, but low gold prices are forcing gold producers in Mexico and Central America to revise mine plans, put projects on hold, recalculate reserves, and take balance-sheet writedowns.

Greenstone’s San Andres mine in Honduras and Cerro Mojon mine in Nicaragua became corporate orphans in early March, when the company’s board resigned en masse after running out of cash. Talks between Greenstone and its lenders had progress somewhat, but, without working capital, the operations could not be sustained.

Trade creditors have attached the company’s Nicaraguan assets, including Cerro Mojon and the surrounding La Libertad properties, and the company is winding down both its producing operations.

Seabridge Resources (SEA-V), a company reorganized by former Greenstone executives Rudi Fronk and James Anthony in order to acquire gold projects at fire-sale prices from distressed owners, had been looking at Greenstone’s Santa Rosa project in Panama but broke off the deal before it could close. Greenstone shut down Santa Rosa in February 1999 as its working capital was reaching critical levels, and Seabridge had been ready to take over the mine in exchange for assuming Santa Rosa’s US$6-million reclamation liabilities from Greenstone.

Seabridge had been considering resuming leaching at Santa Rosa, where about 100,000 oz. gold are believed to be still on the pads. Its in situ resource is 4.5 million tonnes at a grade of 2 grams gold per tonne, but, even in its best days, Santa Rosa was a high-cost mine, with cash costs averaging US$284 per oz. during its two full years in production.

The operating and financial troubles that went hand-in-hand at Greenstone were partly related to the company’s debt load, but weak gold prices — which probably played a leading role in Greenstone’s ultimate failure to sell a restructuring plan to its creditors — have hurt many gold producers from the Rio Grande to the Canal.

Geomaque

Geomaque Exploration (GEO-T) is concentrating its resources on Honduras, where it is bringing its Vueltas del Rio project, near Sula, into production. The principal roadblock is financing; Geomaque put construction at Vueltas on hold in February as cash got tight. The construction that was then under way — on the gold recovery plant and on the “front-end” crusher, agglomerator, conveyor and stacking system — continued; the plant is now finished and the material handling apparatus is on-site.

Vueltas, with reserves of 5.1 million tonnes grading 2.5 grams gold, is expected to produce about 60,000 oz. annually at a cash cost averaging US$169 per oz.

Vueltas has assumed more importance for Geomaque since the company revised its mine plan at the San Francisco mine in Sonora state, Mexico. San Francisco produced 65,084 oz. gold in 1999, up from 59,153 oz. in 1998. Costs were shaved a little, too, to US$256 from US$261 per oz. the year before, though a higher stripping ratio increased costs per tonne slightly. The mine reported an operating loss for the last quarter of 1999 as increasing costs met a falling gold price, and fourth-quarter targets for crusher throughput were not met.

The results forced Geomaque to revise its mine plan, diminishing the reserves at San Francisco and resulting in a US$15.2-million writedown on the operation’s carrying value. In the final quarter of 1999, Geomaque also wrote down US$2.4 million on inventory, US$554,000 on its exploration properties, and US$234,000 on long-term investments.

The bright spot at San Francisco is the nearby La Chicharra deposit, where Geomaque has just started mining a reserve of 1.6 million tonnes grading 1.2 grams gold, at a stripping ratio of 1.8-to-1. Ore from the new pit is being trucked 1.5 km to the San Francisco leach pads.

Moris mine

The other heap-leach operations of northwestern Mexico, most of which mined marginal grades to start with, are facing problems similar to those at San Francisco. Manhattan Minerals (MAN-T) is watching the decline of its Moris mine, in Chihuahua state, where gold production fell to 13,041 oz. in 1999, compared with 21,100 oz. in 1998.

Severe drought and the low gold price combined to force the company to suspend mining operations in April of last year. Leaching of the pads continued throughout the remainder of 1999 and should be concluded in the first quarter of this year.

Manhattan is considering putting the mine up for sale, having written down the non-core asset by US$3.7 million in 1998 and US$8 million last year. The mine hosts proven and probable reserves of 3.4 million tonnes averaging 1.73 grams gold. The calculation is based on a gold price of US$300 per oz., a silver price of US$5 per oz., a recovery rate of 65%, and a cutoff grade of 0.74 gram gold per tonne.

Manhattan, of course, has better things to do than fear for the future of Moris. It is earning a 75% interest in the Tambo Grande project in northwestern Peru from the French state agency Bureau des Recherches Gologiques et Minires.

In its time there, Manhattan has discovered the TG-1 oxide gold deposit, increased the size of the TG-1 sulphide deposit, and (most recently) discovered a new sulphide body at the B-5 geophysical anomaly.

The TG-1 oxide cap contains an inferred resource of 8 million tonnes grading 5.2 grams gold and 48 grams silver, equivalent to 1.3 million oz. gold and 12.4 million oz. silver. Further drilling on the underlying TG-1 sulphides expanded the resource to an inferred 64.2 million tonnes grading 1.7% copper and 1.4% zinc, plus 0.7 gram gold and 31 grams silver, based on a cutoff grade of 1% copper-equivalent.

TG-3 lies about 500 metres south of TG-1 and consists of two distinct mounds, or lobes, of mineralization. The northern lobe is richer in zinc and contains 20 million tonnes grading 0.9% copper, 2.7% zinc, 0.8 gram gold and 35 grams silver, based on a cutoff grade of 1% copper-equivalent. The copper-enriched southern lobe hosts 48 million tonnes grading 1.1% copper, 1.1% zinc, 0.9 gram gold and 25 grams silver at a cutoff of 1% copper-equivalent.

Earlier this year, a drill hole testing the B-5 geophysical gravity anomaly, 11 km south of the TG-1 and TG-3 deposits, intersected 142 metres of massive sulphides averaging 0.5% copper and 0.9% zinc, plus 0.6 gram gold and 17 grams silver per tonne, starting at a depth of 436 metres. A higher-grade, 23-metre section ran 2% copper, 3.5% zinc, 1 gram gold and 56 grams silver between 464 and 487 metres of depth.

Exploration drilling continues on the B-5 target, while infill drilling is ongoing at the TG-1 deposit. The company expects a feasibility study on the TG-1 to be completed early in 2001.

Santa Gertrudis

Late in 1999 Campbell Resources (CCH-T), one of the first among Mexican gold producers to feel the pinch, resumed mining at its Santa Gertrudis property in Sonora, which had been closed for the previous two years. Enough reserves to carry on the heap-leach operation had been blocked out at the El Toro Norte and Mirador deposits, which are now being developed as open pits.

Campbell’s immediate future at Santa Gertrudis depends on exploration successes along the La Peque-Escondida structure, where current work is defining four mineralized zones.

La Colorada

Eldorado Gold (ELD-T) managed to cut costs at its La Colorada mine in Sonora, at the same time that a new pit, Gran Central, came on-stream. Slightly higher head grades and substantially better recoveries brought 1999 production up to 65,552 oz. — about 10% higher than in 1998 — and cash production costs were reduced to US$214 per oz. from the previous year’s US$246.

One Honduran project is still on schedule: the San Martin mine, 90 km north of Tegucigalpa. Glamis Gold (GLG-T) received its final permit approvals in mid-March a
nd has moved its mining fleet over from the Picacho mine in California, which Glamis closed in 1998.

Production is scheduled to start toward the end of the year, and in 2001, the first full year of production, Glamis is counting on about 85,000 oz. to gurgle their way off the leach pads.

Capital costs at San Martin are still expected to meet the US$27-million budget, and cash costs are projected at US$149 per oz. The project has 39 million tonnes grading a thin 0.86 gram gold per tonne, but the low stripping ratio — 0.4-to-1 — may reduce the direct mining costs and so compensate for the lower grade.

In Guatemala, Glamis has scheduled more drilling for its Cerro Blanco gold deposit, inherited, like San Martin, when Glamis took over Mar-West Resources. Cerro Blanco, near the Salvadoran border, sports a resource of 29 million tonnes grading 1.3 grams gold and 18.6 grams silver, calculated using a 0.5-gram gold cutoff grade. Of that amount, about 19 million tonnes (with 0.7 grams gold and 12.4 grams silver) are potentially dump-leachable; the rest requires milling.

Initial pit design and cost estimates put the capital cost to bring Cerro Blanco into production at US$70 million, and the cash production cost below US$200 per oz. Given the high capital cost, Glamis is pinning the project’s future on increasing the resource before committing to a full feasibility study.

The low gold price has forced Lyon Lake Mines (LLL-M) to scale back the size of its Las Crucitas project in northeastern Costa Rica. Lyon Lake’s current planning centres around a 4,500-tonne-per-day operation, which is less than half the capacity it had been looking at when it acquired the project from Placer Dome (pdg-t) in November 1998.

Beta Vargas

Production at its Beta Vargas gold mine, in the far-western part of the country, was suspended in July 1998, though the company plans to reopen the operation once it can build a second leach pad.

The more modest development plan for Las Crucitas suggests that the deposit can be brought into production for about US$60 million, rather than the US$135 million that a 10,000-tonne-per-day project would have cost. A new mine would produce 100,000 oz. for the first four years and 1 million oz. over the planned 12-year mine life. A feasibility study estimates a cash production cost of US$160 per oz.

Lyon Lake had lined up funding for the project last August, but discussions with the potential investor ended before the deal closed. At the end of last year, the company was still in discussions with possible lenders or buy-in candidates, and had submitted its application for a mining permit.

Wheaton River Minerals (WRM-T) has had a little more success in advancing a smaller Costa Rican venture: the Bellavista gold project, 70 km northwest of San Jose. The open-pit/heap-leach operation, estimated to cost US$28 million, is scheduled to start up in the third quarter of 2002, pouring 60,000 oz. annually.

Wheaton lined up a US$19-million package from Barclays Bank to provide most of the cash for development, and the company plans to start construction toward the end of this year. It is looking at a loan or leasing arrangements for US$3 million to US$5 million to cover equipment, and expects to have the rest of the financing in place shortly.