Metallica’s rights restored at Cerro San Pedro (November 04, 2004)

Mexico’s Federal Court has ordered the Agrarian Court in San Luis Potosi state to reinstate Metallica Resources‘ (MR-T) surface rights lease on the Cerro San Pedro gold-silver project.

In it’s ruling, the Federal Court concludes that the group opposing the project did not have the legal right to contest the lease. The ruling also states that Metallica’s rights will remain in effect pending a new resolution from the Agrarian court.

That Agrarian Court now has the option of permanently reinstating Metallica’s lease or nullifying it outright; any nullification must be for reasons other than those cited in the court’s original decision. No deadline for a decision was given.

Metallica originally signed its lease with the Ejido of Cerro San Pedro (a group representing the historic occupants of the land) in 1997; the Agrarian Court ruling quashed the authority of the Ejido representatives who signed.

“It is gratifying to see that the possessors of the ground, the people who have lived on this ground for generations, are progressing in their efforts to prevail over the absentee ejiditarios who would take away both the right of the people to administer and make a livelihood from the ground that they live on,” says Metallica’s chief executive Richard Hall in a prepared statement.

The company began building Cerro San Pedro in mid-February and was planning to start leaching in September. Construction was suspended in June after significant delays in obtaining an explosives permit from Mexico’s Secretariat of Defence.

That permit has since been granted, and is good until the end of the year; the company has already applied for a renewal for 2005. In Mexico, explosives operating permits must be renewed on an annual basis. The municipality of San Pedro has also recently renewed construction and operating licences.

At last count, reserves at Cerro San Pedro stood at 61.1 million tonnes grading 0.59 gram gold and 24 grams silver per tonne, based on a gold price of US$325 per oz. and a silver price of US$4.62 per oz.

The mine is expected to produce an average of 90,500 oz. of gold and 2.1 million oz. of silver per year over its estimated 8.3-year mine life. Cash operating costs, net of silver credits, are pegged at US$177 per oz.

Project construction is expected to last around nine months, and carry a US$28.2 million price tag, with another US$3 required as working capital. Another US$98 million is required to fund contract mining, with a further $7 million required for capitalized pre-stripping.

At the end of Sept., Metallica had US$41.9 million in cash and equivalents and was debt-free. The company has some has 82.7 million shares issued and outstanding.

Meanwhile, in the boardroom, Fred Lightner has retired from his position as senior vice president and chief operating officer; he will remain on the company’s board, and act as a consultant. He has also agreed to consider returning as manager once construction resumes at Cerro San Pedro.

In Chile, Metallica recently inked a 5-year option deal to acquire the 19-sq.-km Los Potrillos copper-gold property, 17 km west of the Refugio mine, which is held equally by Bema Gold (BGO-T) and operator Kinross Gold (K-T).

Metallica has already paid Sociedad Contractual Minera Los Potrillos (SCM) US$100,000, with the balance of the US$3.5 million price tag due in annual instalments. Metallica has also begun a US$375,000 exploration program; it must spend at total of US$1.5 million on exploration over three years. SCM retains a 1.5% net smelter return royalty on the property. Chilean state-owned Empresa Nacional de Mineria (ENAMI) controls SCM.

The acquisition boosts Metallica’s land holding, held under the Rio Figueroa project banner, to around 82 sq. km. Rio Figueroa is situated along the southern extension of the Domeyko fault system, and within the Eocene-Oligocene porphyry belt that is home to some of Chile’s largest porphyry copper deposits.

Two of the packages largest porphyry-related alteration targets host porphyry style copper-gold and high-sulphidation style gold mineralization. Several other areas are slated for follow-up work.

A first wave of reconnaissance drilling is planned for mid-2005. Road rehabilitation and construction is underway; a camp has already been established.

Metallica says that alteration targets at Rio Figueroa are similar in size and character to those at the El Morro copper-gold project where partner Noranda (NRD-T) has outlined an inferred resource of 465 million tonnes averaging 0.6% copper and 0.5 gram gold per tonne.

News of the reinstatement pushed shares in Metallica 15, or 10%, higher to $1.65 in early trading in Toronto on Nov. 4.