Gammon aims to grow Ocampo

The latest batch of step-out and infill-drilling results from the Ocampo gold-silver project in Mexico’s Chihuahua state continue to return encouraging results for owner Gammon Lake Resources (GAM-T).

The best interval was pulled from hole 124, with a 9-metre section (beginning 69 metres below surface) grading 17.1 grams gold and 1,424 grams silver per tonne at the intersection of the high-grade La Esperanza and San Juan structures. Included is 1-metre section running 43 grams gold and 3,860 grams silver.

Other selected results include:

• Hole 101 3 metres (from 31 m below surface) grading 19.6 grams gold and 291 grams silver, including 1 metre of 40.6 grams gold and 714 grams silver in the Aventurero structure;
• Hole 103 2 metres (from 48 m) of 22.8 grams gold and 818 grams silver, including 1 metre of 42.1 grams gold and 1,590 grams silver in the Chica Rica zone;
• Hole 106 1 metre (from 72 m) running 14.6 grams gold and 892 grams silver in the Chica Rica zone;
• Hole 114 3 metres (from 90 m) averaging 15.3 grams gold and 314 grams silver, including 1 metre containing 28.5 grams gold and 622 grams silver in the La Esperanza zone; and
• Hole 122 1 metre (from 28 m) grading 80.9 grams gold and 416 grams silver in the Aventurero structure.

In all, the 30 new holes yielded 48 intervals exceeding 3 grams gold-equivalent. The latest holes represent the sixth round of drilling in a 65,000-metre campaign aimed at the Northeast underground project area. Included are results from the newly discovered La Esperanza and Chica Rica structures, which were encountered during some 4.5 km worth of underground ramp and tunnel development at Ocampo Northeast.

So far, drilling on La Esperanza has returned average grades of 12.3 grams per tonne gold-equivalent, over widths averaging 1.9 metres. Gold-equivalent grades in the Chica Rica structure average 19.0 grams, over average widths of 1.2 metres.

The recent drilling also included two holes designed to test for other new high-grade structures at Ocampo. Hole 128 managed to cut three new structures running between the Las Animas and Aventurero structures, and yielded 1 metre (from 33 m) running 7.6 grams gold and 93 grams silver, and another 1.5 metres (from 67.5 m) of 6.5 grams gold and 28 grams silver.

Hole 130 also cut newly identified splay structures branching off of the high-grade Las Animas structure, yielding 5 metres (from 76 m) averaging 4.5 grams gold and 430 grams silver, including 1 metre of 14.7 grams gold and 1,455 grams silver.

Gammon expects the new results to significantly add to Ocampo’s resources and reserves, which will be updated later this year.

At last count, Ocampo was home to proven and probable reserves totalling 33.6 million tonnes grading 1.25 grams gold and 52 grams silver per tonne, for 1.3 million contained ounces of gold and 56.2 million contained ounces of silver. Around 67% of the reserve ounces are contained in the project’s Open-Pit area, with the remainder found in the Northeast underground area.

The estimate employs a cutoff grade of 3 grams gold per tonne for the underground reserves, and cutoff grades of 0.6 grams gold-equivalent and 0.2 grams gold for the high- and low-grade open-pit reserves. It is also based on a gold price of US$400 per oz. and US$6.50 per oz. of silver.

Based on those reserves, Gammon expects to begin producing at a rate of 11,400 tonnes per day from the Open-Pit area and 1,500 tonnes per day from the Northeast underground area during the first quarter of 2006. In all, the project’s bankable feasibility study, released late last year, pegs annual gold-equivalent production at 270,000 oz. over the first seven years of mining; cash costs are projected at US$151.74 per oz. First-year production is expected to exceed 300,000 oz. gold-equivalent.

Ocampo’s high-grade ore will be subject to three stages of crushing; the low-grade ore, which must be excavated to reach the high-grade, receives only primary and secondary crushing. Mining and processing cost ring in at US$5.71 per tonne for the open-pit material, and US$25.59 per tonne for underground.

Gold and silver recovery rates for Ocampo’s high-grade open-pit reserves are expected to average around 87% and 72%; those figures fall to 77% and 46% for the low-grade reserves. Meanwhile, recovery from the underground material is expected to hit 96% for gold and 93% for silver.

On the financial front, the project carries a pre-production capital cost of US$104 million. With an impressive after-tax internal rate of return of 52%, payback is expected in just 1.6 years. The project’s net present value (at a 5% discount) is US$270 million; the after-tax cumulative net cash flow comes to US$258 million.

Gammon is currently looking at its financing options; late last year, the company raised $110 million via the private placement of around 15.7 million special warrants at $7 apiece. Each warrant is exchangeable for one Gammon share by April 17.

The company expects to begin site preparations for the mill and heap-leach facilities early this year.