Blasting permit boosts Metallica shares

Mexico’s Secretaria de Defensa National (Sedena) has granted Metallica Resources (MR-T) an annual renewal of its blasting permit for the Cerro San Pedro gold-silver project in San Luis Potosi statem.

However, owing to a pending legal appeal against Sedena, the use of explosives is limited to land owned by Metallica’s Mexican subsidiary MSX, which includes the processing area. The use of explosives is still prohibited in the project’s pit area and pit access road, which lies on land owned by the Ejido of Cerro de San Pedro. Metallica originally signed its lease with the Ejido of Cerro San Pedro (a group representing the historic occupants of the land) in 1997.

A decision on the appeal is expected by the end of October. In the meantime, Metallica plans to begin earthwork and pad preparation in the processing area. The company will also begin road work in the pit area where blasting is not required. All explosives permits in Mexico expire at the end of each calendar year.

Metallica originally launched a 9-month, US$28.2-million construction campaign in February 2004. It was suspended in June 2004 owing to various permitting and legal issues.

In August, Metallica said that Mexico’s Federal Court of Appeals had unofficially overturned a previous nullification of the company’s mining permit for the project. The case has been returned to a lower court, which is expected to return the permit to environmental authorities for review. Metallica says the conditions of the permit may be updated to conform to current environmental laws but cannot be nullified.

The proposed heap-leach mine is expected to process an average of 7.5 million tonnes of ore per year to produce an average of 90,500 oz. gold and 2.1 million oz. silver per year over its estimated life of 8.5 years. Cash operating costs, net of silver credits, are pegged at US$177 per oz.

At last count, proven and probable reserves totalled 63 million tonnes grading 0.6 grams gold and 24 grams silver per tonne, for 1.2 million contained ounces of gold and 48.4 million contained ounces of silver. The estimate employs a gold price of US$375 per oz., and US$5.77 per oz. of silver.

Shares in Metallica were 11, or nearly 7%, higher at $1.80 in brisk morning trading in Toronto following the news on Sept. 20.