Metallica’s blasting permit snuffed

Shares in Metallica Resources (MR-T, MRB-X) slipped 53, or 12.5%, to $3.70 in late-afternoon trading in Toronto on Apr. 7, after Mexico’s Secretaria de Defensa National (Sedena) reinstated a ban on blasting on certain parts of the Cerro San Pedro gold-silver project in San Luis Potosi state.

The reinstatement comes just 2 months after the restrictions were lifted owing to a Mexican court ruling that rejected legal action launched by the ejido of Cerro de San Pedro. The ejido had sought to prevent Sedena from authorizing the use of explosives on ejido-owned land.

The explosives ban, which covers the pit area and the access road to the pit, is owing to more legal action, this time launched by a small group of non-resident members of the ejido,

“This case is essentially the same as the previous case brought against Sedena, which was struck down by the courts in 2006,” said Metallica CEO Richard Hall. “MSX will use all of its resources to support Sedena in prevailing in this case once again.”

Metallica says the ban is not expected to prevent the completion of construction, which is scheduled for the end of 2006.

Plans at Cerro san Pedro call for annual production of around 90,500 oz. gold and 2.1 million oz. silver over 8.5 years. Cash operating costs, net of silver credits, are pegged at US$177 per oz. The overall strip ratio is pegged at 1.2:1.

Mining will focus on proven and probable reserves totalling 63 million tonnes containing 0.58 gram gold and 24 grams silver per tonne, for around 1.2 million contained ounces gold and 48.4 million oz. silver. The estimate employs conservative metal prices of US$375 per oz. gold and US$5.77 per oz. silver.

Measured and indicated resources (including reserves) amount to 116.2 million tonnes running 0.54 gram gold and 20.3 grams silver. Another 3.2 million tonnes of inferred material grades 0.44 gram gold and 21.7 grams silver. The resource estimates are based on a cutoff grade of 0.2 gram gold.

Construction carries a price tag of US$28.2 million, with another US$3 million required for working capital. Thereafter, another US$98 million would go to fund contract mining, with a further $7 million for capitalized pre-stripping.

Metallica plans to fund construction out of its current cash position; at the end of 2005 the company had $42.7 million in cash and equivalents. The company was also debt-free.