San Jose expansion drilling hits high grade

Vancouver – Expansion drilling at the San Jose gold-silver mine in southern Argentina is returning high-grade hits for joint-venture partners Hochschild Mining (HCHDF-O, HOC-L) and Minera Andes (MAI-T).

San Jose, which started production in mid-2007, is owned 51% by Hochschild and 49% by Minera Andes. A 21,000-metre drill program focused on three veins Frea, Odin, and Ayelen and infill and step-out results suggest significant potential to increase the project’s reserve once again.

Drilling at the Frea vein, which is currently being mined, identified three high-grade splits off the main vein. Hole 477 went through all three splits, returning 25.23 grams gold and 4,945 grams silver over 30 cm, 14.82 grams gold and 1,688 grams silver over 93 cm, and 13.3 grams gold and 1,532 grams silver over 1.3 metres. Frea drilling also indicated that the system remains open in both directions along strike.

Frea currently hosts proven and probable reserves of 937,000 tonnes grading 7.77 grams gold and 343 grams silver, contained within 575 metres of strike and 350 metres depth. Drilling over the last year has extended the vein’s strike length to 1.2 km; the company expects a significant reserve boost from the expansion.

Frea sits in the centre of the veins delineated to date at San Jose. The other veins currently being mined are Kospi, which is 1 km southwest of Frea, and Huevos Verdes, which lies 2 km southwest of Frea. Combined, Frea, Huevos Verdes, and Kospi host proven and probable reserves totalling 2.7 million tonnes grading 6.01 grams gold and 403 grams silver.

The other two veins that the joint-venture partners probed in the recent drill program Odin and Ayelen are close together, sub-parallel, southwest-dipping structures roughly 700 metres northeast of Frea.

The Odin vein saw 21 holes along 1,600 metres of strike, testing to a depth of 200 metres. The highest-grade intercept came from hole 462, which returned 63.63 grams gold per tonne and 1,158 grams silver per tonne over 1.94 metres from 173 metres downhole. Hole 475 also returned good grades: 20.56 grams gold and 1,919 grams silver over 1.55 metres from 174 metres depth followed by 2.58 metres grading 30.41 grams gold and 1,933 grams silver. And hole 451 cored 1.85 metres averaging 18.69 grams gold and 1,506 grams silver.

At Ayelen, drilling identified additional mineralization along the 1.2 km of defined strike. Results from recent drilling were primarily moderate to low grade, with the exception of a 5-metre intercept in hole 416 that graded 9.6 grams gold and 594 grams silver, including 1 metres grading 33.4 grams gold and 1,788 grams silver.

Importantly, the Odin-Ayelen vein trends have now been delineated for 2.8 km along strike, an increase of 1 km over the last year.

Following news of the San Jose drill results Minera Andes lost 19 over three days to close at $1.01. The company has a 52-week trading range of $2.19 to 86 and has 189 million shares issued.

A new resource estimate for the project is expected in a month or two, according to Minera Andes president Allen Ambrose. “When we drilled 29,000 metres in 2006 and early 2007, we more than doubled our resource-reserve estimate,” he says. “Now we’ve completed another 30,000 metres of drilling that was just as successful.”

Minera Andres discovered mineralization at the San Jose project in the late 1990s. In 2001 Hochschild signed on to earn in its 51% interest, which it has done. Production started in the middle of 2007, with the underground mine producing and the mill churning through 750 tonnes per day.

The mine now comprises 16 km of underground workings accessed by ramps. The mine produced over 1 million oz. silver in the second quarter of 2008, an above-average production number due to mining of a high-grade section, and it produced 12,410 oz. gold.

In the second quarter of this year production from San Jose allowed Minera Andes to report its first significant net income. The company earned net income of $8.9 million over the quarter. Silver and gold sales from the mine totalled $63.2 million, from averaged weighted sale prices of $901 per oz. gold and $16.47 per oz. silver. San Jose’s gold and silver sales are unhedged. Production cash costs came in at $322 per oz. gold and $6.16 per oz. silver.

Hochschild and Minera Andes are now embarking on an expansion at the mine. The partners want to double the production rate to 1,500 tonnes per day by early 2009. Doubling capacity would bring the annualized production rate to 120,000 oz. gold and 6 million oz. silver.

Minera Andes is also exploring the Los Azules porphyry copper project in Argentina, in San Juan province. A scoping study is underway at the project, which is a joint venture between Minera Andes and Xstrata Copper, a commodity business unit within Xstrata (XSRAF-O, XTA-L). The option agreement consolidates into one land package adjoining properties that straddle a large porphyry system.

The final set of drill results from the recent drill program at Los Azules confirmed that the system remains open to the north. Hole 37A, drilled at the northern edge of the zone, encountered 112 metres of 0.98% copper within a 217-metre intercept grading 0.77% copper. The hit extended the limit of known mineralization 400 metres to the north; it is also the deepest hole drilled to date on the property, suggesting the limits of the system have not yet been defined. Hole 41 returned another good intercept: 152 metres grading 0.81% copper within 236 metres grading 0.62% copper.