Minera Andes to double San Jose gold production

Minera Andes (MAI-T) expects to double production at the San Jose mine in Santa Cruz province, Argentina, to 95,000 oz. gold and 7,500 oz. silver in 2009, now that its mill expansion is complete.

The added output is needed by Minera Andes, which holds a 49% interest in the mine with 51% owner Hochschild Mining (HOC-L). The operator of the project is Minera Santa Cruz (MSC), a subsidiary of the two project owners.

In late December, Minera Andes announced it wouldn’t be able to meet an upcoming US$11.3 million cash call from Minera Santa Cruz (MSC). The cash call was unexpected but the money was needed to finance the higher-than-budgeted costs for the expansion.

Now MSC has suspended further capital expenditures on the project until it can be fully funded from cash flow from operations. MSC has already spent or committed US$9.7 million on the project. In the meantime, Minera Andes will be reworking its credit arrangement with Macquarie Bank

Some of the extra costs arose when MSC had to redesign and lengthen the location of an electric line from the national power grid. Costs rose 75% to US$21 million due to the extra materials and rerouting costs. MSC had to negotiate agreements with private land owners along the redesigned route.

Once the mine is hooked up to the grid, Minera Andes expects that power costs will be cut in half. Right now everything is powered by diesel generators.

Capacity of the processing plant has been doubled to 1,500 tons per day.

The extra mine production will come from the Kospi vein, located between the currently producing Huevos Verde and Frea veins. Difficult ground conditions encountered while constructing the decline ramp to the Kospi vein, delayed development. The ramp had to be rerouted. MSC expects that production from that vein will begin in the second quarter.

Until then, the extra mill feed for the added processing facility will come from expanded mine production on the other two veins, plus a surface stockpile of low grade ore.

About half of concentrates produced at San Jose are being converted to dore bullion to save in transportation, refining and export duties.