UME whips San Gregorio into shape

Montevideo, Uruguay — One man’s poison has proved to be another man’s meat in Uruguay, thanks to Australian ingenuity, persistence, and good timing.

Uruguay Mineral Exploration (UME-V) has not only transformed the San Gregorio gold mine, near Minas de Corrales, from a project ready for closure to one with lateral and depth potential; it has also discovered a nearby deposit that could add years of operating life.

UME acquired San Gregorio in October from the troubled Crystallex International (kry-t), which, for various reasons, had lost interest in the mine. The fact that UME is mining not just remnant ore but so-called sterile areas in and along strike of the main pit suggests that the previous owner was unaware of the scope for additional ore. Since taking over, UME has not only managed to produce about 5,000 oz. gold per month; it has discovered the Arenal deposit, in an area that surrounds the mining lease.

When we visited the Minas de Corrales district recently, UME’s four drill rigs were operating on two shifts and picking up positive drill core on both the mining lease and Arenal. The latter was showing scope to provide a wider ore system grading up to 1 gram per tonne better than San Gregorio. There is a laboratory on site, which provides ready assays to the exploration team.

Crystallex approached UME in June 2003 to see if it wanted to buy the San Gregorio mill; the company already owned all the valid surrounding prospects. It was the opportunity for which UME’s managing director, Chris Clark, had been hoping. Clark, an Australian, completed a deal in late October, and soon afterwards, announced that UME had discovered Arenal, about 3.5 km from the mill.

UME is paying US$2 million as a purchase price to Crystallex in two payments, the first payment being in March, and the second, in October. The company also paid US$1.5 million of unfunded termination obligations that were held under the operating mine subsidiary, Minera San Gregorio, as well as US$2.5 million in mine-closure obligations, including a poor gold hedge position of US$2.7 million.

Several years ago, Clark and his exploration director, Michael Schwabe, another Aussie, discovered that Crystallex had no licences beyond its main and satellite pits at San Gregorio. UME then set about acquiring ground not just along trend but on a wider line, and, during the course of exploration, ascertained that the main mineralization was displaced to the south through faulting and shearing, with a small river winding through the area associated with a major fault.

At the time of our visit, we observed the mining of a large surface-to-near-surface zone on the small Western pit, and, although this was supposed to be a sterile area, the material was grading 2 grams gold per tonne and better.

Clark believes exploration will uncover yet more mineralization, and that these additional pockets will expand the 3.5-km-long pit system at San Gregorio.

The UME team’s success in adding to existing resources is not entirely due to luck. On arriving in Uruguay, they immediately created a database to which several veteran domestic geoscientists contributed. The team also added digitizing material and matched it to airborne data. All of these efforts have overturned a lot of geological thinking on structural geology, structural positioning, and rock suites.

The UME database has enabled the company to outline the following broad exploration targets:

— parts of a greenstone system in southwestern Uruguay;

— the Mal Abrigo nickel-platinum project, which occupies part of a large, layered, intrusive complex northwest of Montevideo;

— the vast Isla Patrulla iron copper-gold system, which includes the Texas discovery, in northern Uruguay;

— the huge Laguna Merin geophysical anomaly, which is thought to have been caused by a large collapsed caldera.

Another target is the province surrounding San Gregorio, where geophysical work has revealed that the regional shear package is traceable to the east for more than 120 km.

However, the immediate area of interest is the Arenal discovery, which covers more than 7 km of strike. Clark is hoping the drill- and-search campaign will allow the mill to be maintained at the current rate until a minable resource is proved up at Arenal. His projection is 500,000 oz. initially.

Meanwhile, the original mine plan at San Gregorio has been confounded to the point where low-grade stockpiles and in-pit zones have allowed the spruced-up mill to provide 5,000 oz. monthly, resulting in a total operating profit of between US$450,000 and US$500,000 per month. The unhedged operation has a cash operating cost of about US$280 per oz.

A large part of the projected cash surplus will be applied to regional exploration, and Clark envisions a mill production rate of 150,000 oz. per year.

Nicolas Viana, the local geologist behind the discovery of the Arenal deposit, joined the UME field team four years ago. What enabled him to outline the deposit was UME’s large database on Uruguay’s geology.

The lamplight for the Uruguayan geologist was provided by structural geologist Vic Bogacz of Australian-based Archon Resource Technologies. Bogacz’s sessions in Uruguay with the team opened up their thinking on the geology of Minas de Corrales and also pointed to the potential of a greenstone belt in the country’s south.

Clark says Uruguayan geologists are well-trained in structural geology and are used to working without much outcrop but that they lack the dissemination of information that is available in Australasia and North America.

“We are opening new doors each day,” said Clark, and he proceeded to unfold an aeromagnetic map of eastern Uruguay illustrating rock suites running in a direction quite different from that shown on the local geological maps. “There are concepts ingrained in the heads of Uruguayan geoscience students, but people like Vic [Bogacz] are getting them to question those concepts.”

It was following a lecture by Bogazc that Viana decided to study a modest anomaly on the southernmost point of a line on the Arenal lease. He continued the grid south, picking up a robust set of geochemistry. All of this led to an exploration campaign, the results of which raised both the spirits of company directors and the share price. The first trench returned 52 metres grading 1.2 grams gold per tonne.

Said Clark: “Schwabe and I looked at it, and thought it was a load of rubbish — perhaps contamination from a small outcrop of silicification at the top of a nearby hill. Then we put in a series of rotary-air-blast holes, and that was it: game set and match.”

Then a confirmatory diamond drill hole, 150 metres to the east, returned 29 metres grading 2.75 grams gold, and another, west of the RAB grid, gave 30 metres of 3 grams gold.

The moral of the story, says Viana? “Never ignore any result.”

Today Viana is overseeing the exploration effort at Arenal, which, at the time of our visit, consisted of two drill rigs probing a mineralized system about 15 metres under the sweeping grassland and bushland

Based on drill results to date, Clark believes Arenal could turn out to be an even bigger ore system than San Gregorio. The outlined deposit dips at 30-40 and is 10-40 metres thick.

“Not even a mining engineer can mess this one up,” quipped Clark. “The biggest grade-control problem will be finding enough low-grade material to keep the head grade down so as to meet the plant configuration.”

The Arenal team has been drilling off 1,000 metres of system strike and designed a starter pit covering 250 strike metres. The reason for this approach is that Arenal is cut by the Corrales River, and UME believes the permitting process will be simplified by going for a stage-1 development, moving the small river to stage 2.

— The author is editor-in-chief of Paydirt and Gold Mining Journal and is based in Perth, Australia.