Homestake excited by discovery

Exploration near the Hueso gold mine in northern Chile has become Homestake Mining’s (NYSE) “top international priority” following the discovery of a new gold zone in the area.

Homestake discovered the Jeronimo zone last year in the same sedimentary horizon that hosts the company’s Manto Agua de la Falda deposit, about 1 mile to the northeast. Together, the deposits contain a geologic resource of about 1 million oz.

The Jeronimo discovery “added a lot of excitement” to the project and prompted Homestake to team up with state-owned Codelco, a major landholder in the area, for further exploration, says Michael Steeves, Homestake’s director of investor relations.

Homestake and Codelco agreed to form a new company, called Agua de la Falda, to explore for and extract gold from 8,336 acres surrounding the Manto Agua de la Falda and Jeronimo discoveries. Homestake will have a 51% stake in La Falda, while Codelco will hold the remaining 49%

Under the agreement, Homestake will contribute US$5.1 million in exploration financing to the new company. If results are encouraging, the major will put up an additional US$10.1 million, including a US$4.9-million loan to Codelco to cover the Chilean company’s share of costs.

The two deposits boast grades of 0.1-0.32 oz. gold per ton within a 15-40-ft.-thick, fossiliferous, limestone horizon. A combined program of reverse-circulation and diamond drilling is under way to delineate the zones, both of which remain open in several directions and may actually be two sections of one continuous deposit.

Steeves says the gold zones occur in an entirely different geologic setting from the Hueso orebody, which is hosted by a tightly folded series of volcanic and sedimentary rocks.

The ore horizon formed by Jeronimo and La Falda has a gentle dip amenable to underground room-and-pillar mining methods, Homestake says in a press release. Metallurgical test work also suggests that, while sulphide-bearing material may require flotation and/or oxidation before treatment, the fully oxidized mineralization is readily leachable.

Another advantage, says Steeves, is proximity to Homestake’s El Hueso mine.

“If we do develop a deposit of commercial size and grade, we have a lot of infrastructure that will make things easier,” said Steeves. Power, water, housing and other services will be provided by Codelco at a set price.

The Hueso orebody was depleted early last year, but Homestake is still leaching gold from the remaining stockpiles.

Approval by the Chilean government for the formation of the new company, which would be managed by Homestake, is expected shortly.