Eager to expand its exploration efforts and use the expertise gained from mining low-sulphidation epithermal vein systems in Chile,
The option agreement was signed a week after Radius unveiled promising results from an initial, 7-hole program that tested the El Pavon system at five widely spaced sites along the 6 km of interpreted strike length. The results included high-grade sections of 2.5 metres grading 57.3 grams gold per tonne, 5.8 metres of 11.3 grams gold and 7.6 metres of 12.5 grams gold. In general, the drilling results confirmed the local bonanza grades observed in surface hand-trenching.
Quartz vein mineralization exposed in a series of some 40 hand-dug trenches has returned consistent multi-gram gold values over the combined 6 km of strike length on the Pavon South, Central and North veins. Significant gold values generally fall in the 1-to-12-gram range over variable widths of 2-25 metres, with local high-grade valued of up to 58 grams across 6 metres. Meridian’s due diligence sampling confirmed these high-grade numbers, with nine of 12 surface samples yielding 12-58 grams. Preliminary bottle-roll tests showed “good” gold recoveries, reports Meridian.
El Pavon exhibits all the signs of a classic quartz-adularia, low-sulphidation, epithermal vein system hosted by a series of felsic-to-intermediate volcanics, ignimbrites and tuffs. With little outcrop in the area, much of the vein system is obscured by an extensive soil cover. Based on the quartz texture, clay and alteration mineralogy found in the trenches, Radius’s geologists believe they are high up in the mineralized system, giving appreciable potential at depth.
As part of the permitting process for a proposed 25,000-metre reverse-circulation (RC) program, Radius was allowed to complete seven “geotechnical” holes using a small portable core rig, for a total of 749 metres. The objective of the program was to confirm the general dip of the vein structures and allow proper siting of drill pads and access roads.
All seven holes intersected the veins as targeted, indicating a certain degree of continuity both along strike and downdip. “The vein structure is there wherever we drilled for it,” acknowledged Ralph Rushton, vice-president of corporate development. “To get three hits out of seven holes over 4-5 km of strike length is, I think, an extremely good start to the program.”
A nice surprise for the company was hole 1, which was drilled on the South extension of Pavon under a fairly low-grade trench. Rushton says the hole cut a “robust, banded quartz-adularia vein” grading 6.7 grams across 11 metres, including a 5.8-metre section of 11.3 grams. Hole 2, steepened from the same site, intersected 5.4 metres of quartz vein-breccia, of which a 0.8-metre section ran 5.8 grams. By comparison, hand-trenching delivered 1.44 grams over 4.3 metres.
“The drilling is telling us there are blind pay shoots,” explains Rushton. “We’ve got to test the entire structure.”
In general, the veins have a steep westerly dip of 65 to vertical, with true widths ranging from 4 to 16 metres, including zones of abundant quartz veining in between or adjacent to the main veins. “Multiple silicification and brecciation events are observed, indicating an active system with repeated episodes of sealing, hydrothermal brecciation and accompanying quartz deposition,” states Radius. “In all cases, the best gold grades are found associated with well-developed colloform banded quartz-adularia veining.”
This new grassroots discovery, wholly owned by Radius, is in the central part of the country, a 5-hour drive from the capital city of Managua and about an hour from Waslala, the nearest town of any size. The project is cut by the main road, and access to much of the hilly, agricultural region is possible on either foot or horseback.
Eight veins
Since making the initial discovery in mid-2003, Radius’s field crew has identified at least eight potentially major veins or mineralized structures that can be traced in trenching and float in an area of Pavon covering at least 10 by 4 km. Recent exploration work has defined two new structures, known as Jinji and Babaska. The Jinji structure is mapped over a 2-km distance in outcrop and float, with variable widths from 2 metres. Babaska has an interpreted strike length of 4 km, exhibiting both fine-grained banded and chalcedonic quartz vein material.
“We believe this is a new low-sulphidation district with multiple-vein targets, local bonanza grades, and multi-million-ounce potential,” states Edward Colt, Meridian’s executive vice-president.
Under terms of the agreement, which are subject to legal and title due diligence, Meridian will have the right to earn a 60% interest in El Pavon by spending at least US$5.5 million on exploration and completing a feasibility study in four years’ time. Meridian is committed to spending US$3.5 million over the first two years, which will include at least 15,000 metres of drilling on the Pavon veins, starting as soon as permits are acquired. At least 20% of the US$3.5 million will finance drilling of other vein targets, external to Pavon North, Central and South. Rushton says permits could be in hand by the end of October.
Should Meridian prematurely withdraw or terminate the option agreement before completing the initial US$3.5 million in expenditures, it will have to pay Radius the difference in cash.
Upon completion of a positive feasibility study, Meridian can buy a 60% interest in El Pavon by paying Radius a predetermined price for its share of the mineral resources, including ore reserves and credits for byproducts, on a per-ounce basis tied to the price of gold.
The purchase price for the 60% stake will be as follows:
— US$40 per oz. gold if average gold prices are less than US$400 per oz.;
— US$50 per oz. gold if average gold prices are equal to or greater than US$400 per oz. but less than US$500 per oz.;
— US$60 per oz. gold if average gold prices are equal to or greater than US$500 per oz.; and
— US50 per oz. silver if average recoverable silver grades exceed 100 grams.
“This transaction is consistent with our strategy of finding under-explored, high-grade, high-potential properties in the Americas, where we can do what we do best — explore the systems that we best understand,” says Colt.
Rushton tells The Northern Miner it is the right time for Radius to do the deal: “We feel the project is sort of at the cusp of the risk-reward curve for us. We could continue to drill it ourselves but that would start to get expensive and we would be burning our treasury fairly quickly. Our expertise is more along the lines of target generation than detailed project work. . . . It was a question of conserving the treasury for doing what we do best, which is grassroots exploring. Meridian, who knows what it takes to explore low-sulphidation systems, is the right partner.”
Field crews of Radius are currently scouring Nicaragua, turning up new prospects almost daily. The most recent discovery is an epithermal gold target in the southeastern part of the country, at a project called Nueva Guinea. Initial reconnaissance work has returned 14.3 grams across 4 metres in a broader interval of 9 metres averaging 7 grams in preliminary channel sampling. Outcrop is scarce and most of the results to date are from grab samples of float trails or channel sampling of some of the few bedrock exposures. “It seems to be another low-sulphidation, epithermal system, and it may be quite extensive,” says Rushton.
El Peon
Reno-based Meridian Gold is a mid-tier gold producer. Its core asset, the wholly owned, high-grade El Peon operation mine in Chile, is a star performer, ranking among the lowest-cost gold-silver mines in the world. The mine was recently recognized as one of the safest mines in Chile. It lies in the northern Atacama Desert at an elevation of 1,800 metres, 160 km southeast of the port city of Antofag
asta.
El Peon was a grassroots discovery by Meridian geologists in an area that had no recorded mining history or mineral occurrences. The discovery resulted from a regional campaign that concentrated on volcanic-hosted targets in the Paleocene-Eocene and Miocene-Pliocene belts in northern Chile.
Gold was first discovered on the El Peon property in 1993. A trenching program in September 1993 was followed by an initial 13-hole drill program in November of the same year. Six of these holes encountered sections of greater than 3 grams gold. The true discovery hole, however, was the first hole of the second phase, which began in February 1994. The discovery hole hit a major ore shoot of the Quebrada Orito deposit, intersecting 100 metres of 10.9 grams gold and 123 grams silver starting at 110 metres of depth. This ore zone eventually extended over 3 km along a continuous vein zone referred to as Quebrada Orito and Orito Sur.
Gold and silver mineralization at El Peon occurs in volcanic hosted, steeply dipping, low-sulphidation epithermal quartz veins and breccias. The vein deposits are spatially associated with a large rhyolite dome complex that intrudes a sequence of pyroclastic and intermediate composition flows. The dome complex is laterally extensive and extends at least 3 km east-to-west and 5 km north-to-south. Typically, the ore deposits exhibit long strike lengths and range up to 24 metres in thickness. The hangingwall and footwall rocks are tuffs, ryholites and andesites.
The depth of oxidation is variable but generally extends 250-300 metres below surface. Most of the ore is oxidized, with the exception of the southern, deeper extensions of the Quebrada Orito system.
In July 1998, Meridian’s board of directors approved the development and construction of the El Peon mine, based on the positive results of a final feasibility study for the Quebrada Orito and Cerro Martillo deposits and on early estimates of a new high-grade discovery called Quebrada Colorada. The feasibility study, prepared by Kvaerner Metals, showed El Peon could produce 130,000 oz. gold and 1.9 million oz. silver annually over a mine life of 8.5 years at a cash cost of US$180 per oz. The mine plan was based on proven and probable reserves of 894,000 oz. gold and 14 million oz. silver contained in 4.7 million tonnes grading 5.97 grams gold and 89 grams silver. The original mine plan, which called for 85% of the reserves to be mined by underground methods, also assumed the development of additional mineralized material containing 249,000 oz. gold and 3.5 million oz. silver.
Capital costs of US$77 million included construction of a 2,000-tonne-per-day mill that uses a crushing circuit, a semi-autogenous grinding mill, a gravity circuit, and Merrill-Crowe precipitation and smelting. The feasibility study suggested recoveries of 95% for gold and 87% for silver.
The nature of the El Peon project changed dramatically with the discovery of the high-grade Quebrada Colorada deposit in May 1998. The deposit occurs in a fault zone along the western side of the rhyolite dome, 1 km east of Quebrada Orito. Rock samples from the surface showed little gold mineralization, but the structure was drilled anyway. The first hole in Quebrada Colorada intersected 12 metres grading 34 grams gold and 153 grams silver at a down-hole depth of 158 metres. Nine of the initial 12 holes intercepted high-grade mineralization.
By the end of 1998, 172 holes had defined the new Quebrada Colorada deposit over a strike length of at least 1,400 metres and a vertical distance of 100-180 metres. The true width of the zone averaged 3 metres. An in situ resource was pegged at 1.1 million tonnes grading 27 grams gold and 410 grams silver, roughly equivalent to 1 million oz. gold and 15 million oz. silver.
A modified mine plan, based on the inclusion of Quebrada Colorada, indicated that production levels of 250,000 oz. gold per year were feasible, with anticipated cash costs of around US$100 per oz.
After only 10 months of construction, El Peon started up in September 1999; the mine reached commercial production levels at the beginning of 2000. In its first full year, El Peon produced 289,000 oz. gold and 4 million oz. silver at a cash cost of US$48 per oz. and a total cost of US$96 per oz., net of silver credits.
Output in 2001 was 318,000 oz. gold and 4.7 million oz. silver at a cash cost of US$43 per oz. and a total cost of US$94 per oz., compared with 328,000 oz. gold and 5.1 million oz. silver in 2002 at a cash cost of US$35 per oz. and a total cost of US$84 per oz.
In 2003, the mine produced 321,000 oz. gold and close to 4.3 million oz. silver at a cash cost of US$54 per oz. and a total cost of US$110 per oz. Mill grades averaged 14.7 grams gold, versus 15.5 grams in 2002, 14.6 grams in 2001 and 13 grams in 2000. Gold recoveries were increased by 2% to an all-time high of 97%. Silver recoveries averaged 93% in 2003. During the year, Meridian installed an in-line pebble crusher to enhance mill throughput capacity to 2,100 tonnes per day.
For the first six months of 2004, El Peon churned out 157,347 oz. gold and 2.3 million oz. silver at a cash cost of US$48 per oz. and a total cost of US$96 per oz., compared with 162,176 oz. gold and 2.2 million oz. silver at cash and total costs of US$46 and US$104 per oz., respectively, in the corresponding period of 2003. For the third consecutive quarter, the mill operated above design capacity, averaging a record 2,374 tonnes per day in the second quarter of 2004. The grade of mill feed decreased during the quarter to 12.4 grams gold and 198 grams silver, versus 14.5 grams gold and 191 grams silver in the comparable quarter a year earlier.
Meridian prides itself on having replaced its yearly production with additional reserve ounces, and then some.
“We have grown El Peon from a vein with initially 800,000 oz. gold to more than three veins with more than 4 million oz. gold by the end of 2003,” says Meridian President Brian Kennedy. Looking ahead, Meridian expects El Peon to continue delivering the goods, with production forecasts of about 310,000 oz. gold and cash costs of between US$50 and US$60 per oz. for this year. Similar performances are expected through 2006.
Proven and probable reserves at the beginning of 2004 contained 1.8 million oz. gold and 34 million oz. silver in 6 million tonnes grading 9.1 grams gold and 176 grams silver per tonne. Measured and indicated resources held a further 868,000 oz. gold and 16.7 million oz. silver in 2.7 million tonnes grading 10 grams gold and 192 grams silver. Another 145,000 oz. gold and 3.8 million oz. silver are inferred in 600,000 tonnes grading 8 grams gold and 213 grams silver.
“This company has been built on successful organic exploration,” says Kennedy.
Dorada
El Peon’s exploration team began 2004 with a bang, discovering the completely blind Dorada vein system while drill-testing a north-south-oriented linear target supported by geophysical survey data, immediately south of the Cerro Martillo deposit. The target area was initially tested with two lines of RC holes. The discovery hole cut 14 metres of 6.8 grams gold and 438 grams silver. However, many of the early follow-up holes intersected the vein in the upper limits of the epithermal system, encountering lower grades.
The Dorada vein is covered by at least 150 metres of sterile volcanic flows and tuffs, and does not outcrop at surface. It lies about 1 km east of, and at the same elevation as, existing underground workings in Quebrada Colorada.
Using three RC rigs and one core rig, Meridian has expanded the strike length of the Dorada discovery to 1.7 km, with a dip extent of more than 200 metres. The discovery remains open along strike and downdip. The company is drilling off about 500 metres of the Dorada strike length at 30-metre centres so that a proven and probable reserve calculation can be done by year-end. The new discovery averages 12.5 grams gold and 647 grams silver, or 22.4 grams gold-equivalent, over a 3.2-metre horizontal width, based on about 100 drill intercepts to date.
Kennedy estimates the Dorada di
scovery has a valuation of US$250 per tonne of ore, and with the cost of processing one tonne of ore sitting at about US$70, there is a “huge profit potential.” The company has initiated underground access development to Dorada from two tunnels — one from Quebrada Colorado and the other from Cerro Martillo. Crews expect to reach the Dorada vein after 12-15 months.
Exploration has been focused on a 40-sq.-km core area — part of 600-sq.-km claim block Meridian now has under control. Using new insights gained from the discovery of Dorada, Meridian’s geologists have expanded their area of interest. The company has been busy acquiring ground adjacent to the El Peon property. A new promising high-grade vein, Fortuna, was discovered 10 km west of El Peon on the Angelina property, which was optioned in the spring from
Steeply dipping
Field crews started by trenching a 500-metre-long surface trace of the sub-crop exposures of the Fortuna vein, which confirmed anomalous values. The best section returned 2 metres grading 4.08 grams gold and 371 grams silver. A 4,000-metre RC program was carried out earlier this summer to test along strike and downdip. Of the 24 holes drilled, eight intersected high-grade mineralization, defining at least one continuous 350-by-100-metre steeply dipping shoot. The best hole intercepted a true width 4.2 metres grading 127 grams gold and 8,793 grams silver. A summary of the Fortuna drill results are provided in the accompanying table.
In addition, fence drilling more than 400 metres north of the shoot intersected 2 metres of 16.1 grams gold and 1,135 grams silver.
By spending US$1.2 million on exploration over four years, Meridian can earn an initial 60% stake in Angelina, and this can be increased to 80% by paying Gold Fields an additional US$1 million. The joint-venture acquisition adds more than 30% to Meridian’s land position and locks up control of the El Peon gold district, says Kennedy. “We are going to continue to define Fortuna,” he asserts. Exploration drilling is to resume in early October.
Hoping to capitalize on the 12 years of exploration success it has enjoyed in the Atacama Desert, Meridian is looking at other prospective gold areas in the Paleocene belt of northern Chile. “We have unleashed about half a dozen of our El Peon trained geologists to help identify look-a-like projects,” says Kennedy. The company has acquired five new exploration targets, including La Pepa project in the historic Maricunga mining district. Exploration is the engine that drives the growth of Meridian; indeed, the company’s exploration budget for the year has been increased by 40% to US$20 million.
For the first six months of 2004, Meridian posted income of US$19.5 million (or 20 per share), compared with US$18 million (18 per share) in the corresponding period of 2003. At the end of the second quarter, the company’s cash balance increased to US$210 million, up from US$182 million at the end of 2003. Meridian is 100% unhedged to gold, with no debt. “This cash flow was generated the old fashioned way, by producing gold profitably and hoarding those profits for reinvestment in profitable ventures,” says Kennedy. “We have never sold equity at any time in our past just to add cash to our balance sheet.”
HoleInterceptElev.True WidthGoldSilver
(m)(m)(m)(g/t)(g/t)
DT4106-10815721.73.2669
DT793-9915603.44.5267
DT874-7815902.616.11,000
DT9179-18314852.924.11,450
DT17122-12715404.21278,793
and131-14115308.56.8594
DT18146-14815302.03.5414
DT1990-9215621.715.6134
DT24134-13615402.016.11,135
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