Farallon raises $27.2M for fast-tracked G-9 deposit

Vancouver — An unconventional mine development plan seems to be working for Farallon Resources (FAN-T, FRLLF-O).

The company is advancing the polymetallic G-9 deposit at its Campo Morado project in Guerrero state, Mexico, to production without a feasibility study, and a recently closed $27.2-million financing indicates the fast-track method has found support.

Farallon closed a bought-deal offering of 28.6 million shares plus an over-allotment of 2 million shares and sold 8.2 million shares in a private placement, all at 70 apiece. The $27.2 million raised brings the company’s cash position to US$41.3 million, most of which is intended for use at Campo Morado.

A preliminary assessment out in late December studied a potential 1,500-tonne-per-day underground operation at Campo Morado and found that a startup investment of US$124.3 million would produce a project with an internal rate of return of 54% and a net present value of US$141.8 million at an 8% discount rate.

The G-9 deposit is the richest and largest of five deposits on the property. It hosts inferred resources of 3.1 million tonnes grading 3.05 grams gold per tonne, 200 grams silver, 1.58% copper, 1.15% lead and 9.69% zinc, using a cutoff grade of 5% zinc.

From 1996 to 1999, Farallon outlined resources in four other nearby deposits, which are not included in the preliminary assessment. In 2005, the company found the high-grade G-9 deposit, named for its coincidence with the ninth gravity anomaly the company has probed.

In November 2006, the company had enough drill data from G-9 to calculate an inferred resource. A few months later, the team discovered a fault, which they named San Raphael, cutting through the northern portion of the deposit. The deposit north of the fault hosts the highest-grade mineralization on the property: 10 holes drilled in the northern section returned an average intersection of 6.8 metres grading 2.88 grams gold, 251 grams silver, 1.44% lead, 1.22% copper and 11.06% zinc.

An updated resource estimate incorporating the high-grade northern area as well as strong intersections of massive sulphides in the southeast and southwest zones is expected in early 2008. And Farallon continues to drill, completing additional infill and stepout holes.

In addition, the company is advancing an underground exploration decline into the northern end of the G-9 deposit. The decline will be 1.6 km long when complete. Though it’s called an exploration decline now, the goal is to use the decline as the main access to the G-9 underground operation. Plans call for a second decline to twin the first, such that one can be used for intake and the other for output.

The declines head towards the deposit from the side of a nearby ravine. Current mine plans anticipate using the ravine below the portals for tailings. Above the portals, a water division dam will create a reservoir, which will drain to below the tailings dam via a division ditch. A steep road has already been built into the side of the ravine opposite the portal to haul ore to the mill, which will be on top of the hill.

Metallurgical tests indicate that the mineralization at G-9 is amenable to conventional flotation. Plans call for production of three metal concentrates — copper, lead and zinc — with each concentrate carrying significant gold and silver credits.

It’s clear that Farallon’s method in working an exploration project departs from the norm. The company uses what president Dick Whittington calls parallel tracking, which means that while it explores the deposit, Farallon is also developing a mine layout and development plan, conducting metallurgical tests, acquiring production equipment, and preparing the mine site for building, all without completing a feasibility study. The target mine startup date is July 2008.

Following the parallel track program forces Farallon to incur preproduction costs as though a production decision had already been made. Some such costs, such as site infrastructure, will be non-recoverable if a decision is ultimately made not to proceed to commercial production.

Farallon attributes part of its success in rapid mine development to the mining department of Guerrero state, which the company says has one of the most transparent and efficient permitting systems around.

On news of the financings, Farallon fell 2 to close at 67. The company has a 52-week trading range of 44-92 and has 289.7 million shares issued.