Minera Andes makes headway at San Jose mine (March 28, 2011)

Exploration drilling in and around the San Jose underground mine last year uncovered 7.5 km of new high-grade silver-gold veins, a 44% year-on-year increase in the cumulative strike length of all the known veins at the mine, Minera Andes (MAI-T, MNEAF-O) reports. The new veins are within the area of mine operations and can be accessed from existing underground workings.  

The drilling – 54,476 metres in 265 diamond drill holes – resulted in a doubling of the inferred resource and the discovery of 11 new veins. Nine of the veins, plus extensions to two other veins for a total of more than 5 km of strike length, were unveiled last October. 

Highlights of intercepts from some of the new veins include: 2.5 metres of 8.33 grams gold per tonne and 1,484 grams silver per tonne, and 1.1 metres of 33.5 grams gold and 2,752 grams silver on the Micaela vein. On the Sofia vein, intercepts included 10.1 metres of 14.96 grams gold and 1,096 grams silver; 5.5 metres at 13.54 grams gold and 206 grams silver; and 1.7 metres at 10.94 grams gold and 1,255 grams silver. The Susana vein returned 3.1 metres at 22.19 grams gold and 2,318 grams silver, while the Luli vein returned 2.7 metres at 5.35 grams gold and 26.90 grams silver. 

San Jose is about 20 km north of Goldcorp‘s (G-T, GG-N) Cerro Negro epithermal gold deposit in the northwest corner of the Deseado Massif region of Argentina’s southern province of Santa Cruz, 1,750 km southwest of Buenos Aires. (Goldcorp acquired Cerro Negro through its acquisition late last year of Andean Resources.) The nearest town is Perito Moreno, about 30 km west of San Jose. 

“What’s important about the discovery of last year and the addition of all the new veins is that there seem to be swarms of new veins they’re discovering rather than the two main veins,” Rob McEwen, Minera Andes’ executive chairman, president and chief executive, explains in a telephone interview. “They also found the structure running east and west and that was very much what Andean Resources had found on the Cerro Negro property.

“It’s a large property and I’ll compare it frequently with Cerro Negro,” McEwen continues. “Ours is 110,000 acres (445 sq. km) and Cerro Negro’s is 65,000 acres (263 sq. km). Cerro Negro has had intensive drilling and ours hasn’t, and the land is very similar.”

Currently San Jose’s reserves stand at 1.52 million tonnes grading 454 grams silver for 22.2 million contained oz. silver and 7.32 grams gold for 357,000 contained oz. gold. It has measured and indicated resources of 3 million tonnes at 462 grams silver for 44.1 million contained oz. silver and 6.81 grams gold for 651,000 contained oz. gold. Inferred resources add 4.6 million tonnes at 317 grams silver for 46.4 million contained oz. and 4.87 grams gold for 712,000 contained oz.

San Jose produced 5.3 million oz. silver and 84,000 oz. gold in 2010.  Average operating cash costs in the third quarter of 2010 were US$9.08 per oz. gold and US$592 per oz. gold on a co-product basis, or US86¢ per oz. silver and US$48 per oz. gold on a byproduct credit basis. Plant capacity at the mine is 1,500 tonnes per day.

Ore is concentrated by conventional bulk flotation to produce a gold-silver bearing sulphide concentrate. About half of the concentrate is shipped to smelters internationally, and the other half is treated on site by the Gekko process to produce a silver-gold doré bullion that is sold internationally. 

McEwen currently owns 31% of Minera Andes. When asked if he had plans to increase his stake he replied, “if the occasion comes along; if we need money.” But that doesn’t appear to be the case at the moment. “We have US$31 million (in cash), we don’t have any debt; the cash flow is coming out of San Jose, so we’re well set up right now with metal prices where they are, and with San Jose’s production, there is good income.”

Minera Andes owns 49% of the San Jose mine with Hochschild Mining (HOC-L) holding the remainder. The mine started commercial production in January 2008 and is operated year-round by Hochschild. 

The joint-venture got off to a rocky start, with McEwen once referring to Hochschild as “the partner from hell,” but matters have improved with changes in senior management at Hochschild including a new chief executive officer and a new chief financial officer, McEwen says. “They were very difficult to deal with,” he admits. “(But) we definitely have a common focus right now and ensuring the mine is operating to its capacity and we’re working to build value there.”

Part of the earlier issues with Hochschild stemmed from the initial partnership agreement, he explains, which did not give any veto power to Minera Andes. Any decisions on capital expenditures, operating, exploration, were all done on a basis of majority rules and there was one operating committee of three members, with Hochschild having two members. “I think any junior should be very careful about how they JV their property and they need some checks and balances saying it’s not a carte blanche,” McEwen cautions.

“When I first made my investment in 2006 there was a drill hole Minera Andes had done prior to investment from Hochschild and it was close to Cerro Negro and it was 115 ft. (35 metres) of 0.12 oz. gold and 18 oz. silver and I thought: ‘We want to follow up on that,'” he recalls. “They’re just getting around to doing that now.”

Minera Andes is exploring Argentina for gold, silver and copper and McEwen notes that the country, which only really opened up to mining in the 1990s, reminds him of Nevada. “I think it looks like Nevada about maybe 50 years ago,” he says. “It’s just starting to gather its stride and there are lots of juniors down there looking and finding results… it seems to be very prospective.

“The Secretary of Mines has worked hard to attract companies to come down,” he adds. “If you look from 2003 to the present, the number of exploration permits, the number of production areas, the amount of money spent on exploration, has expanded dramatically and that’s a reflection of the government encouraging that kind of investment, and (the fact that) there was not that kind of exploration there 15 years ago.”

Minera Andes was one of the first groups to get into Argentina and used a lot of satellite imagery to pick up properties that looked promising. Today it has a land package of about 25 exploration properties. 

In addition, it holds 100% of the Los Azules copper deposit. The advanced-stage porphyry copper project in the Cordilleran region of San Juan province has indicated resources of 2.2 billon lbs. copper and inferred resources of 10.3 billion lbs. copper. Exploration and infill drilling is currently underway at the project.

Last December, Minera Andes released results from a preliminary economic assessment, which demonstrated that Los Azules, at a copper price of US$3 per lb., would have a mine life of 25 years, a pretax net present value of US$2.8 billion and an internal rate of return of 21.4% at a discount rate of 8%.

Life-of-mine cash operating costs were estimated at US96¢ per lb. copper net of gold and silver byproduct credits. Initial capital was estimated at US$2.9 billion with a payback of three years. The deposit is about 1-km wide by 4-km long and is open in several directions.

“We’re doing infill drilling and stepping out following up on geophysical work we did last year and we’re hopeful we’ll be able to expand the high-grade zone and expand the orebody itself,” he says. “We’re also doing work on the prefeasibility just to quantify the numbers and having discussions with parties about financing the project.”

When asked his view of copper prices, McEwen said that copper is “the backbone of the industrial world.

“China is going to continue building cities, as is India, and will continue industrializing, and that bodes well for the copper price.”

At presstime in Toronto, Mi
nera Andes was trading at $2.60 per share and has traded in a range of 71¢ and $3.24 per share over the last year. It has 282.3 million shares outstanding.