Blockade ends at Minefinders’ Dolores project in Mexico

Two years ago, Minefinders Corp. (MFL-T, MFN-X) negotiated an agreement with the local Ejido community in which both parties agreed to work co-operatively in the development and operations of the company’s Dolores mine project in Mexico’s Chihuahua state.

Under that agreement, the company spent US$6 million on a new village with electricity, water and sanitation services that were not previously available to the local population, as well as on a new primary school, a church and community centre.

The Vancouver-based company also took US$3 million in cash and distributed it equally among the 230 members of the Ejido community. Those whose lands were disturbed received additional cash payments totalling another US$1 million.

But on May 24, a group of protesters blockaded an access road to the mine site and forced the company to temporarily suspend operations — delaying the mine’s scheduled first gold pour from late June until the middle of July.

The company says most of the individuals who demonstrated come from outside of the region and include only a small fringe group from within the local Ejido community.

“There are about three Ejidos and the rest are from somewhere else — they were brought in,” says Minefinders’ president and CEO Mark Bailey. “I think it’s a leftist group out of Mexico City.”

In response to the blockade, the company says more than 60 Ejido members signed a letter to state and federal authorities on June 3 condemning the protest.

On June 5, the blockaders reopened the road and mining and processing operations restarted.

Many Ejidatarios work at or provide services to the mine. Over 76% of the total workforce at Dolores comes from the state of Chihuahua, with more than 29% from the towns of Dolores and Madera. Dolores and Madera residents make up 44% of the mine’s workforce.

According to Bailey, despite signing off on the project, a small handful of local Ejido — manipulated by “leftist groups” from outside the community — claim the company is destroying the environment and using more land than the investment agreement called for.

“They say we’re destroying 3,500 hectares but we’re only on 250 hectares,” Bailey argues. “The claims aren’t valid because none of the things they say are true.”

“It’s an extortion attempt — they just want money,” adds Mike Wills, head of investor relations. “It’s frustrating for us because we followed through with everything and it’s frustrating for the Ejidos down there because it’s interfering with their paycheques.”

A statement from Ejido Huizopa suggests otherwise, however. According to Bill Weinberg, publisher of the left-wing blog World War 4 Report, the protesters claimed that the company gained title to the land from “corrupt leaders” of the Ejido.

Weinerg is the author of a book called Homage to Chiapas: The New Indigenous Struggles in Mexico and also works as a correspondent for Native Americas, the quarterly journal of Cornell University’s American Indian Studies program.

Weinberg could not be reached to verify the claims on his website.

Minefinders’ Wills denies the accusations.

Mining activities began at the 18,000-tonne-per-day heap-leach facility– about 250 km west of the city of Chihuahua — in last year’s fourth quarter.

With the blockade now over, Minefinders has set an initial production estimate for Dolores.

The company anticipates gold production from Dolores will amount to 40,000 oz. this year, 128,000 oz. in 2009 and 129,000 oz. in 2010. Silver production is expected to reach 1 million oz. this year, 3 million oz. in 2009, and 4 million oz. in 2010.

Minefinders expects to reportpositive cash flow starting in this year’s third quarter, which will be the first operating quarter.

The mine, in the Sierra Madre Occidental range of northern Mexico, is expected to operate for 15 years as an open-pit operation but also has the potential to run as a high-grade underground mine in the future.

Excluding royalties, at a 52:1 silver to gold ratio, cash costs are expected to average US$403 per goldequivalent oz. this year and decrease going forward to the forecasted life-of-mine average cash cost of US$297 per gold-equivalent oz.

More than 7 million tonnes of ore and waste material has been mined so far and currently mining is approaching a sustained rate of about 100,000 tonnes per day.

Two of the three tertiary crushers have been commissioned and Minefinders is processing and stacking capacity of 12,000 tonnes of ore per day.

Final commissioning of the third tertiary crusher is targeted for the middle of June and is forecast to bring the crushing and conveying circuit to the feasibility run rate of 18,000 tonnes per day.

Mine expenditures, including precommercial production operating costs, as of March 31, totalled about US$160 million. The remaining costs, which will be incurred over the course of 2008, are estimated at US$32 million.

As disclosed in the first-quarter financial results, as of March 31, Minefinders had US$5.5 million in cash and cash equivalents, net working capital of US$12.3 million and US$44 million available from a US$50-million revolving three-year term loan with Scotia Capital.

The Dolores mine has a welldefined deposit containing proven and probable reserves of 99.3 million tonnes grading 0.77 gram gold per tonne (for total contained gold of 2.44 million oz.) and 39.67 grams silver (for total contained silver of 126.6 million oz.) with exploration upside and an open-pit mine life of more than 15 years.

This year, Minefinders plans to complete a preliminary feasibility study on the potential for the addition of a flotation mill to enhance recoveries from high-grade ore in the open pit, to process additional underground ore and to increase production capacity.

In terms of the mining economics, the company released an updated National Instrument 43-101 technical report on Dolores in late March.

According to the report, life-ofmine production has increased to 1.8 million oz. gold, and 64.4 million oz. silver, or 3 million oz. goldequivalent silver at base-case prices of US$675 per oz. gold and US$13 per oz. silver.

Initial capital and precommercial production operating costs are estimated at US$192 million, including a US$10-million contingency.

Whether Minefinders’ problems with protesters are over, however, remains anyone’s guess.

Bailey argues that while the federal government has been working hard for the mining sector, it doesn’t like to “stand on the state government’s toes.”

“If somebody can come out and block a road and the state government doesn’t uphold the law, what do you do?” Bailey says. “That’s the problem right now in Mexico. There’s all this investment, but as you start making money or start producing something, someone can come along and say you’re destroying the environment, hurting people, and you owe us more money.”

Adds Bailey: “We’ll get this one resolved but I can’t say we won’t get blockaded again at some time in the future. They’ve done it to just about every mine in Mexico.”