Capital Gold boosts reserves at El Chanate mine

New York-based Capital Gold (CGC-T, CGLD-O) built its 100% owned El Chanate open-pit mine in Sonoro, Mexico, in just 12 months at a cost of US$18 million. The mine has been profitable since the first gold was poured in July 2007 and is one of the lowest cost producers in the industry with operating cash costs of US$293 per oz.

Now Capital Gold says it has boosted its proven and probable reserves by 64%. Net of depletion, proven and probable reserves have gone up from 913,000 ounces to 1.5 million ounces (70.56 million tonnes grading 0.66 gram gold per tonne). Reserves were based on a gold price of US$800 per oz.

The new reserve estimate suggests that the mine could now have a lifespan exceeding 12 years.

Capital Gold estimates that the production rate at El Chanate in 2010 will be about 70,000 ounces per year. Production in September 2009 averaged 13,000 tonnes per day and the company is targeting 15,000 tonnes per day before the end of the year.

Since the mine went into production in August 2007 it has produced a total of about 100,000 ounces of gold. (El Chanate produced 40,000 ounces of gold in its first year.)

The new reserve estimate stems from exploration this year in the open pit area, including core drilling at depth. The data obtained from geological mapping of the deposit’s pit areas, combined with assays from samples of exploration drilling, were used to expand information in the company’s mine database. SRK Consulting of Lakewood, Colorado put it all together, using the data to re-estimate El Chanate’s reserves.

The new mineral reserve estimate was also based on an updated resource block model, updated mine plan, and mine production schedule, developed by SRK. The updated pit design for the revised plan is based on a plant recovery of gold that varies by rock type, but has a weighted average recovery of 58.25%.

Measured and indicated mineral resources at El Chanate, net of the proven and probable mineral reserves, stand at about 4.6 million tonnes grading 0.46 gram gold per tonne. Inferred resources add 6.1 million tonnes at 0.79 gram gold per tonne. SRK prepared these estimates based on a pit optimization study using a gold price of US$1,000 per ounce and a 0.12 gram gold per tonne cutoff grade.

The geology at El Chanate is that of a sedimentary-hosted deposit with fine grained sheeted quartz veins and veinlets. The deposit dips at 40% along the El Chanate fault.

In the quarter ended April 30, Capital Gold sold 13,347 ounces of gold at an average price of US$929 per ounce for net earnings of US$2.6 million.

According to a corporate presentation in September, the company has cash of US$7 million and debt of US$9 million. The junior’s market capitalization stands at about US$125 million.

In addition to the El Chanate mine, Capital Gold has also started exploration of 4,100 hectares of owned and leased concessions near the town of Saric, about 97 km from El Chanate.

Capital Gold closed at 72¢ per share, up 2¢ per share or 2.86% on news of the updated reserve estimate, with 1.33 million shares changing hands.

The company has a 52-week trading range of 31¢-96¢ and has 193.4 million shares outstanding.