In the span of only 10 months and at the relatively low capital cost of US$77 million,
Situated in the Atacama Desert, the mine promises to be Chile’s largest gold-silver operation, at least until Barrick Gold’s Pascua deposit comes on-stream.
“This is a low-capital, high-grade deposit capable of profitable production despite low commodity prices,” Meridian President Brian Kennedy told The Northern Miner at the opening ceremony. “And we are proud to be contributing to the long and famous mining tradition of northern Chile.”
El Peon began producing from underground in December 1999 and yielded 20,500 oz. gold and 214,000 oz. silver before year-end. Stockpiled ore from a series of open pits accounted for the initial production.
In 1999, the Reno, Nev.-based company completed 13,000 metres of development in preparation for the next two years of production. Currently, it is processing 1,000 tonnes per day, and this rate is expected to double by July.
The mine is expected to contribute 250,000 oz. gold and up to 4 million oz. silver annually to the company over a life span of more than eight years. The gold from El Peon should double Meridian’s yearly production to more than 400,000 oz.
Three underground mining methods are being employed, depending on the ground conditions and the width of the vein: drift-and-fill, bench-and-fill (both of which will be used in the Quebrada Orito vein) and cut-and-fill (to be employed in the Quebrada Colorada vein). Of the three, bench-and-fill is the most economic, at US$28 per tonne. Cut-and-fill, though also cost-effective, at US$36 per tonne, results in fewer tonnes per day. Drift-and-fill is estimated at US$40 per tonne.
Ore recoveries stand at 94% for gold and 89% for silver, with the resulting tailings grading just over 0.5 gram per tonne.
Cash operating costs, including overhead, taxes and royalties, are expected to remain under US$100 per oz.
At the end of 1998, Meridian had outlined reserves and resources totalling 9.4 million tonnes grading 9.3 grams gold and 150 grams silver per tonne, equivalent to 2.8 million oz. gold and 46 million oz. silver. At Quebrada Colorada, the number of ounces is expected to rise by as much as 15%, which will be reflected in a reserve update, due at the end of February.
In 2000, the company plans to spend US$6 million on additional underground development, as well as US$3.1 million on exploration around the mine area. At least 175 holes will be drilled, mostly on three zones near the core area: Tres Tontos, Pan de Azucar and Laguna.
Mineralization at El Peon consists of low-sulphidation, quartz-adularia veins and breccias hosted in rhyolitic-to-andesitic volcanic rocks. These structures are associated with a Paleocene-aged “crypto-dome,” similar to a laccolith. Mineralogy along the veins is characterized by low sulphides, which translate into high metal recoveries.
Meridian began exploring the region in late 1992, when geologists unearthed altered rocks. While initial samples were not high grade, the values were high enough to indicate exploration potential. Mineralization was located at what was later found to be an offshoot of the Quebrada Orito vein. By May 1998, geologists discovered the higher-grade, sub-parallel Quebrada Colorada vein, which greatly increased resources and lowered prospective mining costs.
Financing
Meridian financed El Peon through a US$50-million loan from Standard Bank of London. The term of the note is six years, and no payment is due in the first year. The remainder of the US$77-million construction cost was financed from cashflow. Overall, Meridian has spent more than US$100 million on the property, including exploration and prefeasibility work.
The mill, which includes semi-autogenous grinding and Merrill-Crowe units, was built at a cost of US$32 million, whereas the bill for underground development was US$28 million.
In conjunction with the debt financing, the company hedged 485,000 oz. gold and 9.3 million oz. silver, representing a third of the projected gold production and half the silver output over six years. The gold hedges range from US$305 per oz. in 2000 to US$321 per oz. due in 2004; the silver forward contracts stand at US$5.34 per oz.
Meridian signed a 5-year contract with underground mine contractor Constructura Gardilcic, whose employees live on-site. Employees of Meridian commute to the mine from Antofagasta. In all, the operation employs 430 people.
El Peon was the first mine in Chile to have a closure plan approved by the government. Meridian devised the plan voluntarily, anticipating future changes in the country’s environmental policies.
Meanwhile, Meridian is hoping to build on its success in Chile by exploring for similar deposits in other regions.
In Mexico’s Chihuahua state, for example, the company is earning a 65% interest in the Venturina gold property from
Closer to home, in Idaho, the company operates the Beartrack gold mine, which is scheduled to close mid-year.
Meridian also has a 30% stake in the Jerritt Canyon gold mine in northern Nevada. It is operated by Independence Mining, a wholly owned subsidiary of South Africa’s
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