Created as the successor to FMC Gold in 1996,
In 2002, Meridian produced 436,346 oz. gold at a cash cost of US$87 per oz. and a total cost of US$141 per oz., in line with 2001. The El Peon mine alone accounted for 328,061 oz. gold and nearly 5.1 million oz. silver at a cash cost of US$35 per oz., net of silver credits, and a total cost of US$84 per oz. Comparable production in 2001 amounted to 318,012 oz. gold and 4.8 million oz. silver at cash and total costs per ounce of US$43 and US$94, respectively.
“We weren’t trying to achieve huge production, only profitable production,” said CEO Brian Kennedy at a BMO Nesbitt Burns global resources conference in late February. “We’ve always said ‘profits before ounces’ since our beginning, and we’ll continue to focus on quality ounces before quantity of ounces.”
Year over year, El Peon gold grades increased by 7%, reflecting improvements made in drill and blast dilution design. Gold recovery improved by one percentage point to 95%, whereas silver recoveries were up 2%, at 91%.
Meridian’s 30% stake in the Jerritt Canyon mine in northern Nevada amounted to 99,632 oz. at a cash cost of US$257 per oz. and a total cost of US$331 per oz., compared with 98,042 oz. in 2001 at a cash cost of US$218 per oz. and a total cost of US$285 per oz. During the fourth quarter, cash costs improved to US$223 per oz., compared with US$252 per oz. a year earlier when extremely wet weather hampered mill throughput.
Meridian and
Jerritt Canyon has been in production since 1980 and has produced more than 6 million oz. At the end of 2002, the mine had proven and probable gold reserves of 2.2 million tonnes grading 8.09 grams gold per tonne, equivalent to 581,000 contained ounces. With a remaining life of less than two years, based on the current mine plan, Meridian no longer considers Jerritt Canyon a core asset as it endeavours to maintain a cost structure within the lower quartile of the industry. The mine is expected to produce 300,000 oz. in 2003 at a cash cost of US$270 per oz.
By converting some of the additional 2.3 million oz. of resources into reserves, Queenstake hopes to extend the life of the mine into late 2007.
In the fourth quarter of 2002, Meridian posted net earnings of US$10.7 million (or 11 per share), reflecting a 13% decline from the comparable period of 2001. The lower earnings reflect higher tax expenditures in the quarter and slightly higher cash costs at El Peon.
Earnings for the year totalled US$41.5 million (48 per share) on sales revenue of US$133.6 million, versus US$38.7 million (52 per share) on sales of US$115.4 million in 2001. Operations generated a cash flow of US$71 million in 2002, compared with US$70 million in 2001.
Kennedy says Meridian is one of the few intermediate producers of late that has not issued equity in order to enhance its balance sheet. “We believe the best way for our company to grow is with internal cash flow,” he said. “We have done this not by selling shares but by husbanding good operating performance, which has given us low cost, low re-investment rates and a nice growing cash balance.”
Meridian closed the year with US$136 million in cash and no debt.
El Peon is a 2,000-tonne-per-day, primarily underground mining and milling operation. It lies 160 km southeast of Antofagasta in the Atacama Desert of northern Chile at an elevation of 1,800 metres. The mine entered production in late 1999 at a capital cost of US$77 million and paid back its investment in 15 months to become free of hedging.
El Peon has been the growth model for the company, and the growth has occurred without the depletion of reserves and resources, as Meridian has been able to replace the more than 1 million oz. that El Peon has produced to date. Proven and probable reserves at the end of 2001 stood at 1.8 million oz. gold and 29.5 million oz. silver contained in 4.7 million tonnes grading 11.8 grams gold and 198 grams silver. Mineral resources host an additional 1 million oz. gold and 20.9 million oz. silver in 4 million tonnes grading 8.1 grams gold and 163 grams silver.
The company managed to replace its yearly production with additional reserve ounces, and then some. The discovery of high-grade mineralization at Vista Norte contributed to this replacement. This coming year, Meridian will target expansion at Diablada and Vista Norte. A district exploration program has recognized several areas of interest, the most noteworthy being Martillo Flat and Pampa Campamento.
Meridian has run El Peon with a relatively short life of reserves ahead of it. “We add our resources at El Peon to give us about an eight-to-ten-year life,” says Kennedy.
In the fourth quarter of 2002, El Peon produced 78,333 oz. gold and 1 million oz. silver at a cash cost of just US$48 per oz., net of silver credits, and a total cost of US$103 per oz., compared with year-earlier output of 88,342 oz. gold and 1.4 million oz. silver at a cash cost of US$37 per oz. and a total cost of US$80 per oz.
Mill throughput during the period was 161,000 tonnes at an average grade of 15.8 grams gold and 220 grams silver, compared with 178,000 tonnes at 16.2 grams gold and 272 grams silver in the corresponding period of 2001. Throughput in the quarter was slightly lower as a result of mill maintenance, and lower grades were expected and therefore factored into the mine plan (reflecting the contribution of lower-grade ore from the Orito Norte pit).
For the coming year, Meridian expects El Peon will deliver a similarly stable performance of 320,000 oz. at a higher cash cost of US$55 per oz. El Peon is part of a volcanic-hosted, low-sulphidation epithermal vein deposit. High-grade gold and silver mineralization occur in steeply dipping quartz veins and hydrothermal breccia zones. Typically, the ore deposits exhibit long strike lengths, with widths ranging from 1 to 24 metres. The orebodies are mined by underground and open-pit methods.
Low costs
“One of the challenges at El Peon has been continually readjusting to new discoveries,” says Kennedy. “We have gone from underground to open-pit mining and we’ve gone deeper and longer in the strike lengths we have discovered. Our focus has been to continue to deliver the low costs that have come to be expected.”
During 2002, a total of 679,000 tonnes were mined at El Peon, of which 86% was sourced from underground at grades of about 18 grams gold, 8.4% came from open pits at 10 grams per tonne, and the remainder consisted of internal waste from underground operations.
Ore stockpile levels at the end of the year rebounded to 152,000 tonnes (representing a 75-day supply of ore), comparable with 163,000 tonnes at the end of 2001. The decline reflects development work south of Quebrada Orito, in particular the prestripping of open-pits and the completion of a drift into the Diablada zone. Having completed these projects, the company was able to add 36,000 tonnes to the stockpiles during the fourth quarter.
The stockpiles serve as emergency buffers in the event of unforeseen interruptions in the mine. They are also used in the blending of mill feed to optimize recoveries and decrease operating costs.
The mine plan for 2003 calls for the processing of 730,000 tonnes at an average grade of 14.7 grams, sourced 70% from underground, 23% from open-pit and 7% from stockpiles.
In mid-2002, Meridian acquired the Esquel deposit in the Patagonia region of southern Argentina through the takeover of London-based B
rancote Holdings. Esquel is a 3-million-oz. resource and, in many ways, is similar to El Peon. It’s a high-grade vein system, a little wider and lower-grade than El Peon, but minable by open-pit methods. With a feasibility study nearing completion, Esquel is believed capable of producing 300,000 oz. per year at a cash cost of US$100 per oz. The project will require a capital investment of about US$100 million.
The Esquel project is 10 km northeast of the city of the same name (pop. 30,000) in the province of Chubut. At only 1,800 metres elevation, the project offers good logistics for water, power and development.
Says Kennedy: “What we’ve found in the past six months makes us confident we’ve got a good project, with costs and with geology, and, we believe, a good country to operate in.”
The core area of the project measures just 3.5 by 1.5 km; however, Meridian acquired more than 1,400 sq. km in the region. The 3-million-oz. resource is contained in a northeast-trending vein package that cuts diagonally across the core area. The main system contains the Galadriel, Galadriel Sur, Football Field and Julia veins. Kennedy says there is additional exploration potential in the core area but that Meridian is focusing on the feasibility study for the mine plan.
“We are creating a project that will last for at least 10 years,” he continues. “We’re hoping it will last 20 years.”
Noisy process
The project, however, has become a lightning-rod for the company as local interest groups fight against its development. “We are going through a noisy permitting process, with a group that would rather not have mining in this community,” said Kennedy.
In November, Meridian submitted an environmental impact study to the regulatory authorities of Chubut province. The study will be reviewed during the second quarter of 2003. “No issues have been raised to which Meridian has been unable to respond,” says Kennedy. “We have 10 different agencies of the province of Chubut around the table going through a sophisticated design that was done by Vector Engineering [of Grass Valley, Calif.], to ensure all North American standards are met. We could build this project any place in the world.”
The company has designed this project so that it will leave only the slightest footprint: the waste rock depository and plant infrastructure will be constructed to have low visual impact; an Inco cyanide destruction circuit will be used to kill the cyanide; and there will be no tailings pond. “We do not have anything going off the property into the air or into the water or in any kind of a situation where people would have a concern,” says Kennedy.
In the near future, a mandatory, but non-binding vote on the project will occur in the city of Esquel, where an earlier city council ordinance to ban cyanide was vetoed by the mayor. The referendum is scheduled for March 24.
In recent weeks, opponents of the project challenged the company’s legal rights to continue exploration under provincial permits.
The lower court judge issued a “cease and desist ruling” on Meridian’s exploration in the project area. “This is a lower court that normally doesn’t get into provincial matters,” says Kennedy. The ruling was immediately appealed by provincial authorities to the Supreme Court of the Province of Chubut, which stayed the lower court ruling, and will rule on the case in the near future. Argentina is much like Canada in that it is the provincial governments that set the rules as far as mining goes. Kennedy says Meridian and its predecessor, Brancote, have been in full compliance with all provincial regulations. “We are confident of the facts on our side, and we believe we will prevail when this case is finally heard.”
Kennedy estimates that about 10% of the people in Esquel do not want mining, and it has been hard to open up a dialogue. The Catholic bishop of Chubut has accepted an invitation to assist the company in sitting down with opponents to the project.
“We have looked for an outside party that has a lot of respect from the local community, and the country in general,” said Kennedy. “I’m a bit surprised at the noise level that we’re hearing in Argentina. This is a community where about 80% of the people work for the government and about 10% work in tourism.”
Meanwhile, Argentina struggles through its economic turmoil. Voters are set to elect a new president, the sixth in six years, on May 25, followed by elections at the local level in November. The country has gone through a massive devaluation of its peso against the U.S. dollar. Once on par with the greenback, the peso is now worth about 3.5-to-1.
Kennedy remains optimistic permitting can be completed in the second quarter of 2003 and that construction can begin the second half of 2003, leading to production in the second half of 2004.
Meridian’s exploration budget for 2003 is about US$12 million. The company continues to advance the Los Pircos project in northern Peru, 100 km north of Trujillo. Meridian is earning a 51% interest in the project from
“We’re going to continue to work aggressively at this project in 2003 and see if we can move it forward into an eventual producing project,” says Kennedy.
La Silla
In Mexico, the company is drilling La Silla, a wholly owned project in Sinaloa state. Grassroots exploration has uncovered mineralized epithermal veins in andesitic and rhyolitic volcanic rocks. Two main veins have been mapped on surface for a strike length exceeding 3 km. A second round of drilling, consisting of 38 holes, got under way in December. Meridian remains encouraged by the results, which have yielded a near-surface 3 metres of 22.17 grams gold and 371 grams silver in hole 1, followed further downdip by 3 metres grading 8.57 grams and 103 grams silver in hole 10. The best intercept to date was 1 metre grading 98 grams gold.
Along, the Carlin trend of Nevada,
Barrick has also generated some anomalous targets after running the property with Titan, an advanced ground geophysical survey system developed by Quantec Geophysics using magnetotelluric and induced polarization. The big strength of Titan is that it allows deeper penetration and is able to map the stratigraphy in the Carlin trend down to 1,830-2,440 metres in a mine environment. “For mine site exploration, it’s absolutely spectacular,” says Alex Davidson, Barrick’s vice-president exploration.
Barrick has spent US$10.8 million on the Rossi joint venture and needs to spend another US$4.2 million by the end of the year in order to maintain its interest.
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