El Peon powers Meridian (February 06, 2002)

Unhedged in gold since last June, Meridian Gold (MNG-T) continues to rake in earnings on the back of the high-grade El Peon mine in northern Chile.

Meridian’s fourth-quarter net income came to US$12.3 million (or 16 per fully diluted share) on revenue of US$31.9 million, compared with net income of US$11.8 million (16 per share) on US$29.6 million. The increase in revenue is owing to increased production from El Peon and higher realized gold prices.

For the full year, Meridian’s net income amounted to US$38.7 million (51 per share), off from the US$40.6 million (54 per share) earned in 2000. Revenue slipped to US$115.4 million from US$128.3 million on lower total production.

Cash flow from operations was US$18.3 million and US$70 million for the quarter and year, respectively. Both were off from year-ago levels, but in the end pushed the company’s cash and equivalent position to US$97.3 million, up 54% from the end of 2000.

During the final quarter of 2001, El Peon pumped out a record 88,342 oz. of gold at a cash cost of US$37 per oz., compared with the 75,692 oz. produced at US$45 apiece during the year-ago period. For the full year, El Peon poured 318,012 oz. at US$43 per oz., up from 288,721 oz. at US$48 per oz. in 2000.

Meridian’s 30% share of production from the Jerritt Canyon mine in Nevada, netted it another 23,069 oz. of gold at a cash cost of US$252 per oz., up slightly from the 22,972 oz. produced at US$244 per oz. during the corresponding period the previous year. Jerritt’s contribution for the year tallied to 98,042 oz. at US$218 per oz., up from the 95,224 oz. at US$217 per oz. in 2000.

The Beartrack mine in Idaho chipped in 6,088 oz. of gold during the quarter, and 18,531 oz. for the year. Beartrack’s production was taken against the reclamation and closure accruals, as will all future production. Rinsing of the operation’s pad should continue to produce recoverable gold over the next year.

Overall, Meridian sold 114,400 oz. of the 117,500 oz. produced during the quarter. The company realized an average of US$297 for each oz. (including a US$2.1-million gain associated with the closing out of hedges), up from the year-ago period. During all of 2001, the company sold 430,533 of 434,585 oz. produced. The realized price was US$283 per oz., up US$4 per oz. from a year earlier.

On the exploration front, late fourth-quarter drilling tested 400 metres of strike length southward from the Vista Norte area at El Peon. Sixteen of 28 holes cut significant continuous near-surface mineralization. Highlights include:

• Hole PC139 – a true width of 2 metres grading 434.6 grams gold and 303.9 grams silver per tonne;
• Hole PC129 — 4.8 metres running 103.3 grams gold and 739.4 grams silver;
• Hole PC126 — 1.8 metre of 50.1 grams gold and 331.75 grams silver.

Vista Norte is estimated to be about 1 km in total length and another 300 metres of strike length remains untested. The target is projected to intersect the main Quebrada Orito structure. Planned drilling in early 2002 will test the new zone along both directions of strike and at depth.

At the end of 2001, El Peon’s proven and probable reserves stood at 4.7 million tonnes grading 11.8 grams gold and 198 grams silver, despite producing almost 330,000 oz. from reserve during the year. That’s up 16% based on tonnage basis and 18% on grade since the end of 2000 thanks to the discovery of the Diablada zone and definition drilling. At Jerritt Canyon, reserves were lower reflecting 2001 production. Reserves were calculated based on a gold price of US$300 per oz.

Meridian’s CEO Brian Kennedy said, “During 2001, we found more than half a million ounces of gold at El Peon and increased production by about 10%. Today, after two extremely good years at El Peon, we have more gold at a higher grade than we had when we first started the project. And with the second new high-grade discovery this year at Vista Norte, the large project area continues to provide exploration success and excitement.”

Looking forward, Meridian expects to produce 300,000 oz. at US$50 per oz. from El Peon; and 100,000 oz. at US$215 per oz. from Jerritt during 2002.

The company plans to spend about US$17 million during the year mainly on underground development at the same two mines. Twelve million will be spent driving a drift to the newly discovered Diablada zone at El Peon. Another $10 million will be spent on exploration, with US$4 million earmarked for El Peon. The company plans to cover the cost out of cash flow and existing cash reserves.