El Peon powers Meridian (May 21, 2001)

Denver — Mid-sized gold producers have borne the brunt of low prices during the past year, mostly because so few have mines capable of producing gold for less than US$100 per oz. One notable exception is Meridian Gold (MDG-N), which has been posting healthy profits because of the stellar performance of the El Peon gold-silver mine, southeast of Antofagasta, Chile.

El Peon turned out 72,000 oz. gold and 1 million oz. silver in the quarter, up from 61,000 oz. and 741,000 oz. silver in the first three months of last year. Cash costs were US$50 per oz., down from US$71 per oz. a year ago, and total production costs fell to US$105 from US$112 per oz. Mill throughput averaged 2,000 tonnes per day at 13 grams gold and 189 grams silver per tonne, while gold recovery was 95% and silver recovery, 89%.

Meridian reported net income of US$6.4 million (or 9 per share) for its latest quarter, down from US$8.3 million (11 per share) a year earlier. El Peon’s performance pushed operating cash flow to US$72.2 million, even taking into account a US$2.3-million payment against a long-term credit facility. The payment reduced outstanding project debt to US$16.1 million.

Overall, the company produced 101,000 oz. gold during the quarter, up 19% from a year ago. However, weak gold prices translated into lower revenue. The company’s average realized price of gold was US$276 per oz. in the first three months of 2001, down from US$290 a year ago.

Mining ceased at the Beartrack gold operation in Idaho. The mine cranked out 5,600 oz. during the quarter. Residual leaching will continue for the next several years.

Meridian’s 30% share of production at the Jerritt Canyon mine, a joint venture with AngloGold (AU-N), amounted to 23,000 oz. at US$213 per oz. Mill throughput at the Nevada operation averaged 3,600 tonnes per day at 8.1 grams gold per tonne. Included in throughput were 75,000 tonnes of material from the Cortez joint venture, trucked from north-central Nevada.

On the exploration front, Meridian began drifting on the Quebrada Colorada and Quebrada Orito structures at El Peon during the first quarter. Two drilling rigs are operating and have already extended, by 120 metres, ore-grade mineralization beneath the Carmin oreshoot. This deeper mineralization is open in both directions along strike.

Preliminary results beneath the Magenta shoot at Quebrada Colorada also encountered ore-grade values. Drilling at Quebrada Orito and Orito Sur is expected to begin early in the second quarter.

In Mexico, drilling has begun on one of the company’s exploration properties, and three additional high-sulphidation projects will also be investigated.

In Peru, the company and partner Compania de Minas Buenaventura (bvn-n) are stepping up activity at the Los Pircos-Cirato joint venture. Surface trenching, mapping and sampling have confirmed several low-sulphidation targets. To date, ore-grade values have been encountered in three veins, while trench sampling along 460 metres of one vein averaged 8.3 grams gold and 321 grams silver per tonne over an average width of 2.1 metres.

The partners plan to build a road into the property, situated at moderate elevations in Santa Cruz province.

The company also restructured its hedgebook during the first quarter. Having been relieved of requirements to maintain the 2004 forward program, Meridian closed out 60,000 oz. due in 2004. The US$1.1 million in revenue from the sale will be deferred in financial statements until 2004.

Meridian also delivered 17,000 oz. into its 2001 forward program at an average price of US$308 per oz. The company has 191,000 oz. remaining in its hedgebook at US$312 per oz.