Eldorado streamlines La Colorada — Production levels rise as operating costs kept to minimum

With annual production steadily increasing and a cost-cutting program in the works, the La Colorada gold mining operation in Mexico’s Sonora state is being optimized in order to help Eldorado Gold (ELD-T) improve its bottom line in this depressed gold market.

The heap-leach operation, one of three producers wholly owned by the Vancouver-based company, has steadily increased its annual output to a projected 60,000 oz. in 1998. By comparison, the mine turned out 20,000 oz.

in 1994 (its first full year of operation), 31,000 oz. in 1995, 47,000 oz.

in 1996 and 53,000 oz. in 1997.

“Right now we have a life-of-mine plan that takes us through active mining through about 2001,” mine manager William Faust told The Northern Miner during a recent site visit. “That includes the extraction of the open-pit reserves in El Creston, which we are actively mining today, and then the mining in our Gran Central pit, which we will move into late this year.” Commissioned in 1993, La Colorada represents Eldorado’s first foray into gold mining. The company now operates two other mines — Sao Bento in Brazil and La Trinidad in Mexico’s Sinaloa state — that, combined with production from La Colorada, turned out a total of 43,525 oz. gold in the 1998 first quarter, compared with 48,067 oz. in the year-ago period.

The production boost at La Colorada, together with an expansion program at Sao Bento (a high-cost underground operation), enabled Eldorado to reduce its average cash operating costs during the first quarter to US$255 per oz., compared with US$272 per oz. a year earlier.

While the realized gold price fell to US$348 from US$365 per oz., a hedging program helped the company to maintain its revenue levels. The company has hedged about 90% of its production for 1998, which works out to about 190,000 oz. at an average price of US$345 per oz.

Eldorado’s improved performance is beginning to benefit its bottom line. The company’s loss for the latest quarter was US$3.5 million (or 5 cents per share), compared with a loss of US$5.8 million (8 cents per share) in the corresponding period last year. Operating costs between the two quarters fell to US$11 million from US$12.2 million, while general and administration costs were reduced 39% to US$3.1 million from US$2.2 million a year earlier.

The current cost-cutting measures at La Colorada are expected to contribute to the company’s recovery. On its recent trip to the open-pit operation, The Northern Miner observed that Eldorado had:

* hired a mining contractor who charges haulage fees on an indexed price per tonne based on the price of gold;

* reduced haulage costs still further by placing a waste dump close to the pit;

* modified road and ramp designs within the pit so as to reduce distance and travel times; and

* adopted cheaper yet more effective drilling and blasting patterns.

Manpower and overtime rates also were reduced. The mining plan, though currently focused on the El Creson pit, will soon encompass the Gran Central pit as well.

Overall minable reserves at La Colorada stand at 7.7 million tonnes grading 1.27 grams gold and 12.91 grams silver per tonne, equivalent to 315,666 contained ounces gold and 3.2 million ounces silver. These calculations are based on a gold price of US$325 per oz. and a 0.3-gram-per-tonne cutoff grade. The stripping ratio is 2.8-to-1.

El Creston contains a minable reserve of 3.25 million tonnes at 1.16 grams gold and 16.8 grams silver, which works out to 131,763 oz. gold and 1.9 million oz. silver.

Gran Central’s minable reserve is pegged at 4.23 million tonnes grading 1.35 grams gold and 9.66 grams silver, which tallies to 183,903 oz. gold and 1.3 million oz. silver.

El Creston is structurally controlled, sediment- and intrusive-hosted, and consists of stockwork and vein-type gold deposition. The strike length is 750 metres.

At Gran Central, 1 km to the west, Eldorado is busy performing leach-pad recovery tests to determine optimum grind size.

La Colorada employs heap leaching and a Merrill-Crowe recovery circuit to process about 9,000 tonnes per day. About 70% of the ore is crushed in a 2-stage crushing plant to minus 3/4 inch and then dumped on the pads. The remaining 30% is put directly on to the pads as run-of-mine ore. Leach pad recoveries range from 60% for run-of-mine material to 80% for crushed material. The overall recovery target is 72%.

Gold production in the area dates back to the 1740s, when the yellow metal was found in near-surface, high-grade veins and worked by Jesuit missionaries, and later by Spaniards. English and American interests revived mining by installing pumps and constructing a stamp mill. In 1888, one of the first operational cyanidation plants was put into production. The period between 1876 and 1916 saw the greatest mining activity, when an estimated 4,000-5,000 oz. per month were pulled from the ground. Production halted with the onset of the Mexican Revolution in 1916 and was followed only by sporadic artisanal mining from the remaining near-surface, high-grade mineralization. Full-scale commercial production resumed in 1993, when Eldorado entered the picture.

La Colorada lies in the Sonora gold belt, which extends south from the Arizona-Mexico boarder and through the districts of Magdalena, Ures, Hermosillo and Guaymas. The belt is host to lode gold and silver deposits in upper-level epithermal and hydrothermal vein and breccia systems.

Gold and silver mineralization at the mine is associated with quartz-manganese oxide veins and stockwork vein systems that follow east-west fault zones. The fault zones are developed in elongate diorite-granodiorite intrusives, as well as along the intrusive contacts.

Exploration work is being carried out at the La Verde prospect, 1 km northeast of the El Creston pit, where Eldorado hopes to outline an open-pit resource of 1-2 million tonnes.

Also under investigation is an underground resource just west of the Gran Central pit. Estimates of 1.3 million tonnes grading 8.8 grams gold translate into 394,000 oz. A planned 5,000-metre drill program plus metallurgical work will precede a prefeasibility study.

More work is planned for the Los Duendes prospect, 2 km southeast of the El Creston pit. Exploration to date has outlined a potential resource of 50,000 tonnes within 15 metres of surface.

“Los Duendes is no company builder [because of its small size],” said chief geologist Ross Zawada. “The nice thing about [it] is that the grade averages about three grams.”

Despite the slump in gold prices, Eldorado has not reduced its environmental and social commitments to the nearby community. Last year, mine staff transplanted more than 3,700 trees and reclaimed areas disturbed by previous mining. On the social front, the company helped renovate the primary school, improved the community water system, repaired the local ambulance and health clinic, and helped organize and fund various programs for local children.