Estrella holds promise

Vancouver – With the acquisition of six new projects in southeastern British Columbia and a legal dispute over surface costs developing on its Salamandra property in Mexico, National Gold (NGT-V) appeared to be shying away from its flagship project in Sonora state. However, a newly minted scoping study shows that the development of the higher grade Estrella zone could be very profitable at US$300 per oz gold.

The study, completed by Denver-based Pincock Allen and Holt, indicates that the Estrella zone within the large Mulatos deposit of the Salamandra property could economically produce 100,000 oz. of gold annually over 12 years. The plan envisions total production of 1.2 million oz. of gold at an average cash operating cost of about US$169 per oz. with initial capital costs tallying US$34 per oz. At US$300 per oz. gold, capital costs could be recovered over periods ranging from 2.8-4.3 years. Total initial capital cost ring in at US$40.8 million, which includes an allowance of US$3 million for working capital.

The new report studied a scaled-down development plan that focuses on selectively mining the Estrella zone by conventional surface mining methods. Ore will be heap leached and gold recovered utilizing standard industry accepted technology. Some 2.7 million tonnes of ore would be processed per year at a strip ratio of 0.83-to-1. The average ore grade tallies 1.77 grams per tonne with recoveries coming in at a low 67%.

At US$300 per oz. gold, the proposed Estrella pit contains a measured and indicated resource of 32 million tonnes running 1.77 grams gold. At last count, the total Mulatos deposit contains a measured resource of 43.9 million tonnes grading 1.66 grams gold, plus an indicated resource of 13.1 million tonnes grading 1.4 grams gold and a inferred portion of 12.3 million tonnes grading 1.37 grams gold.

Earlier this month, the Ejido Mulatos launched legal action in Hermosillo disputing the amount due to them by National Gold under a 1995 surface rights lease agreement over the property. The Ejido is a collective group formed to administrate the common agricultural land in Mexico. The Ejido claim that they are owed US$337,000, plus interest and costs for 2002 and are contesting the validity of the agreement.

National Gold claims the action is without cause because the surface agreement allows for the reduction of the amount of land to be utilized under the lease. In early 2002, the size of the acreage under lease was reduced and the corresponding annual lease payment due to the Ejido was reduced from approximately US$330,000 to US$51,000.

Placer Dome (PDG-T) and joint venture partner Kennecott Minerals, a subsidiary of Rio Tinto (RTP-N), spent more than US$30 million exploring and developing the project in the 1990s. The work led to a feasibility study, which showed only marginal project economics for a large, bulk-tonnage, heap-leach operation at gold prices below US$325 per oz.

The majors subsequently sold the project to National Gold in March 2001 for $10.5 million, due over four years. In August of that year, the terms of purchase agreement were revised so that all but the $250,000 already paid is deferred until 2008 and 2010 unless the gold price rises above US$300 and US$325 per oz.

Finding it difficult to raise the necessary financing to advance the project, National Gold inked a deal with Alamos Minerals (AAS-V) in October, 2001. Under the agreement, Alamos can earn a 50% interest in the Salamandra project by spending $2.4 million on exploration and development costs, metallurgical test leaching and any underlying property payments that come due over the next 12 months. Alamos and National Gold would then share equally in future development costs, and any additional outstanding payments to Placer and Kennecott. Once the property is placed into profitable production, Alamos would pay a further $2 million to National Gold over the following four years.

The Salamandra property sits within the famed Sierra Madre gold belt in the northernmost Mexican state of Sonora, 400 km due south of Tucson, Arizona, and some 220 km east of Hermosillo, the capital of the state. A 1999 feasibility study envisioned a 17,500-tonne-per-day, open-pit operation. Capital costs are pegged at US$120 million, whereas operating costs for the heap-leach operation are estimated to be $5 per processed tonne at a gold recovery rate of 66%.

Alamos launched a program of delineation drilling in December of 2001 in hopes of increasing the grade of the known resource within the Estrella zone. To this end, the current drilling campaign will consist of 126 vertical holes varying from 18 to 40 metres in depth, which will be drilled on a 12-metre grid spacing. This subsequently will be closed to a 6-metre spacing if results warrant.

The closely spaced drilling is required to estimate the amount of contained gold that will be mined and stacked on a test leach pad. A bulk heap-leach test will follow the drill program as part of a new feasibility study. The junior is acquiring permits to mine, crush and heap-leach 50,000 tonnes of material.