Extorre brings focus to Cerro Moro

Vancouver – For years the gold-silver Cerro Moro project in Argentina’s Santa Cruz province played second-fiddle to Exeter Resource’s (XRC-T, XRA-X) massive Caspiche project in Chile, but the project is now advancing quickly as the prime focus of spin-out Extorre Gold Mines (XG-V).

The new company was created in March to allow both Exeter and Exctorre to concentrate on their main assets. Dr. Eric Roth, who came aboard Exeter 18 months ago as a consultant and then became its mine development manager in Argentina, has since become president and CEO of Extorre.

“It was getting very difficult to get the funds to focus on taking something like Cerro Moro forward,” said Roth of the spin-off in a phone interview, “because it’s a relatively small orebody but very very high grade, whereas Caspiche is at the other end of the grade-tonnage curve…so there was a lot of internal competition.”

“The split made sense too in terms of the development going forward because obviously we recognize that Cerro Moro, being a relatively small but very high grade system, was something we could put into production ourselves,” added Roth.

The company split went very smoothly according to Roth, with no changes to the development teams on the ground. On a corporate level, Exeter shareholders received one share of Extorre for each Exeter share, while the new company also received $25 million in working capital and Exeter’s other Argentinean exploration properties.

“It’s worked really well,” said Roth of the split “We’ve been able to dedicate the time and really take things forward.”

Extorre recently released a preliminary economic assessment on the project that outlined a 750-tonne-per-day open pit and underground operation.

The PEA outlines an 8-year mine life producing a total of 436,000 oz. gold and 21.4 million oz. silver. For the first 5 years production averages 133,500 oz. gold equivalent per year at an average cash cost of US$201 per oz. gold.

The study pegged capital costs at US$130 million including a US$21 million refundable VAT, with payback in 1.8 years on a 0% discount basis. The after tax internal rate of return was set at 43.4% and the undiscounted after-tax cash flow at US$186 million. Recoveries are estimated at 95% for gold and 90% for silver.

“One of the nice things about the project is that even on a small scale in terms of throughput, the very very high grades translate to a nice quantity of ounces and a very low cash cost,” said Roth.

The mine plan was based on a resource estimate released in April that outlined 590,000 indicated tonnes grading 18.9 grams gold per tonne and 805 grams silver per tonne and a further 1.97 million inferred tonnes grading 3 grams gold and 190 grams silver.

Along with development work, Roth said that the company is concentrating heavily on exploration. Extorre has four rigs on site, drilling about 6,500 metres a month, with a burn rate of a little under US$2 million a month.

“We’re very conscious of the fact that it’s a relatively modest resource at the moment,” said Roth, “but we’ve stated as a goal that we’d like to get the project up past the 2 million oz. gold eq., so basically we’re working towards that.”

The company has already identified over 30 veins in the area and followed up on only a few, while the whole Cerro Moro property spans 175 sq. km of mining concessions for future exploration.

Cerro Moro is a low sulphidation epithermal gold-silver district, with veins at the project typically narrow, subvertical and characterized by multiple phases of quartz-adularia plus or minus gold-silver deposition. The Escondida deposit, where the entire indicated resource sits, has been tested along a 2km strike length and to 200 metres depth.

In the near-term, the company submitted its environmental impact assessment last month and expects approval late in the first quarter of 2011. Extorre also plans to have an updated resource and a pre-feasibility study finished by the second quarter of next year.

As to challenges in developing the mine, Roth said that finding skilled underground labour will be difficult. Despite the prevalence of mining in Santa Cruz province, they are almost exclusively open pit operations.

“You basically just don’t have those people available at the moment, you need to bring people in from the outside,” said Roth. “It’s not to say the locals couldn’t do it, it’s just they’ve never had the opportunity to be trained.”

Since Extorre listed in March, its stock price has climbed from $1.30 to a high of $5.50 in early September and recently closed at $5.09. In mid-September the company raised $40.5 million in a bough-deal financing and now has 87 million shares outstanding.