Farallon reports strong production, but still in red

VANCOUVER — Farallon Mining (FAN-T) made the shift to producer in 2009 but has not quite made the move to profitability.

The company lost US$15.7 million or US4¢ per share in 2009 compared with US$48 million or US15¢ per share in 2008, despite bringing in its first operating earnings of US$2.9 million.

Farallon’s earnings came from the start of commercial production last April at its G-9 zinc-rich polymetallic underground mine in Mexico. The company brought the project from a blind, greenfield discovery into production in under four years. In its first, partial year of operation the mine produced gross sales of US$89.1 million.

Miners produced 75,442 tonnes of zinc concentrate, 20,669 tonnes of copper concentrate and 1,930 tonnes of lead concentrate containing an estimated 83.7 million lbs. zinc, 7.1 million lbs. copper, 900,000 lbs. lead, 1.2 million oz. silver and 15,331 oz. gold from the G-9 mine. Recovery rates averaged 79% for zinc, 51% for copper, 8% for lead, 44% for silver and 40% for gold.

The mill at the G-9 mine is operating at 1,500 tonnes per day, but the company plans to increase capacity to 2,000 tonnes per day by mid-2010 at a cost of US$5.3 million. The mill uses conventional crushing, grinding and flotation to produce zinc, copper and lead concentrates.

The mine produces a pound of payable zinc for a cash cost of US44¢ after factoring in byproduct credits. Silver Wheaton (SLW-T, SLW-N) has the right to purchase 75% of silver produced after making an upfront payment of US$80 million in 2008.

To raise capital in 2009 the company: completed two private placements at 20¢ per share that brought in $13.3 million; finalized a bought-deal equity financing with net proceeds of US$9.8 million; and secured a US$30 million four-year term loan facility.

With the G-9 mine now bringing in revenue, the company has restarted a US$5.5-million exploration program at Campo Morado with one underground and two surface drills. The company holds a 100% interest in the 116-sq.-km property located about 160 km southwest of Mexico City in the state of Guerrero. Farallon plans to increase Campo Morado’s total mine life beyond the 7-year estimate of the G-9 deposit by developing the other deposits on the property, which include Reforma, Naranjo, El Rey and El Largo. Combined, the deposits host a resource of 4.9 million indicated tonnes grading 6.37% zinc, 1.59% lead, 0.45% copper, 166 grams silver per tonne and 2.14 grams gold per tonne, using a 5% zinc cut off. The company reports that these deposits could increase mining at Campo Morado by 20 years, but they present metallurgical problems.

The company also recently increased its resource estimate at the G-9 mine site by 18% compared with its early 2008 estimate. Mineral resources, including reserves, now stand at 3.02 million measured and indicated tonnes grading 9.39% zinc, 1.31% copper, 210 grams silver and 3.15 grams gold, plus 930,000 inferred tonnes averaging 9.17% zinc, 1.14% copper, 187 grams silver and 2.5 grams gold.

Mineralization at Campo Morado is hosted in volcanogenic massive sulphides within a complex, layered sequence of felsic to intermediate volcanics.

Farallon’s share price was down 3¢ on news of its financial results to close at 59¢. The company has a 52- week trading range of 17¢-65¢ and 472.7 million shares outstanding.