Farallon reports strong production, still in red

Vancouver – Farallon Mining (FAN-T) made the shift to producer in 2009 but has not quite made the shift 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 successful start of commercial production in April at its G-9 zinc-rich polymetallic underground mine in Mexico. The company managed to bring the project from a blind, greenfield discovery into production in under four years. In its first, incomplete year the mine produced gross sales of US$89.1 million.

Farallon 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 is able to produce a pound of payable zinc for a cash cost of US44¢ after factoring in by-product 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 finances 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 approximately 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 re-started 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. The company plans to increase the total mine life of the Campo Morado beyond the 7-year estimate of the G-9 deposit by developing the other deposits on the property.

The other deposits at the Campo Morado property include Reforma, Naranjo, El Rey, and El Largo, which together host a resource of 4.9 million indicated tonnes grading 6.37% zinc, 1.59% lead, 0.45% copper, 166 grams silver and 2.14 grams gold, using a 5% zinc cut-off. The company reports that these deposits could increase the life of mining at Campo Morado by 20 years but they present metallurgical challenges.

The company also recently upped 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 per tonne, and 3.15 grams gold per tonne 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 the day to close at 59¢. The company has a 52-week share price range between 17¢ and 65¢ and 472.7 million shares outstanding.