Gammon bullish at Northeast Ocampo (June 13, 2003)

An independent economic scoping study of Gammon Lake Resources‘ (GAM-T) Northeast Ocampo project in Mexico paints a picture of a very robust operation.

Completed by Reno, Nevada-based Kappes, Cassiday & Associates (KCA), the preliminary study focuses on the project’s underground resources only.

KCA recently estimated the project’s underground measured and indicated resources at 3.5 million tonnes grading 5.9 grams gold and 302 grams silver per tonne, or 1.2 million contained gold-equivalent ounces, based on a silver-to-gold ratio of a 65-to-1.

The estimate is based on a cutoff grade of 3 grams gold-equivalent, a gold price of US$300 per oz., and a silver price of US$4.61 per oz.

KCA’s scoping study envisages a 1,400-tonne-per-day underground mining operation running for 7 years. On an annual basis, production is figured at 92,400 oz. of gold and 4.6 million oz. of silver. Cash costs ring in at US$84.93 per gold-equivalent ounce, based on 70.65 grams of silver equalling 1 gram of gold.

The plan at Northeast Ocampo calls for narrow-vein block caving with the ore being sent through a conventional cyanide milling and processing plant. The proposed recovery circuit would use the Merill-Crowe process, with gold recovery pegged at 96% and silver at 93%.

On the financial front, the project generates a pre-tax net cash flow of US$35.8 million annually. At that rate, the project is expected to pay for itself in 4.9 months. The internal rate of return (IRR) is 247% and the net present value (NPV), a at 10% discount, is US$138.7 million.

The initial capital cost comes to US$14.5 million.

When another 4.5 million tonnes of inferred material grading 6.1 grams gold and 298 grams silver, or 1.5 million oz. gold-equivalent, is added to the mix, the mine life is extended to 16 years.

Operating at the same daily rate, annual production is estimated at 94,600 oz. gold and 4.6 million oz. silver. Cash cost slip slightly to $US 83.67 per oz.

Under this plan, the IRR comes in at 252% and the NPV (at a10% discount) is US$244.8 million. Pre-tax cash flow is pegged at US$36.6 million per year. The payback period and initial capital cost remain unchanged.

Both scenarios are based on a gold price of US$325 per oz. and US$$4.60 per ounce of silver.

The study does not include 2.4 million tonnes of near-surface resources grading 1.32 grams gold and 55 grams silver, or 168,000 oz. gold-equivalent. Some 1.1 million tonnes averaging 1.12 grams gold and 47 grams silver, or 66,000 oz. gold-equivalent, are classified as inferred. The surface resource employs a cutoff grade of 0.4 gram gold-equivalent.

Gammon plans a program of infill drilling aimed at converting inferred resources to measured and indicated. Additional metallurgy and test mining are planned in anticipation of a final feasibility study.

Meanwhile, at the adjacent Ocampo joint-venture property, Aussie junior Bolnisi Gold is putting the finishing touches on a final feasibility study. The company has also begun negotiations for bank financing to put the open-pit project into production.

Under an early 2002 earn-in agreement, Bolnisi can earn a 60% stake in the Ocampo gold project by brining a proposed open-pit operation into production at no less than 1.25 million tonnes per year by September 2003. The deal includes a $100,000-per-month penalty past that date. Also, Bolnisi will fail to earn its stake if the production level isn’t met by March 25, 2004.

At last count, Ocampo was home to a measured and indicated resource totalling 21.7 million tonnes running 1.44 grams gold and 57 grams silver per tonne. Another 5.8 million tonnes or inferred resources grades 1.7 grams gold and 86 grams silver.

The concessions optioned by Bolnisi – Plaza de Gallos, Refugio, Conico, Picacho and La Estrella — contain a total resource of 21.5 million tonnes averaging 1.29 grams gold and 50 grams silver.An independent preliminary engineering and economic analysis of the project by Pincock Allen & Holt in early 2002 pegged the Ocampo project’s IRR at 139%, based on a gold price of US$300 per oz. and a silver price of US$4.60 per oz. The study also suggests that Gammon’s share of gold-equivalent production would be around 42,000 gold-equivalent ounces per year over 5 years.

Gammon shares were trading a dime, or 4.4% higher, at $2.35 in late-afternoon trade in Toronto on June 13.