Glencairn looks for new veins at El Limon

Leon, Nicaragua — Glencairn Gold (GGG-T) has begun a major hunt for new reserve ounces around its aging El Limon gold mine in Nicaragua.

The Toronto-based junior acquired a 95% stake in the mine last October through its merger with Black Hawk Mining, which held that interest through Nicaraguan subsidiary Triton Minera, the mine’s operator. The remaining 5% is held by Inversiones Mineras, a holding company owned by the unionized workers of Nicaragua.

As well, two 3% net smelter return royalties are payable to Iamgold (IMG-T) and the Nicaraguan government.

El Limon is in northwestern Nicaragua, about 140 km northwest by road from the capital Managua and 45 km northeast from Leon, the country’s second-largest city. The mine benefits from servicable infrastructure.

Glencairn holds 14 mineral concessions totalling 813 sq. km in an area around El Limon and within 40 km to the east and north. These concessions, which include mining as well as exploration rights, all expire in 2027.

The concessions near El Limon include three villages, Limon, Santa Pancha and Minvah, which together house some 5,000 people, including most of the mine’s 440 employees.

Geologically, El Limon is in the northernmost portion of a northwest-striking, 40-km-wide graben structure that parallels the Pacific coastline along the western side of the country (see map below). This graben hosts 16 active volcanoes and is covered in thick Quaternary-to-Recent-age volcanic rock.

Northeast of the graben, basement rocks are covered by a major unit of Tertiary-age volcanics, namely the Coyol (Miocene-Pliocene) and Matagalpa (Oligocene-Miocene) groups. The Coyol group hosts all of Nicaragua’s known vein-gold deposits, including El Limon.

Gold mineralization at El Limon is hosted by classic low-sulphidation, quartz-adularia, epithermal vein systems that form at depths of less than 1 km and are 1.5-8 metres wide.

Under a string of owners, gold mining at El Limon has continued uninterrupted for the past 62 years, producing 2.8 million oz. gold from three large, roughly parallel vein structures: Limon, Santa Pancha and Talavera. Santa Pancha and Talavera are a few kilometres east and west of Limon, respectively (see map, page A4). The historical average gold grade in the camp has been 12-14 grams per tonne, and all of the mining has taken place within 400 metres of surface.

The three deposits were discovered in outcrop within the northern portion of the El Limon concession, where erosion has exposed older volcanic rocks.

Gold was first discovered at El Limon in the late 1800s, and a British concern was the first to achieve small but intermittent commercial production, starting in 1918.

Noranda (NRD-T) arrived in 1941 and opened small mines at El Limon and Santa Pancha, with daily milling rates that rose over the years to more than 300 tonnes from 200 tonnes. Ore was processed in a Merrill-Crowe circuit.

In 1979, after having produced an attributable 2 million oz. gold from 4.1 million tonnes of ore, all of Noranda’s Nicaraguan assets were nationalized by the incoming communist Sandinista regime, which overthrew the Samoza dictatorship.

The new government took over the operations and in 1980 shifted them toward the exploitation of open pits, mainly on the Limon vein, right beside the mill. They shut the Santa Pancha and nearby Panteon underground operations in 1988 when they ran into problems with a lack of pumping capacity and some hot water at Panteon.

By 1990, the operators initiated underground development of the Talavera vein, which is today the mine’s sole producing structure.

A new, democratically elected government started looking at privatizing El Limon in 1992, and completed the process via an auction in May 1994.

Vancouver-based Triton Mining was the winning bidder and, as required, proceeded to build a new, 1,000-tonne-per-day mill. In late 1995, Triton switched from the Merrill-Crowe to a carbon-in-pulp circuit.

In 1998, Triton was merged with Black Hawk and, with the open pits at Limon and Santa Pancha exhausted, the scope of operations at El Limon narrowed to just mining the Talavera structure at depth.

With the Black Hawk-Glencairn merger pending, a special reserve calculation was made in April 2003 at El Limon, delineating 886,700 tonnes grading 6 grams gold per tonne, equivalent to 170,900 contained ounces.

A further 37,000 tonnes at 7.3 grams gold and 290,300 tonnes at 7.9 grams gold lay in the indicated and inferred resource categories, respectively.

There is a low silver content, and other metals are even less present.

Two-year reserves

Glencairn management officially took over in October 2003, and El Limon closed the year by recording production of 46,000 oz. gold. In 2004, the mine is expected to produce 53,000 oz.

“Last year’s production was slightly less than we anticipated as we ran into some production problems toward the end of the year,” said Glencairn President and CEO Kerry Knoll. “Those problems are rapidly being rectified and as 2004 progresses, we expect Limon to get back on track. The mine is still very profitable, and it’s going to be even more profitable as time goes on.”

He emphasized that, even with so many years of continual production, El Limon has usually only ever had a few years of reserves in any given year.

“That’s important to note when people look at our company’s profile and realize that we only have, currently, about two years’ worth of reserves ahead of us at Limon,” he said. “That’s been the nature of this mine. But unlike some other mines, there’s no real reason why we can’t have more reserves. It’s a matter of investing the money to find them.”

The company will try to add ounces three ways: by upgrading existing resources to reserve status; by drilling the extensions of existing vein and vein-breccia structures; and by drill-testing several promising grassroots targets already delineated.

Overall this year at El Limon, the company will spend about US$4 million drilling 40,000 metres of core using two contract rigs and three of its own.

“Despite sixty-two years of continuous production, there has been very little actual exploration drilling in this area,” said Knoll. “The operators have tended to follow the vein, keep reserves at two years of production, and leave it at that. We intend to change that: we’ll try to add at least eight years of resources in this program.”

Noting that the 1,000-tonne-per-day mill could easily run at between 1,200 and 1,500 tonnes per day, and is only running six days a week, Knoll said that “if we find more ore, we could increase production here substantially without any kind of mill expansion.”

Glencairn’s vice-president of exploration, Michael Gareau, who has been exploring El Limon since 1995, confirmed that Triton had good success with exploration in 1996-98, when there were additional funds available for exploration.

“After 1998, with depressed gold prices and reduced cash flow, there was less money for exploration, and [El Limon] kind of limped along while we focused on Talavera.”

The Triton-Black Hawk geologists had identified grassroots targets south of the three main vein structures, where the younger volcanic cover shields any gold-bearing veins that might be there within the older volcanics.

Santa Rosa-Uval, the most-enticing of these shielded targets, is 3 km southwest of the Limon vein. It is a new vein system that has a signature and size similar to those of the three main veins, but the gold zone, if it is there, likely exists at a depth below 200 metres, where no drilling has yet taken place.

“In this model, the important thing to understand is that the alteration is zoned in a vertical sense, with clay alteration near surface, and silica caps at the water table,” said Gareau. “The level of alteration tells you how much erosion has happened.”

One thing that gives Glencairn hope at Santa Rosa-Uval and other nearby targets is the presence, at surface, of gold-bearing quartzite boulders that grade up to 60 grams gold per tonne. These seem to have originated from 300-400 metres of depth before having been violently ejected to the paleosurface.

“We just have to drill, and if these things come in like we hope they will, they could provide reserves for this mine for many, many years to come,” said Gareau.

Included in this year’s exploration plans is the La India concession, 40 km east of the mill (or 70 km by road).

La India was discovered in the 1930s (or possibly earlier, as the veins outcrop), and it became a Noranda operation from 1938 to 1955. The mine produced just under 600,000 oz. at a grade of about 12 grams, mainly from two veins: La India and Amerigo Constancia. However, it was shut in 1955, owing to a flash flood that took out the mill, which was never rebuilt.

La India was further explored by Soviet and Nicaraguan government geologists in the mid-1980s, by TVX Gold and Black Hawk in the mid-1990s, and by Newmont Mining (NEM-N) from 2000 to 2002.

“Our exploration philosophy is to be aggressive around our existing projects,” said Knoll. “We’re not going to go into grassroots countries or areas where we’re not active already.”

The general mine superintendent at El Limon, Richard Irvine, pointed out that the mine has undergone major improvements in training, morale and safety since Glencairn became operator. He said the need for improved industrial relations became particularly acute after an illegal strike by two-thirds of the workforce between October 2002 and February 2003.

“When I came here about a year and a half ago, I wouldn’t have wanted to work in the mine,” said Irvine. “People were not treated with respect, and there was no worker input.”

He said workers who returned after striking had to be reassured that they would be respected and accepted. “Our message was ‘let’s all go back to work and have harmony in the mine,’ because that’s what it takes for a mine to work well.”

(As a result of the strike, the workforce is now represented by two unions, and there is also a non-unionized group.)

As a sign that things have improved, Irvine pointed to the mine’s 120 accident-free days and to a rise in productivity rates to nine tonnes per man-shift.

He described how, when he started, the mining plan often depended on what equipment was working at the time. Since then, Glencairn has committed to spending US$2.4 million on capital projects, with most of the funds earmarked for new mining equipment and an aggressive development program.

“The people who are in the mine and on the equipment have to have certain things: they have to be happy; they have to work in a safe environment; and they have to go home to their families happy,” said Irvine. “And that is really the change — there’s an ambience here now that’s pretty good.”

Minera Triton President Robert Byrd, who joined the company in October 2003 after 10 years with Breakwater Resources, described how management and workers have taken another step toward harmonious relations by creating an arm’s-length co-operative, or junta de fomento, which is modeled on similar organizations that have worked well in countries such as Honduras (where Byrd managed the El Mochito mine) and Peru.

“It’s a way for the workers and their company to create an organization that’s going to be more focused on the workers, their families and the community, without putting the company’s face on it,” said Byrd.

The co-op provides several services to nearby villages — among them, service contracting, a commissary where workers and their families have credit, and a bus that runs between the mine and Managua. The big project for 2004 is a community-wide cable TV system.

Dividends from these co-op businesses can be distributed to the workers’ families or plowed back into the businesses, depending on the workers’ wishes.

In another good gesture, Glencairn is looking at ways to transfer ownership of the company-owned houses near the mine to the workers.

Meanwhile, at the mine, the company is preparing to exploit nine areas within the Talavera vein using longitudinal open-stoping and sub-level retreat mining. The 53,000 oz. gold that Glencairn intends to produce at El Limon this year will come from a total diluted tonnage of 350,000 tonnes grading an average of 5.5 grams gold, within a range of 4.7-7.3 grams.

Recovery rates are expected to hold steady at 87%, while operating costs are anticipated to fall to US$35.60 per tonne (US$228 per oz.) from more than US$41 per tonne (US$258 per oz.) last year.

The three most costly items this year are expected to be: mining, at US$11.24 per tonne; milling, at US$5.80 per tonne; and power, at US$6.27 per tonne (though relatively small, the mine is the third-largest power consumer in the country).

Within the Talavera vein system, workers are currently mining the Talavera, Ligia and Santa Emilia sections, and developing the Veta Nueva section in the farthest reaches of the mine, where they expect to be producing at commercial rates before year-end.

“We’re working in a lot of areas, which is good because if something goes wrong in one area, we’ve got others to fall back on,” said Irvine.

There is also the possibility of starting a small open pit at the Pozo Bono vein, just southeast of the mill. A related drilling program at Pozo Bono is under way.

Another US$500,000 will be spent expanding a tailings pond by raising the impoundment dam by 3 metres. It will be the dam’s fourth lift since it was built in 1998.

Glencairn has meanwhile begun building its Bellavista open-pit gold mine in Costa Rica, which is expected to be operating at an annual rate of 60,000 oz. gold by year-end. (An on-site report from Bellavista will appear in an upcoming issue.)

To fund construction of the mine, the company recently announced a $25.5-million financing underwritten by a syndicate led by Orion Securities and including BMO Nesbitt Burns and Desjardins Securities.

Glencairn will issue 30 million units priced at 85 apiece. A single unit consists of a share and half a warrant, with each whole warrant allowing the holder to buy a share for $1.25 until November 2008.

The underwriters hold an option to buy another 4.5 million units at the same price within 30 days of closing.

In November 2003, Glencairn wrapped up a similar financing that raised C$11.5 million, with the resulting funds also directed towards Bellavista.

In Timmins, Ont., Glencairn owns the Vogel gold project, which is at the prefeasibility stage. Vogel hosts more than half a million ounces in resources.

But Knoll said “Nicaragua is the focus of the company right now in terms of where our gold is coming from and where most of our employees are.”