Lachlan finds its gold star in Chile

Vancouver — In December 2010 Perth-based Lachlan Star (LSA-T,LSA-A) went from exploring in Australia and Africa straight into producing gold in the Americas after buying the CMD gold mine in Andacollo, Chile.  

The move followed an unsuccessful foray into gold exploration in Zambia and only moderate success exploring for copper in eastern Australia. Since making the acquisition Lachlan has been working to restructure itself around the roughly 50,000-oz.-per-year heap leach gold mine, with plans to increase production to 75,000 oz. per year by the end of 2012.

Part of its refocusing involved a Toronto stock listing, which Lachlan completed in October 2011. Following modest movement in the first few months, Lachlan started taking off in January after releasing a resource update and has now climbed from 90¢ in early 2012 to a closing high of $1.50 in late February after it released a second resource update on the CMD mine.

The first resource focused on the Toro deposit, one of several active shallow pits at the mine. The update established 17.5 million indicated tonnes grading 0.6 gram gold per tonne for 348,000 oz. gold, plus 11.6 million inferred tonnes grading 0.4 gram gold for 135,000 oz. gold, for a 314% increase in indicated resources and 28% decrease in inferred resources.

The most recent update, which factors in the Toro deposit and three others, established a total resource of 130.1 million indicated tonnes grading 0.4 gram gold for 1.72 million oz. gold, plus 114 million inferred tonnes carrying 0.3 gram gold for 1.26 million oz. gold, representing a 138% increase in indicated and 36% increase in inferred resources compared with global January resource. Both resource updates dropped the cut-off grade from 0.3 gram gold to 0.15 gram gold as the company plans to incorporate low-grade ores through run of mine dump leaching.

Based on 2011 resource numbers, the mine also hosts reserves of 6 million probable tonnes grading 0.8 gram gold for 157,000 oz. gold.

The updated resources followed roughly 31,000 metres of drilling in 2011, while the company has a further 33,000 metres of drilling planned for 2012. This year the company will target drilling in between several pits, as it looks to establish the Toro and Tres Perlas deposits as two super pits that absorb surround deposits, while also upgrading established resources to make mine planning easier and conduction some step-out drilling.

At some point Lachlan also plans to explore the copper potential of the project. The project sits adjacent to Teck Resources’ (TCK.B-T, TCK-N) Carmen de Andacollo copper-gold operation, which reached commercial production in late 2010 and is anticipated to produce 80,000 tonnes of copper and 55,000 oz. gold per year. Both mines sit roughly 350 km north of Santiago.

Lachlan’s own production came in at a little over 11,000 oz. gold in the last quarter of 2011, with 67% of production coming from outside of reserves and 57% outside the previously established resource area. The company stated that the current resources better reflect what it is mining and the current potential. On revenue of A$18.7 million in the quarter, the company managed an after-tax net profit of A$1.9 million.

The company had $14.5 million in cash at the end of December, thanks in part to raising $15.1 million in late 2011. The raise, related to its Toronto listing, had the company issuing 18.4 million special warrants that can be redeemed at $1.20 until August 2013. Lachlan currently has $31.9 million in total liabilities, including $9.4 million in debt obligations due to banks and the vendors of the CMD mine.

Lachlan bought the mine for about US$24 million, including US$9 million in cash and 1 billion shares at 1.5¢ in December 2010. The deal also required Lachlan to pay 2.5% of the value of gold produced from established deposits until the end of 2014, plus 25% of the value of gold produced over 119,000 oz. in the same period, which Lachlan reports as adding about $5 million to the price tag.

Because of the billion-share payment, combined with a financing that included issuing over a billion shares at around the same time, Lachlan had no less than 3.2 billion shares outstanding at the end of 2010. In preparation for its Toronto listing, however, the company instituted a 1 for 60 share rollback in mid-2011, bringing its outstanding shares to 53.6 million and 1.3 million options. Today the company has 75.4 million shares outstanding.

The CMD mine first started production in 1995 and has since produced over 850,000 oz. gold. The company’s filings state that mineralization at the CMD Gold Mine is hosted by the Quebrada Marquesa Formation, which comprises a sequence of intermediate and felsic volcanics and volcanogenic sediments as lava flow, pyroclastic and epiclastic units. The dacite units at the mine contain generally bulk tonnage, low-grade mineralization.

The company also still controls the Bushranger copper project in New South Wales, where it finished a scoping study in early 2011. But following its refocusing on CMD the company optioned it off to Newmont Mining (NMC-T, NEM-N) in September, with the major currently earning in 51% by spending A$1 million within 2 years.