LATIN AMERICA — Greenstone on track with mine commissioning

With mine commissioning under way at the San Andres gold mine in Honduras, Greenstone Resources (GRE-T) has arranged US$13 million in additional financing to ensure a smooth startup and withstand challenges associated with anemic gold prices.

Rudi Fronk, president, says the company has sufficient resources to meet startup requirements at the San Andres heap-leach operation, while mining continues at Santa Rosa in Panama, and at two mines in Nicaragua. The financing, he adds, is aimed at reassuring investors concerned about liquidity and the low share price.

Having survived as an exploration company for more than a decade, Greenstone is still in the throes of the typically painful transition into a producing company. The company’s 1997 operating performance was below expectations, resulting in a net loss of $4.2 million, or 7 cents per share, on revenue of $20.6 million. However, results in the 1998 first half were better. The company posted earnings of US$834,000, compared with a net loss of US$769,000 in the 1997 first half.

Gold production for the reporting period was 58,851 oz., compared with 30,815 oz. a year earlier. And cash production costs were US$230 per oz., compared with US$320 per oz.

To complete its evolution into a profitable producer, Greenstone had set a number of objectives for 1998, the chief one being to achieve its budgeted gold production of 233,000 oz. at a cash operating cost of US$197 per oz. Based on results to date, it may take more time to achieve the target.

Other stated goals are reaching commercial production at San Andres, completing expansions at the Cerro Mojon mine in Nicaragua, and continuing rehabilitation work at the Bonanza mine, also in Nicaragua.

The company hopes to ride out the industry downturn by cutting costs at its growing roster of mines in Latin America, as well as administrative costs. As part of the effort, all Greenstone employees earning more than $40,000 agreed to take a voluntary 5% salary reduction. As Fronk notes, “the intended signal to our employees is that this is not business as usual, and as our shareholders have suffered, so must we.”

The employee salary reductions also bolstered the company’s efforts to request price reductions from vendors and suppliers. And all capital expenditures not essential for planned production and reserve growth were postponed.

During the latest quarter ended June 30, Greenstone produced 27,698 oz. gold at a cash cost of US$214 per oz. This was well below the budget forecast of 50,000 oz. at US$200 per oz. The shortfall was attributed to the unexpected, temporary shutdown of the Bonanza mine caused by insufficient rainfall and engineering changes at Cerro Mojon.

A bright spot was the Santa Rosa heap-leach mine, which achieved its highest quarterly production ever. In the latest quarter, 659,000 tonnes grading 1.4 grams gold were placed on the leach pad, resulting in record production of 15,058 oz. Total gold production in the 1998 first half was 29,542 oz. at a cash operating cost of US$229 per oz., with both figures exceeding budget expectations. Based on production levels now being achieved, Santa Rosa is on target to achieve a 6,000-oz.-per-month production rate by year-end.

During the latest quarter, 11,478 oz. gold were produced at Cerro Mojon at a cash operating cost of US$176 per oz. Production here was adversely affected by down-time associated with the installation of the intermediate leaching system and changes to the agglomerator.

The mine, which began commercial production at a rate of 1.5 million tonnes per year in the fall of 1997, is being expanded in two phases — to 2.25 million tonnes, and then 3 million tonnes per year. The open-pit mine is expected to produce 115,000 oz. this year at a cash operating cost of US$162 per oz.

Subject to a positive feasibility study, construction of a second operation at Cerro Mojon could begin next year, which, when combined with the existing mine, should boost production to between 250,000 and 300,000 oz. gold.

During the second quarter, only 1,162 oz. gold were produced at Bonanza, owing to the drought. In the 1998 first quarter, 27,000 tonnes were processed, resulting in production of 3,324 oz. gold at a cash operating cost of US$280 per oz. Operations here were adversely affected by El Nino, which extended the dry season and dried up reservoirs supplying hydroelectric power.

To improve productivity at Bonanza, Greenstone brought in North American trainers to teach underground mining skills to the local workforce. The company says the program was successful and that it will improve the grade to the mill and lower operating costs.

The San Andres project was a beehive of activity as residents moved to a new townsite, complete with a school, church, clinic, community centre and 113 new homes with water and sewer connections. The old town is being demolished in preparation for mining by a local contractor. Greenstone notes that the most significant challenge now is to train the local workforce, which has limited experience and education.

A total of 1.4 million tonnes grading 1.7 grams gold is to be mined at San Andres this year, resulting in gold production of 31,000 oz. at a cash operating cost below US$150 per oz.

Mining of the Water Tank Hill deposit is now under way, and overline material is being placed on the leach pad. The crushing and conveying system are operational and leaching is scheduled to begin shortly.

With its roots in exploration, Greenstone is continuing to test targets with near-term production potential. Earlier this summer, the company reported encouraging results from its wholly owned La Libertad project in Nicaragua. Exploration drilling there identified a new high-grade gold zone named Santa Elena. The first nine holes drilled into this new zone had a weighted average (uncut) intercept of 16 metres at 15.4 grams gold. The last of these nine holes hit 16.5 metres of 91.4 grams, including 4.5 metres of 315.9 grams. More work is planned for this target, which is situated on the same land package that hosts the Cerro Mojon mine and other prospective exploration targets.

During the latest quarter, exploration work focused on defining reserves within the “super-pit” area at La Libertad. Another focus was the Santa Elena discovery, which prompted a shift in exploration strategy based on the view that it might support a stand-alone milling operation consistent with higher-grade material.

Greenstone says it will take “several more years of aggressive drill campaigns to exhaust the exploration potential at La Libertad.”