LATIN AMERICA — Lyon Lake begins commercial gold production at Beta Vargas

Following its first gold pour in early December, Lyon Lake Mines (LLL-M) has entered full commercial production at its Beta Vargas open-pit gold mine in Costa Rica.

The successful launch of the heap-leach operation, 150 km northwest of San Juan, lets the Montreal-based company hold two distinctions: becoming the first gold producer to operate in Costa Rica under the tough environmental laws introduced in the early 1980s and being the only junior company from the province of Quebec to be commercially producing gold overseas.

“Though it’s still a small operation, Beta Vargas is profitable and a good base for us to start,” says Lyon Lake President Guy Hebert. “With the tough time we junior companies are going through, it’s very pleasant to be getting money back.”

Noting that electricity and reagent costs are lower than expected, Hebert says production costs will be a maximum US$200-US$210 per oz. gold, significantly lower than the US$250-per-oz. figure forecast by the feasibility study. As well, the company has been mining ore grading about 2.2 grams gold per tonne, an improvement over the anticipated 1.8 grams.

Since operations began at Beta Vargas last September, Lyon Lake has fine-tuned its processing technique. Cyanide is now being added to the ore while it is in the agglomerator and the grinding size has been reduced to 19mm from 50mm as mining has progressed deeper into harder rock.

These two changes have reduced the full leaching cycle from a high of 65 days in January and February (before the modifications were made) to within the range of the feasibility study’s estimate of 50 days — a figure that was being attained during the first few months of operations last fall, when shallow, less-consolidated ore was being placed on the leach pad.

Hebert says production at Beta Vargas will be on target, yielding about 12,000 oz. gold during the first year of commercial production. He expects that during the next three quarters, the company will realize net profit of about $100,000 to $150,000 per mound.

With the construction of a second pad, annual gold production could eventually rise to 25,000 to 30,000 oz. “But the idea is to make money on it,” says Hebert. “I prefer to make $2 million producing 10,000 oz. per year than lose $10 million producing 100,000 oz. per year.

“One of the most important things for us is to show that you can operate in Costa Rica with an environmentally friendly operation,” says Hebert. “It is not easy to work in Costa Rica because the environment is a big issue. We are closely monitored by the environmental and mining departments there, and they are very happy with the way we are acting. Overall, it’s a good country in which to work when you know the rules and you know the people.” In preparation for its activities this year, Lyon Lake closed a financing in February for a maximum of $5.1 million with Capital d’Amerique — a subsidiary of the Caisse de depot et placement du Quebec. The financing consists of a convertible debenture for a nominal value of $3.1 million and 20 warrants that could generate another $2 million if exercised.

The proceeds will be used to fund exploration work on the Canamazo and Esperanza concessions in Costa Rica, to partially repay short-term loans, and to expand operations at Beta Vargas, should exploration results warrant.

The balance will be added to the company’s working capital.

The debenture bears interest at an annual rate of 8%, matures on Sept. 30, 2002, and can be converted into shares for 35cents each until maturity.

Each of the 20 warrants gives the holder the right to buy a convertible debenture for $100,000, with the terms and conditions of the underlying convertible debentures being identical to those of the $3.15-million debenture.

From the first anniversary the warrants are issued, Lyon Lake will have the right to force the exercise of one or more warrants for a period of 12 months in order to carry out any expansion plans.

Lyon Lake’s principal focus during its upcoming exploration program will be the Canamazo concession, situated immediately west of the Beta Vargas concession. A 3,000-metre infill drilling program will soon be under way just 4 km from the Beta Vargas mine at the Guaitilar East gold deposit, one of at least six deposits contained within the Canamazo concession. Says Hebert, “We want to build another pad at Beta Vargas, and we need those reserves to justify its construction.”

To Lyon Lake’s benefit, the production permit for the Beta Vargas mine encompasses a 10-sq.-km area, and the Guaitilar East deposit lies within that permitted area. Nevertheless, Hebert says the company will likely produce another impact study for Guaitilar East. “Legally we don’t have to, but we will not take that chance. The biggest problem in Costa Rica was to get a permit to operate with cyanide, but at Guaitilar East, we won’t need it — it will be strictly a quarry, and we’ll transport the ore to the plant, which is already at Beta Vargas.”

Other targets within the Canamazo concession that will be drilled this year include the Sinter area, which is a deeper mineralized body outside the 10 sq.-km mining permit, and the Castillo area, which is within the mining permit area.

The company is also negotiating with the surface owners of another property in the vicinity of Beta Vargas to allow trenching of a geochemical anomaly.

Meanwhile, in northeastern Costa Rica, near the Nicaraguan border, Lyon Lake has added four new concessions to its Esperanza gold property, creating a 160-sq.-km band of eight contiguous concessions that lie about 8 km along a structural extension of Placer Dome’s (PDG-T) 2-million-oz. Crucitas gold deposit.

Lyon Lake’s new concessions were once held by Placer Dome, but the major let them expire in 1997, before it discovered the Conchudita gold deposit near the San Juan River, about 12 km southeast of the Crucitas deposit.

“At Esperanza, we are waiting to see what Placer Dome does with Crucitas and Conchudita,” says Hebert. “We expect that they will make a decision this year, whether they are going forward or not; if they are not, we will be interested in acquiring those concessions. If there is ever a day when we want to produce 100,000 or 150,000 oz., it will come from this area — it’s really blue sky for the company.”

In the meantime, Lyon Lake plans to conduct geochemical and geophysical surveys at Esperanza this year. When asked if Lyon Lake would be pursuing any other projects in Costa Rica, Hebert responded, “We’re not negotiating anything else, but we are always open. There are a lot of properties becoming available — and not only in Costa Rica — because junior companies are in very bad shape and some will lose their properties if they don’t make their option payments or work commitments. Every day we receive an offer for a joint venture — it’s incredible.

“Unless gold rises US$25, the next six months will be terrible for junior companies to even keep their properties, particularly those with tremendous land positions.”