LATIN AMERICA — Meridian Gold pushes El Peon in Chile

Mid-tier gold producer Meridian Gold (MNG-T), which has two mines in the U.S., is looking to expand its operations into Chile.

The Reno-based company underwent a restructuring program in August 1996, prior to which it was known as FMC Gold.

During the year, Meridian produced 202,000 oz. gold from its fully owned Beartrack mine in Idaho and from its 30% share of the Jerritt Canyon mine in Nevada. Independence Mining owns the remaining 70% of the latter and acts as operator.

Meridian is currently focused on three exploration projects in northern Chile, including the Agua de la Piedra and Las Tinajas properties, both of which are in the Maricunga gold belt.

However, the fully owned El Peon gold property, 160 km southeast of the port city of Antofagasta, is Meridian’s most advanced project in the South American nation.

The company discovered a volcanic-hosted epithermal gold deposit on the 600-sq.-km property in 1993. El Peon also contains substantial amounts of silver, with few base metals or contaminants. The gold and silver occur in quartz vein zones and hydrothermal breccias in several major deposits.

“It’s in the Atacama Desert, so it’s straightforward work,” explains Richard Lorson, Meridian’s geologist. “[There is] no vegetation cover and it’s very, very arid.”

The region’s moderate temperatures allow for year-round working conditions.

“Chile is known more for advanced-stage exploration than for grassroots work,” says Lorson. “Most people told us Chile has been pretty heavily explored and that we should be looking at acquiring known properties.” But that was not the route the company followed.

“Our work showed there was still room for new deposits,” Lorson explains. He cites the Spence deposit, a copper porphyry recently discovered by Rio Algom (ROM-T), and the Pascua gold mine, which is 80% owned by Barrick Gold (ABX-T), as two prospecting success stories.

“We think there’s still a lot of potential. Economically and politically, Chile is very stable. There’s a good tax structure and we thought it would be easier to start there than in some of the other countries in South America.” Chile’s mining regulations are often cited as a model for developing nations.

Such stability allows for a level of investment comfort that other countries cannot provide. “The mineral law has been tested in the courts,” Lorson explains. “It’s pretty well-established and not undergoing any changes.” Chile is a country, however, that demands rigorous legal work with respect to its due diligence process. According to Lorson, if companies are thorough, explorers know that “they’re not going to wake up and find they don’t own their own mine.”

Referring to Meridian’s exploration of Chile, Lorson says the company looked at grassroots projects in two areas of the paleocene volcanic belt in northern Chile because of what seemed to be favorable geology.

“There was one small exposure where the mineralization crops out in a drainage,” he explains. “Other than that, the area was covered by alluvium and caliche.”

Geology

The most important geologic feature at El Peon, which sits at an elevation of 1,800 metres, is a 3.6-km-long, north-south-trending hydrothermal vent and quartz-adularia vein system that penetrated Tertiary-age volcanic intrusives, lava flows and ignimbrites.

Since the discovery of El Peon in 1993, Meridian has spent US$13 million on exploration there. Half of that was spent in 1996, with exploration focusing on five zones.

Two targets, the Quebrada Orito and Cerro Martillo, have received the most work. The former has a drill-indicated resource of 3.2 million tons grading 0.21 oz. gold and 2.3 oz. silver per ton, whereas the latter has a drill-indicated resource of 2.6 million tons grading 0.18 oz. gold and 5.1 oz. silver.

“We budgeted US$6 million for surface exploration this year,” says Lorson.

“We’ll be increasing that probably around mid-year because it won’t be enough.” Another US$3 million will be spent on underground exploration at Quebrada Orito.

In October 1996, the company began sinking a decline into the deposit in order to facilitate underground bulk sampling and drilling, as well as to determine mining costs.

Meridian plans to spend US$800,000 on drilling this year. Work crews are now constructing a 590-metre-long ramp, which will be followed by a 150-metre-long sill, 300 metres of crosscuts and an exploration adit large enough for future production.

Three other zones on the property include El Valle, Discovery Wash and Donacella. A drill-indicated resource of 600,000 tons grading 0.2 oz. gold has been calculated at Discovery Wash.

Orito Sur

Orito Sur, an extension of mineralization discovered in the area last year, added 2 million tons grading 0.27 oz. gold and 5.4 oz. silver. That discovery boosted the drill-indicated and inferred resource on the property by 127%, to 8.8 million tons grading 0.21 oz. gold at a cutoff grade of 0.1 oz.

“Right now, the mineralization extends for 5.5 km of strike, and we really don’t have any indications that we’ve seen the limitations of the system,” says Lorson. Mineralization at the deposits remains open at depth, and each, except Quebrada, is open in at least one direction along strike.

Mineralization in all zones varies from about 4 to 30 metres in width and extends to a depth of 240 metres. Preliminary metallurgical testing, including grinding and cyanide leaching, has resulted in recovery rates of 95% for gold and 84% for silver.

The company expects that underground and open-pit mining will be warranted at several of those gold zones. Cutoff grades for mining purposes will be determined by feasibility studies now in progress.

Meridian plans to move two diamond drill rigs and one reverse-circulation rig to the property by April. The first crosscut is expected soon afterwards.

“We’ll be drilling 24 hours a day till the end of the year,” says Lorson.

“We’ll be turning at least a portion of the high-grade resource into a reserve.” Future work will also confirm the company’s model of the deposit.

The $2.2-million final feasibility study is expected by the end of 1997.

Meridian aims to begin construction at El Peon by early 1998 and production by mid-1999.