LATIN AMERICA — Meridian nears production decision at El Penon

Having established itself as a successful mid-tier gold producer in the western United States, Meridian Gold (MNG0-T) has now set its sights on northern Chile.

The Nevada-based company is months away from finalizing a bankable feasibility study on its El Penon gold-silver project. The study, which is being carried out with the assistance of Kvaerner Metals Davy, is examining a combined underground and open-pit operation that could nearly double the company’s current annual production of 203,000 oz. gold.

Meridian’s gold production comes from its wholly owned Beartrack mine in Idaho and its 30%-owned Jerritt Canyon mine in Nevada. Jerritt is operated by Independence Mining Company, a unit of Luxembourg-based Minorco (MNRC-Q).

Situated in the Atacama desert, 191 km southeast of the port city of Antofagasta, El Penon is accessible by a gravel road that runs off the paved Pan American Highway. The property covers 600 sq. km of contiguous claims.

The desert climate and low elevation (1,800 metres above sea level) make it amenable to year-round operations.

Since discovering mineralization on the property in 1993, Meridian has outlined total resources of 8.3 million tonnes grading 6.9 grams gold per tonne and 118 grams silver. Within that resource, 4.7 million tonnes grading 6 grams gold and 88.7 grams silver are now classified as proven and probable reserves, while another 1.2 million tonnes grading 6.3 grams gold and 88.7 grams silver are in the possible category.

The reserves, which are based on over 900 drill holes, are contained in two deposits known as Quebrada Orito and Cerro Martillo. Quebrada Orito is the larger of the two, hosting proven and probable reserves of 4 million tonnes grading 6.6 grams gold and 98.8 grams silver. Cerro Martillo hosts 700,000 tonnes of proven and probable reserves grading 2.6 grams gold and 84.1 grams silver.

A recently completed draft of the feasibility study proposes a 2,000-tonne-per-day operation that would produce 160,000 oz. gold and 1.9 million oz. silver per year. At that rate, existing reserves would last eight years, with cash costs over this period expected to average US$160 per oz. Initial capital costs are anticipated at between US$75 and US$90 million, most of which will be funded by debt (Meridian is currently debt-free and has US$53 million in cash).

The mine plan indicates that 85% of the reserves are accessible from two declines developed in the Quebrada Orito deposit as part of the feasibility study. The overhand cut-and-fill technique will be used to mine those reserves, providing 1,400 tonnes of mill feed per day. The remaining 600 tonnes will be supplied from five open pits at the Quebrada Orito deposit and one at the Cerro Martillo deposit. Stripping ratios for the five pits at Quebrada Orito are expected to average 9.4 to 1, while those for the Cerro Martillo pit are projected at 9.2 to 1.

Meridian plans to construct a standard crushing and processing circuit to produce dor bars on site. The front end of the facility will include a jaw crusher and a 2-stage grinding circuit with a semi-autogenous (SAG) mill and a ball mill. Both a gravity concentrator and a Merrill-Crowe circuit will be used to recover the gold; together, they are expected to recover over 95% of the gold and 87% of the silver.

The study assumes a gold price of US$350 per oz. and a silver price of US$6 per oz. Cash costs are considered relatively insensitive to a US$50-per-oz.

drop in the price of gold.

Mining costs are estimated at US$33 per tonne for underground operations and US$1.38 per tonne for open-pit operations. Milling costs are expected to add another US$12 per tonne milled to the cash costs.

Meridian says it will shortly begin soliciting bids from engineering firms for fixed-price engineering, procurement and construction costs. The proposals received will form the basis of a decision on whether to advance the project to production.

“Once we put together the [El Penon] study, we will have our board of directors agree that this is, in fact, the right place to put our money,” says Meridian President Brian Kennedy. “And if that decision is positive . .

then we think we can have the project up and running by late 1999.” He adds that the company plans to use contract miners at first, but hopes to replace them at a later date with its own personnel.

Geologically, the Quebrada and Cerro Martillo deposits are part of a quartz-adularia epithermal vein system that formed in a Paleocene-age rhyolite flow dome complex. Gold typically occurs as fine grains in structurally-controlled and oxidized quartz veins and hydrothermal breccias that contain virtually no base metal mineralization. Mineralization varies from 4 to 30 metres in width and extends to a minimum depth of 243 metres below.

Most of the resources on the property are associated with the two deposits, which remain open along strike and at depth. Another zone, dubbed Discovery Wash, accounts for 100,000 oz. gold, but requires additional drilling to be bumped up to the reserve category.

“It’s important to realize that we have focused on bringing this project to production,” says Kennedy. “Most of the funds spent to date went to making the initial discoveries into reserves and advancing them to feasibility . .

. [however], our expectation now is that, for the first time, we will be able to focus over three-quarters of our efforts on brand new development and exploration work.”

This year, Meridian plans to continue testing the mineralized extensions at the three deposits and several other undeveloped nearby targets. One recently discovered zone showing particular promise is Donacella. In 1997, five of the 63 exploration holes drilled at El Penon intersected the Donacella zone along a strike length of 60 metres, with true widths of up to 12 metres. The zone is associated with the same fault that hosts the Cerro Martillo deposit to the north and is characterized by a geophysical anomaly that starts at a depth of 125 metres below surface.

Results included: hole PX-56, which intersected 28 metres (from 268 to 296 metres) grading 5.2 grams gold and 125.2 grams silver, including 12 metres grading 8 grams gold and 264.2 grams silver; hole 57, which hit 26 metres (from 268 to 294 metres) grading 4 grams gold and 98 grams silver, including 8 metres of 10.2 grams gold and 308.3 grams gold; and hole 9, which returned 10 metres (from 170 to 180 metres) of 2.8 grams gold and 53.7 grams silver.

Mineralization remains open along strike and at depth.

Meridian’s only other activity in South America is at the 60-sq.-km Agua de la Piedra project, which is also situated in northern Chile. Exploration on the property, however, is still at the grassroots stage.

The company plans to acquire grassroots projects elsewhere in South America.

“We like what we see in South America and think there are good opportunities for other grassroots discoveries like El Penon,” says Kennedy. “Unlike most other people who have gone [to South America], we still believe in grassroots exploration.”