McEwen grows El Gallo resource

The first phase of production at McEwen Mining’s (MUX-T, MUX-N) El Gallo deposit in Sinaloa, Mexico is scheduled to start during the third quarter, but in the meantime the Toronto-headquartered company has grown the measured and indicated and inferred silver resource at the project by 33% and 57%, respectively, while the gold resource has expanded by 4% in the measured and indicated category and by 1,040% in the inferred.

The El Gallo complex is nestled along the foothills of the Sierra Madres. McEwen Mining discovered the deposit in 2008 and the complex includes the El Gallo and Palmarito silver deposits and the Magistral gold deposit, all within a 13 km radius.

Currently measured and indicated gold resources stand at 34.4 million tonnes grading 0.51 gram gold per tonne for 566,509 ounces of contained gold, while inferred gold resources add 27.7 million tonnes grading 0.31 gram gold per tonne for 271,081 ounces of contained gold.

Measured and indicated silver resources stand at 24 million tonnes grading 68.9 grams silver for 53.1 million ounces of contained silver. Inferred silver resources add 27.4 million tonnes grading 35.1 grams silver for 31 million ounces of contained silver.

El Gallo is being developed in two phases: Phase 1 is permitted for mining and scheduled to begin production during the second half of 2012. (Phase I production is expected to average about 30,000 ounces of gold per year.)

The company is finalizing production plans for Phase 2, which will include the El Gallo and Palmarito deposits. Results from a feasibility study on Phase 2 are expected by mid-2012.

Meanwhile, exploration on the property is proceeding at a brisk pace. Earlier this year, in March, the company made a new silver discovery about 2.5 km east of the proposed mill location, that it has called CSX. The mineralization starts from surface and one intercept returned 629.4 grams silver per tonne over 6.1 metres.

While the surface signature at CSX appears smaller than that at El Gallo, the company says the geology of the two areas seems similar, made up of shallow-dipping siliceous breccia bodies, hosted within andesite volcanic rocks and quartz porphyry. Both higher grades that potentially could be milled and lower grades, that potentially could be heap leached, have been intersected.

The zone currently measures about 200 metres in length and about 50 metres in width. The majority of the intercepts occurred at or near surface, which could allow the zone to be mined by open-pit methods, and the zone remains open to the east and south.

In the new resource estimate announced June 5, the calculation was based on a cut-off grade of 12 grams per tonne silver using a heap-leach recovery process. Cut-off grade mineralization that would be processed at the mill was 23.75 grams silver per tonne. A US$28.50 per oz. silver and US$1,500 per oz. gold price were used to establish the in-pit resource. 

Mining costs for mineralized material were estimated at US$1.75 per tonne and US$1.65 per tonne for waste material. These costs are based on actual mining costs at El Gallo Phase 1, the company says. Silver and gold processing costs for milling were estimated at US$18.50 per tonne. Silver heap-leaching costs were estimated at US$6.50 per tonne and US$13.20 per tonne for gold heap-leaching.

Rob McEwen, the company’s president and chief executive, owns about 25% of the company’s shares. As of Mar. 31, McEwen Mining had cash and liquid assets of US$66.7 million, made up of US$41.1 million in cash, silver and gold bullion with a market value of US$21.4 million, short-term investments of US$3.1 million, and marketable securities of US$1.1 million.

At press time in Toronto McEwen Mining was trading at $2.69 per share within a 52-week range of $2.02-6.86. The company has about 268 million shares outstanding.