Meridian gives green light to El Penon

On the heels of a new discovery at the El Penon project in northern Chile, Meridian Gold (MDG-N) has decided to proceed with development of a combined open-pit/underground mine.

The Reno, Nev.-based company intends to raise US$40 million in debt financing for construction costs, which it will supplement with internal funds. The overall capital cost is pegged at US$66 million.

Construction is expected to begin in early September and last about a year, says Wayne Hubert, Meridian’s manager of investor relations.

In the meantime, the company will assess bids covering construction of a processing plant. The facility will include a crushing and ball mill circuit, a gravity circuit designed to catch 20% of the gold, and a Merrill-Crowe unit.

If all goes as planned, the first gold will be poured by late 1999, with commercial production envisioned by early 2000.

Annual production is pegged at 130,000 oz. gold and 1.9 million oz. silver over 8.5 years. Cash production costs would be below US$180 per oz., with an internal rate of return greater than 10%. To determine the economics of the deposit, Meridian used a gold price of US$300 per oz. and a silver price of US$5 per oz.

Reserves in the Quebrada Orito deposit stand at 1.1 million oz. gold and 17.9 million oz. silver. The underground portion, which accounts for 85% of the reserves, contains 4.3 million tonnes of 7 grams gold and 102 grams silver per tonne, based on a cutoff of 5 grams gold-equivalent. The open-pit portion comprises 1.6 million tonnes grading 3.5 grams gold and 74 grams silver, with a cutoff of 1.5 grams gold-equivalent and a stripping ratio of 7.6-to-1.

The main Quebrada Orito structure remains open along strike and at depth, and Meridian recently found additional, high-grade mineralization on a structure less than one kilometre from the main deposit. Hubert calls the new zone “good insurance” for a quick payback.

Known as Quebrada Colorada, the new structure runs parallel to Quebrada Orito and has been subjected to about 12 angle holes since mid-March.

Highlights from the drilling include:

* hole 211, which encountered 12 metres of mineralization grading 34 grams gold and 153 grams silver; and

* hole 214, which hit 6 metres of 70.1 grams gold and 470 grams silver.

The depth of mineralization of the holes varied from 100 to 150 metres below the surface.

The new zone was discovered following detailed mapping around the Discovery Wash resource area. Subsequent drilling found that the mineralization thickens at depth. The northerly trending structure remains open at depth and along strike, and Meridian will continue drilling there for the remainder of the year. From underground, exploration crews plan to drift 950 metres to the east, which Meridian hopes will enable it to get a closer look at the structure and expand its drill program, Hubert says.

Financially speaking, Meridian posted a loss of US$5.5 million (or 7 cents per share) for the second quarter of the year, despite higher gold production. Nevertheless, the quarter compared favorably with a loss of US$7.8 million (11 cents per share) for the same period last year. Low gold prices caused sales between the two second quarters to slide to US$15.9 million from US$16.9 million.

Production at the company’s 30%-held Jerritt Canyon gold mine in northern Nevada was up 47% during the quarter. Meridian’s share of production was 28,497 oz. at a cash cost of US$176 per oz., compared with 19,367 oz. at US$254 per oz. in the year-ago period.

Meanwhile, at the wholly owned Beartrack gold mine in Idaho, production was down slightly, at 23,680 oz. Cash costs between the two second quarters rose to US$234 from US$185 per oz. — a reflection of declining grades in the North pit.