Meridian’s Minera Florida set to bloom

Meridian Gold (MNG-T, MDG-N), already the largest gold producer in Chile, is planning a major expansion of its new mine in the country.

The Minera Florida mine, Meridian’s newest operation in Chile, is located in Alhu, about as different a setting from the Atacama Desert — home of the company’s existing El Peon operation — as it gets.

Set in Chile’s verdant coastal mountain range, Minera Florida’s neighbours include horse and cattle breeders and vineyards that produce the fruity red wines that fill supermarkets from Tokyo to New York.

And in summer months, campers and water-sports enthusiasts flock to the nearby Aculeo lagoon on the other side of the hill from the underground gold mine.

But Meridian CEO Ed Dowdling says the very different business of mining is widely accepted by locals, mainly because it has been going on for close to 200 years, when Spain’s gold-hungry conquistadores first settled in the area.

Despite centuries of mining in the district, the size of the mineral resources had never been properly investigated before Meridian’s involvement.

Previous owners Grupo Minero Las Cenizas, one of Chile’s largest locally owned mining companies, ran the mine more like a traditional family firm rather a modern natural resources business, Dowdling says.

“That meant they did not need more than eighteen months of reserves in front of them to keep mining,” the executive notes, so nobody had a clear idea of the size of the mineral resource at the site — at least not one that would be accepted by institutional investors.

So Meridian sent a team of geologists to measure the size of the mineral reserve at Alhu.

“I reckon the mine saw more drilling in those nine months than in the previous hundred years,” Dowdling says.

Once satisfied with the 1.2-million-oz. gold resource (with silver and zinc byproducts) they outlined, the company decided to pounce, exercising its option to purchase Minera Florida at the previously agreed price of US$100 million, six months before it was due to expire at the end of last year.

“We decided we just had to pull the trigger; it was a no-brainer,” Dowdling says.

More drilling allowed the company to convert 400,000 oz. of resources to reserves.

Meridian is now engaged in further exploration and infill drilling to convert yet more resources to reserves and to lift resource figures for the district.

Production expansion

The next move will be to expand production.

The mine currently produces around 35,000 short tons of ore per month, allowing it to produce 60,000 oz. gold annually, as well as silver, copper and small amounts of zinc concentrate.

The company is working on an expansion that should see it double throughput at the mill to around 65,000 tons a month and lift gold production beyond 100,000 oz. gold per year.

Dowdling says Meridian hopes to do this mostly using existing infrastructure, with the addition of a ball mill, expanding flotation capacity and upgrading the mine’s fleet of loaders and trucks.

That should cost around US$15 million, he estimates, although a clearer figure will become available once a feasibility study on the expansion is completed later this year.

“It will depend on whether or not we plump for an ore pass to extract the ore lower down, but that should pay for itself,” Dowdling explains.

Work on some parts of the expansion has already begun and even before exercising the purchase option, Meridian invested in a lined tailings pool at the mine, making it the first operation of its size in Chile to have one.

The company aims to complete work on the expansion by the end of next year, allowing for a ramp-up in production during 2009.

Dowdling sees the success of the Minera Florida purchase as proof that Meridian’s combination of an aggressive acquisition strategy with strong local knowledge is a winning one.

Hidden opportunities

As a privately owned business, Minera Florida had passed under the radar of other mining firms, despite its significant potential and Dowdling believes that there is a good chance that other Chilean mining businesses could offer similar opportunities to investors who know where to look.

But Meridian’s careful cultivation of its Chilean business, beginning with the El Peon mine, has also helped.

Just one American executive is employed at its Chilean operations.

“In fact, we have several more Chileans at our Reno, Nevada, offices than we do Americans in Chile,” Dowdling says.

This image as a largely Chilean company has helped it attract new business.

When Chile’s national copper company Codelco was looking for a partner for the Jeronimo project, after exercising an option to take control of Minera Agua de la Falda from Canada’s Goldcorp (g-t, gg-n), the state-owned company went straight to Meridian.

“Our strength in gold and the fact that people see us as a Chilean company made it politically easier for them to turn to a company like us,” Dowdling says.

Meridian, which paid Codelco US$20 million for a 57% stake in the company, is now looking at how best to develop a mining operation at the site, close to Codelco’s Salvador mining division.

“We’re drilling to confirm the reserves, but the key will be how we unlock the metallurgy,” Dowdling explains.

Previous owner Homestake Mining looked at using an autoclave at the site without success.

Dowdling suggests a more “South American approach” to mining the site, using less capital and selling gold concentrates to any one of three smelters in the region, could work.

“There are no autoclaves in use in Chile outside of hospitals,” Dowdling notes.

Again, local knowledge will be vital.

— The author is a freelance reporter based in Santiago, Chile.