More mining companies looking to South America for rewards

Gold analysts say that as South Africa — the Western world’s largest gold supplier — continues to struggle with declining grades and rising costs, the focus of expansion is shifting to Latin America and the Pacific Rim.

Toronto-based junior, Greenstone Resources (TSE), is one of several Canadian companies hoping to cash in on the South American gold boom.

Greenstone, originally formed in 1983 to hunt for gold in the Andes mountains of Columbia, currently has two projects under way in that country and another three in Costa Rica.

In northwestern Costa Rica, Greenstone is exploring the El Recio concession, where a combined open pit/underground operation is expected, pending a positive production decision in October. This property will produce 25,000 oz of gold per year by 1990 at a cost of $136(US) per oz, the company says. Additional production of 16,000 oz per year at a cost of about $60 per oz is planned from Greenstone’s Oronorte mine in Columbia.

Like most junior companies, Greenstone found gold properties difficult to acquire in North America’s inflated market during the peak flow-through financing years. For that reason, it looked to Central and South America where high grade pre-production properties were still available at a reasonable price.

Greenstone president Ian Park says, “It was only a matter of time before more Canadian companies became involved in Central and South America.”

Despite risks, such as nationalization, insurrection and inconvertibility of funds, South America can offer low operating costs and attractive mineral properties.

“When I see the number of recent junior gold mine failures in Canada, I feel a little smug about our strategy of looking abroad for low cost projects,” Park says.

“Labor costs in Central and South American countries are about 10% of those in Canada and that difference can put quite a dent in operating costs,” he says. Figures compiled by Statistics Canada show that mining wages in Canada are typically the highest of all industrial sectors, topping those in forestry, transportation, construction or manufacturing.

According to the London-based metals research unit of Shearson Lehman Hutton, Latin American gold production continues to expand rapidly, and overseas companies are becoming increasingly active in the region.

Shearson adds that the South American continent, probably more than any other, now offers healthy opportunities for overseas investment in new mining projects. It says the South American mining industry still retains it romantic flavour of panning and smuggling, but mechanised, large-scale operations are becoming more common.

Nonetheless, Canadian firms hoping to cash in on the South American gold boom do face some risks, especially small- to medium- sized companies. Last year, industrial unrest erupted in several Latin American countries where low living standards combined with staggering inflation resulted in a number of strikes, several of them at mines. In Peru, for example, the number of working hours lost to strikes reached a record high. In Columbia, gold production was affected by bad weather plus sabotage at some mining operations. Guerrilla attacks occurred at one Columbian mine, while heavy rains caused a ground collapse at two others.

Obtaining diamond drill rigs, mining equipment and other supplies presents challenges for junior companies accustomed to operating in established North American mining camps. In Guyana, for example, where a number of Canadian mining companies have recently become active, sources say obtaining supplies and equipment for exploration projects is not always easy. Lack of infrastructure can be a significant obstacle in remote regions.

Canada’s biggest gold producer, Placer Dome (TSE) has taken a high profile in the South American gold search with projects in both Chile and Guyana. A Placer Dome spokesman recently told reporters: “We look for low cost and high production, so we go where we can find the best ore.”

In Guyana, Placer and joint venture partner Golden Star Resources (TSE) are busy preparing a final feasibility study for their Omai gold property, where a new mineralized zone has been discovered. The new discovery, called the Wenot Lake zone, is located to the south of the Main Stock zone, where 40.7 million tonnes of reserves grading 1.37 g per tonne have already been outlined. Other Canadian companies active in Guyana include South American Goldfields (COATS) in joint ventures with Denison Mines (TSE) and Homestake International Minerals.

In neighboring Venezuela gold production totalled 18 tonnes last year, but no Canadian companies were involved. This despite the fact that geologically the country is attractive and could sustain higher gold production levels. The absence of modern mining laws and the lack of an efficient exploration permitting system are considered stumbling blocks there.

Another big South American gold project for Placer Dome is its 50%-owned La Coipa mine currently being developed in the mountains of Chile.

Placer Dome’s partners at La Coipa include Consolidated TVX Mining Corp. (TSE), a company well-known for its Brazilian gold mining operations. At full production in mid- to late-1991, La Coipa is expected to yield annually 235,000 oz of gold at a cost of about $124 per oz, and 20 million oz of silver. Current reserves will ensure a minimum mine life of 12 years.

With several new mines under development, Chile’s gold output is expected to increase to about 38 tonnes by 1991, nearly double the current level. Other Canadian companies with projects in Chile include LAC Minerals (TSE), Cominco Resources International (TSE), Westfield Minerals (TSE).

In Brazil, where independent pick and shovel diggers called garimpeiros still account for 80% of that country’s gold production, a few Canadian companies have commercial gold mining ventures under way. Inco Ltd. (TSE), through a local Brazilian affiliate, has a 50% interest in the Crixas mine which is expected to be in production by 1990. Estimated annual production at Crixas will be about 120,000 oz, making it the country’s third largest gold mining operation.

Analysts say a fragmented mining industry, crippling inflation, and restrictions on foreigners allowing them to own only minority share- holdings have prevented more companies from entering the high risk Brazilian gold search. BOX 0600,0006,0400 TOP 10 GOLD PRODUCERS IN THE AMERICAS 88 Production (tonnes) 1. United States .197.9 2. Canada .135.3 3. Brazil .100.0 4. Columbia * 25.0 5. Chile * 21.7 6. Venezuela * 18.0 7. Peru * 11.0 8. Ecuador * 10.0 9. Dominican

Republic * 9.1 10. Mexico * 8.3 Source: Shearson Lehman Hutton (set for two columns BOXED) COMPANIES COUNTRY GOLD PROJECTS Consolidated TVX Brazil Four mines Inco Gold Crixas mine Placer Dome/Cons TVX Chile La Coipa LAC Minerals Apolinario Cominco Res Intl. Marte/Lobo Westfield Minerals Choquelimpie Bridger Resources La Pepa Greenstone Resources Columbia Oronorte Greenstone Resources Costa Rica El Recio Rayrock Yellowknife/ Bellavista/ Midland Gold Corp Montezuma Rayrock Yellowknife/ Ecuador Malacatos Midland Gold Corp Placer Dome/Golden Star Guyana Omai/Wenot Lake South American Goldfields several projects Denison Mines four concessions Imperial Metals Mexico Paredones Amarillos Terra Mines Las Manitas Cal Graphite Magdelena de Kino New Goliath Minerals Matarachi

]]>