Nevada Pacific puts Magistral on hold

Vancouver — The Magistral mine in Mexico’s Sinaloa state added another short chapter to its problem-plagued production history in late July when operator Nevada Pacific Gold (NPG-V) suspended mining and moved to leach-only mode.

The company acquired the open-pit mine from previous operator Queenstake Resources (QRL-T) in early 2004 for US$7 million, plus two million of its shares. At the time, the company viewed the under-performing mine as a turnaround opportunity, as well as a production base in an emerging mining district in Mexico.

Magistral was expected to produce about 30,000 oz. gold at a cash cost of US$250 per oz. in fiscal 2005. Nevada Pacific notes that while the mine has been “cash-flow positive” since April of this year, high costs for staples such as fuel, reagents, tires, and steel have made it increasingly difficult to project revenues and generate profits.

Earlier this summer, the company suspended exploration and development drilling at Magistral, pending completion of a ground-based geophysical program. Work to date has outlined several anomalies, including an area adjacent to the high-grade Prieta zone that will be drill-tested in the coming months.

The company plans to recover about 11,000 oz. gold from the heap-leach pad, and may resume mining once costs are more favourable. In the meantime, the company will use the proceeds from residual leaching to fund exploration and drilling programs at the mine, and at the company’s portfolio of gold projects in Nevada.

Several of Nevada Pacific’s projects in Nevada’s famous mining districts are optioned to major companies. Most recently, Placer Dome (PDG-T) optioned the Keystone project near its Cortez Hills, Pediment, and ET Blue gold discoveries.

Placer Dome can earn a 60% interest in Keystone by spending US$5 million on exploration over five years. This can be increased to 75% by funding a feasibility study. Nevada Pacific retains 100% of the base metal and silver rights, subject to Placer Dome’s rights to develop gold resources at Keystone. Placer Dome is similarly exploring the company’s BMX and Limousine Butte gold projects, also in Nevada.

Nevada Pacific plans to carry out a 5,000-metre drill program at Keystone to further test previously discovered massive to semi-massive sulphide mineralization. The company is also drilling its Bat Ridge gold-copper-silver project in Utah.