SAGC offers Pimenton debenture

South American Gold and Copper Company (SAG-T) is attempting to raise US$3.75 million to resume production at its Pimenton gold-copper mine in central Chile.

Situated 174 km northeast of Santiago, Pimenton lies in the country’s porphyry belt, between the Minera Los Pelambres and Minera de Los Condes Disputada copper deposits. However, those deposits are far larger than Pimenton, which hosts 67,800 tonnes of reserves at a grade of 18.7 grams gold per tonne and 1.56% copper.

In 1995, South American built a 35-tonne-per-day flotation plant, only to expand it to 120 tonnes in early 1996. Operations were suspended a year later, owing to severe winter conditions brought on by El Nino and a subsequent fall in gold prices.

Before the suspension, South American had driven more than 4,100 metres of horizontal and vertical workings and sunk 11,600 metres of drilling into the deposit to outline the existing reserve. The estimate assumes 22% dilution and mining recovery of 97% using cut-and-fill, with resuing, mining methods.

Pimenton also hosts an inferred resource of 208,200 tonnes grading 19.22 grams gold and 1.56% copper. The resource excludes the Maria and Carmela veins, which are beyond the limits of the mine plan.

According to a recent preliminary feasibility study, completed a few weeks back, South American must invest US$3 million to resume operations. Cash production costs thereafter should average US$180 per ounce, net of copper credits.

Annual production is projected at 13,000 ounces of gold and 310 tonnes of copper. That may increase if enough reserves are outlined to justify an expansion of processing capacity to 5,800 tonnes per month from the initial rate of 2,000 tonnes.

(Carmela, which was discovered earlier this year, about 800 metres southeast of the Lucho vein system, averaged 21.3 grams gold and 82.3 grams silver per tonne, plus 4.82% copper over a distance of 13.5 metres. The vein averages 50 centimetres in width.)

The proposed placement, which is being managed by IBK Capital, consists of a convertible debenture maturing in five years and accruing interest at a rate of 2.5% annually. The buyer can convert all or part of the note into bullion, at a rate of 740 ounces per quarter, starting in mid-2003; or, into shares priced at 15 apiece.

South American will set aside at least 13,320 ounces to cover the debenture’s full conversion into bullion, effectively giving the holder a call option priced at US$281.53 per oz. However, the debenture is reduced by US$208,333 for every 740-ounce conversion, and, correspondingly, by just over 2.2 million shares if current exchange rates remain unchanged.

The unconverted balance is payable in semi-annual installments.