Hoping to return to the ranks of producers,
Situated 180 km northeast of Santiago, Pimenton sits in the central porphyry belt, midway between the Minera Los Pelambres and Minera de Los Condes Disputada copper porphyry deposits. Unlike those deposits, mineralization here is characterized by high-grade, narrow quartz-sulphide veins.
Two ridges characterize the local topography, being separated by the Pimenton glacial valley. Stopes are steep, so avalanches are common during the winter months.
The property is underlain by andesitic lavas, lithic tuffs and agglomerates, intruded by monzonitic and granodioritic stocks. Late-stage tourmaline breccia bodies also occur.
Hydrothermal alteration is extensive, having affected all rocks in an area of 20 sq. km, centred in the valley. Within the argillic halo, zones of quartz-sericite alteration form the ridges that flank the valley, and there are strongly silicified sectors in the central part of the eastern ridge and in the southwestern end of the western ridge.
Quartz veining also is widespread, and the favourable Lucho system on the eastern ridge is the most extensively developed. The veins strike northeast, perpendicular to the local structural trend and to the faults that have been mapped.
In 1995, South American ran a 35-tonne-per-day pilot plant while driving adits into the Lucho and a separate vein system, Maria Elena; it expanded the plant capacity to 120 tonnes in early 1996. The operation lasted another year before severe winter conditions, brought on by El Nio, and the subsequent fall in gold prices forced a suspension to operations.
By then, the mine had produced 3,559 oz., some in the form of dor bars, and some in concentrate that also contained 110 tonnes copper. At the decade’s start, the original vendor had poured 1,182 oz. of the yellow metal from 192 tonnes of vein material.
In 1999, South American contracted an independent scoping study of the mine, which was recently updated to the preliminary feasibility stage. The report concludes that Pimenton can be restarted with a capital infusion of US$3 million, which includes US$430,000 in sustaining capital.
Miners will tap the Lucho veins using cut-and-fill after resuing (blasting out waste on one side). The selectivity of the method is expected to take out 98% of reserves, assuming a mining width of 0.45 metre and dilution of 0.1 metre.
Reserves are pegged at 67,800 tonnes grading 18.7 grams gold per tonne and 1.56% copper: this is significantly less than previous estimates, partly reflecting new regulatory requirements. Nevertheless, the reserve is sufficient for three years of production at the proposed milling rate.
Roughly 2,000 tonnes of material will be mined per month to produce 13,000 oz. gold and 310 tonnes copper per year. This could rise to 40,000 equivalent-ounces annually should enough new reserves be outlined to justify a proposed expansion to 5,800 tonnes.
To help improve metal recoveries over previous rates, the report calls for the instalation of a secondary crusher, a regrind mill and a better gravity circuit in the existing mill. The enhancements are expected to translate into overall recoveries of 92% for gold and 91% for copper.
Coarse gold can be processed on site into dor bars, whereas the gold-rich copper concentrate must be trucked 192 km to the government-run Ventanas smelter, the same smelter that processed the concentrates from the pilot plant.
Cash production costs are pegged at US$180, net of copper credits, and total costs at US$265 per oz. Both include provisions for new workings so that miners can gain access to an inferred resource that lies under the known reserve.
Life-of-mine revenue is projected at US$13 million, free cash flow at US$2 million and the internal rate of return (IRR) at 30%. The IRR is most sensitive to revenue, with a 10% fluctuation causing it to swing by nearly 20%.
Payback occurs in the second year of production.
Inferred resources stand at 208,249 tonnes averaging 19.2 grams gold and 1.6% copper. The report says those resources could add nearly two years to the operation’s life at no additional cost.
The resource incorporates mineralized projections from existing drifts, which occur on four levels spaced 40 metres apart, between 3,430 and 3,560 metres above sea level. Old drilling results were used as well, with the deepest intersection having returned 21 grams gold and 7% copper across 36 metres of veining, some 245 metres below the lowest level.
Similar to the reserve estimate, the resource is based on a cutoff grade of 12.9 grams gold-equivalent, which assumes a gold price of US$310 per oz. and a copper price of US68 per lb. The estimate also assumes the same mining and dilution widths, but excludes a mining recovery factor.
Other promising areas include the Maria Elena and Carmela veins, which sit 1 km south and 800 metres southeast, respectively, of the Lucho veins. South American had driven four adits into the Maria Elena system before focusing on the Lucho area.
Unlike the Lucho veins, Maria Elena sits on the western ridge, and the veins follow the overall structural trend of the region. It varies from 0.1 to 0.5 metre in width and carries up to 44 grams gold, 348 grams silver and 7.7% copper.
The Carmela vein, which was discovered earlier this year, sits on the eastern edge and parallels the Lucho veins. The vein averages 0.5 metre in width and ran 21 grams gold, 82 grams silver and 4.82% copper over 13.5 metres of channeling.
Overall, high-grade veins have been found over an area of 3 sq. km.
The proposed financing is being carried out privately and consists of a convertible debenture maturing in five years and accruing interest at a rate of 2.5% annually, starting in 2003. Six months later, the buyer can begin converting all or part of the note into 740 oz. per quarter, or into shares fixed at 15 apiece.
South American will set aside at least 13,320 ounces to cover a full conversion into bullion, effectively making the debenture a call option priced at US$281.53 per oz. However, the debenture is reduced by US$208,333 for every conversion, and, correspondingly, by just over 2.2 million shares if current exchange rates remain unchanged. The unconverted balance is payable in semi-annual instalments.
IBK Capital is acting as the company’s agent.
South American continues to seek US$7.4 million in project financing for its Cal Norte lime deposit, also in Chile. At last report, measured and indicated resources stood at 1.18 million tonnes grading 90.4% calcium carbonate.
Another 790,000 tonnes grading 89.5% calcium carbonate are classified as inferred resources. A separate deposit, dubbed Ceci Tres, hosts 1.9 million tonnes grading 87.9% calcium carbonate.
South American envisages a 150-tonne-per-day operation.
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