Varvarinskoye advances

Vancouver — Despite winter weather constraints and a change in project engineers, European Minerals (EPM-T, EPMCF-O, EUM-L) is on track with development of its Varvarinskoye open-pit gold-copper project in north-central Kazakhstan, and plans for production to begin in early 2007.

Following the start of construction in mid-2005, a severe winter essentially shut down development from December through February. It has resumed, however, with the processing plant, workshops and a tailings dam all under construction, and pre-stripping of the orebodies under way.

The Varvarinskoye gold-copper skarn deposit, first discovered in 1936, was extensively drilled by the Soviet Geological Survey in the late 1980s with about 100,000 metres in 777 holes. European Minerals acquired its initial 49% indirect interest in the project in 1995, and subsequently completed a feasibility study in 1998. However, low metal prices prompted the company to put the project on care and maintenance until 2003. Revised engineering studies were launched to optimize the plans and included further drilling to confirm the Russian data. The company has since boosted its ownership to a full 100%.

Varvarinskoye hosts proven and probable reserves of 60.3 million tonnes grading 1.2 grams gold per tonne, including 15 million tonnes averaging 0.81% copper, for about 2.3 million contained ounces gold and 269 million pounds (122,000 tonnes) contained copper. Measured and indicated resources stand at 118 million tonnes of 1 gram gold, including about 30 million tonnes averaging 0.65% copper. Studies indicate the deposit has simple metallurgy. The project is expected to treat about 4.2 million tonnes of ore annually with a waste-to-ore stripping ratio of 4.17:1 and an expected mine life of 15 years. The mine is expected to produce about 130,000 oz. gold annually over its life at a cash cost of US$158 per oz., net of copper credits.

In late 2005, the company capitalized on strong gold prices and secured a US$75.4-million loan with a banking consortium to fund the debt portion of the estimated US$145 million needed in project financing. As part of the debt agreement, European Minerals arranged a gold hedge facility, selling 443,000 oz. at US$574.25 per oz. for delivery over an 8-year term. The hedge agreement represents about half of the planned gold output over the 8-year period and is about 19% of the project’s proven and probable reserves.

In addition to the debt financing, the company recently closed an $81-million equity financing by issuing 77 million units at $1.05 apiece. Units consist of one common share and half a warrant with full warrants exercisable at $1.55 for five years.