Metallica shares blast off (February 09, 2006)

Shares in Metallica Resources (MR-T, MRB-X) jumped 60, or nearly 19%, to a long-time high of $3.80 in early afternoon trading in Toronto on Feb. 9, after Mexico’s Secretaria de Defensa National (Sedena) removed restrictions on explosives use on part of the Cerro San Pedro gold-silver project in San Luis Potosi state.

Metallica had been prohibited from using explosives in the pit area and pit access road, which lies on land owned by the Ejido of Cerro de San Pedro. Metallica originally signed its lease with the Ejido (a group representing the historic occupants of the land) in 1997. The agreement has since been the subject of numerous legal challenges.

Earlier this year, a Mexican court rejected legal action launched by the Ejido, which sought to prevent Sedena from authorizing the use of explosives on Ejido-owned land.

Metallica says it can now proceed with full and unrestricted construction. Work has been ramping up since October in anticipation of blasting permission, with efforts focussed on the construction of the leach pad and pit access roads.

Construction is scheduled to wrap up later this year.

Cerro San Pedro is home to proven and probable reserves totalling 63 million tonnes containing 0.58 gram of gold and 24 grams of silver per tonne, for around 1.2 million contained ounces of gold and 48.4 million oz. of silver. The estimate employs conservative metal prices of US$375 per oz. of gold and US$5.77 per oz. of silver.

Measured and indicated resources (including reserves) amount to 116.2 million tonnes running 0.54 gram gold and 20.3 grams silver. Another 3.2 million tonnes of inferred material grades 0.44 gram gold and 21.7 grams silver. The resource estimates are based on a cutoff grade of 0.2 gram gold.

Plans call for average annual production of around 90,500 oz. of gold and 2.1 million oz. of silver over 8.5 years. Cash operating costs, net of silver credits, are pegged at US$177 per oz.

Construction carries a price tag of US$28.2 million, with another US$3 million required for working capital. Thereafter, another US$98 million would go to fund contract mining, with a further $7 million for capitalized prestripping.

Metallica plans to fund construction out of its current cash position; at the end of 2005 the company had $42.7 million in cash and equivalents. The company was also debt-free.