Glamis, Metallica learn urban planning

Denver — Mining investors focus on drill results, feasibility studies and rates of return to determine which securities to buy. However, mining companies must do more than play with numbers to ensure that a mining development goes smoothly and its shareholders get the return they are counting on. They must address more human concerns, which can often be more important than scientific numbers. At the Cerro San Pedro gold-silver project in central Mexico, 50-50 partners Glamis Gold (GLG-N) and Metallica Resources (MR-T) are doing just that: before building the mine, they are building a village.

Glamis and Metallica each hold 50% of the heap-leach project, just east of San Luis Potosi, close to the villages of Zapatilla and Cerro San Pedro. In fact, the site of the proposed leach pad sits squarely over Zapatilla, and the proposed open-pit will abut against the west side of Cerro San Pedro. Consequently, development of the deposit will mean displacing 20 families from Zapatilla, as well as several from Cerro San Pedro.

In August, Glamis, which operates the joint venture, began the sensitive project of constructing the village of New Zapatilla 2 km southwest of the old one, which was little more than a cluster of shacks, according to Metallica’s senior vice-president Fred Lightner. To date, the company has completed a new road into the town and site preparations for a new potable water tank.

The joint venture expects to spend US$1.8 million on site improvements in 2001, which will entail relocating the village of Zapatilla and some residents of Cerro San Pedro, stabilizing the structure of the 200-year-old San Pedro church, and setting up mine site offices.

The new houses will be built in the style of local architecture, with three bedrooms, a kitchen and bathroom, plus potable water and electricity. Local residents are carrying out the construction.

In a show of good faith, Glamis and Metallica are also building a new silver foundry for the locals, silver-smithing being a time-honoured trade in the region.

The joint venture has also established a foundation to assist in the sustainable economic and social development of the area surrounding the mine. Money donated to the foundation will be used to help preserve historic structures in Cerro San Pedro, promote tourism, and preserve the natural environment.

The 200-year-old Church of San Pedro Apostol is in the main plaza, within 75 metres of the proposed pit, so extreme care will have to be taken during blasting. To complicate matters, geophysical work beneath the church has located a sizable void, created by previous exploration companies, about 15 metres below the surface.

Glamis has completed a revised feasibility study that improves cash costs. However, the joint venture will not proceed with development until gold prices improve. Based on commodity prices of US$275 per oz. for gold and US$5 per oz. for silver, the project has an internal rate of return of 14.4% before financing costs — too low to warrant a production decision.

Capital requirements for the mine are pegged at US$44.5 million, down significantly from an earlier feasibility study, completed by previous owner Cambior (cbj-t), which estimated US$67.8 million. Glamis bought Cambior’s half-interest in Cerro San Pedro, along with several other Mexican assets, early in 2000 for US$7 million.

Over a mine life of eight years, the operation is expected to produce 80,000 oz. gold and 1.6 million oz. silver annually, or 108,800 oz. gold-equivalent at a total cash cost of US$169 per oz. Cash costs would fall to US$129 per oz. if silver were treated as a byproduct credit.

The heap-leach operation would treat uncrushed (run-of-mine) material, whereas Cambior had called for three stages of crushing. In all, the mine would process more than 6 million tonnes annually, with a stripping ratio of 1.45-to-1.

Reserves stand at 49 million tonnes grading 0.57 gram gold and 23 grams silver per tonne, equivalent to 900,000 oz. gold and 36.4 million oz. silver. Recoveries are expected to average 70% for gold and 36% for silver over the life of the operation.

The reserves sit within a mineral inventory of 159.7 million tonnes averaging 0.56 gram gold and 17.7 grams silver (equivalent to 2.2 million oz. gold and 70 million oz. silver), using a cutoff grade of 0.4 gram per tonne. At a 0.2-gram cutoff, the inventory climbs to 238 million tonnes grading 0.45 gram gold and 15 grams silver.