Hot play in Mexican hot spot (48 C) — Eldorado’s La Colorada

Less than a year after it formed a joint-venture agreement to earn a 70% interest in the La Colorada property, Eldorado (VSE) has completed a pilot heap leach test and expects to be in production by the end of the year.

The speediness testifies to the ability of Eldorado management, as well as to the geological potential of Mexico and its streamlined permitting process. The property straddles a paved road, an easy 50-km drive southeast of the city of Hermosillo, capital of Sonora State in the northwest. A local radio station often refers to Hermosillo as “the hottest spot on the planet.” An exaggeration, no doubt, but with the temperature pushing 48 C at the time of The Northern Miner’s visit, a hotter spot is indeed difficult to imagine.

Eldorado is earning its 70% interest from Campbell Resources (TSE) by bringing the property into production by Sept. 30, 1999. The company also has the option of buying Campbell’s remaining 30% interest for US$5 million plus a 1% net smelter return royalty.

Eldorado recently completed a heap leach test of 30,000 tonnes of material from the El Creston deposit, the largest of four known zones on the property. Based on grades derived from sampling of the leach pile after the test cutoff date, the company was able to determine a grade of the tails. Combined with the gold produced (about 40,000 grams), the head grade of the test material is about 1.78 grams gold per tonne. Recovery is about 75%. Although the test is complete and the leach pile is being flushed with water, a small amount of gold is still being pulled from the system.

The head grade compares well with expected mining grades in the 1.86-to-2-gram range based on tight-spaced localized drilling in the test area, said Project Manager Terry Brown. He added that tenders for contract mining have gone out and he expects to receive bids shortly. Using firm cost figures from the bids that will cover earth work for the leach pads as well as a 6-month mining contract, the company will proceed with a final feasibility study.

Mining of ore and waste is expected to constitute about 70,000 tonnes per month in the fourth, fifth and sixth months of operations. Thereafter, it would increase to 120,000 tonnes per month.

Mining will begin on the El Creston zone which was last estimated to contain about 2.5 million minable tonnes grading 1.34 grams with a strip ratio of about 1.2-to-1 at a cutoff of 0.3 grams.

Earlier this year, Eldorado performed additional infill drilling on El Creston and it will upgrade reserve estimates using cost figures from the contract bids. Brown noted that the feasibility study may allow the company to expand minable reserves by deepening the El Creston pit.

The El Creston zone covers a 40-70-metre-wide oxide quartz manganese stockwork veinlet system within a sericite-hematite altered diorite granodiorite. The material is very friable and mining plans call for ripping only and no blasting.

The east-west-trending zone is initially steeply dipping — up to 80 to the north, flattening out to about 40 at depth. The zone extends to a depth of 150 to 200 metres with a known strike length of about 550 metres and remains open along strike as well as to depth.

The remaining three gold zones contain possible minable resources of: 1.7 million tonnes grading 1.09 grams gold in the Gran Central zone (about 750 metres west of El Creston); 225,000 tonnes grading 1.4 grams gold in La Colorada (about 250 metres north of Gran Central); and 530,000 tonnes grading 0.76 grams gold in Minas Prietas (immediately east of El Creston). The company will not perform development drilling on the other known zones or any exploration work until after the project is up and running, although a condemnation drilling program will be conducted on the future leach-pad site. Run-of-mine material will be stacked, with no crushing or agglomeration. Tests on crushed material increased recoveries by about 5% in the first 60 days of leaching, but Brown noted that this was not sufficient to render it economic.

The property and surrounding ground cover a gold-producing area dating back to the mid-1700s. Mining was carried out primarily underground although the El Creston zone was mined by open-pit to a limited extent.

As a result of past operations, the property has about 1.2 million tonnes of tailings grading an estimated 0.8 grams gold. Eldorado plans eventually to run tests to determine the leachability of this material, using the existing test leach pad.

Brown said that, with only one environmental agency involved in the permitting process, a project can be permitted over a 2-3-month period, provided the base-line work and an environmental study are completed. Eldorado is waiting for its key permit — that which would approve the use of cyanide. Only then, will it let a contract for the leach pad and mining. Brown is confident the project will proceed without undue delays in permitting. An environmental study was submitted in June and he expects a reply from the Mexican authorities by July 16, either approving the study or requesting further information.

Although the final feasibility numbers have yet to be completed, Eldorado estimates it will cost a further $2 million to bring the project into production. That includes working capital.

With the recent completion of a 3-million-unit placement at $2.35 per unit, Eldorado has more than enough money get the project up and running. The cash operating cost in the first two years is expected to be about US$120 per oz. Gold production of about 20,000 oz. in the first year will increase to 25,000 oz. in the second, the company expects.