MINING IN CHILE — Guanaco mine overcoming startup problems

The Guanaco open-pit mine has been in production for more than a year and 90%-owner Amax Gold (NYSE) is still working the bugs out of the system.

Situated 145 miles southeast of Antofagasta, the mine is accessible via the Pan American Highway (120 miles) and a newly constructed gravel, surface road (25 miles).

Amax bought the interest in 1992 for US$36.9 million and spent US$27 million developing a heap-leach facility to process up to 2.2 million tons of ore per year.

The design includes 3-stage crushing, permanent pad leaching and Merrill-Crowe zinc precipitation, with ore and waste mining handled by a contractor.

At startup in April, 1993, Amax anticipated producing 45,000-60,000 oz. gold to the end of the year at a cash cost of US$240 per oz. At full capacity, annual production was expected to reach 60,000-80,000 oz., with cash costs in the US$200-250-per-oz. range.

However, problems with the crusher and the need to improve ore control hampered production, with output in 1993 totaling only 29,862 oz. gold and 136,687 oz. silver.

The cash cost of production (net of silver credits) was US$664 per oz. But with depreciation and depletion adding another US$142 to the total, the production cost amounted to US$806 per oz.

The operating changes did, however, result in a stronger performance in the fourth quarter of 1993, with production increasing 36% from the third quarter. Results for the first quarter ended March 31, 1994, improved further, with gold production reaching 15,592 oz., up from the 11,704 oz. produced in the fourth quarter.

Cash costs improved, dropping to US$424 per oz. from US$668 in the fourth quarter.

Currently, water shortages are hampering operations, although production levels are nonetheless being maintained at an even level.

The company is searching for additional sources of water in an effort to boost production to the 80,000 oz.-per-year level and to lower costs.