Mountain mine in Mexico

Among the mines that Agnico-Eagle is building, the Mexican project is one of the most likely to expand well beyond its current scope.

The company began to actively look at the rugged terrain of northern Mexico in 2002,due to the area’s mining history and prospective geology, low operating costs, political stability and mining-friendly regulatory structure.

In early 2005, the company optioned the Pinos Altos project (meaning “high pines”) in the Sierra Madre gold belt, 280 km west of the city of Chihuahua. The property, then owned by Industrias Peoles S. A. de C. V., has a great location: it is directly accessible by paved highway and within 10 km of the power grid. The challenges, according to president Ebe Scherkus, are the mountainous terrain (new for the company), and the remote location, which contributes to the lack of skilled workers in the area.

In March 2006 Agnico-Eagle purchased 100% interest in the project for US$65 million in cash and shares. It approved construction in August 2007, the same month the necessary permits were received.

Gold and silver mineralization consists of low-sulphidation, epithermal veins and breccias along the 6-km-long Santo Nio structure within Tertiary volcanics. The Santo Nio zone–60% of the mineral resource–is up to 45 m thick over a length of 2 km, more than 750 m deep, and remains open to the west and at depth. Other mineralized zones are El Apache, Oberon de Weber and Cerro Colorado, plus San Eligio about 250 m to the north.

At the end of 2007,Pinos Altos had probable reserves of 24.7 million t grading 3.21 g/t Au and 92.21 g/t Ag (containing 2.5 million oz of gold and 73.1 million oz of silver) on the 11,000-ha property. As well, there were 0.9 million oz of gold and 19.4 million oz of silver in indicated and inferred resources.

The plan contemplates 4,000-t/d of ore production from open pit and underground mines, with an on-site processing facility for treatment and recovery of the precious metals. The capital cost is estimated at US$230 million, with $126 million to be incurred in 2008. Production is expected to begin mid-2009, and will average 185,000 oz of gold and 2.8 million oz of silver per year over a 12-year mine life. The expected minesite costs will average US$33/t, with total cash costs of US$210/oz of gold.

The surface mining fleet consisting of Cat 777 trucks and Cat 992 loaders has been delivered, and production stripping began earlier this year at the Santo Nio pit. The production decline for the underground mine had advanced 450 m by early May, and site preparation for the start of surface construction is underway.

Construction of the permanent camp is progressing, with local contractors building attractive, distinctly Mexican cottages of local wood and materials including hand-made furniture.

A joint team led by Agnico-Eagle and Kappes Cassiday and Associates of Reno, Nev., will manage the process plant construction and general site arrangements. A conventional SAG-ball mill followed by cyanidation and a Merrill-Crowe circuit will recover about 92% of the gold and 50% of the silver. Tailings will be filtered and placed in a dry-stack impoundment.

The potential to increase the resource and mine life are high, according to Marc Legault, vice-president, project development. Development of a 2,800-m underground exploration ramp in the footwall of Santo Nio and Cerro Colorado had advanced 1,200 m by early May 2008.Drilling on these zones will be the focus of the five-rig, $14-million program this year.

Exploration drilling also continues in the Creston/Mascota area 7 km to the northwest. The shallow resource may be amenable to open pit mining and heap leaching; an initial scoping study is expected by the end of this year.

The project is turning into a comfortable fit for the Canadian miner. In April 2008 the company received certification as a “socially responsible company” from the Mexican Center for Philanthropy and the Alliance for Social Responsibility of Enterprises.