GOLD MINE DEVELOPMENT – Arenal Startup Set for October

URUGUAY - Canada's URUGUAY MINERALS EXPLORATION (UME) plans to bring the Arenal deposit online at its San Gregorio...
URUGUAY - Canada's URUGUAY MINERALS EXPLORATION (UME) plans to bring the Arenal deposit online at its San Gregorio gold mine in Uruguay in October, said CEO Chris Clark. The company is waiting for the final environmental permit to be approved before breaking ground at the deposit 2.5 km from the mill, said Clark. Arenal is expected to boost annual production to 100,000 oz of gold from the current 60,000 oz.

UME acquired San Gregorio for US$2 million from Toronto's CRYSTALLEX in October 2003, when the mine apparently had just two months of reserves left. Under the deal, UME also took on about US$2.5 million in unpaid debt and US$3-million-plus in contingency liabilities involving mine closure.

"We were exploring Arenal nearby and although the resource was not fully evaluated, we could see it would be quite convenient to buy San Gregorio because it would cut construction costs," said Clark.

In addition to the San Gregorio purchase price, UME has spent US$500,000 in exploration and US$6.5 million to replace the open pit equipment fleet to bring Arenal into production, said Clark.

In the meantime, UME has managed to bridge the gap to acquire permits for Arenal by finding two small orebodies at San Gregorio after revising the data and performing an aggressive drill program.

The large Arenal deposit is still not fully evaluated with drilling ongoing, said Clark. UME estimates that the phase-one pit, which is to come onstream in October, has 145,000 oz of minable gold with a grade of 3 g/t Au.

The operation will process 100,000 tonnes/month for production of 9,000-10,000 oz/month of gold at cash costs of lower than US$150/oz, according to Clark. Higher grades and lower production costs at Arenal, helped by shorter haulage distances, will halve current cash costs of US$300/oz, he said.

Clark is confident that initial production will be followed by the development of phases two and three at Arenal. "The strongest part of the Arenal orebody lies outside phase one. The deposit is going to get better," he said.

UME, the only metal-mining company operating in Uruguay, also has "promising" copper and nickel projects and an "interesting" diamond project in the country. Clark says the government is supportive of mining, which is seen as a diversification alternative from the agricultural economy. The country charges a 5% royalty on the costs of production, split into 3% for landholder compensation and 2% for the government, rising to an 8% total after the first five years of production, said Clark. Corporate income taxes are 35%.

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