ECR Minerals Regulatory News (ECR)

26 Feb 2008 10:01

Mercator Gold PLC26 February 2008 MERCATOR GOLD PLC ("Mercator Gold" or the "Company") Production and Financial Reviews & Exploration Update London 26 February 2008 - Mercator Gold plc ("Mercator" or "the Company") ispleased to present a review of its operations covering the period from 1 July2007 to 31 December 2007 and to comment on production through to the end ofJanuary 2008. PRODUCTION REVIEW During the six month period until the end of December 2007, the Company: •re-established and refurbished all infrastructure necessary for the commencement of gold operations at Meekatharra; •commenced mining of the Surprise ore-body in September 2007; •commenced gold production in October from low grade ores left in ramps and access ways within the older Surprise pit; •mined approximately 350,000 tonnes of ore from the low grade material at Surprise at an average grade of 0.75g/tonne almost exactly in line with a modelled grade of 0.76g/tonne; •mined approximately 3.5 million tonnes of waste from the Surprise pit (representing 52% of the total waste to be mined from Surprise); •milled approximately 475,500 tonnes of low grade ores from Surprise and other stockpiled material, an increase of 8% from the forecast; •produced 9,479 ounces of gold - an increase of 12% from the forecast of 8,456 ounces; •maintained mining costs of A$4.40 per Bank Cubic Metre (BCM) - equivalent to A$2/tonne; •achieved an average milling cost of A$14.80 per tonne which was A$2 higher than forecast due to problems associated with the primary crusher; •maintained an LTI (Lost Time Injury) free record. Towards the end of January 2008 the Company started mining the Surprise ore bodyhaving completed the necessary cut-backs and waste haulage. A total of 3,980 ounces of gold were produced against a forecast of 4,000ounces. During the month an expected positive reconciliation of the grade of theSurprise ore-body was recognised. The gold production forecast is based on a cutAu grade model for the Surprise pit; reconciliation of previous mining based onsimilar modelling produced higher grades than were anticipated. After approximately five months of operations at Meekatharra, the Companyexpects, during the period from 1 January 2008 to the end of September 2009, toproduce approximately 200,000 ounces of gold. This production will come from theSurprise and Bluebird open-pits (together containing 196,000 ounces ofreserves). Because of the variable grade of the Surprise ore-body, production is notconstant on a month to month basis but will vary as the Company mines higher andlower grade material. The Company believes that the Surprise ore-body willperform to expectations however production is still dependant on manyunpredictable factors; the most important of these are weather and plantavailability FINANCIAL REVIEW The mining industry is presently experiencing an upward pressure on costs.Mercator's Meekatharra operations are no exception and during the six months to31 December 2007 the cost of diesel, the single biggest cost in the operation,rose by 20%. Whilst to date the cost of production at Meekatharra is broadly in line withforecasts the Company has responded to these cost pressures by revising its lifeof mine cash costs for production from the Surprise and Bluebird pits. The newforecast life of mine cost will be in the order of A$570 (US$518) per ounce.Should there be increased production from the Surprise pit then the costs ofproduction will fall to approximately A$530 (US$481) per ounce. It should be noted that the Company's non-cash costs are very low in comparisonto operations of a similar size. The Company's only debt is a working capitalline drawn down to A$6 million. The capitalised value of the Yaloginda Mill andassociated infrastructure is approximately A$14m and therefore non-cash costssuch as depreciation are very low. The spot price for gold in Australian Dollars is A$991 (US$900) and has inrecent months been as high as A$1,050 (US$955). Mercator's aim is to maintainproduction at approximately half the value of the metal contained in its ores.This will be achieved over the medium term by the mixing of ores of varyinggrades as the Company brings various deposits into production. To guarantee its short term cash flow the Company decided to commit over a shortperiod of time a small proportion of its reserves. The Company sold calls over35,000 ounces at A$906 per ounce for delivery between February and September2008. The Company also bought puts at a similar price for a further 35,000ounces. This strategy means that for 35,000 ounces of its near-term productionthe Company will receive A$906 per ounce and will receive the higher of spotprice or A$906 per ounce for a further 35,000 ounces. Committed deliveriestherefore stand at 7% of the total of 504,000 ounces of probable reserves. UNDERGROUND OPERATIONS AT PADDY'S FLAT Underground reserves at Paddy's Flat stand at 2m tonnes @4.8g/t for 308,000ounces:. Underground Probable Reserves Tonnes Grade g/t Ounces Prohibition 1,372,000 4.1g/t 179,000Vivian-Consols 256,000 10.1g/t 83,000Fatts-Mudlode 362,000 4.0g/t 46,000TOTAL 1,991,000 4.8g/t 308,000 These reserves are sufficient to support a further production over a two and ahalf year period after the Surprise and Bluebird pits are finished. Mine planning and costing for the commencement of underground operations areunderway and will be reported on separately over the ensuing months. Mr StephenMiller of Red Rock Consulting has been appointed Project Manager for thisProject. Based in Western Australia, Mr Miller is a highly respected undergroundmining consultant who carried out the mine design on which the Company'sunderground reserves are based. The Company intends to conduct an aggressive exploration programme fromunderground stations to expand its resources and reserves in known areas of highgrade mineralisation. The Company will lodge its Project Management Plan (PMP)to commence operations at Paddy's Flat with the Department of Industry &Resources by the end of April 2008. EXPLORATION UPDATE During the establishment of mining operations the Company has maintained avigorous exploration programme covering a number of its advanced stageprospects.** Euro The Euro Project continues to provide the Company with promising results. Theproject, only 6km from the Yaloginda Mill, is in deeply-weathered terrain. An eight-hole diamond drilling programme to confirm the geologicalinterpretation has been successfully completed. The more notable intersections were: Hole ID Interval Intersection Depth (m) (m @ g/t Au) 07EURD003 205.9-206.3 0.4m @ 22.7g/t07EURD006 177-187 10m @ 6.6g/t (including 0.35m @ 57g/t and 0.4m @ 43.4g/t)07EURD011 96-102* 6m @ 3.0g/t 116-126* 10m @ 5.0g/t07EURD011A 65-79 14m @ 1.6g/t07EURD012 86-91.2 5.2m @ 8.6g/t (including 0.35m @ 85.1g/t) 140-142 2m @ 87g/t (including 0.3m @153.8g/t)07EURD020 110-115* 5m @ 3.8g/t07EURD021 79-80* 1m @ 94.0g/t 102-105* 3m @23.8g/t *these holes were previously reported. RC grid drilling has commenced and results from ten holes have been received todate. The better intersections include: Hole ID Interval Intersection Depth (m) (m @ g/t Au) 07EURC002 100-105 5m @ 3.1g/t 149-156 7m @ 2.1g/t07EURC007 97-108 11m @ 18.6g/t 135-143 8m @ 3.1g/t07EURC016 104-124 20m @ 4.1g/t 126-132 6m @ 3.0g/t 135-139 4m @ 3.8g/t Fenian West A programme to delineate mineralisation at Fenian West is in progress. Theprospect lies immediately along strike of the historic Prohibition pit and asuccessful exploration programme may lead to a potential open-cut option for theupper portions of the Prohibition deposit as well as adding to the Mercatorresource base. Results to date indicate continuity of mineralisation along predicted faults andconfirm the geological model. Best results include: Hole ID Interval Intersection Depth (m) (m @ g/t Au) 07FWRC026 58-65 7m @ 4.0g/t07FWRC042 78-95 17m @ 1.6g/t Macquarie One hole for metallurgical testing has been drilled at the Macquarie prospectwithin the Paddy's Flat project area. The hole confirmed the existing drillintercepts and the geological model. The intersections were: Hole ID Interval Intersection Depth (m) (m @ g/t Au) 07MQRD001 97-107 10m @2 .9g/t 111-117 6m @ 1.7g/t 120-126 6m @ 6.4g/t Managing Director, Patrick Harford, said: "Our Meekatharra operation is up andrunning. We look forward to strong production from our open cut operations andwill soon start the development of our underground reserves. Exploration at the very soft oxide Euro Project continues to be promising.Further work there and on the deeper high grade zones at Paddy's Flat shouldstrengthen the Company's resource base over the coming months." **Full details of the exploration results can be found at Mercator's website:www.mercatorgold.com Competent Persons Report - Consent for release The information in this report, which relates to the Surprise, Bluebird,Prohibition, and Vivian-Consols Ore Reserves, is based on information compiledby Alan Coles and Denis Geldard. Exploration results and resource informationwere based on information compiled by Mark Csar. A complete set of explorationresults will be posted to the website. Alan Coles, Denis Geldard and Mark Csar are full time employees of Mercator GoldAustralia Pty Ltd and are Members of the Australasian Institute of Mining andMetallurgy. Alan Coles, Denis Geldard and Mark Csar have sufficient experience which isrelevant to the style of mineralisation and type of deposit under considerationand to the activity which they are undertaking to qualify as Competent Personsas defined in the 2004 Edition of the "Australasian Code for Reporting ofExploration Results, Mineral Resources and Ore Reserves". Alan Coles, Denis Geldard and Mark Csar consent to the inclusion in the reportof the matters based on this information in the form and context in which itappears. For further information please contact: Mercator Gold plcTerry Strapp, Chairman Tel: +61 (0) 412 228 422Patrick Harford, Managing Director Tel: +44 (0) 20 7929 1010Email: info@mercatorgold.comWebsite: www.mercatorgold.com Bankside Consultants Ltd Tel: +44 (0) 20 7367 8888Simon RothschildKeith IronsOliver Winters AIM: MCR This information is provided by RNS The company news service from the London Stock Exchange