Mill Expansion Project at G-9 Underway
VANCOUVER, Nov. 16 /PRNewswire-FirstCall/ - Dick Whittington, President and
CEO of Farallon Mining Ltd. ("Farallon" or the "Company") (TSX:FAN) is pleased
to announce the quarterly operating and financial results for the Company for
the three months ending September 30, 2009 and to provide a G-9 mill update.
This news release should be read in conjunction with the Company's financial
statements and MD&A, which are available on SEDAR. Currency is United States
dollars unless otherwise indicated. Farallon will hold a conference call
tomorrow, Tuesday November 17th, at 8:00 am Pacific time (11:00 am Eastern) to
discuss these results. Call-in details are provided at the end of this
release.
The Company generated cash flow from operations of $0.3 million and a loss for
the period of $0.6 million. Production included zinc contained in zinc
concentrates of 22.1 million pounds, copper in copper concentrate of 1.8
million pounds and additional by-product silver and gold. The total cash
cost(1) including transportation, treatment and refining charges and
by-product credits, was $0.45/lb of payable zinc.
In addition, the Company's Board of Directors has approved capital expenditure
of $5.3 million to proceed with a mill expansion to increase production at the
G-9 mine from 1,500 tonnes per day ("tpd") to 2,000 tpd. The Company has
engaged Axxent Engineering for engineering, procurement and construction
management services related to the project which is expected to be complete by
July 2010.
President and CEO Dick Whittington said "The third quarter was an exciting
period for the Company in which underground development activity at the mining
operations at G-9 were completed. We are now producing high-grade ore at over
1,500 tpd on a consistent basis. As well, many initiatives were undertaken in
the milling operations that allowed us to exceed our design throughput rates
in the mill during the month of October, operating at an average rate of 1,600
tpd. These initiatives have us well placed to capitalize on strong base metal
prices during the fourth quarter, and the initiation of the mill expansion
project will further enhance our position as a low-cost zinc producer. We are
also very enthusiastic about the resumption of exploration drilling on the
property".
Financial and operational highlights for the three months ended September 30,
2009 ("Q3" or "the period") compared to the three months ended June 30, 2009
("Q2") are as follows:
- Loss of $0.6 million, down from a loss of $8.0 million for Q2.
- Cash flow from operations of $0.3 million, up from cash used of $0.4
million in Q2.
- Gross profit of $2.9 million, down from $5.7 million in Q2.
- Production of 20,462 tonnes of zinc concentrate and 4,894 tonnes of
copper concentrate containing an estimated 22.1 million pounds of
zinc, 1.8 million pounds of copper, 301,202 ounces of silver and
3,355 ounces of gold from the G-9 mine. Zinc and copper production
was up from 21.3 million pounds and 1.7 million pounds, respectively,
in Q2.
- Processed 117,318 tonnes of ore with a grade of 10.8% zinc, 1.5%
copper, 203 g/t silver and 2.7 g/t gold. Production was up from
114,644 tonnes of ore in Q2.
- Sold approximately 27,004 dry metric tonnes of zinc concentrate
averaging 51% zinc, 5,947 dry metric tonnes of copper concentrate
averaging 15% copper and 2,234 tonnes of lead concentrate averaging
20% lead. Sales were up from 25,750 tonnes of zinc concentrate, 2,310
tonnes of copper concentrate and zero lead concentrate in Q2.
Subsequent to the quarter end, the Company:
- Exceeded design throughput rates in the mill during the month of
October, processing approximately 49,600 tonnes of ore (1,600 tpd or
107% of design).
- Closed a bought-deal equity financing with net proceeds of
approximately $10.2 million, increasing cash on-hand to approximately
$22.5 million as at November 1, 2009.
- Initiated a Mill Expansion Project to 2,000 tpd with anticipated
capital cost of $5.3 million and completion by July 2010.
- Re-started exploration drilling at Campo Morado with two surface
drills and one underground drill operational.
G-9 Operations
--------------
During the period, mining continued in the high-grade Southeast zone as well
as the North zone and West Extension. Development activity was completed in
the Southeast zone opening up access to the area from the south and the east
and there are currently thirteen open mining faces at G-9, nine of which are
in the Southeast zone. As well, an ore pass was completed at the end of the
quarter, significantly improving the efficiency of ore hauling from the
Southeast zone to the mill. Cemented rock backfilling was initiated during the
period in the lower portion of the North zone to allow for mining of
high-grade pillars.
In the mill, the design capacity of 1,500 tonnes per day was achieved for
extended periods of time during Q3. However, mill availability was lower than
design leading to production rates averaging 1,270 tonnes per day, compared to
1,260 tonnes per day in Q2. At the same time, enhanced maintenance programs
were implemented in the quarter and various capital projects were undertaken
to improve availability and throughput. As a result, during the month of
October 2009, the mill processed approximately 49,600 tonnes of ore or an
average of 1,600 tonnes per day (107% of design).
Metallurgy continues to be a key focus for the operations. As a result, zinc
recovery has improved to 79% in Q3 from 77% in Q2. This trend has continued
into the fourth quarter with average zinc recovery of 83% during the month of
October. Copper recovery was 46% in Q3, down from 55% in Q2; however,
continued improvements were observed into the fourth quarter with an average
copper recovery of 55% in October. During the third quarter, the Company did
not produce lead concentrate and continued not to do so into the fourth
quarter.
During the period, the Company formed a Technical Support Team to assist in
improving metallurgical recovery in the milling operations. The team includes
24 hour metallurgical coverage at the mill site as well as off-site
metallurgical test work support. Continued enhancements are expected to
improve zinc and copper recovery to 85% and 75%, respectively, during the
fourth quarter. Changes to mill management have also strengthened mill
operating performance.
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Month Recovery (%)
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Zinc Copper Silver Gold
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July 77 40 35 39
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August 80 45 35 29
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September 79 52 47 33
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October 83 55 47 31
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Key operating and sales metrics for the three and nine months ended September
30, 2009 are shown in the attached table.
Mill Expansion Project
----------------------
The Company's Board of Directors has approved a project to expand the existing
milling operations from 1,500 tpd to 2,000 tpd. Axxent Engineering has been
engaged to provide engineering, procurement and construction management
services for the project. Capital cost is anticipated to be approximately $5.3
million and the project is expected to be complete by July 2010.
The Company expects to fund the project from current cash on hand and cash
flow generated by operations.
Exploration Program
-------------------
As announced on October 8, 2009 exploration drilling was re-started at Campo
Morado. Exploration early in calendar 2008 both substantiated the geological
model and showed potential for increasing the size of the G-9 deposit and for
further G-9 type discoveries. Surface exploration drilling was suspended in
August 2008 while the Company completed construction, commissioning and
brought G-9 to commercial production and also dealt with challenges of the
downturn caused by the global credit crisis.
The objectives of the exploration program are, as follows:
1. Increase resources in and around the G-9 deposit.
2. Investigate known Abajo horizon targets to the north of G-9.
3. Test previously untested gravity anomalies to the South of the San
Raphael fault for stringer or sulphide zones that would indicate the
potential for another G-9-style deposit.
It is expected that exploration drilling will continue for the remainder of
2009 and through 2010.
Financial Results
-----------------
The Company reported a loss of $0.6 million in Q3, down from a loss of $8.0
million in Q2. Expenses declined to $0.5 million in Q3 from $9.5 million in Q2
primarily due to a $5.8 million change in non-realized foreign exchange
loss/gain. As well, interest costs, head office costs and stock-based
compensation expenses all declined in Q3 compared to Q2. Before expenses, the
Company reported an operating loss of $0.1 million in Q3, down from an
operating profit of $1.4 million in Q2 despite depreciation charges declining
to $3.0 million in Q2 from $4.3 million in Q2. The decline in operating profit
was due to a reduced gross profit of $2.9 million in Q3 from $5.7 million in
Q2.
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US$ (000) Q3 Q2
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Revenue 29,942 20,145
Cost of Sales (27,015) (14,401)
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Gross Profit 2,927 5,744
Depreciation (3,041) (4,329)
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Operating Profit (Loss) (114) 1,415
Expenses (464) (9,450)
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Earnings (Loss) (578) (8,035)
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The gross profit in Q3 was lower than Q2 due to three factors:
1. A portion of the concentrate sold, including all of the lead
concentrate sales, in Q3 was from inventory from earlier stages of
production and commissioning and, as such, carried a higher cost of
sales. The higher cost concentrate from inventory has now all been
sold and concentrate inventory consisted of less than one month's
production at September 30, 2009, all of which was produced in Q3.
2. Higher concentrate treatment charges were incurred in Q3 as a result
of strengthening zinc prices. The Company's zinc concentrate off-take
agreement includes price participation with a basis zinc price of
$1,300 per metric tonne for the balance of 2009 and then reverts to a
basis zinc price of $2,000 per metric tonne for 2010.
3. The Q2 cost of sales were reduced due to a reclassification of
depreciation from the first quarter of 2009 as the Company made the
transition from commissioning to commercial operations.
The total cash costs(1) were $0.45/lb paid zinc for Q3, up from $0.39/lb paid
zinc in Q2. The smelter treatment charges increased to $0.35/lb paid zinc in
Q3 from $0.24/lb in Q2 due to increased price participation as a result of
rising zinc prices. This trend continued over the quarter with smelter
treatment charges of $0.37/lb in September. However, improved metal prices for
by-product credits and improved copper and silver recovery during the quarter
have led to a decline in cash costs month-on-month. With increased production,
unit costs are expected to further decline in the fourth quarter.
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Jul-09 Aug-09 Sep-09
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Average LME Zinc Price ($/lb) $0.72 $0.84 $0.85
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Cost to Concentrate ($/lb) $0.46 $0.52 $0.50
Freight ($/lb) $0.10 $0.10 $0.10
Smelter Charges ($/lb) $0.28 $0.35 $0.37
Credits ($/lb) ($0.35) ($0.47) ($0.64)
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Cash Costs ($/lb) $0.49 $0.50 $0.33
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The Company had $11.0 million in cash on hand at September 30, 2009. Working
capital was $9.6 million after the inclusion of the $2.5 million current
portion of the Credit Suisse long-term debt as a current liability. Principal
payments on the debt are scheduled to begin in June 2010. Subsequent to the
quarter-end, the Company continued to strengthen its balance sheet by closing
a bought-deal financing which increased cash on-hand to approximately $22.5
million at November 1, 2009.
Q3 2009 Q2 2009 Q1 2009 YTD 2009
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Production (contained in
concentrate)
Zinc (000's Pounds) 22,137 21,319 16,895 60,351
Copper (000's pounds) 1,776 1,740 1,180 4,696
Lead (000's pounds) 0 588 328 916
Silver (ounces) 301,202 284,352 229,539 815,093
Gold (ounces) 3,355 4,443 3,309 11,107
Ore Mined (tonnes) 125,978 134,970 115,978 376,926
Ore Processed (tonnes) 117,318 114,644 106,265 338,227
tonnes per day 1,270 1,260 1,180 1,239
Zinc grade (%) 10.9 11.0 9.2 10.4
Copper grade (%) 1.6 1.3 1.1 1.3
Lead grade (%) 1.2 1.2 0.9 1.1
Silver grade (%) 205 165 170 180
Gold grade (%) 2.2 2.3 1.7 2.1
Recovery Q3 2009 Q2 2009 Q1 2009 YTD 2009
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Zinc (%) 79 77 79 78
Copper (%) 46 55 45 49
Lead (%) 0 20 16 12
Silver (%) 39 47 40 42
Gold (%) 34 52 43 43
Concentrate(2)
Zinc (DMT) 20,462 18,567 14,829 53,858
Zinc (%) 49.1 52.1 51.7 50.9
Silver (g/t) 259 206 252 239
Gold (g/t) 1.7 2.0 2.4 2.0
Copper (DMT) 4,894 5,603 3,015 13,512
Copper (%) 16.5 14.1 17.8 15.8
Silver (g/t) 822 572 694 690
Gold (g/t) 13.3 8.7 10.4 10.7
Lead (DMT) 0 1,280 650 1,930
Lead (%) 20.9 22.9 21.6
Silver (g/t) 1,540 2,005 1,697
Gold (g/t) 41.4 56.5 46.5
Site Costs (US$/t milled) $ 77.29 $ 76.28 $ 70.64 $ 74.86
Total Cash Costs
(US$/payable pound
zinc)(1) $ 0.45 $ 0.39 $ 0.44 $ 0.43
(1) See "Non-GAAP Financial Measures" on pg.15 in September 30, 2009 MD&A
for more information.
(2) These are provisional assays, subject to finalization.
DMT means Dry Metric Tonnes
The conference call can be accessed by telephone at the following numbers
(416) 644-3426 or the toll-free number (800) 731-5319. A live webcast will
also be available at www.farallonmining.com. The replay of the conference call
will be on the website after the call is completed.
Farallon's G-9 zinc, copper, silver, gold and lead mine at the Campo Morado
Property in Mexico reached commercial production in April 2009. The Company is
targeting to produce at an annualized production rate of 120 million pounds of
zinc and 15 million pounds of copper per year.
ON BEHALF OF THE BOARD OF DIRECTORS
J.R.H. (Dick) Whittington
President & CEO
No regulatory authority has approved or disapproved the information contained
in this news release
Forward Looking Information
This release includes certain statements that may be deemed "forward-looking
statements." All statements in this release, other than statements of
historical facts, that address future production, reserve or resource
potential, continuity of mineralization, exploration drilling, operational
activities, production rates, costs to completion and events or developments
that the Company expects, or is targeting, are forward-looking statements.
Although the Company believes that the expectations expressed in such forward
looking statements are based on reasonable assumptions, such statements are
not guarantees of future performance and actual results or developments may
differ materially from those in the forward looking statements and may require
achievement of a number of operational, technical, economic, financial and
legal objectives. The likelihood of continued future mining at Campo Morado is
subject to a large number of risks, including obtaining lower than expected
grades and quantities of mineralization and resources, lower than expected
mill recovery rates and mining rates, changes in and the effect of government
policies with respect to mineral exploration and exploitation, the possibility
of local disputes including blockades of the company's property, the
possibility of adverse developments in the financial markets generally,
fluctuations in the prices of zinc, gold, silver, copper and lead, obtaining
additional mining and construction permits, preparation of all necessary
engineering for ongoing underground and processing facilities as well as
receipt of additional financing to fund mine construction, development and
operation, if needed. Such funding may not be available to the Company on
acceptable terms or on any terms at all. There are no mineral reserves at
Campo Morado and there is no assurance that the mineralization at Campo Morado
will ever be classified as mineral reserves. For more information on the
Company and the risk factors inherent in its business, investors should review
the Company's Annual Information Form at www.sedar.com.
SOURCE Farallon Mining Ltd.
on Farallon Mining Ltd., please visit the Company's website at
www.farallonmining.com or contact Neil MacRae, Investor Relations Manager, at
(604) 638-2160 or within North America at 1-877-688-2050
