Farallon Minera Mexicana

Record breaker  Jeff Daniel learns how Farallon Mining used a parallel development strategy to bring its new mine on stream in record time. Most visitors to Acapulco go there seeking bronze, but for some the sun-drenched Mexican city on the Pacific coast is an access point for a newly productive source of zinc. In fact, as well as a projected 120 million pounds of zinc, the G-9 Mine in the mountains of Guerrero State, halfway to Mexico City (300 kilometers to the north) is also expected to produce 15 million pounds of copper, 1.5 million ounces of silver, 14,500 ounces of gold and 6 million pounds of lead.  The G-9 Mine forms part of the larger Campo Morado Project, a 116-square-kilometer area comprising six mining concessions 100 percent owned by Canadian mining company Farallon Mining through its Mexican subsidiary, Farallon Minera Mexicana. Mexico is a country with a long history of mining, and as a result, there is a well-established government and industry infrastructure to support mineral exploitation, not only with clear regulatory processes but also with an established network for materials and supplies, as well as contractors capable of developing mining concessions. Mining is not new to this area. One section, La Reforma, was mined on and off for a total of 20 years between 1898 and 1940, in part financing MexicoÔÇÖs revolution. The coin used today in FarallonÔÇÖs logo originated from mining at Campo Morado during those historic times. Farallon has drilled over 320,000 meters to explore and develop the Campo Morado project. The first discovery hole, #420 at G-9, was found to have very significant grades of zinc at over 14 percent and immediately identified this location as the main thrust of the business. Further work was necessary throughout 2005 and into the spring of 2006, both in terms of more exploration work and also metallurgical testing, but by April that year the decision was taken to build a mine at G-9 that would have production costs in the lowest quartile by international comparisons. The plan incorporated several areas of optimization, primarily through the use of lower-cost, open-stoping mining methods. This plan was initiated with the objective of compiling the most economically robust plan possible, given the uncertain outlook for metal prices at that time. Not only has the G-9 Mine the advantage of high grades for its various minerals, but there are also important metallurgical advantages that make mining and processing that much easier, with a more marketable product as the outcome. Farallon has the rare distinction that all its key directors are engineers, well experienced in mine development and production. As such, finance for the project was successfully raised, and by September 2006, work began on building an incline shaft toward the G-9 deposit. By the end of 2006, $80 million had been raised to pursue construction. Beginning in early January 2007, contracts for capital equipment such as ball mill, grinding mills, flotation cells and concentrate thickeners were placed in line with the companyÔÇÖs Parallel Track approach, deemed to be the quickest and most efficient method of getting G-9 into production. With permits complete and in place by April, all the previously carried-out planning and engineering could be put into place. In May 2008 an agreement with Silver Wheaton was signed giving Farallon $80 million in return for 75 percent of the life-of-the-mine silver production at Campo Morado and obviously endorsing the viability of the mine and the long-term prospects of the whole Campo Morado district. A similar agreement was reached with the Dutch Trafigura Beheer company to take mine concentrate. The principal contractor for surface work was M3 Engineering, while McIntosh Engineering was responsible for advancing the decline. Knight Piesold of Vancouver was added to design the tailings facility. In June 2007 the company received the soil permit and also signed an agreement with the National Power utility to supply power to the G-9 Mine. In December 2007 the Preliminary Economic Assessment (PEA) for the G-9 project was completed, providing a blueprint for the development of the G-9 Mine. In it, the PEA indicated that the project could be robust under the economic environment at the time, and that, more important, output from G-9 would also be able to withstand more serious market corrections. Subsequently, a new resource estimate published in March 2008 provided evidence that a mine life of 7 to 10 years, based on the mine plan at the time, could be achievedÔÇösupporting the supposition that not only would G-9 have a solid starting point, but it could also lay the groundwork for future overall growth at the Campo Morado site. By October 2008 the mine and mill were essentially completed and the first saleable concentrates were produced and trucked to Trafigura for trans-shipment. Six months later, commissioning was completed and the mine was declared to be in commercial productionÔÇöless than four years after the initial discovery hole #420 was drilled and at a cost of $149.7 million, within 20 percent of the original 2007 PEA estimate. Notwithstanding that there is still fine tuning needed to achieve a consistent 1,500 metric tons (tonnes) per day throughput at the mine, with G-9 now in production, Farallon can turn its attention to further exploration. The ultimate goal is to become a multi-mine, mid-tier, low-cost mining company, and revenue from G-9 will drive corporate growth through both exploration and acquisitions. The entire Campo Morado district represents significant opportunities, having a current indicated resource amounting to approximately 13 million tonnes. If the indications are fruitful, it could extend the anticipated life of G-9 from seven years to 20 years or more. For the past 12 months, G-9 zinc, copper and lead concentrates have been shipped to smelters and end-users mainly in China and Korea. But the bronze seekers neednÔÇÖt worry about being disturbed in their quest, as Farallon is trucking concentrates to the port of Manzanillo, well away from the beaches of Acapulco.