Extorre shareprice climbs on new plan for Cerro Moro silver-gold project

Back to back scoping studies will envision a bigger mining operation at Extorre's Cerro Moro silver-gold project in Argentina and possibly push back a production decision.

Author: Kip Keen
Posted: Tuesday , 21 Jun 2011

HALIFAX, NS -

It was a one two punch that bumped up Extorre Gold Mine's (TSX: XG) shareprice.

First, late Monday, Extorre announced a $25 million financing with minimal dilution and then the following morning it released a change of plans for its Cerro Moro project in Argentina that will pull in more resources than previously anticipated. Likely drawing strength from news of bigger plans for Cerro Moro, investors had pushed Extorre's shareprice up C$0.43 to C$11.66 as of presstime.

Up until now, Extorre had planned to release a higher level prefeasibility study (PFS) for the Cerro Moro project in July. That plan, however, was made before Extorre discovered the Zoe zone, a whole new area of mineralization that Extorre believes will bring in significant new resources to the project.

But resources Extorre expects to outline at Zoe will likely, at least for this year, fall into the inferred category. The dilemma there, as Extorre put it, is twofold: First, that "a PFS cannot include ‘inferred resources'" and, second, that it "can only be followed by another PFS or a feasibility study, not a PEA (scoping study)."

In other words, if it released a prefeasibility study now, Zoe would miss the boat and Extorre would have to wait up to a year, it said, before it could upgrade those resources and make them part of a prefeasibility study. But a scoping study, on the other hand, can include inferred resources.

And so Extorre, itching to bring in Zoe, said the coming study, and another thereafter, would stay at the scoping level.

"I really believe we'd be building the wrong mine without Zoe," said Rob Grey, Extorre's vice president of corporate development, who also noted that other than inclusion of some inferred resources, much of the engineering and design in the coming scoping studies is at the prefeasibility level.

An important implication of the change in plans to stick with scoping studies to bring in Zoe is that a production decision at Cerro Moro may not come as soon as Extorre had originally planned.

In a research note to clients BMO mining analyst John Hayes pointed out that Extorre had previously indicated its board of directors could decide to go to production at Cerro Moro following the originally planned July prefeasibility study, "suggesting Cerro Moro was poised to proceed directly to development and construction as opposed to moving the project to feasibility.

"However, changing the PFS to a PEA implies this strategy could potentially be rethought and/or that a board decision to proceed directly to development could be delayed until the updated PEA is released later this year."

Extorre's Grey, while he declined to comment in detail about the timing of production decision, said that the BMO speculation was "fair comment." He also pointed out that projects such as AngloGold Ashanti's Cerro Vanguardia gold-silver mine, also in Argentina, went to production without feasibility studies in place.

As for details of the scoping studies, Extorre said that the first of these, due out in July, would not include mineralization at Zoe, but would consider planned throughput in the mine design at both 1,000 tonnes per day - higher than previously planned - and 750 tonnes per day. It would also update precious metals prices to $1,320 per ounce gold and $26 per ounce silver and use a 50:1 silver to gold equivalency ratio instead of 60:1.

Then, by year end, with a resource update in hand, Extorre would bring Zoe into the fold in a second scoping study and yet again bump up production this time to as much as 1,500 tonnes per day. So far Extorre's Cerro Moro resources stand at 590,000 tonnes @ 18.9 g/t gold and 805 g/t silver in the indicated category and two million tonnes @ 3.0 g/t Au and 190 g/t Ag in the inferred.