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Commissioning Phase Nearing Completion
On-Track for Reaching Commercial Production in January
VANCOUVER, Jan. 22 /CNW/ - Dick Whittington, President and CEO of Farallon Resources Ltd. ("Farallon" or the "Company") (TSX:FAN) is pleased to provide the following operational update on the Company's G-9 mine at the Campo Morado polymetallic (zinc, copper, lead, silver, gold) property in Guerrero State, Mexico. The commissioning process advanced substantially during the fourth quarter of 2008, and the mine and mill are still targeting full design production capacity in January 2009.
As previously announced (November 10, 2008 news release), all major construction activities on site were essentially complete at the end of October 2008. Since that time, Farallon has continued with its "Parallel Track" approach, completing "operational" construction of the mill, developing underground access to the high grade Southeast zone, opening stopes for production and drilling underground delineation holes concurrently with mine production and mill commissioning.
As also announced in November, the Company began operating according to a revised mine plan that focused on the most robust plan possible for the ensuing 20 month period. This was planned as a direct consequence of the deteriorating commodity market conditions at the time. Adjustments have subsequently been made to this plan to reflect the latest operational situation underground. The projected production under this revised plan is linked here (http://www.farallonresources.com/i/fan/pdf/G9ProductionPlan.pdf) and while changes on a monthly basis are evident, no material changes to the annual targets are made. This new plan will form the basis for the Company's operating budget for 2009. A comparison of the annual production targets between the two plans is as follows:
Total 2009
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November 2008 January 2009 Variance (%)
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Tonnes 547,500 550,050 0.5%
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%Zinc 12.0% 11.7% -2.8%
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%Copper 1.72% 1.57% -8.9%
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%Lead 1.20% 1.23% 2.5%
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Silver (g/t) 222.31 206.20 -7.2%
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Gold (g/t) 2.99 2.95 -1.2%
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In general, the Company's initial production targets have been met. Commissioning of the mill continues. The mill has been producing zinc, copper and lead concentrates which are being trucked to the port of Manzanillo. The Company has been receiving advance payments for the concentrates from Trafigura Beheer BV Amsterdam ("Trafigura") under existing off-take agreements on a regular basis. The Company anticipates that the first shipments of concentrates, totalling some 6,500 tonnes, will be shipped in early February. To date, no major obstacles have developed that would cause the Company to materially adjust its production targets and goals, although the recovery of copper in the copper concentrates has been disappointing to date.
The key operating results for November and December, 2008 at the G-9 Mine are shown below:
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Production Nov 2008 Dec 2008
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Tonnes Mined 31,783 31,313
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Zinc Grade 11.1% 11.5%
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Copper Grade 1.5% 1.6%
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Lead Grade 1.5% 1.1%
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Tonnes Milled 30,100 31,200
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Zinc Grade 9.7% 10.4%
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Copper Grade 1.2% 1.4%
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Lead Grade 1.3% 1.2%
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Tonnes Zinc Concentrate Produced 4,660 5,150
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Zinc Grade 49% 51%
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Zinc Recovery 78% 81%
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Tonnes Copper Concentrate Produced 860 1,080
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Copper Grade 14% 18%
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Copper Recovery 33% 42%
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Tonnes Lead Concentrate Produced 630 190
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Lead Grade 14% 20%
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Lead Recovery 21% 11%
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The mine has met the initial months projections in the 20 month mine plan announced in November 2008. Main access development has been completed and the Company is now starting to mine in the Southeast zone. Concurrently, sufficient working faces have been opened to begin to deliver design tonnage of 1,500 tonnes per day to the mill. Meanwhile, underground delineation drilling has been focused on confirming and adding resources to the areas in the North zone where mining is also underway.
The mill has performed well during the commissioning phase and has operated for extended periods at design throughput rates. Metallurgy continues to improve as steady-state operations are approached and zinc, copper and lead concentrates are all now meeting, or very close to meeting, contract specifications. Metal recoveries are now a key focus for improved performance. Full design production rates are still expected to be achieved by the end of this month.
Over the past quarter, the downturn in metal prices has necessitated continued management of the costs associated with bringing the G-9 mine and mill into full production. Concerted efforts have been made by the Company to reduce and contain costs in all areas including freezing of all salaries, a general hiring freeze, some staff lay-offs, and the renegotiation of supply contracts. The primary objective during these volatile times is to optimize operations, maximize cash flow and conserve cash. At December 31, the Company had approximately US$14.1 million in cash on hand.
Shareholders are reminded that the Company has changed its financial year end to December 31 from June 30. As a result, financial statements for the period July 1 to December 31, 2008 will be released on March 26, 2009. At that time, the Company will provide a final reconciliation of the capital costs associated with the construction and development of the G-9 mine; however, the total capital cost is still estimated to be within 5-10% of $139 million as reported in the November 10, 2008 release. The final numbers are therefore expected to be +/-20% above the estimate of $124 million in the December 2007 Preliminary Economic Assessment.
On a separate topic, shareholders should note that 76.4 million share warrants expired in December 2008, significantly reducing the fully diluted share structure of the Company. As the Company makes the transition to commercial production, this will have a material effect on any EBITDA or cash flow per share ratios.
President and CEO Dick Whittington stated, "I am extremely pleased with the ramp-up of the G-9 mine and mill. After a period of four short months, the operation is now ready for the next challenge to achieve full commercial production at 1,500 tonnes per day in January 2009. This achievement is particularly notable given the necessity for the team to focus on cost reductions and cash management during the ramp-up and commissioning phase in response to the weakening external economic environment. Farallon is now operational and is poised to take advantage of any strengthening in the metals market with an efficient operation and lean cost structure. It is particularly rewarding to have brought a mine into production while others have been closing. I am extremely proud of the whole team that has got us to this stage in our development as a mining company. Our immediate focus now is to establish an operating track record and to survive any future downturn in metal markets."
ON BEHALF OF THE BOARD OF DIRECTORS J.R.H. (Dick) Whittington President and 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 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 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 is no known ore at Campo Morado and there is no assurance that the mineralization at Campo Morado will ever be classified as ore. 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 and the Company's annual report on Form 40-F at www.sec.gov.