Extorre's Cerro Moro project in Argentina set to become major low-cost gold producer

Extorre Gold Mines (TSX:XG, FSX:E1R, OTC: EXGMF) rallied on Tuesday after coming out with a first-rate preliminary economic assessment (PEA) for its Cerro Moro gold-silver project in Santa Cruz, Argentina.

The PEA, which is based on the NI 43-101 compliant resource estimate from April, concludes that the project will have total metal production of 436,000 ounces of gold and 21.4 million ounces of silver over an eight year mine life.

For the first five years, it is projected that gold production will average 76,400 ounces per year, with silver production of 3.4 million ounces per year, for an average gold equivalent production of 133,500 ounces per year at an average cash cost of US$201 per ounce.

After-tax IRR is estimated to be more than a whopping 43%, the company said.

The conceptual mine development plan of the Cerro Moro project is based on a combination of open pit and underground mining at a combined peak rate of 750 metric tonnes of ore per day.

Specifically, Extorre said production is scheduled to begin simultaneously from an underground operation at Escondida Far West - Cerro Moro's highest grade ore shoot to date - together with open pit mining from from the Escondida West-Central and Loma Escondida veins.

"The first five years of the project is designed to draw down much of the current high grade mineralization characteristic of the Escondida and Gabriela zones," said co-chairmen of Extorre, Yale Simpson and Bryce Roxburgh.

"Drilling on high grade discoveries/extensions such as Martina, Gabriela Southeast and Escondida Far West is ongoing, with a view to developing the resources required to maintain a 133,500 oz/yr gold equivalent production rate through years six to eight."

This means that current exploration activities are focused on bringing new areas of high grade mineralization into the NI compliant resource, and then incorporating these into the mine plan from year five onwards.

As it stands now, the mining plan is based on indicated resources of 590,000 tonnes at 18.9g/t gold and 805g/t silver at the Escondida vein, together with additional inferred resource of 1.97 million tonnes at 3.0g/t gold and 190g/t silver from the Escondida, Gabriela, Esperanza, and Deborah veins.

Extorre also noted that metallurgical tests completed on Cerro Moro ores to date have indicated high recoveries for both gold and silver, at 95% and 90%, respectively.

With the positive PEA results in hand, Extorre plans to complete a pre-feasibility study and is currently in contractual details regarding the process.

The environmental impact assessment for the property is already in the process of being reviewed by local authorities, with approvals expected by the end of the first quarter of next year, Extorre said.

The PEA, which does not include potential new resources from discoveries announced after February this year, is based on the NI compliant report released in April, which says that Cerro Moro hosts indicated resources of 612,000 ounces of gold equivalent with an average grade of 32.3g/t, and inferred resources of 390,000 ounces of gold equivalent. The silver contribution is considered high by industry standards, accounting for more than 40% of the total metal value.

In addition to the Cerro Moro project, Extorre owns the Don Sixto projects and other mineral exploration properties in Argentina. The company has approximately $51 million of cash in the bank. It was trading up on Tuesday by more than 3%, reaching $4.74 as of 3:06pm ET.