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South America focused gold group Orosur Mining (LON:OMI, CVE:OMI) has started drilling on its 100 per cent owned and previously producing Mahoma project in Uruguay, which could ultimately add up to 30,000 ounces to annual production from the country.
In all, it is planning to drill 3,000 metres, comprising 2,000 metres of reverse circulation and 1,000 metres of diamond drilling.
Orosur has held the property since 2009, however, issues with land access had previously prevented exploration. These issues were resolved in the second half of 2011, and exploration can now be conducted.
Mahoma was previously operated by American Resource Corporation and produced 16,419 ounces, from processing 73,431 tonnes at an average grade of 6.98 grammes per tonne with 91.6 per cent recovery, between 1993 and 1997.
Chief executive David Fowler said: “We are pleased to have commenced drilling at the high grade Mahoma vein system in Uruguay. With a historical non NI43-101 compliant reserve of 281,000 tonnes at a grade 9.36 g/t au and significant exploration upside, we believe that Mahoma could ultimately deliver an increase in Orosur’s Uruguayan production by 25,000 to 30,000 ounces per annum with minimal capital.”
The project area contains four principal gold bearing quartz veins that were previously mined via shallow open pits. The area is located approximately 130 kilometres from Montevideo and 405 kilometres from the San Gregorio mine in the Florida Greenstone belt.
The Mahoma area is expected to contain additional quartz veins that have not yet been explored.
The four principal veins have been identified as veins I, II, IIB and IV. The II vein is the longest and most consistent that has been historically drilled and mined. It has a drilled strike length of 900 metres and a shallow open pit along 450 metres of its strike length.
Orosur’s initial drill programme is designed to confirm historical drill results for vein II, vein IIB and vein I.
This work is expected to be followed by infill drilling to target an initial measured and indicated resource of 250,000 tonnes. If this programme is successful a feasibility study to develop an underground operation producing 25,000 to 30,000 ounces per annum is planned.
This study is likely to be based on ore being trucked to the San Gregorio mine thereby limiting capital expenditure on processing plant and simplify permitting as no cyanide will be used at the site.
The company operates the only producing gold mine in Uruguay, San Gregorio, and has assembled an exploration portfolio of high quality assets in Uruguay and Chile.
Broker Cannacord Genuity said the main issue for Mahoma will be the high transportation costs.
However, it pointed out that the company planned to send ore from another deposit - Crucera (22,000 ounces at 4.6g/t open pit reserve) - to be processed at the San Gregorio plant, also 400km away, at a positive margin.
"Mahoma looks likely to be larger and have higher grades than Crucera. We expect Mahoma to be an underground operation, which should partly offset the positive impact of higher grades on costs," said Cannacord, maintaining its 'buy' recommendation on the stock and 115 pence a share target.
As at 3.05pm, Orosur shares were up 0.93 per cent, at 54 pence.