MercoPress. South Atlantic News Agency

UME aims for Arenal start-up in October.

Canada's Uruguay Minerals Exploration plans to bring the Arenal deposit online at its San Gregorio gold mine in Uruguay in October, company CEO Chris Clark told to the press

The company is waiting for the final environmental permit to be approved before breaking ground at the deposit 2.5km from the mill, said Clark. Arenal is expected to take production up to 100,000oz/y gold from the current 60,000oz/y.

UME acquired San Gregorio for US$2mn from Canada's Crystallex in October 2003, when the mine apparently had just two months of reserves left. Under the deal, UME also took on about US$2.5mn in unpaid debt and US$3mn-plus in contingency liabilities involving mine closure.

"We were exploring Arenal nearby and although the resource was not fully evaluated, we could see it would be quite convenient to buy San Gregorio because it would cut construction costs," said Clark.

In addition to the San Gregorio purchase price, UME has spent US$500,000 in exploration and US$6.5mn to replace the mine fleet to bring Arenal into production, said Clark.

In the meantime, UME has managed to bridge the gap to acquire permits for Arenal by finding two small ore bodies at San Gregorio after revising the data and performing an aggressive drill program.

San Gregorio's pits are now all depleted bar the Zapucay deposit, 35km from the center of mining operations.

The large Arenal deposit is still not fully evaluated with drilling ongoing, said Clark. UME estimates the phase-one pit to come on stream in October has 145,000oz of mine able gold with a grade of 3g/t gold.

The operation will process 100,000t/m for production of 9,000-10,000oz/m of gold at cash costs of lower than US$150/oz, according to Clark. Higher grades and lower production costs at Arenal, helped by shorter haulage distances, will halve current cash costs of US$300/oz, he said.

Clark is confident that initial production will be followed by the development of phases two and three at Arenal. "The strongest part of the Arenal ore body lies outside phase one. The deposit is going to get better," he said.

UME, the only metal-mining company operating in Uruguay, also has "promising" copper and nickel projects and an "interesting" diamond project in the country. Clark says the government is supportive of mining, which is seen as a diversification alternative from the agriculturally based economy.

The country charges a 5% royalty on the costs of production, split into 3% for landholder compensation and 2% for the government, rising to an 8% total after the first five years of production, said Clark. Corporate income taxes are 35%.

UME's share prices is currently trading around Cdn$5 (US$4), up from around US$3 before its purchase of San Gregorio.