Farallon Updates G-9 Production Status While Managing Project Expenditures

Farallon Updates G-9 Production Status While Managing Project Expenditures

Dick Whittington, President and CEO of Farallon Resources Ltd. provide an update of activities at the Company’s G-9 polymetallic (zinc, copper, lead, silver, gold) operation on the Campo Morado property in Guerrero State, Mexico, as well as a general corporate update.

As announced in August 2008 mining at G-9 has proceeded based on a 17-month plan, with an initial production rate of 20,000 tonnes per month, increasing to 45,000 tonnes per month by January 2009. The Company also announced that it was reviewing the mine plan with the objective of compiling the most economically robust plan possible, given the uncertain outlook for metal prices at that time.

The revision to the mine plan has now been completed. The new, 20-month plan incorporates several areas of optimization primarily through the use of lower cost, open stoping mining methods. The use of open stoping mining methods also significantly reduces the amount of underground development required to open up the target mineralized areas. Additionally, the mine plan now accesses the high-grade areas of the Southeast zone earlier than was previously anticipated.

Under the new mine plan, some 800,000 tonnes of material at an average grade of 12% Zn, 1.6% Cu, 1.3% Pb, 230 g/t Ag and 3.2 g/t Au are mined between November 1, 2008 and June 30, 2010. The plan includes production of 30,000 tonnes per month (approximately 1,000 tonnes per day) from the North and West Extension zones during November and December 2008, ramping up to full production of 45,000 tonnes per month (1,500 tonnes per day) when mining in the Southeast zone gets underway in January 2009. Mining of the high-grade portion of the Southeast zone is scheduled to commence in February 2009, with average grades of 16.2% Zn, 2.3% Cu and 0.7% Pb expected to be mined during the month. Graphs showing the expected production under the plan will accompany this news release on the Company’s website. A Technical Report on the new plan will be issued in 45 days.

Given the recent volatility in metal prices, the Company’s near-term, primary objectives are to maximize cashflow and to minimize costs. The new mine plan outlined is designed with those objectives specifically in mind. In addition, Farallon is actively assessing options to increase production to the 2,000 – 2,200 tonnes per day level, as a means of further reducing the impact of fixed costs on the production of concentrates. These studies are ongoing and now form part of our operational optimization efforts.

Drilling activities continue to be focused exclusively underground and will remain so for the foreseeable future. The immediate focus is to delineate the resource base of the Company by underground drilling on closely-spaced drill patterns, thereby providing sufficient definition for detailed operations mine planning. Surface exploration has been indefinitely deferred until metal prices improve.

All engineering, procurement and construction management (“EPCM”) activities on site were completed on October 31, 2008. Since then all remaining construction activities have taken over by Farallon’s site team. As a result, contracting companies such as M3 Engineering and Technology Corporation (“M3″, EPCM oversight) and Knight Piesold (tailings storage, water retention facility design and construction oversight) have demobilized, while Wabi Development Corporation’s presence (“Wabi”, manpower) has been reduced to a specialized raise-mining team. JDS Energy & Mining Inc. (“JDS”, mine planning and expediting services), who played a key role in the development of the recent mine plan and directed operations underground during the development phase of the mine, will now only provide input on a consulting basis to our underground mining operations team.

The Company has now closed the books on the construction portion of the project and, once a full reconciliation of the project and cost accounts has been made, a final project capital spending estimate will be announced. In the meantime, all contracts are being closed out and all local contractors are also being demobilised. An increase in the capital estimate is expected; however, the increase is anticipated to be within 5 – 10% of the previous estimate of $139 million.

In tandem with optimizing its mine plan, the Company has also been actively assessing and implementing cost reduction measures at site and in its corporate offices in order to conserve capital. Payments for concentrate shipments were initiated during October 2008. These payments will supplement working capital moving forward; however, operations are currently in a high cost mode due to the underground development in the mine required to access the initial mineralized zones to be mined, along with the high cost of commissioning the mill. Coupled with the dramatic fall in price of the Company’s prime products during the last month, the ability of the Company to operate profitably on a continuous basis is under constant review. At the current time the Company believes that it can continue to operate, even at current metal prices.

Dick Whittington said: “Construction activities at the site are now winding down and I would like to thank M3, Knight Piesold, Wabi and JDS for their considerable efforts to complete these activities over the past year. In particular, I would like to thank Stephen Godden of S. Godden & Associates Ltd. for his key role in the production of the new mine plan. We have an excellent mine plan and are completely committed to its effective implementation. The Farallon team has assumed full responsibility for operations moving forward, which under current market conditions is particularly challenging. However, we have an excellent asset below ground and a first class asset above ground and we remain fully focused on maximizing their value over the coming months.”

Stephen Godden, C.Eng, FIMMM, an independent qualified person who is supervising mine planning on behalf of the Company, has reviewed the information concerning the mine plan in this news release.

Note: No Mineral Reserves have yet been defined for the G-9 deposit, although a minimum cut-off Net Smelter Return (NSR) value has been defined for purposes of mine planning and scheduling. Readers are referred to the Company’s news release of March 17, 2008 for details of the Measured, Indicated and Inferred Mineral Resources applicable to G-9.

Share this post