Quarterly Update to 30 June 2008

MERCATOR GOLD plc
(“Mercator Gold”, “Mercator” or “the Company”)

AIM: MCR

US OTC: MTGDY

 

LONDON: 7 AUGUST 2008

HIGHLIGHTS

  • Gold produced - 11,846 ounces, 9.2% higher than the previous quarter
  • Revenue A$12,722,615, 34% higher than the previous quarter
  • Average gold price realised A$934 per ounce
  • Surprise orebody continues to deliver +14% reconciliation of gold produced against the block model
  • Project Management Plan for Prohibition-Vivian-Consols Underground development well advanced

 

PRODUCTION

The Company produced 11,846 ounces during the last quarter, an increase of 9.2% on the previous quarter’s gold production.

Gold sold was 13,617 ounces, up 39.7% on the previous quarter.

Revenue for the quarter was A$12,722,615, up 34% from the previous quarter, reflecting an average price realised of A$934 per ounce and the increased production. The Company sold 5,889 ounces of gold into its hedge program at a price of A$906 per ounce and the balance of production was sold at the spot gold price.

A total of 320,625 tonnes of ore was processed at a grade of 1.18 g/t with a year-to-date recovery of 94.2% which was marginally better than plan.

Production from the Surprise Open Pit has been slowed resulting in a revised forecast pit completion date of December 2008.

The proximity of the Open Pit to the Great Northern Highway prompted the Board of Directors to commit capital to re-align a section of the highway to mitigate any possible risk associated with Open Pit mining.

The process of receiving statutory approvals for the realignment has been difficult and prolonged and for this reason the Company took remedial actions by way of further geotechnical testing, which reduced production from two shifts to one shift per day for a period of two months.

As a further safety measure to mitigate the risk of damage to the Great Northern Highway while operations drove through transitional material, the Company decided to retain a substantial buttress along the Eastern wall of the pit to allow natural subsidence. This strategy, whilst slowing production proved successful and the buttress was removed during the quarter.

Geotechnical engineers continue to monitor the instrumentation and ground conditions as the pit deepens, however operations are now being conducted in harder, more stable primary ore which means no further delays to operations are expected.

The impact of reduced operations as a result of additional geotechnical testing and the use of less efficient equipment due to the confined floor space in the pit resulting from the buttress has resulted in a reduction in ore production from Surprise and a revision of the forecast of the pit completion date.

Operations are now entering the first of two high grade zones in the Surprise pit are expected to generate significant cash flows in the upcoming quarter.

At the end of the quarter the Surprise open pit had a remaining reserve of 436,000 tonnes at a grade of 2.55g/t for a total of 35,750 ounces of gold. These ounces are scheduled to be recovered during the July-December half year. Waste still remaining to be removed is 793,000 tonnes. The projected cash operating cost per ounce for the remainder of the Surprise pit is A$554 per ounce.

Bluebird pre-strip continued during the quarter with waste, tailings and ore being recovered. Bluebird has a reserve of 133,000oz at 2.4 g/t and the pre-strip is on track for the top section of the orebody to be in production during the first half of 2009. Bluebird is expected to provide ore to the mill until underground operations begin stopeing later in 2009. The Company estimates that the life of mine cash cost of production for Bluebird will be A$570 per ounce.

 

OPERATING COSTS

The Meekatharra operation is experiencing serious cost increases with diesel fuel up 60% from July 2007 to end June 2008 (A$0.80-A$1.30 per litre net of rebates); grinding media (steel balls used in the milling process) increasing 20% in the year to the end of June 2008 with a further notified increase of 33% in July 2008 . Mill liners and pump parts have also increased by 30% to the end of June 2008. Overall, milling costs have increased by 40% whilst mining costs have increased by approximately 30%.

Cash operating costs for the quarter were A$12.4 million representing the continued investment in the Surprise low grade pre-strip. As noted above the Company’s cash costs are scheduled to drop significantly in the second half of calendar 2008 as the Company accesses the higher grade ore in the bottom of the Surprise pit and the benefit of much lower waste removal is experienced.

 

BATAVIA ORE RESERVE

During the quarter the Company completed a reserve estimate for the small Batavia orebody located approximately six kilometres NW of the Surprise pit. The Company estimates that 10,000 -14,000 ounces of gold can be recovered from approximately 175,000-250,000 tonnes of ore at a strip ratio of 6.5:1. Cash costs are estimated at A$550-600 per ounce. Subject to final approval for a small open pit expected to be received in late August early September the Company intends to schedule the mining and treatment of the Batavia orebody in the last quarter of 2008 and the first quarter of 2009.

 

PRODUCTION ADVICE

Production advice for the second half of calendar 2008 is in the range of 38,000-48,000 ounces.

The Company expects to produce 33,000 ounces from the Surprise pit by the end of December 2008. Subject to receiving the necessary governmental approvals which are well advanced the Company has scheduled to produce approximately 10,000 ounces from the Batavia pit by the end of December 2008.

 

PROHIBITION-VIVIAN-CONSOLS

Preparation of the Project Management Plan (“PMP”) for the Prohibition-Vivian-Consols Underground development was well advanced at the quarter’s end.

Reviews of Prohibition stope designs, decline access and strike drive development in the Vivian-Consols-Mudlode ore horizons has advanced with Production/Development schedules due for completion for inclusion in the PMP by the 3rd quarter of 2008 as previously advised.

 

The key targets based on a start date of December 2008 are:

  • Developing Vivian’s North strike drive inside 1st Qtr 2009;
  • Developing on Prohibition ore in 2nd Qtr 2009 ( Prohibition 430 level strike drive);
  • First stope in the 4th Qtr 2009 (Prohibition 430 level);
  • Exploration 420 level strike drive completed 3rd Qtr 2009. Down / UpDip drilling ready to commence;
  • Peak production expected to exceed 750,000 tonne per annum.

 

CASH POSITION AND LIQUIDITY

The Company had approximately £625,000 in cash on hand at the end of June and £600,000 of gold in transit and circuit. The Company raised approximately £4 million before costs in July through a Placing of 10 million new shares. There are a further 22,800 ounces of gold to be delivered under the hedge programme over the next eleven months.

 

EXPLORATION

Resource estimates totalling 107,800 ounces were completed during the quarter. The Euro deposit was estimated at 2Mt at 1.3g/t for 83,600 ounces and Batavia was estimated at 318,000t at 2.4g/t for 24,200 ounces. Work continues on both of these deposits.

Exploration activity during the quarter comprised 2,150m of Reverse Circulation and 405m of Diamond drilling in addition to the completion of cleaning and re-surveying historic holes at Euro. Results of the gravity survey along strike of the regional geology in the Euro area and a soil geochemical survey at Maid Marion have provided encouragement and targets for further work in both areas.

 

Euro

An initial Inferred resource of 2.038Mt at 1.3g/t for 83,600 ounces is estimated at Euro. This resource estimation included holes drilled earlier this year but excluded historic holes with no survey data as down hole deviation was found to be significant. 2008 RC drill results were previously published on 15 May 2008. During the quarter 39 older holes were resurveyed and Euro will be re-interpreted with the new data during the upcoming quarter.

Two diamond holes were drilled in the quarter to aid in interpretation of the geology. One hole intersected a thin, steeply dipping slice of barren sediments. These barren sediments are located at the top of each volcanic package and have been intersected in other holes. The other hole (08EURD041) supported nearby RC drilling intercepts of 4m at 1.8g/t and 1.0m at 2.0g/t with results of 2m at 1.5g/t and 1m at 0.8g/t respectively with mineralisation associated with quartz veins within altered volcanoclastics. Drilling highlighted the extremely weathered nature of the ground about the water table and supports the interpretation of gold being mobile about the weathering horizons.

A gravity survey along strike of the regional geology of Euro has returned several targets with similar geophysical signatures as found at Euro. These targets will be progressed as part of the 2008/2009 exploration program.

 

Hole ID

From

m

To

M

Width

m

Grade

g/t Au

08EURD042

49.6

51.1

0.5

1.7

81

83

2.0

1.5

102

103

1.0

0.8

123

124

1.0

1.2

 

Batavia

An indicated and inferred resource of 318,000t at 2.4g/t for 24,200 ounces is estimated for Batavia. During the quarter, infill RC drilling in areas of lower drill density was completed. One diamond hole (08BVRD011) for geotechnical purposes was drilled in Batavia during the quarter. In the diamond drill hole, minor gold was visible in massive quartz veins at 72 and 76 m down-hole. Results of the RC drilling confirm grade and interpreted structural continuity of the deposit. Results of the diamond hole are pending but are not anticipated to significantly affect the resource estimate. Addition of the new drilling data into the resource estimation will be completed in the upcoming quarter.

 

Hole ID

From

m

To

m

Width

m

Grade

g/t Au

Comment

08BVRC009

75

76

1.0

2.0

 

82

85

3.0

1.6

 

91

94

3.0

3.5

 

08BVRC010

48

53

5.0

1.8

 

08BRRC012

6

15

9

0.7

 

18

40

22

4.6

Incl. 1m @ 55g/t

42

44

2

0.8

 

 

Five Mile Well

Five Mile Well is located five miles north of the Meekatharra townsite. Historic production totalled 185,000t at 1.9g/t and mineralisation is interpreted to remain open along strike to the north. Seven holes for 1,140m across two sections were drilled at 300m north of the pit. A best result of 5m at 4.0g/t from 47m (08FMRC002) was returned. Results indicate mineralisation is present further north of the pit, but estimated potential tonnage is not considered sufficient to justify further work at present.

 

Hole ID

From

m

To

m

Width

m

Grade

g/t Au

08FMRC001

85

86

1.0

0.5

08FMRC002

14

15

1.0

1.3

47

52

5.0

4.0

08FMRC003

No significant results

08FMRC004

140

141

1.0

0.6

 

143

145

2.0

1.3

08FMRC005

39

40

1.0

0.6

08FMRC006

55

57

2.0

1.3

91

92

1

1.1

08FMRC007

No significant results

 

Maid Marion

A soil geochemical program at Maid Marion has highlighted two areas warranting further work. Both anomalies lie on magnetic features that have not been previously explored. A further soil sampling program to tighten the anomalies will be completed before drilling is planned.

 

Reedy

A regional review of the Reedy area was completed with 18 target areas highlighted for further work. Exploration south and along strike of the South Emu deposit (718,000t at 3.4g/t) is highlighted as the most prospective target and is a priority for the area.

Silver Swan

Mercator Gold owns 26% of Silver Swan. Recent results of the significant copper-zinc mineralisation discovered at the Austin prospect, part of the Quinns project include

33.55m @ 1.7% Cu

25.2m @ 13.7% Zn, and

7m @ 1.3g/t Au and 18.6g/t Ag.

Down hole electromagnetic (EM) work also show excellent in-hole and off-hole conductors from known Cu-Zn mineralisation reported in the recent drilling. Silver Swan plans to accelerate their exploration efforts in this area to build on these very significant early results with initial drilling directed to the west of current drill hole positions.

key

 

 

 

Managing Director, Patrick Harford, said:

“Management is pleased to report that the Company is now mining the high grade sections of the Surprise orebody. Our current exploration programmes are expanding the Company’s resources and reserves. The Silver Swan exploration success is an exciting development.

Recent funding allows the Company to accelerate the development of operations with production from the new reserve at Batavia commencing during this half.

Underground mine planning at Paddy’s Flat is now well advanced with development there expected to commence during the latter part of 2009.”

 

Competent Persons Report – Consent for release

The information in this report, which relates to the Surprise, Bluebird, Prohibition, and Vivian-Consols Ore Reserves, is based on information compiled by Alan Coles and Denis Geldard.

Alan Coles and Denis Geldard are full time employees of Mercator Gold Australia Pty Ltd and are Members of the Australasian Institute of Mining and Metallurgy

Alan Coles and Denis Geldard have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as Competent Persons as defined in the 2004 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”.

Alan Coles and Denis Geldard consent to the inclusion in the report of the matters based on this information in the form and context in which it appears.

 

For further information please contact:

Mercator Gold plc    
Patrick Harford, Managing Director Tel: +44 (0) 20 7929 1010
Email:This email address is being protected from spambots. You need JavaScript enabled to view it.    
   
   
   
Bankside Consultants Ltd Tel: +44 (0) 20 7367 8888
Simon Rothschild    
Keith Irons    
Oliver Winters    

 

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