A SHORT HISTORY OF PIMENTON

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The Pimenton alteration zone was identified in 1981 during a joint venture helicopter based exploration program involving Cominco, AngloAmerican and Bernstein & Thomson Exploration Ltda. (BTX). The alteration zone was completely void of any previous mining activity. In 1982 and 1983 exploration was carried out by Cominco geologists consisting of reconnaissance geological mapping as a well as geochemical sampling of the talus slopes. Cominco’s opinion was the prospect corresponded to the root zone of a hydrothermal zone and therefore of little interest. In 1984 Pimenton was worked on by Anglo American who also came to a negative opinion.  In 1985, under the terms of the joint venture agreement, the property was turned over to BTX as being of no interest to Cominco or Anglo American.

In 1985 BTX optioned the property for five years to Newmont Mining for a royalty and payments. Over the next four years Newmont carried out geological mapping and extensive surface sampling as well as over 4,000 meters of diamond drilling and some 300 meters of underground drifting and cross cutting for which BTX provided consulting and management. The work brought into focus the vein potential of Pimenton. In 1989 Newmont fought off a hostile take over bid by taking out a large loan which had the effect of limiting Newmont’s exploration funds so Newmont brought in TVX as a joint venture partner. TVX worked on the property for a season but at the end of the five year option had problems meeting a final option payment of a million dollars as their revenue stream from Brazil was interrupted by one of the periodic Brazilian financial crisis.

During the 1991-92 exploration season, BTX carried out limited mining of one of the veins producing some 540 ounces of gold.

At the end of 1992, an option was signed with Mt Isa Mines which had an interest in the possible porphyry copper potential. In the following season, Mt Isa drilled four 400 meter diamond drill holes in the eastern section of the Pimenton alteration zone at high elevations. Mt Isa subsequently dropped its option with the justification that any possible porphyry would be very deep and too small.

In 1994 BTX reached an agreement with South American Gold and Copper Company Limited (SAGC) to explore, develop and subsequently mine the gold copper veins. This involved a cash payment and an NSR of 5 to 6 %. During the next two years SAGC drove over 4,000 meters of drifts and crosscuts on the veins as well as 9,000 meters of diamond drilling beneath the veins. A small plant with a capacity of 100 tons per day was built and 13,000 tons of vein material was processed. By late 1996 typical start up and managerial problems at the mine had been largely solved and the intention was to seek funds in the market to develop enough ore on the veins to supply a 400 ton per day operation. At this point the Bre-X scandal in Indonesia and a severe drop in the gold price made it impossible to raise funds for the proposed development plan. The mine was also affected in mid 1997 by very heavy snow falls associated with the El Nino weather cycle which damaged the camp and plant resulting in Pimenton being put on a care and maintenance.

From mid 1997 until the last part of 2004, a period of seven years, SAGC was funded by Stephen Houghton, Mario Hernandez and David Thomson who contributed between them over three million dollars to the company. During this period and until 2010, none of the three executive directors drew a salary, though some shares were given in compensation and a royalty, shared between the three and Matthew Thomson, was agreed on by the SAGC shareholders on any new properties developed by SAGC.

With the improvement of gold and copper prices at the end of 2004, SAGC raised money through the Overseas Private Investment Bank (OPIC) an agency of the American government. This included a personal guarantee for US$747,500 put up by Stephen Houghton corresponding to part of the US $2,800,000 OPIC loan. A further US$1,300,000 dollars was raised on the market. By May 2004 production had started at Pimenton. There were many start up problems mainly related to management at the mine. Three ostensibly experienced managers, two Americans from the Colorado School of mines obtained through a well known employment agency and a Chilean with a postgraduate degree from the Camborne School of Mines and another Chilean engineer, had to be let go. By May 2005 the mine was starting to improve, with geologist Matthew Thomson in charge. Over break and subsequent dilution of the veins had finally been brought under control and training of the miners was starting to produce results, plant performance improved, and the operational cash flow became positive. In June of 2005 Pimenton was subjected to very heavy El Nino related snowfalls which were coincident with unusually high temperatures resulting in large multiple avalanches in the mine area. Avalanche experts working with the company refused to allow any work to clear the mine portals from the avalanches and the mine personnel were confined to the camp area for a month. At the end of a month the access road to the mine had been cleared of snow and the one hundred and nine people at the mine safely evacuated. At this point Pimenton did not have the financial strength to continue and operations ceased. With obligations to Pimenton personnel and debts to suppliers the following months were stressful for the Pimenton Directors. David Thomson at this point contributed US $1,500,000 which took care of some of the obligations and kept the company alive. During all of this period Stephen Houghton, Mario Hernandez, and David Thomson received no salaries.

From June 2005 until the end of 2007 while looking for means to put the mine back into production the company was kept going with a further US$700,000 dollars contributed by Mario Hernandez and David Thomson together with a private placement of US$450,000 dollars.  During 2008 a further private placement of US$1,120,000 and another of US$1,400,000 by Mario Hernandez took care of the suppliers debt and kept the loan payments to OPIC up to date. By the end of 2007, US$3,500,000 was raised mostly from Chilean investors and Pimenton was back in production by March 2008.

Pimenton’s narrow veins and at times severe winter conditions are challenging and have called for improvisation. Over time answers have been developed, such as a safe open stope mining method for the veins and using tracked vehicles for mine and personnel transport during the winter, greatly reducing costs keeping the 80 kilometer road open. Bonus schemes to provide incentive for personnel on an individual basis, rare in Chile, have been implemented. Maintenance of equipment is a major problem with the only answer being to go through personnel until you have a good crew, after which you have to keep them; hence the individual bonus schemes.

The potential for a large copper gold Porphyry deposit at Pimenton started to come into focus in 2003. In that year SAGC drilled four diamond drill totaling 1,900 meters. These, while not encountering economic values, did confirm the strong possibility for a worthwhile porphyry system at Pimenton. In 2004 an option agreement was signed with Rio Tinto and three holes totaling 2,000 meters were drilled. These holes provided still further evidence for the presence of a porphyry system at Pimenton and in 2005 Rio Tinto drilled a further 1,900 meters of diamond drilling distributed in four holes. Rio Tinto then withdrew from the option citing as their opinion the potential was not large enough to satisfy their requirements. Rio Tinto’s final report mentions a potential for 400,000,000 tons running 0.40 % copper and 0.43 g/t gold with potential for higher grade bornite based mineralization at depth related to just one part of the large Pimenton alteration zone. Pimenton lies in the same central Chilean geological belt as the very large copper porphyry mines Pelambres, Andina, Disputada de las Condes and El Teniente.

In 2006 Anglo American drilled 1,000 meters trying to build on the mineralization Rio Tinto found. The first hole was placed with the idea of finding a north east extension to the Rio Tinto mineralization which it failed to do. The second hole of 1,000 meters put down in 2007 by Anglo had the objective of finding higher grade bornite mineralization beneath the Rio Tinto mineralization cut by Rio’s PMDD006. Some bornite was cut at depth but without any increase in grade and Anglo American dropped their option.

During early 2010 and early 2011 CEG having previously demonstrated the effectiveness of mobile metal ion sampling at Pimenton covered the entire alteration area with MMI sampling. In addition eight CSAMT traverses were run. The results from this work brought a number of promising anomalous zones into perspective. Sixteen deep exploratory diamond drill holes ranging up to 1,500 meters in length have been sited. The company recently acquired a suitable drill and a start has been made on the sixteen hole initial program.

Today the Pimenton mine is a producing gold mine employing 285 people. As a gold mine it has a solid future, only made even better by the potential of discovering larger better copper gold porphyry targets within the claims.

This report was prepared by Dr. David Thomson, EVP and Director of Cerro Grande Mining Corporation and a “qualified person” for the purpose of National Instrument 43-101.

About Us

Cerro Grande Mining Corporation is a Gold and Copper producing company focused on operating its Pimenton Mine as well as acquiring, exploring, evaluating and developing new gold, copper and industrial mineral properties in central Chile.

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Cerro Grande Mining Corporation
Avenida Santa María 2224, Providencia
Santiago - Chile (7520426)
ceg@cegmining.com
Tel : 56 2 25696224


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