Sonora State: Mexico’s Carlin?

Mexico is the world’s second largest silver producer, and ranks 11th in terms of global copper production. The country’s biggest gold mine, La Herradura in Sonora state is owned and operated as a joint venture between Newmont Mining (NYSE:NEM) and Mexican mining conglomerate Industrias Penoles.

The majority of gold production comes from mines where gold is obtained as a co-product (silver and copper-gold mines) and by-product (polymetallic deposits).

Sonora is rapidly becoming the Mexican Nevada, despite difficulties with labor, equipment, and security. Not unlike Nevada 100 years ago, or any frontier town going back further. And the similarity to Nevada doesn’t end there.

Increasingly, companies operating in Sonora are alluding to “Carlin” style mineralization, though typically the allusion to the famed Nevada gold trend is bandied around too often and too optimistically. These days, “Carlin” mineralization is a promoter’s way of trying to make ultra low grade mineralization sound like good news.

The story of Carlin Trend gold is fascinating, in that the fact that gold was ever discovered in the region is as unlikely as the huge tonnage that the district delivers today. Carlin style gold is sub-microscopic -- not visible to the naked eye. In the 1960s' Dr. Ralph Roberts, considered by many to be the father of the Carlin Trend, conceived of and propagated the concept of sub-microscopic gold deposits in north central Nevada. His ground-breaking research and field work were catalysts for the more than 75 million ounces of gold (USD $51 billion at today's prices) produced on the Carlin Trend to date and the more than 100 million (USD$675 million) in gold reserves still in the ground.

Many explorers in Mexico believe that the potential for the discovery of a true analogue to the Carlin Trend is inevitable.

The characteristics of Carlin-style mineralization are: 1) shallow systems where lower grade gold occurs as disseminations in carbonaceous, limey siltstones and altered limestone and is spread out over a cloud of mineralization at depths of 500-700 feet; and 2) deeper, higher-grade sulfide gold mineralization commonly occur at depths below 1,000 feet.

There hasn’t been very much exploration to below 1,000 feet in Sonora, but usually that depth of exploration is preceded by discoveries at substantially shallower depths that justify the expense of sub -1,000 foot drilling.

Although no really spectacular mines have yet been discovered, the increasing amounts of capital and effort being expended there certainly point to the likelihood of a mine capable of producing in excess of 10 million ounces at some point in the not too distant future.

Sonora is the most actively explored among Mexico’s 31 states. Currently there are 138 companies in Sonora working on a total of 151 registered properties, seeking everything from gold and silver to copper and uranium.

Sonora has a long history of mining reaching back to Spanish colonial times.

A New York Times article dated April 14, 1882 describes a typical day in the Cochise Mining Camp in Sonora, where even then, prospectors were looking for overlooked deposits from previous Spanish miners.

According to the article, “On the hills about were the old openings, some deep and some shallow, the old dump piles at the mouths of the inclines containing ores which by our improved methods of working would pay.”

It goes on to reference a visit to the Cochise mine, “which shows a six-foot vein of good ore, two feet of which averages $1,200 to the ton, galena and silver, and some gold.”

There are q number of producing mines in Sonora, among them:

1. Newmont Mining (NYSE:NEM) owns a 44% stake in the 5 million ounce+ La Herradura Mine, an open pit, heap-leach mine located 250 miles (400 kilometers) southeast of Mesquite in Mexico’s Sonora Desert.

2. Pan American Silver’s (TSX:PAA, NASDAQ:PAAS) Alamo Dorado mine is located approximately 200 miles from the state capital of Hermosillo. Capital costs for the project to the end of 2006 were $81.5 million, within 6% of feasibility estimates. Alamo Dorado is expected to produce on average approximately 4.3 million ounces of silver and 10,000 ounces of gold annually over the life of mine, at an average cash cost of $2.82/oz of silver, net of gold by-product revenues. Production from Alamo Dorado will generate approximately 75 percent of its revenue from silver with the remainder from gold, further strengthening Pan American's status as the premier primary silver producer.

3. Alamos Gold (TSX:AGI) operates the 100% owned Mulatos Mine located within the 8,500 hectare Salamandra group of concessions in Sonora, Mexico. Mulatos is a high sulfidation, epithermal gold deposit occurring in oxide, mixed oxide/sulfide and sulfide ore types containing over 3 million ounces of gold resources. In April, 2006, the Mulatos Mine achieved commercial production. Alamos continues to outline new resources and reserves in deposits adjacent to Mulatos. The 2005 discovery of the high-grade Escondida Hanging Wall Zone just 500 meters from the Estrella pit demonstrates the excellent exploration potential of the Salamandra property. Alamos is also exploring for new ore deposits throughout the Mulatos District.

4. Capital Gold Corp (OTCBB:CGLD) is building a surface gold mine and facility at El Chanate capable of producing about 2.6 million metric tons per year of ore from which we anticipate recovering about 44,000 to 48,000 ounces of gold per year, over a seven year mine life.

5. Sierra Minerals’ (TSX.SIM) operates the Cerro Colorado mine, where heap leach operations began in 2004, after a 90,000 tonne trial heap was tested in 2003. Mining at Cerro Colorado is by conventional open pit blasting, excavating and ore hauling methods. After mining more than 15000 ounces of gold in the year ending March 2006, the mine is now undergoing the necessary equipment upgrading and capital expansion in order to reach its full production target of 30,000 ounces per annum by 2008.

6. Fronterra Copper (TSX:FCC) started production on its Piedras Verdes project in October, 2006 at an annual rate of 70 million pounds of LME Grade "A" copper cathode. Based on the mine plan, a total of 942 million lbs of copper is projected to be produced during the 18-year life of the project. The mine is 21 km northwest of the town of Alamo.