Mercator Gold PLC

Copper Flat Project

Mercator holds an exclusive option over the Copper Flat project, a porphyry copper-molybdenum-gold-silver deposit in the Las Animas mining district of New Mexico, United States and a former producing mine.

It is believed that the Copper Flat project, which has significant infrastructure in place, could be brought back into production within a relatively short timeframe for a relatively low capital outlay.

Mercator has completed a verification of the historic reserves of the Copper Flat deposit and an evaluation of the economics of the project on the basis of current industry costs. Requirements to secure all permits for a return of the project to production are being assessed.

Re-analysis of a statistically significant selection of pulps from historic drill holes completed at Copper Flat is currently underway, and Mercator has commenced a new six-hole programme of confirmatory drilling that will also provide geotechnical data for a planned open pit.

Ongoing work at Copper Flat is oriented around the completion by SRK Consulting of a preliminary economic assessment of the return of the Copper Flat project to production.

Historic Reserves of the Copper Flat Deposit

Metric tons

Total reserve: 45.5Mt

Cu                           Mo                         Au                          Ag

Grade                                   0.45%                   0.015%                  0.15g/t                  2.25g/t

Contained Metal              203,000t               6,600t                    223,900oz            3,299,500oz

Cut-off grade: 0.23% Cu

Short tons

Total reserve: 50.2Mt

Cu                           Mo                         Au                          Ag

Grade                                   0.45%                   0.015%                  0.14g/t                  2.04g/t

Cut-off grade: 0.23% Cu

Reference: Reserve Audit, Copper Flat Project - Pincock, Allen & Holt (1999, 1998, 1997)

About the Copper Flat Project

Much important infrastructure remains in place at Copper Flat, including the tailings pond, 19 miles of power lines, access roads and a major system of diversion dams and channels. Electrical power is available at site from the local grid. In addition, a pre-strip of the ore body has been completed, which along with the infrastructure in place represents a substantial proportion of the capital investment that would be required if the project were to be brought into production from scratch.

The deposit has a low estimated stripping ratio of approximately 0.9:1, based on previous mining plans. Some 181 reverse circulation and core drill holes have previously been completed (equating to approximately 39,000 metres) along with approximately 300m of underground drifting.

Extensive feasibility studies on the restart of production at the project were carried out during the 1980s by reputable technical consultants including Dunn-Behre Dolbear and Pincock, Allen & Holt. Information from actual production in 1982 is also available. In order to restart production, a suitable processing plant would need to be procured and commissioned.

Detailed metallurgical testwork has been completed, with flotation tests performed on drill core and a 6,000 short ton underground bulk sample. These consistently showed a recovery of 92% copper and the production of highly marketable concentrates with an average copper grade of 28%. The results of this testwork were confirmed during actual production.

Much of the groundwork necessary to obtain the permits required for a return of the project to production has been completed. A draft final Environmental Impact Study (EIS) for the project was completed in March 1999 and a Record of Decision was expected by mid 1999. An Air Quality Permit was received in April 1996. New Mexico Mining and Minerals Division permit and New Mexico Ground Water permit applications were pending in 1999 when the then owner of the project entered bankruptcy due to financial problems relating to other assets.

Future Operations at Copper Flat

An open pit mining operation treating up to 6 million short tons of ore per annum to produce 13,000-20,000 metric tons (30-45 million lb) of copper per annum is envisaged at Copper Flat. Copper concentrate would be thickened, filtered and trucked to one of the nearby smelters or to the nearest railhead. Molybdenite concentrate would be filtered, dried and drummed for shipment to customers. Tailings are expected to be thickened to 50% solids and piped by gravity to the existing 370 acre tailings pond.

The most recent Pincock, Allen & Holt plan for a resumption of production at Copper Flat envisaged the mining of 5.8 million short tons of ore and 2 million short tons of waste annually for 11.6 years. The processing plant was to include a gyratory crusher, a single large semi-autogenous (SAG) mill, one or two large ball mills, a single row of large bulk flotation cells, and cleaner and molybdenite flotation circuits. A 35,000 short ton storage pile was to be located between the crusher and SAG mill. Average plant throughput of 16,500 short tons per day, 350 days a year was planned.

Mercator would seek to achieve an increase in the reserves of the Copper Flat deposit prior to the recommencement of production. This would extend the life of the project and ensure robust operating economi

Previous Operations

In 1982 the Copper Flat project entered production for a period of around three and a half months. During this period, some 7.4 million lbs Cu, 2,306oz Au and 55,966oz Ag was produced. Mining was by open pit and processing took place at a rate of 15,000 short tons per day. The mine ceased production as a result of low prevailing copper prices (less than US$0.65/lb as opposed to a current price well in excess of US$3/lb) and poorly structured financing arrangements on the part of the operator, which had invested a total of approximately US$112 million to bring the project into production.

Copper Flat Project - Preliminary Economic Analysis

Assuming prices of US$2/lb copper, US$10/lb molybdenum, US$900/oz gold and US$13/oz silver, it is estimated that the Copper Flat project has:

–      An NPV of US$117m

–      An IRR of 24%

Assuming prices of US$3/lb copper, US$10/lb molybdenum, US$900/oz gold and US$13/oz silver, it is estimated that the Copper Flat project has:

–      An NPV of US$348m

–      An IRR of 45%

This analysis is based on an owner mining scenario, initial capital costs of US$115m and a discount rate of 8%. It is sourced from a preliminary review of the Copper Flat project carried out by SRK Consulting.

Exercise of Mercator’s Option

In order to exercise its option over the Copper Flat project, Mercator would make payments to the vendors as follows: US$1m by 14 February 2010; US$1.85m by 14 August 2010; and US$7m by 14 February 2011. All the payments are discretionary, and Mercator can elect not to proceed with the exercise of the option at any stage. The final payment may be deferred until 16 May 2011 for an additional payment of US$150,000. The vendors would retain a net smelter return (NSR) of 3.25%.