Aussie miner Mercator Gold says it now has £1.2 billion worth of potential resources at Meekatharra in Western Australia.

The London-headquartered company, which argues that its established reserves are already worth £240 million, says it expects to produce 200,000 oz in 20 months from its Surprise open pit. According to managing director Patrick Harford, a seasoned mining entrepreneur, Mercator should be able to start underground production from Meekatharra’s Paddy’s Flat deposit in the second quarter of next year, with output reaching a target annual rate of 120,000 oz by the end of September 2009. There is the possibility of lifting this to 150,000 oz later on.

Harford says the company is targeting cash costs of between $467 (£234) and $514 an ounce, against today’s gold price $984. He maintains the move underground will cost up to £6 million, to be supplied from ‘internally generated’ cash.

Mercator puts its overall gold resources at its Meekatharra properties at 2.4 million oz indicated and inferred, with 1.3 million oz from Paddy’s Flat, 731,000 from another deposit, Yaloginda, and smaller amounts from Meekatharra North and Reedy. With a few impressive exceptions, grades are low, with an overall average of two to 2.5 grammes of gold per tonne of ore, though that rises to four or 4.5 grammes a tonne underground.

But Harford argues this is compensated for by the fact that the company already has a process plant in place, with a historic cost of less than £7 million, which he claims would cost ten times that to replace. Mercator has put 35,000 oz of gold into a forward hedge at $846 an ounce.

The company is developing other prospects at Meekatharra, which is historically one of Australia’s richest gold-producing areas, with 3.5 million oz to its credit – all, as yet, from less than 200 metres below ground. Harford says drilling at Euro, a new discovery in the same district, is yielding encouraging results.

Mercator’s shares, which fell from 106p in 2005 to 53p in 2006, have now recovered to 78p, where they value the company at £49 million. It is listing on the lively Australian Stock Exchange in May, which might help a further bounce.

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Mercator Gold	AIM	£2.36m	3.25p	0.00p
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