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Reno’s Meridian likely to sit out round of mining mergers

John Seelmeyer

While merger activity and rumors swirl around medium-sized gold companies, Meridian Gold thinks its growth is more likely to come closer to home.

Brian Kennedy, president and chief executive officer of the Reno-based company, told analysts last week that Meridian looks for growth through exploration rather than mergers.

He said the company keeps an eye on potential acquisition activity but believes the $20 million it will spend on exploration and expansion of existing projects this year is more likely to pay benefits.

Much of that exploration will be conducted at El Penon, the company’s flagship mine in northern Chile.

Along with work to define new deposits, Meridian plans to expand the mine’s mill.

It’s also boosting its land holdings around the mine.

The mine produced 77,200 ounces of gold and $1.2 million ounces of silver during the fourth quarter, down just a hair from its production a year earlier.

Cash production costs at the mine ran $56 an ounce during the fourth quarter compared with $63 a year earlier.

With that production,Meridian reported earnings of $7.5 million on revenues of $32.8 million during the fourth quarter.

This compares with earnings of $10.3 million on revenues of $30.4 million a year earlier.

A big factor in the earnings decline was a charge of $3.3 million as Meridian unwound its hedged positions in the silver market.

The company hasn’t hedged its gold production in the futures markets for about five years.

The year-earlier figures,meanwhile, had been boosted by a $2.9 million gain on Meridian’s sale of shares of Queenstake Resources Ltd.

It got the shares when it sold its interest in the Jerritt Canyon north of Elko to Queenstake in 2003.

An Argentine project known as Esquel, once the brightest hope for big production increases for Meridian, remains stalled.

Nearby communities voiced strong opposition to the project in 2003, and Kennedy said Meridian executives continue to work with community leaders to allay those concerns.

“We have no timeline on that,” he said.

Meridian also told investors last week that it’s given up on an exploration project near Fairbanks, Alaska, because the project didn’t meet the company’s criteria for development.

Meridian had an option to earn a 70 percent interest in the project under development by Freegold Ventures Ltd.

Looking ahead, Kennedy said the company expects that production from El Penon will continue at about 300,000 ounces a year at least through 2007, and Meridian expects cash production costs will remain in the range of $50 to $60 per ounce.

He said the company expects to cover its exploration and development costs from its existing cash flow, although the company noted that it may need to rely on the capital markets to finance any big projects that may arise.

For all of 2004,Meridian reported earnings of $36.6 million on revenues of $127.1 million.

This compares with earnings of $34.4 million on revenues of $132.6

million a year earlier.