Orosur Mining Inc., a South America-focused gold producer and explorer quoted on Toronto and London markets, said it would cooperate with Redpath Chilena Construcciones y Compania Limitada to work on extending the mine's lifespan.

Orosur signed a letter of intent with Redpath, a member of the Redpath group of companies, for developing the mine further.

Early in 2011 Orosur will sign a definitive agreement to set in motion a development program for the mine. Before that February signing, however, Orosur expects to have all the new equipment delivered and to have environmental permissions in place.

The contract involves the development of more than a mile of decline, about 5 miles of lateral development and stope preparation -- excavation in the form of steps to facilitate mining from steeply inclined or vertical veins. The development program is expected to be completed in about 30 months, Orosur said.

Redpath plans to train more Uruguayan personnel to allow Orosur to develop a longer-term capability for the mining operation.

Ore mining will be performed by Orosur, beginning the second half of calendar 2011, and will be carried out concurrently with development.

The company submitted a request for an environmental permit for the Arenal Deeps project in April and is in the process of obtaining the environmental approvals from Direccion Nacional de Medio Ambiente, a decentralized body of the Ministry of Housing, Spatial Planning and the Environment. DINAMA is empowered to grant all environmental permissions in the mining sector in Uruguay.

Orosur said at current gold prices the project can be funded from cash flow from operations and modest debt levels.

Gold prices dropped slightly in New York Wednesday as equities moved higher and the dollar index was little changed. On the Comex division of the New York Mercantile Exchange, gold lost $3.20, 0.3 percent, to $1,385.60 per troy ounce.

However, gold generally has been on the rise, driving investors into mining projects worldwide.

Orosur said it received a number of preliminary debt funding offers for the project and expects to close financing for $5 million to $10 million of debt funding in the first quarter of next year.

Mobilization of Redpath is targeted for February 2011, when development is planned to start. Gold production is anticipated in the second half of calendar 2011, Orosur said.

David Fowler, CEO of Orosur, said Arenal Deeps was "an important step" for the company in its objective to extend the San Gregorio mine life in Uruguay while maintaining production levels at approximately 50,000 to 60,000 ounces of gold a year and reducing cash costs.

"The initial investment in capital and skills will also allow additional underground reserves to be targeted at San Gregorio and Argentinita to further extend mine life," he said.

Arenal is one of the San Gregorio project's three major pits. It has given its all as an open-pit mine, but in March Orosur announced it identified an underground resource it called Arenal Deeps.

At a cutoff of 1.5 grams per ton, the new resource resulted in a measured and indicated resource of 2.14 million tons at 3.61 per ton cutoff of gold for a total of 249,000 contained ounces of gold. Fowler said earlier the mine had the potential to grow and the company could produce ore for a cash cost of $500 per ounce.

"Arenal Deeps will be the first underground mine in Uruguay," Fowler said in the latest comments. "Partnering with Redpath, a premium international underground mining contractor, is an important step in reducing project risk," he added.

Redpath will bring in an experienced team, safety systems and a focus on productivity that will allow time for Orosur to develop longer term underground mining capabilities. "It will also allow Orosur to focus on optimizing the mine plan to extract the maximum benefit from the project," Fowler said.

An update of the financial projections for the project to reflect Redpath contractual costs, equipment tendering, and additional training costs of Orosur staff will result in a net present value of $11.5 million compared with $16.3 million in a feasibility study conducted earlier.

Orosur will purchase the underground equipment, improving results after tax as the company will qualify for the tax benefits of an investment project. At the same time, this will also allow Orosur to eventually assume responsibility for development.

Orosur Mining Inc. is a fully integrated gold producer and exploration company focused on identifying and developing gold projects in Latin America. The company operates San Gregorio as the only producing gold mine in Uruguay and has assembled an exploration portfolio of high quality assets in Uruguay and Chile.

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