SAN GOLD CORPORATION
(SGR : TSX-V : C$2.46 | NOT RATED)
22 July 2009, Southeast Manitoba
Canaccord Junior Mining Weekly 28 July 2009
SITE VISIT NOTES
San Gold is a Canadian mining company focused on gold exploration and mining in the
Rice Lake Greenstone Belt in southeast Manitoba, Canada. The mine is accessed via
highway and government maintained gravel road, some 230 kilometres to the NE from
Winnipeg. With about 255 million shares outstanding the company has a market
capitalization of about C$605 million.
The company’s Rice Lake gold project includes a series of historic mines and advanced
mineralized zones. The deep underground, high-grade Rice Lake mine and the nearby,
near-surface, ramp-accessed San Gold #1 (SG-1) deposit (three kilometres east of Rice
Lake) were considered the two keys zones of interest for San Gold. However, with the
recent discovery of the high grade Hinge zone, work at the SG deposit has been placed
on hold and exploration and development has been concentrated on the Rice Lake mine
and the Hinge zone area.
The Rice Lake mine has a long history, with gold production first commencing in 1929.
San Gold officially reopened Rice Lake on August 23, 2006. The original mine plan had
the Rice Lake and SG-1 mines feeding the centrally located 1,250 tpd mill at Bissett. The
company is targeting annual production of 65,000 ounces of gold per year in 2009,
expanding to 110,000 ounces per year in 2010. By 2011 the company has estimated it
could achieve over 180,000 oz of Au per year based on throughput reaching 1,800 tpd.
We suspect this production plan could be open for modification as the newly focused
exploration and development on the Hinge zone progresses.
The company has released ongoing high-grade drill and underground bulk sampling
results and from the Hinge zone area that indicate it is potentially a higher grade,
generally wider zone of mineralization than previously encountered in the belt. As an
example, hole #GS-09-27 encountered 28 g/t (0.82 oz/ton) gold over 8.2 metres (27 feet),
including a higher-grade intersection of 101 g/t (2.94 oz/ton) gold over 2.0 metres (6.6
feet) at a vertical depth of 110 metres. Drill hole #GS-09-37 encountered 16.8 g/t (0.49
oz/ton) gold over 16.6 metres (54.4 feet), including a higher-grade intersection of 48.4 g/t
(1.41 oz/ton) gold over 4.3 metres (14.1 feet) at a vertical depth of about 370 metres. The
Hinge zone has been drill tested over about 240 metres and down to a vertical depth of
about 400 metres. Since July 2008, the company has completed over 3,000’ (915 metres)
of ramp development (largely on the 100 metre below surface level) associated with the
Hinge and over 8,000’ (2,439 metres) of total development. It has extracted about 11,762
tons of development and stope muck from the Hinge zone that, according to
management, has averaged about 0.53 oz/t (18.0 g/t gold). This development and stope
muck has been successfully campaigned through the Bissett mill and returned average
recoveries of 96%. The zone remains open along strike (largely associated with lens #1
and #2) and to depth and underground work has identified new zones of mineralization
sub parallel to the main Hinge zone mineralization. Initial plans are to use the ramp as
underground access to explore the nature of the Hinge zone mineralization, and
establish drill stations for infill and exploration. Future plans could include using the
ramp access for production haulage from the Hinge zone and potentially the Cartwright
deposit (800 west of Rice Lake) to the Bissett mill.
At the Rice Lake mine, the company continues to develop and mine largely from the D
shaft area of the mine. Access is from the bottom of the A shaft on the 26 level (4,200’or
1,280 metres below surface), about one kilometre via a horizontal drift to the top of the D
shaft, which bottoms at about the 34 level. A ramp in the area of D shaft provides
additional access to several mineralized vein and vein breccia zones. The company is
targeting for 400-500 t/d production from the Rice Lake mine. Veins at Rice Lake
typically average 0.22 to 0.29 oz/t. The company expects a range of wall rock dilution
from about 10% in shrinkage stopes to over 30% in development accesses. Historic mine
head grades back from the 1930’s have ranged between 0.19 and 0.43 oz/t gold
averaging 0.27 oz/t gold. To maintain a 400 tpd throughput, we would envision the mine
maintaining about 10 -15 active stopes, which would translate to each stope, cross shift,
producing on average about 25 tons of muck per shift.
Reserves and Resources
Figure 26: Reserves and Resources
Grade Contained
RESERVES Tons Oz./ton Ounces
Proven 389,600 0.26 98,970
Probable 597,100 0.28 162,700
Rice Lake Mine
Total Proven plus
Probable 986,700 0.28 261,670
Proven 75,950 0.14 10,280
Probable 180,150 0.26 47,100
San Gold #1 Mine
Total Proven plus
Probable 256,100 0.22 57,380
Cartwright Zone Probable 54,700 0.27 14,270
Rice Lake Project Total Reserves 1,297,500 0.26 333,770
RESOURCES
Measured 320,100 0.28 88,530
Indicated 644,000 0.29 186,770
Total Measured and
Indicated 964,100 0.29 275,300
Rice Lake Mine
Inferred 1,879,500 0.29 551,620
Measured 69,000 0.15 10,280
Indicated 214,200 0.24 52,150
Total Measured and
Indicated 283,200 0.22 62,430
San Gold #1 Mine
Inferred 936,500 0.22 206,900
Cartwright Zone Indicated 136,200 0.22 29,830
Inferred 1,761,200 0.22 388,940
San Gold #2-3 Indicated 173,100 0.20 35,320
Zones Inferred 195,600 0.26 50,210
Rice Lake Project Total Measured plus
Indicated 1,556,600 0.26 402,880
The measured and indicated resources include the proven and probable reserves.
Source: ACA Howe International Ltd., December 2006, San Gold Corporation
Project infrastructure
Much of the current modern infrastructure in place at Rice Lake was upgraded or built in
1997 by Rea Gold. The current mill/processing facility is rated for 1,250 short tons per
day. The above ground crushing facility feeds a 12.5’ by 14’ ball mill that leads to two
gravity concentrators that recover about 35% of the gold. Gravity tails continue on to
flotation cells producing a concentrate that is transitioned to cyanidation leaching and a
six stage CIL circuit. Pregnant carbon is striped, electrowinned and then treated in a
furnace to produce d’ore. Historical recoveries have been about 93%, however, early
indications are that Hinge zone material could potentially average recoveries as high as
96%. The company has suggested it could expand throughput to 1,800 tpd by upgrading
the crushing circuit.The project is on the Manitoba Hydro grid, which provides power at about 2-3 cents per
Kwh. The company is reviewing upgrading the current service to the mine site. A tailings
lift is planned this year at a cost of $1.5 million. This should provide capacity for about 5
years at a 1,250 tpd rate.
History
Exploration, which led to development and mining in the Rice Lake area, dates back to
the original gold discovery on the San Antonio (Rice Lake) project in 1911. There has
been a long history of mining at Rice Lake starting in 1927 with a continuous operation
spanning from 1933 to 1968 when a fire destroyed the surface hoist. Sporadic work
occurred by a number of operators until 1989 when Rea Gold purchased the project. Rea
Gold conducted exploration and development, and economic studies that lead to
construction of the modern day mine facilities currently in place at Bissett. Estimated
Capital for upgrading the surface facilities and underground workings was about $90
million. Rea Gold went bankrupt in 1998, prior to any significant production, and the
operation was purchased by the Canadian subsidiary of Harmony Gold Inc. Harmony
mined for three years producing on average about 34,000 oz of gold per year at average
head grades of about 0.16 oz/t (5.49 g/t Au). In March 2004 San Gold acquired the
project.
Geology
San Gold also owns or controls nearly 15,000 hectares of exploration lands along the
Rice Lake Greenstone Belt. The Rice Lake Greenstone Belt is located at the west end of
the Uchi Volcanic-Plutonic Sub-province of the Superior Province of the Canadian Shield.
Similar to other prolific Archean Greenstone belts, Rice Lake consists of a combination of
felsic to mafic volcanics, sediments and later associated intrusives. There is major east to
west regional structural direction and secondary associated conjugate shear zones.
Gold mineralization in the Rice Lake area has historically been centered on quartzcarbonate
vein and vein breccias that are associated with pyrite, tourmaline and a late
gabbro dyke (or diabase sill) unit known commonly as the Rice Lake Mine unit. Veining
occurs on largely conjugate structural trends that are referred to as 16 and 38 vein sets.
16 veins are typically more shear related zones and 38 veins and vein breecias have a
more dilatational fracture fill habit. These mineralized zones range from < 1 metre to
over 5 metres wide and typically dip 60 to 80 degrees northward. More recently, the
company has hypothesized that important fluid pathways have developed along a
secondary deformational axial planar direction that corresponds with a regional fold
direction in the area. This recognition that largely north to south trending mineralizing
fluid pathways could be important factors in identifying additional mineralization, led to
the Hinge zone discovery. More importantly, the Hinge zone is hosted in a hanging wall
volcanics unit, which previously was ignored by explorationists, given the assumption
that gold mineralization was hosted only in proximity to the Rice lake gabbro. We believe
the Hinge zone discovery and new geologically thinking could open the entire Rice Lake
belt to new exploration, targeting the hanging wall and possibly the footwall rocks to the
gabbro. Recent work on the Cohiba zone, east of the Hinge zone has identified gold
mineralization also associated with the hanging wall volcanic unit.
An analyst has visited the properties held by San Gold Corporation. Partial payment or
reimbursement was received from the issuer for the related travel costs.
Investment risks
The commercialization risks associated with mineral exploration and development are
high; thus, investment in the shares of San Gold Corporation is for risk accounts only |
