As an emerging gold producer, San Gold (SGR:TSX-V) is steadily building its production portfolio through continued exploration success on its Rice Lake Project in mining friendly Manitoba. Â
Since it acquired the past producing Rice Lake mine in 2004, the company has nearly tripled its audited gold resources from 550,000 ounces to over 1.6 million ounces. This is based on its 2006 audited resources which do not include any mineralization from the newly discovered high-grade Hinge Zone.
The impressive increase in resources occurred over a two-year period and cost the company only $10 million in exploration expenses. That works out to less than $10 per discovered ounce of gold.
The company currently has reserves and resources established in five mineralized zones on its property. Two of these zones are currently in production at a rate of about 320 tons per day; the Rice Lake Mine and the San Gold #1 Mine. Two other mineralized zones are being developed, the high-grade Hinge zone and the Cartwright deposit. Twin declines (ramps) are being excavated to access the new discoveries, with the near term emphasis focused on accessing and developing the Hinge zone.
Once developed, the Hinge Zone and Cartwright deposit should both supply additional ore to the Rice Lake milling complex and enable San Gold to quickly ramp up production. Last year the company produced 8,728 ounces of gold and realized revenue of $8.7 million from gold sales. The company has its eye on achieving a production target of 150,000 ounces per year in 2010.
In early 2008 the Hinge gold zone was discovered about 1.5 kilometres east of the Rice Lake mine.Â In a recent corporate presentation Director and CEO Dale Ginn commented, “Our most significant discovery has been the Hinge zone which is extremely high grade, about two and a half times the average grade of the [Rice Lake Greenstone] belt so far.”
Market excitement is currently focused on the continued high-grade results coming from the Hinge Zone. At last report the decline had reached the Hinge Zone 350 feet (107 metres) below the surface and preparation for a bulk sampling program had commenced. Â
About 230 feet (70 metres) of drifting has been developed in the mineralized zone and over 3,000 tons of Hinge material has been stockpiled to date. Face samples average 1.03 oz/ton (35.2 g/t) over an average true width of 10.3 feet (3.2 metres). Individual face grades have assayed up to 2.52 oz/ton (86.3 g/t) over a true width of 12.0 feet (3.7 metres) and visible gold has been “routinely observed.” Mineralization within the mineralized zone consists of pyrite and free gold hosted by quartz-carbonate tourmaline veins within mafic to intermediate tuffs and flows.
Recent step-out drilling from surface has encountered the highest grade intersection to date in the Hinge zone. Hole GS-09-63 cut 2.3 metres (7.5 ft) averaging 207 g/t gold (6.05 oz/ton).
This high grade intersection has extended known mineralization 164 feet (50 metres) to the west along strike from the current western Hinge ore development face.
Drilling has now tested length of the deposit as it is currently known. At the far east end of the Hinge zone, hole 58 assayed 82 g/t (2.4 oz/ton) over 2.1 metres (7.0 ft). At the west end of the deposit, San Gold has intersected new footwall zones as demonstrated by the following intersections;
Â The deposit remains open along strike to the north-east and south-west as well as to depth.
“We are extremely pleased that drilling which was designed to extend and confirm extensions of the Hinge zone has generated a result that is comparable to the Goldcorp Red Lake High Grade zone located 80 kilometers to the east of us,” commented Ginn.
The image below provides a three dimensional view of all drilling completed to date at the Hinge zone. An interactive view and complete sections with assays can be found at www.corebox.net
The Hinge zone has the added benefit of being shallow and can be quickly accessed via San Gold’s ongoing development program.
Two drill rigs continue to define the known Hinge zone, a third drill rig is searching for parallel veins to the north and a fourth drill has commenced drilling on the next hinge-like target axis located approximately one kilometer to the east of the known Hinge zone.
The company expects to have an initial NI 43-101 resource estimate for the Hinge Zone in the second quarter of 2009.
Location and Infrastructure
San Gold’s Rice Lake Gold Project is situated 230 kilometres northeast of Winnipeg, Manitoba next to the town of Bissett. Access to the property can be achieved via paved highway and all-weather gravel road.
“We have high-grade deposits close to existing mining and milling infrastructure and we are extremely aggressive and successful in terms of exploration,” said Ginn. “If we were to replace what we have today or try to rebuild it, it would easily be in the 300 to 400 million dollar range.”
Infrastructure at the Rice Lake Mine includes a 1,250 ton per day processing mill and equipment for processing the ore into dore bars on-site.Â The tailing containment facility is fully licensed and has capacity for seven years before expansion is necessary.
Until San Gold can provide enough ore to run the mill full time, it will continue to operate it on a demand basis. Ore from the both the Rice Lake and San Gold #1 mines is stockpiled until sufficient ore is available to allow the mill to run over a two week, or longer period. The mill complex produces gold using gravity concentration systems to recover about half of the gold. A flotation and carbon in-leach circuit recovers the remaining gold. Historic mill recovery has been 93% of the gold delivered to the mill.Â San Gold believes that with an expanded gravity circuit, 96% recovery is possible.
The Rice Lake Greenstone Belt is situated at the western end of the Uchi Subprovince of the Archean-aged Superior Province of the Canadian Shield. Gold was discovered on the shores of Rice Lake in 1911. Under the direction of San Antonio Gold Mines, Rice LakeÂ was put into production in 1932 and produced 1.35 million ounces of gold (5.8 million tons averaging 0.25 ounces per ton (7.0 g/t)). Production ceased in 1968 when the surface hoist was destroyed by fire. San Antonio Mines subsequently declared bankruptcy and the assets were acquired by New Forty Four Mines.
The mine changed hands a number of times over the next two decades but no significant work was done until Rea Gold Corp. acquired the property in 1989. Rea Gold spent $90 million to upgrade and modernize the mining and processing facility but was placed into receivership before going into production.
South-African based Harmony Gold Mining acquired the project in 1998. The company invested about $30 million to build a ramp system in the lower part of the D-Shaft area in order to establish a longhole stoping operation. The mine produced for three years and cranked out an additional 210,000 ounces of gold before shutting down as a result of low gold prices in 2001.Â
In 2004, a joint venture company owned by the two predecessor companies of San Gold purchased the Rice Lake Mine, the mill, 550,000 ounces of audited gold resources and a small mine claim package for a total purchase price of $7.5 million. The joint venture partners merged in 2005 to form San Gold Corp.
The new company proceeded to explore along the mine horizon from the Rice Lake Mine and also refit the 1,250 tpd mill in order to resume mining operations in 2006.
The SG #1 deposit was discovered about three kilometres east of the Rice Lake Mine and started development in 2005. The SG-1 Mine provided the first ore into the mill in July 2006 and gave the company a second source of ore to supplement the Rice Lake Mine.
Deposits: Rice Lake Mine
The Rice Lake Mine produces through a two-shaft system.Â The A-shaft penetrates to 4,200 feet (1,280 metres) below surface. A 5,000 foot (1,5 km) railway crosscut connects the A-shaft to the D-shaft and the D-shaft penetrates an additional 1,200 feet (365 metres).. A spiral ramp runs down from the 32nd Level of D-shaft.Â The total depth of the Rice Lake Mine is 5,290 feet (1,612 metres). Â
Rice Lake Mine Long Sections:
The Rice Lake Mine contains measured plus indicated resources of 964,100 tons grading 0.29 ounce per ton (9.94 g/t) or 275,300 contained ounces gold. The inferred portion of the resource tallies to 1,879,500 tons averaging 0.29 ounces of gold per ton (9.94 g/t), or 551,620 contained ounces gold. The zone remains open at depth below the lower mine level.
The Rice Lake Mine employs shrinkage stope mining methods and the ore is drawn out by scoop trams and transported to surface using the A-shaft hoisting skip and for the deeper portions through the D-shaft hoisting skips and transport by rail to the A-shaft.
The San Gold #1 mine, or SG#1, is situated three km from the Rice Lake mine.Â The mine uses both shrinkage and long-hole stoping methods.Â The ore is transported by private gravel road back to the Rice Lake mill complex for processing.
The SG #1 mine hosts measured plus indicated resources of 283,200 tons averaging 0.22 ounces of gold per ton (7.54 g/t) or 62,430 contained ounces gold. Inferred resources total 936,500 tons at a grade of 0.22 ounces of gold per ton (7.54 g/t) or 206,900 contained ounces.
There is additional mineralization in the San Gold #2-3 Zone which is situated in the Normandy Shear Zone east of San Gold #1. The San Gold #2 and 3 zones host indicated resources that tally to 173,000 tons averaging 0.20 ounce per ton (6.86 g/t), or 35,320 contained ounces gold, and inferred resources of 195,600 tons averaging 0.26 ounce per ton (8.91 g/t), or 50,210 contained ounces gold.
Both the Rice Lake Mine and the SG-1 Mine have very competent rock and require only some rock bolting and grouting to maintain integrity.Â They are both relatively dry and require very little pumping to stay dry.
San Gold discovered the Cartwright deposit in 2006, just 800 metres west of the Rice Lake mine.Â The Cartwright deposit is geologically similar to the Rice Lake Mine and it is expected that it will produce gold via a similar mining method.
The Cartwright zone hosts indicated mineral resources containing 136,000 tons averaging 0.22 ounces of gold per ton, (7.54 g/t) or 29,830 contained ounces gold, and an inferred resource of 1.76 million tons averaging 0.22 ounces gold per ton, (7.54 g/t) or 388,940 contained ounces gold.
San Gold’s growth strategy is to achieve positive cash flow during 2009 and continue to increase its reserves and resources. Based on recent drill results from the Hinge zone, the company should deliver an exciting resource estimate and grow its overall resource base.
San Gold also intends to complete ramp development into Hinge zone area and start mining high-grade hinge zone ore this year. Work will then focus on developing the ramp westward toward Cartwright deposit. When the ore from these deposits starts feeding the Rice Lake mill full time, San Gold should really hit its stride.
Thomas Schuster is a contract geologist and independent consultant for Jordan Capital Markets.