San Gold sees Rice Lake ounces grow

Vancouver – Armed with a new report on its Rice Lake project, San Gold (SGR-V, SGRCF-O) has tabled an increased resource tally for its gold deposits located near Bissett in southeastern Manitoba.

The independent study reviews total measured and indicated resources of 1.4 million tonnes grading 8.9 grams gold per tonne (about 403,000 contained ozs.) within the Rice Lake and San Gold #1 mines, and in the Cartwright and San Gold #2-3 zones. An additional 3.7 million inferred tonnes averaging 8.6 grams gold was also tabled for about 1.02 million contained ozs. of gold.

The engineering report by A. C. A. Howe International also calculated proven and probable reserves of 1.19 million tonnes at 8.9 grams gold (about 336,000 contained ozs.) at the Rice Lake and San Gold #1 deposits and in the Cartwright zone. Reserves were calculated assuming a US$600 per oz. gold price, 1.2-metre minimum mining width and 5.1 gram gold cut-off grade.

Based only on tabled reserves, the study projects a five-year mine life producing a total of 315,200 ozs. of gold and a life-of-mine (LOM) break-even gold price of US$345 per oz. LOM operating revenue is expected at about $105 million and with an EBITDA (earnings before interest, taxes, depreciation and amortization) of about $94 million.

A rosier scenario plays out when the resources are combined with reserves as mine life extends to more than ten years. LOM gold production is projected at 927,000 ozs. however the break-even gold price creeps up to US$375 per oz. to allow for recovery of ongoing capital development expenses. Operating revenue over LOM is expected at about $294 million with an EBITDA of $242 million.

The recently discovered Cartwright deposit accounts for over 400,000 contained ozs. of gold in the inferred resource category.

“We are extremely pleased with these results, especially with the significance of the nearby Cartwright Zone which was just discovered in the spring of this year. Our discovery cost per resource oz. of under $10 to date is extremely low by industry standards and we have only explored a very small percentage of our landholdings to date in the Rice Lake Greenstone Belt,” stated San Gold president Dale Ginn.

With the gold resource boost, development of the Cartwright and San Gold #2-3 zones is anticipated over the next couple of years at which point the ore feed will push the mill towards its full capacity of about 1,100-tonnes-per-day.

The engineering firm comments that projections in its economic review are “conservatively high” as they are based on historic operation costs. Past mining was accessed by a deep shaft and internal shaft system whereas the current San Gold #1 mine (as well as planned operations on the Cartwright and San Gold #2-3 zones) will be a less costly rampaccess operation.

San Gold celebrated its first bullion pour at Rice Lake this past summer to become the only gold mine in Manitoba. It aims to produce about 60,000 ozs. in 2007 then ramping up to an annual level of about 100,000 ozs. in the following years.

“It is an extremely rare situation to be operating multiple mines without debt load and at the same time possess virtual control over a productive greenstone belt,” continued Ginn.

The project is within the Rice Lake greenstone belt that occurs in the western portion of the regional Uchi Sub-province, which also contains the Red Lake, Pickle Lake and Musselwhite gold camps.

Previously known as the Bissett and San Antonio mines, the project first saw production in the early-1930s and operating continuously until 1968 with total gold output of about 1.4 million ozs., at an average grade of 9.6 grams gold. In the mid-1990s, a few companies examined restarting the underground operation, with Rea Gold stepping forward and ambitiously investing about $60 million in upgrading underground workings and constructing new surface infrastructure including mill and hoist. Rea Gold subsequently fell into bankruptcy prior to any significant production and the project was placed on the block by creditors.

South African producer Harmony Gold Mining (HMY-N, HAR-J), looking for a North American beachhead, grabbed the project in mid-1998 for about $14 million. Following modifications to the mill and underground workings, they restarted production in late-1998. Harmony operated the mine until late-2001, only producing a total of about 110,000 ozs. gold, when low bullion prices led to the decision to cease output and place the mine on care-and-maintenance.

With about 127.6 million shares outstanding, San Gold posts a $171-million market capitalization at its recent trading price of $1.34 per share. The stock has a 52-week range of 41-to-$2.25.