Jacobina grows under Desert Sun

An updated reserve estimate at the Jacobina gold project in Bahia state, Brazil, has extended the planned mine life by two years.

Desert Sun Mining () says proven and probable reserves at the Joao Belo zone now stand at 11.1 million tonnes grading 2 grams gold per tonne, or 727,000 oz. gold, based on a cutoff grade of 1.33 grams gold. That’s 44% more gold than was indicated in the previous estimate.

Total reserves in the Joao Belo, Basal Reef, and Serra do Corrego zones amount to 14.4 million tonnes grading 2.1 grams gold, or 980,000 oz.

The previous plan for Jacobina called for the mining, over seven years, of 10.7 million tonnes averaging 2.6 grams gold per tonne. Production was pegged at 106,400 oz. per year at a cash cost of US$189 per oz. Cumulative cash flow was forecast at US$78 million, based on a gold price of US$350 per oz.

The company will update reserve estimates for the Morro do Vento, Morro do Vento Extension (Basal/ Main Reef), Canavieiras and Serra do Corrego zones.

At last count, measured and indicated resources contained in all of Jacobina’s zones amounted to 24.8 million tonnes grading 2.5 grams gold. Total inferred resources stand at 22.2 million tonnes of 2.6 grams gold.

Desert Sun has operating permits in hand, and expects to pour its first gold from the former producer in April.

Meanwhile, the company has launched an exploration campaign (including at least 25,000 metres of diamond drilling) around the mine, and along the northern portion of the 155-km-long Bahia gold belt, especially at Pindobacu, 50 km to the north. Previous drilling there yielded up to 21.9 metres grading 5.5 grams gold.

Plans also call for 50 line-km worth of induced-polarization surveying on the Pindobacu-Fumaca area. Soil geochemical surveying and mapping are under way along the entire 15-km strike length of the target area.

The exploration will be funded via a bought deal involving 8.6 million units priced at $2.33 apiece for gross proceeds of $20 million. The underwriters, led by Sprott Securities, have an option on another 2.1 million like-priced units worth an additional $5 million.

Each unit includes one share plus a quarter of a share purchase warrant, with a full warrant exercisable at $2.50 until Nov. 20, 2008. A portion of the proceeds will be used for prefeasibility and development work at the Morro do Vento and Canavieras zones.

Fully subscribed, the equity financing should boost Desert Sun’s total float by nearly 15% to around 84 million shares.

Meanwhile, the company has inked a deal with BankBoston to buy US$1 million worth of Brazilian real per month in 2006 at an average exchange rate of 3-to-1, the rate assumed under a 2003 feasibility study. The agreement covers about 60% of Jacobina’s capital and operating budgets.