Gryphon Gold Sets Borealis on Course for Relaunch

Hawthorne, Nev. — With a positive feasibility study in hand for heap-leach operations at its Borealis project in western Nevada’s Walker Lane trend, Gryphon Gold (GGN-T, GYPH-O) is advancing plans to mine near-surface oxide gold reserves and begin production by mid-2007.

Listed on the TSX in late 2005, the company’s $5.9-million initial public offering funded the study on the brownfields property that saw production during the 1980s. Eager to enter the realm of gold producers, Gryphon is applying a new eye to the project and expects to use cash flow from operations to aggressively test numerous deep targets on its 71-sq.-km land package.

Although none of the past surface infrastructure remains at Borealis, a number of the previously mined pits were evident during a recent visit by The Northern Miner. Previous operations by Houston International Minerals and Tenneco Minerals (taken over by Echo Bay Mines in 1986) mined about 9.7 million tonnes of ore averaging 2 grams gold per tonne from 1981 until 1990 — producing some 635,000 oz. gold.

The project saw subsequent exploration in the 1990s, supplementing the already abundant data previous operators had collected. Santa Fe Pacific Mining, now part of Newmont Mining (NMC-T, NEM-N), joint ventured Borealis from Echo Bay in 1992 and conducted deep drilling to test sulphide gold potential. Despite some positive results, Santa Fe terminated the joint venture; Echo Bay subsequently completed full site reclamation in 1994, and then left the project in 1996. Cambior (CBJ-T, CBJ-X) optioned the project in 1996 from a private group and undertook a modest drill program only to drop it in 1998.

In 2002, Gryphon Gold entered a joint venture on Borealis and by late 2004, had earned a 70% interest from Golden Phoenix Minerals (GPXM-O). It acquired full title in early 2005 by purchasing Golden Phoenix’s 30% retained interest for US$1.4 million.

As most of the Borealis data was in hard copy, described by Gryphon as “BPC” — before personal computers — the company digitized the extensive material and enlisted well-known Nevada geologists Steven Craig, Donald Ranta and Roger Steininger to lead its review.

Eye on the prize

Analysis of the data indicated the large pediment area was fundamentally underexplored but the known high-sulphidation environment at Borealis could be a clue to larger potential. Gryphon is examining and modelling similarities of Borealis mineralization to that at Newmont’s massive Yanacocha complex in northern Peru where its personnel recently attended a tour.

A “discovery model” was developed by reverse engineering successful methods from other deposits. Results led to the realization that the probability of discovering a nearby deposit strongly increases when there are coincident aeromagnetic low, induced-polarization (IP) high and resistivity high anomalies in a system carrying gold mineralization. Aeromagnetic lows are interpreted as a reflection of strong hydrothermal alteration and the IP high as a sulphide body at moderate to greater depths.

The methodology indicated a couple of gold trends in the vicinity of past mining plus several additional targets on the claims.

The site visit included a tour of one of the gold trends, which has a number of stations established along a several-hundred-metre-long fence of drill holes. Review of results and cross-sections provided by Gryphon Gold illustrated the potential to host significant sulphide gold mineralization within the roughly 100-metre-wide corridor.

District-scale aeromag on Borealis has also led to the identification of a large circular anomaly of magnetic lows, indicating a possible caldera ring structure similar to that modelled at Yanacocha.

Mineralization at Borealis is hosted in a Miocene-aged volcanic sequence of andesitic flows, lahar breccias and tuffs, all underlain by a Cretaceous granodiorite. Predominant structures are a series of northeasterly trending faults dipping steeply to the northwest in addition to a set of west-northwest striking faults. Both fault systems are on regional trends of known mineralization and appear to intersect in the project area.

Gold is typically associated with vuggy silica and pyrite in the breccia zones, grading outwards to kaolinite-quartz-pyrite sequences, then to kaolinite-pyrite that is surrounded by a broad propylitic halo. Gold is generally finely disseminated in the mineralizing system and tends to be enclosed in the pyrite. Oxidation depths are variable and range from 30 to 200 metres. Transitionary zone (mixed oxide-sulphide) mineralization from the deposits can generally also be treated as oxide-type ore in the planned heap-leach operation.

Production plan

The recently completed engineering study reviewed a 7,300-tonne-per-day, open-pit operation producing about 58,000 oz. gold and 546,000 oz. silver annually over an initial mine life of six years. Estimated cash operating costs came in at US$264 per oz. of gold, net of silver credits.

Initial capital costs of US$15.4 million are projected for the operation, expected to have an after-tax internal rate of return (IRR) of 31%. The modelled open pits have an average life-of-mine strip ratio of 1.4:1.

The study estimated proven and probable heap-leachable reserves of 13.7 million tonnes grading 1 gram gold and 18.5 grams silver per tonne, using gold and silver prices of US$475 and US$7.92 per oz., respectively, hosted in several deposits within the Central zone. An additional 20.9 million tonnes of measured and indicated oxide resource has also been reviewed averaging 0.6 gram gold and 9.8 grams silver, which could extend the mine life to about 8.5 years. Estimated recovery rates for gold and silver over a 6-year mine life are 68.5% and 35%, respectively.

Earlier this summer, both the U.S. Department of Agriculture’s Forest Service and Nevada’s Bureau of Mining Regulation and Reclamation approved Gryphon’s operations and reclamation plans, allowing development of the heap-leach operation to proceed.

Following receipt of term sheets for a US$12-million production loan, Gryphon has short-listed two international mining banks to bid on its final loan facility. A letter of intent has also recently been signed with Colorado-based mining contractors KGL Associates for leach pad construction and mining and crushing of ore.

In unison with development plans, the company has continued to drill-test deeper sulphide mineralized gold zones along the Graben trend. The Graben sulphide deposit, not included in the feasibility study, contains about 9.8 million measured and indicated tonnes of resource at 1.7 grams gold per tonne and 13.3 grams silver.

The core portion of the claims containing the reserve-resource is subject to a sliding-scale net smelter royalty (NSR) payable to the Borealis Partnership. The NSR is calculated at the price of gold divided by 100 and expressed as a percentage (at US$600 per oz. gold, for example, the NSR would be 6%).

Given its 41.4 million shares outstanding, Gryphon Gold posts a $53-million market capitalization based on its recent share price around $1.30. The stock has a 52-week range of 91-$2.35.