La Mancha advances in Africa, Australia

VANCOUVER — La Mancha Resources’ (LMA-T, LMA-F) bet on Africa is paying off: the company just completed a positive preliminary economic assessment (PEA) for an upgrade and expansion of its Hassai gold mine in Sudan and is pulling promising gold intercepts from its two projects in Cte d’Ivoire, where it already operates a successful gold mine.

The Hassai mine is a joint venture between La Mancha, which owns 40%, and a Sudanese company. The mine has been in operation since 1992 and has to date mined high-grade oxidized ore from 12 pits. The new PEA investigated a two-phase expansion plan for the operation.

In the first phase, the existing heap-leach plant would be upgraded to a carbon-in-leach (CIL) operation to increase gold recoveries. The Hassai partners would also build a water pipeline to the site from the Nile River and a power line to connect to the national grid, with both carrying sufficient capacity to support both phases of the expansion. In the second phase, the mine would start to tap into the volcanogenic massive sulphide (VMS) deposits that sit below the oxide mineralization, using a flotation plant to recover gold and copper.

To build, the CIL facility is expected to cost US$185.6 million. For that investment La Mancha would be able to process 3 million tonnes of ore annually — a significant increase from its current 800,000-tonne-per-year rate — to produce 155,880 oz. gold each year, at a cash cost of US$482 per oz.

Based on a gold price of US$950 per oz., the upgraded mine should generate a 30% internal rate of return and carries a US$149.8-million net present value, at a 5% discount rate. The upgrade should pay for itself in just under two years.

A key driver behind the CIL upgrade is the ore combination at Hassai. The resource comprises four ore types, which La Mancha describes as traditional gold ore, acidic gold ore, heap-leach residue and VMS ore. The current heap-leach operation can only process the first kind of ore, wherein gold is hosted in silica-barite and quartz. The new CIL plant will be able to extract gold from two additional ores — the acidic gold ore, which is oxidized VMS mineralization and sits at the bottom of most pits at Hassai, and the heap-leach residue, which is traditional ore that has already been leached but still carries an average grade of 2 grams gold per tonne.

The three kinds of mineralized material that La Mancha will be able to process in the CIL facility combine to total 9.16 million indicated tonnes grading 3.79 grams gold plus 4.46 million inferred tonnes averaging 3.03 grams gold.

The second step in the Hassai expansion is development of a flotation plant to treat VMS mineralization. This plan is still in its early stages as La Mancha only started delineating VMS mineralization in late 2007 and to date has defined two deposits. However, VMS mineralization is visible at the bottom of at least six pits, so the potential to expand the VMS resource is good.

The two deposits defined at present are Hassai South and Hadal Awatib; both extend from the bottom of an already-mined pit. Hassai South would be mined as an underground operation while Hadal Awatib is large enough to support an enlarged open pit. Together the two deposits host 2.9 million indicated tonnes of 0.93 gram gold and 1.27% copper plus 48.5 million inferred tonnes averaging 1.33 grams gold and 1.19% copper.

The flotation plant would churn through 5 million tonnes of ore annually, or 13,700 tonnes per day, to produce 377,896 oz. gold and 322,000 tonnes of copper over a 10-year mine life. La Mancha would have to spend US$319.4 million to build the VMS operation; an 11% internal rate of return allows payback in 3.9 years. The project carries a net present value of US$122.7 million, using a 5% discount rate.

Overall, the company is excited about the economics of the CIL transition and is pleased the VMS option produced positive numbers at such an early stage. La Mancha will immediately begin work on a feasibility study for the CIL project and is kicking off an $18-million VMS exploration program that will see 100,000 metres of drilling over the next year.

As mentioned, La Mancha plans to front-load the expansion by building water and power lines sufficient to support both the CIL and flotation plants in the first phase. The Hassai mine is located in the middle of the Red Sea desert, 140 km from the Nile River. The company says strict management of the underground water sources found near the mine have provided the heap leach with enough water but there is not enough to support the expansions. A projected pipeline would instead pump 7.7 million cubic metres of water per year to the site, which is ample supply for both the CIL and eventually the flotation plants. Similarly, phase one plans call for a power line to connect Hassai to the national power grid.

The company hopes to make a development decision on the CIL plant in the first half of 2011 so that the operation reaches production by early 2013. As for phase two, plans are very tentative given the early stage nature of the project but the La Mancha is also exploring its Fetekro and Bondoukou properties in Cte d’Ivoire. Fetekro is in the centre of the country, 40 km east of the city of Katiola, while Bondoukou is 20 km from the Ghanaian border. Both properties sit along one of the six northeast-southwest trending volcanic belts of the Birimian system that straddles Ghana and Cte d’Ivoire and is home to more than 20 known gold deposits. Some of those deposits support large gold mines, such as Newmont Mining’s (NMC-T, NEM-N) Ahafo mine, AngloGold Ashanti’s (AU-N, ANG-J) Obuasi mine, and Gold Fields’ (GFI-N, GOF-L) Tarkwa mine; those mines are home to combined reserves of more than 60 million oz. gold.

At Fetekro historic drilling focused on the shallow oxidized gold zones and defined an inferred resource of 287,036 oz. gold at an average grade of 2.43 grams gold. In its first drill program at the site, La Mancha’s goal was to test the fresh rock below and around the oxide zones for mineralization.

The company drilled four diamond drill holes and 11 reverse circulation holes, all eastward and downdip of the defined resource. The best grade came in hole 27, which returned four short intercepts between 16 and 46 metres depth: 3.8 metres of 4.4 grams gold, 1 metre of 106 grams gold, 0.9 metre of 1.2 grams gold, and 8.8 metres of 13.2 grams gold.

Other promising hits included 1 metre of 31.4 grams gold, 2 metres of 11.7 grams gold, 5 metres of 4.5 grams gold, 5.5 metres of 5.3 grams gold, 7 metres of 8.8 grams gold, and 13 metres of 6 grams gold. Mineralization is present as native gold and sulphides in quartz veins. La Mancha is planning another drill program for the next dry season.

Bondoukou had seen very limited exploration prior to La Mancha’s arrival in late 2008. The company conducted stream sediment and soil sampling as well as geophysical surveys and the work identified six anomalies. Trenching on the most promising anomaly, Dakoua North, prompted La Mancha to hit the zone with a 23-hole drill program.

The results included some interesting intersections, showing enriched lenses alternating with near-barren zones over a strike length of more than 1 km. Hole D3 cut 7.3 metres grading 5.5 grams gold from 25 metres depth, hole D4 returned 8.3 metres of 3 grams gold from 42 metres depth, and hole RC4 returned 1 metre of 7.63 grams gold from 61 metres downhole. Other good hits included 4 metres of 3.02 grams gold and 3 metres of 6.53 grams gold.

La Mancha now plans to move its drills southward, where the zone remains open under alluvial cover, and to a new anomaly known as the ZA 6 zone.

La Mancha operates four gold mines: Hassai in Sudan, the Frog’s Leg and White Foil mines in Western Australia, and the Ity mine in Cte d’Ivoire. It owns the White Foil mine outright and owns between 40% and 51% of the other three. In the second quarter of
the year, the company’s share of production from those operations totaled 42,857 oz. gold, a 54% increase from the second quarter of 2009. The increase stemmed primarily from White Foil, which La Mancha just restarted this year, and continued growth in the production rate at Frog’s Leg.

Average cash costs for the second quarter came in at US$581 per oz. Revenues totaled US$54.5 million for the quarter, leading to net earnings of US$8 million.

La Mancha’s share price gained 12¢ on news of the Hassai study to reach $2.02. The company has a 52-week trading range of $1.12- $2.25 and 142 million shares outstanding.