Sacre-Coeur proving its mettle

VANCOUVER — It has been nearly a decade since Gregory Sparks put together a large property package in Guyana, with the hope of discovering a gold deposit that could become an attractive acquisition target for a major gold miner.

Fast-forward to 2013, and Sparks’ Sacre-Coeur Minerals (SCM-V) has become one of the few juniors in the region with a strong working capital base. Though focus has shifted towards near-term production at the company’s Million Mountain project in the country, president and CEO Sparks still believes there’s a big dis­covery waiting in the Guyanese jungle.

“It became apparent to us that, though we had enjoyed success with exploration and resource development, the deposit we were working with probably was not marketable to a major,” Sparks said during a phone interview.

“So we began experimenting with various means of production that would cost-effectively extract gravity-recoverable gold. We struggled a little bit to figure out the recovery methods for the in-situ gold in a heavy clay environment, but settled on a bit of an updated version of what the local artisanal miners use.”

Sparks is referring to Guyana’s rich history of alluvial and eluvial gold mining. Sacre-Coeur did an inventory on its alluvial gold deposits in a bid to generate sustainable cash flow that could cover the company’s corporate and holding costs, as well as working capital to pursue exploration on a wholly owned, 860 sq. km land package in some of Guyana’s most prospective areas.

The strategy is paying off, with Sacre-Coeur producing roughly 600 oz. gold during the third quarter of 2012 and generating US$990,000 in gross sales receipts. The company is also improving operations, and production rose to around 70 oz. per week in September at cash costs of US$357 per oz. The result was a cash margin of US$1,1012 per oz. and net cash flows for the third quarter clocking in at US$604,000.

As a result, Sacre-Coeur is in the midst of a C$435,000 expansion at its operation that could more than double production to between 1,450 oz. and 1,800 oz. gold per quarter. Sparks says the upgrade is on schedule for production in April, and should result in reduced cash costs.

But the big windfall for Sacre-Coeur has been access to debt markets that were only available to producers, which means the company can finance without further equity dilution in a tough market.

In early February Sacre-Coeur closed a gold-participating bond offering and raised US$6.48 million. The company’s bonds mature in December 2016, with 10% annual interest on a declining balance payable in cash each quarter.

The bonds will be redeemed in 16 equal quarterly installments, delivered via gold exchange-traded fund (ETF) units on the Swiss Internet Exchange. Sparks says that the agreement would account for 15% of Sacre-Coeur’s production per quarter, and meets a number of criteria the company was looking for in a financing.

“We set out and were determined we were not going to be one of those companies that has trouble surviving in a market like we are dealing with these days,” Sparks says. “We chose this level of financing for a couple of reasons. Obviously, we needed enough working capital to complete what we wanted to complete: doubling our alluvial capacity, and completing our feasibility study. We used the other criteria to determine that we wanted no less than a five-to-one coverage ratio on production.”

With surface-mining operations humming along, Sacre-Coeur can turns its time and money to the next stage of its strategy, which involves a hard-rock resource at its Million Mountain property. The resource is contained in the Zone 1 deposit, which totals 12 million measured tonnes grading 1 gram gold per tonne and 2.2 million indicated tonnes grading 0.9 gram gold, for a global in-situ resource of 451,000 oz.

Sparks points out that Sacre-Coeur has completed around 40 holes since its last resource update, and speculates that the company could be sitting on over 500,000 oz. gold, once it has a chance to recalculate with new drilling data. The company also expects to drop its resource cut-off grade from 0.5 gram per tonne to 0.3 gram per tonne.

“Our current business model, and one we’ll be pursuing for the foreseeable future, contemplates not necessarily counting on ever making a huge or world-class discovery here,” Sparks says. “We’ll focus on the smaller, satellite deposits that are in saprolite, which have simple metallurgy and are easy to mine. We’re looking at low-entry costs and affordability. So if we can get a number of these going at one time, we could generate a lot of ounces at reasonable costs.”

And due to promising internal studies on Million Mountain, Sacre-Coeur has opted to move directly to the feasibility stage with the project. The company has internally modelled a 100,000-tonne-per-month mine, including a portable modular process plant with gravity front-end and cyanide back-end to optimize fine-gold recovery. The operation could produce 40,000 oz. gold annually over a seven-year life, and carry a price tag of around US$30 million.

Sparks is quick to point out that through geophysical and geochemical work, Sacre-Coeur has outlined nine similar anomalies to Zone 1 across its Million Mountain property, which holds 20 km of east- to west-striking megalineament.

The company plans to drill around 10,000 metres this year, with a focus on upgrading Zone 1’s resource, as well as outlining a maiden resource at its Zone 9 prospect. During scout drilling at Zone 9, Sacre-Coeur cut 14 metres grading 4 grams gold, including 0.55 metres of 84.26 grams gold, in discovery hole KM0209.

“We consider each of these nine targets prospective for deposits of varying size,” Sparks says, pointing out that Sacre-Coeur owns three core drills and enjoys competitive exploration costs. “I’ve worked in Guyana for seventeen years, so we sort of know how to do business in the deep bush, and that gives us a great advantage. You have to be pretty much self-sufficient when you’re scoping a project in this sort of working environment.”

Sacre-Coeur will keep pursuing target generation on its greater land packages. The company holds 356 sq. km in its Lower Puruni regional block, which houses Million Mountain and sits near the historic Omai gold mine. A second 450 sq. km tract sits in the historic Arakaka district in northwestern Guyana. Arakaka has recorded gold production since the late 1900s — generally associated with high-grade quartz veining — and is targeted by artisanal mining operations.

Sacre-Coeur has 59.3 million shares outstanding, and has traded within a 52-week range of 8¢ and 26¢. The company had a strong start to 2013, jumping nearly 40% in the past six weeks, en route to a 20¢-per-share close at press time for a $12-million press-time market capitalization.