Brett gains on preliminary Hammond Reef economics

Vancouver – A strong preliminary economic assessment of the Hammond Reef gold project in Ontario sent Brett Resources’ (BBR-V) share price on a week-long climb, during which it gained 28% to reach a new all-time high.

Hammond Reef, Brett’s flagship project, is a quartz vein stockwork gold discovery near the town of Atikokan, in western Ontario. In 2006, when Brett started earning in on the project from owner Kinross Gold (K-T, KGC-N), Hammond Reef carried an inferred resource of 1.8 million oz. gold. By 2008 the junior had earned full ownership of the project and increased the contained gold to 4.8 million oz.; a few months ago Brett increased that resource to 6.3 million oz., contained in 227 million inferred tonnes grading 0.87 gram gold per tonne.

Now a preliminary economic assessment has shown a mine tapping into the near surface, flat laying deposit at Hammond Reef could produce solid returns. To mine the deposit through an open pit requires a strip ratio of just 1.43 to 1. A mill and flotation-cyanidation facility would churn through 50,000 tonnes of ore daily to produce 463,000 oz. gold annually for the first six years at an average cash cost of US$360 per oz.

Over the mine’s 14-year lifespan, annual gold production would average 369,000 oz., at an average cash cost of US$414 per oz., for total production of 5.13 million oz gold. Gold production cash costs are net of silver by-product credits.

To develop the operation is expected to require an initial capital investment of US$614 million, followed by US$158 million in sustaining capital over the mine’s operational life.

Using a base-case gold price of US$825 per oz., Hammond Reef carries an after tax net present value of US$413 million, using a 5% discount rate. The mine would generate a 15.2% after tax internal rate of return, allowing payback in 4.6 years.

The pit design has to take into account Marmion Reservoir, a man-made lake created in 1943 when an iron ore developer diverted part of the Upper Seine River. In the first four years of mining at Hammond Reef Brett will leave a 20-metre gap between the edge of the open pit and the reservoir. In year five the company plans to build a 1,200-metre long dike to allow the open pit to extend into the reservoir area; the move would enable access to resources sufficient to extend the mine life from 12 to 14 years.

To minimize the project’s environmental impact Brett has decided to include a thickened tailings disposal facility to the Hammond Reef plans. The company is also investigating the possibility of storing the thickened tailings in the historic open pits left behind from the iron ore operation. Testwork indicates the mineralized rock and its tailings are not likely to generate acidic run-off, as the sulphide content is low and the carbonate level is adequate.

Hammond Reef is already serviced by a gravel road and there is a power line 10 km to the west as well as a 230-megawatt power generating station 14 km to the southwest. The town of Atikokan, which is 23 km to the southwest, is serviced by provincial highways and rail.

The preliminary assessment is by no means the end of the road for Brett. The company initiated another drilling program in early October and plans to complete 70,000 metres of drilling by the fall of 2010. The program has several goals. Infill drilling in certain areas will help move the resource from the inferred classification to one with more certainty. Step-out drilling in open areas along strike and down dip is expected to increase the size of the resource and potentially lower the strip ratio. And exploration drilling will probe new prospects uncovered during Brett’s summer prospecting effort.

The company is fairly confident it will uncover further resources, as the majority of the ground surrounding the known deposit remains untested by modern exploration methods. The deposit as defined to date sits within a 100- to 300-metre wide northeast-trending corridor and dips slightly, though it flattens out at depth. Some 97% of the resource is found within 300 metres of surface.

Brett is also making progress in another key mine development area: its relations with the local First Nations. In September the company signed a memorandum of understanding with the seven First Nations in the area to together develop and implement an impact benefits agreement (IBA). The IBA will contain, among other things, provisions for support for mineral production, the requirements for consultation during development and operation of a mine, First Nations rights with respect to traditional territories, and training and employment opportunities.

In the five days following news of the Hammond Reef preliminary assessment Brett’s share price gained 37¢ or 28% to close at $1.69, a new high. The company has a 52-week low of 44¢ and has 86 million shares outstanding.