Vancouver —
The project covers 400 sq. km in the prolific Witwatersrand Basin, the largest gold district in the world. Gold mineralization was first discovered in the basin in 1886, when George Harrison found an outcrop of the main gold-bearing conglomerate on Langlaagte Farm, near Johannesburg. The region has since produced nearly half the gold mined in the world to date — some 1.4 billion oz.
The gold-bearing conglomerate, usually grading no more than 15 grams gold per tonne, stretches from 65 km east of Johannesburg to the west, some 145 km, then swings southwest to the Orange Free State, 320 km away. Another field, Evander, was found much later, 130 km southeast of Johannesburg. The composition of the reefs varies widely, but most are conglomerates, with pebbles of quartz and chert in a matrix of quartz grains, silicate and various sulphides (mainly pyrite). The reefs range from thin, small-pebble bodies that often show great lateral extent to thick conglomerates.
Mineralization is hosted in the Witwatersrand Supergroup, a succession of late-Archean-to-Proterozoic sediments deposited on the Archean granitoid greenstone terranes of the Kaapvaal craton. About 3 billion years ago, a sub-aerial extrusion of mafic volcanic rocks, known as part of the Dominion group, was followed by the deposition of the siliciclastic sediments of the Witwatersrand supergroup. Mafic volcanic rocks of the Ventersdorp supergroup overlie the Witwatersrand succession.
By far the most important occurrences of gold lie within conglomerates in the upper division of the Witwatersrand Supergroup and the basal formation of the overlying Ventersdorp Supergroup. The Witwatersrand rocks were deposited over a time span of some 190 million years. Currently, seven gold fields are being exploited from the asymmetrical basin, which measures 350 by 180 km.
The Burnstone property lies in the South Rand goldfields in the northeastern part of the basin, near
From 1974 through to 1993, a succession of owners, including Gencor, Gold Fields and Avmin, drilled 108 diamond drill holes into the property. But despite an excellent location, the project was deemed unattractive as a result of low gold values near surface and a fragmented ownership. It was not until the late 1990s that three drill holes cut the favourable reef closer to surface. Recognizing the significance of this find, a South African group assembled the mineral rights and sunk 15 holes into this area in 2002. The results confirmed that an anticlinal structure had pushed this part of the reef to within 200 metres of surface.
Mineralization at Burnstone is hosted by the Kimberley reef, at depths of 200-1,000 metres, relatively shallow compared with other mines in the Witwatersrand. Gold resources have been outlined in two parts of the property, dubbed Areas 1 and 2.
The initial drill program will focus on Area 1, in an effort to upgrade current indicated gold resources of 10.4 million tonnes grading 17.47 grams gold. Some 10 km to the south, the inferred mineral resources in Area 2 stands at 24.3 million tonnes grading 14.71 grams gold. A 2002 scoping study looked into developing Area 1 as an underground operation. The report envisions a 2,500-tonne-per-day operation cranking out 130,000 oz. gold annually over a life span of 24 years. Initial capital costs ring in at US$50.6 million, and the cash cost of producing an ounce of the yellow metal would be about US$175.
Great Basin intends to carry out a $5.9-million bankable feasibility study by 2004 in an effort to fast-track the project to large-scale production by 2006. Drilling on Area 2 would follow.
The junior acquired the project late in 2002 in a deal that gives it the right to buy a private South African company, which holds an option to earn an 80% stake in Burnstone.
Great Basin can exercise its option and purchase the South African company by paying US$3.2 million in cash, and issuing 21 million shares and 10.5 million warrants in two staged tranches. The first stage, which gives Great Basin a 49% stake in the company, involves US$2 million, 10 million shares and 5 million warrants payable by April 30, 2004. The junior can then acquire the remaining 51% by issuing 11 million shares and 5.5 million warrants by the end of January 2004. US$1.25 million is due on signing a definitive agreement, and the warrants are exercisable at US75 for one year.
Great Basin has also agreed to fund an initial US$1.5-million exploration program and is required to issue additional shares depending on the amount of gold reserves and production costs outlined in an upcoming feasibility study.
Meanwhile, in Nevada, underground operator
The property hosts an inferred resource of 653,000 tonnes grading 40.12 grams gold and 217.7 grams silver per tonne. Idaho-based Hecla is funding project development as part of an earlier deal.
The partners are focusing on the Clementine-Gwenivere vein system in the Hollister portion of the property. Hecla can earn a half-stake in this portion by spending US$21.8 million on a 2-stage development program. The first part consists of a US$10.3-million program of underground development and drilling aimed at upgrading the resources into reserves. The second, US$11.5-million stage will attempt to develop the vein systems.
Great Basin envisions a 5-year underground operation capable of mining 600 tonnes per day, with ore treated at a local mill. This would result in production of 170,000 oz. gold and 920,000 oz. silver annually. Cash costs are pegged at US$114 per oz. gold-equivalent, with total costs coming in at about US$134 per oz. gold-equivalent.
The economic model calls for 50% mining dilution and carbon-in-leach processing, with projected recoveries of 95% for gold and 90% for silver. Underground mining costs would be roughly US$55.50 per tonne, and toll-mining charges are pegged at US$25 per tonne. The estimated capital cost of the proposed mine is US$22 million.
Hecla is completing engineering and permitting work to facilitate an underground drive into the gold veins. The company has one year after receiving the permits in which to complete the first stage of the program. It then has 45 days in which to begin the second, which has the timetable of another year. Once a final agreement is signed, Hecla will issue 2 million warrants to Great Basin and, in return, receive 1 million warrants in the Hunter-Dickinson-led junior. Hecla will also issue 1 million warrants upon completion of each work stage, and Great Basin will match that with 500,000 of its warrants.
Based on its two advanced projects, Great Basin has a net present value of about $3 per share ($195.1 million). The figure is based on a gold price of US$300 per oz., with a rand-to-U.S.-dollar exchange rate of 10 and a 15% discount of forecast operating cash flow from both projects.
The junior has closed a $10-million financing and now has $24 million in cash, no debt and 46.8 million shares outstanding. Once the Burnstone deal is complete, Great Basin will have 67.8 million shares outstanding, or 91.4 million fully diluted.
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