High River Building More Than Just a Mine in Burkina Faso

SITE VISIT

Ouagadougou, Burkina Faso — There’s little to obstruct the view of the towering yellow crane that swings over the construction site of High River Gold’s (HRG-T, HRIVF-O) Taparko gold mine. It’s located, after all, in the middle of Burkina Faso’s flat, arid lands, known as the Sahel.

Beneath the crane’s slim shadow, workers are hammering and welding their way towards a June startup date. When they get there, it will mark the opening of only the second operating mine in the country’s history and the first in well over a decade.

While such pioneering status has brought a tangible enthusiasm to the project, it has also brought the added responsibility of working through the logistics of building a mine with a government that has little experience with mining.

While High River has experienced some hiccups in forging a relationship with the government — mine development was delayed last year for two months when the government held up trucks in the capital of Ouagadougou due to confusion over taxation issues — it also offers benefits to High River.

For one, the company’s mining convention was signed by President Blaise Compaore, in contrast to the newer agreements that are signed by the minister of mines. While that may be a fine point in practical terms, it is emblematic of the company’s importance in Burkina Faso’s brief mining history.

As for the benefits to the bottom line, High River has the option to choose from conditions in the 1997 mining law or the revised mining law of 2003 — as well as any future amendments that may be more favourable. One such advantage was the lowering of the corporate tax rate in 2003 to 25% from 35%.

High River first came to the landlocked West African country in 1993, when it entered into a joint venture for the Taparko property — situated roughly 200 km by paved road northeast of Ouagadougou.

By 1996, it had ratified its investment agreement with the government, allowing it to push ahead on an exploration program, and by 2002, it had purchased Queenstake Resources’ (QRL-T, QEE-X) 18.5% interest in the property. In 2004, after receiving its exploitation licence for Taparko, it acquired another 10% interest from the government. The company now holds a 90% stake, while the government holds its mandated 10%.

Taparko is only part of High River’s mining operation. In 2004, it acquired the Bouroum project, roughly 50 km northwest of Taparko, from Axmin (axm-v, axmif-o) for US$3.3 million.

Together, the two sites — both of which are to be mined by open pit — have a reserve of 8.8 million tonnes of ore averaging 2.99 grams gold per tonne for 848,000 oz. gold. The mining rate is anticipated to be 1.5 million tonnes of ore per year at an operating cost of US$233 per oz., which gives the project a rate of return of 20% at a gold price of US$450 per oz.

Taparko makes up the bulk of the reserve. It hosts 741,000 oz. gold in roughly 8 million tonnes of ore grading 2.87 grams gold per tonne, with a strip ratio of 4.36:1. Bouroum has just 107,000 oz. in 800,000 tonnes of ore grading 4.15 grams gold with a strip ratio of 7.2.

The project currently has a mine life of 7.6 years, but project manager Roger Lacerte expects that number to grow after extensive drilling is carried out at both Bouroum and Taparko in the next year.

With construction now humming along, and the startup date well within reach, it might be easy to forget the more trying times in the project’s history.

But in its initial feasibility study — released in June 2004 — Taparko was slated to go into production in the fourth quarter of 2005.

While the aforementioned delay in getting its trucks released by the government played a part in not meeting the deadline, financing issues were the chief culprit. Lacerte says the company lost roughly six months because financiers from South Africa required permits that the company had not yet secured.

The company’s no-hedge position likely didn’t help speed up the financing process either, as forward sales of gold are often required, or at least heavily favoured by the big banks.

High River, however, has a strict no-hedge philosophy, largely based on its belief that the U.S. greenback will continue to lose steam. With the mine near completion, the company can applaud itself for sticking to its guns and putting itself in a position where it can offer investors full exposure to the gold price going forward.

That exposure is expected to grow, not only from Taparko, but also from operations in Russia. The commissioning of Taparko will roughly coincide with a new mine in Russia known as Berezitovy. Together, the mines are slated to bring the company’s total gold production to an estimated 270,000 oz. gold in 2007, and 365,000 oz. in 2008. The company is currently operating the Irokinda mine and the Zun-Holba mine in Russia, which produce 135,000 oz. gold attributable to High River.

Geology

Taparko is made up of three separate mineralized zones, each of which will be mined by open pits. The zones are arranged along strike in a north-northwest direction. The three zones are: 3-5, which has a 1,100-metre strike length; GT, with a 400-metre strike length; and 2N2K, with 500 metres of strike.

The deposit occurs on the Taparko shear, which is a splay off from the regional Markoye fault. Markoye runs in a parallel direction to the splay, but to the west. Gold occurs in quartz veins and in quartz vein selvages, and is also found in the shear zone itself, where gold grades are similar to the quartz vein mineralization.

High River says that gold mineralization at both Taparko and Bouroum was formed in a classic mesothermal setting during the later stages of orogenetic events, with a strong structural control.

On the mineralogy side, 50% of the gold is free as inclusions in quartz; 45% occurs as inclusions in, or on, pyrite; and the remaining 5% is in the form of the gold-silver telluride petzite. Graphite is spatially associated with the gold mineralization, mostly on the footwall.

Between 15% and 25% of the gold will be recovered in a gravity concentrate, and the rest from a leach circuit. A carbon-in-leach (CIL) configuration is being used to deal with the pregnancy robbing effect of the graphite.

The plant will process oxide ore for roughly the first five months of operations. The oxide ore is soft rock and is already being stockpiled on a plateau above the mineral sizer that it will be fed through.

Sulphides will follow, and will be put through a jaw crusher and two cone crushers.

Overall recoveries are expected to range between 94% and 97% for oxides and 89% and 94% for sulphides; the plant has a capacity of 1.5 million tonnes of ore per year.

Of obvious consideration in a country as dry as Burkina Faso, is water.

Lacerte says the project needs 1.3 million cubic metres of water a year, and this from a region that gets less than a half a metre of precipitation annually — an amount that comes entirely in the wet season, between May and September.

To address the issue, the company is going roughly 15 km from the site to the Yalgo reservoir. During the rainy season, water levels rise above the reservoir’s bank and spill over into the surrounding countryside. In an effort to minimize its impact on surrounding communities, High River will only draw water from the lake in the rainy season, and then only when the water level rises to its edge.

A pumping station is already in place, as is the 9.6-km pipeline that will transport the 2 million cubic metres of water needed for operation into a newly built dam, known as Dam 4, located roughly 4 km from the mill.

The company is also coping with the scarcity of water by emphasizing recycling. Lacerte says the company can reuse roughly 20% of the water that ends up in the 1-sq.-km tailings pond.

Water isn’t the only scarce resource in Burkina Faso. Being one of the world’s poorest nations, the country lacks a national pow
er grid.

So out in the midst of the Sahel, companies are left to come up with their own power solutions.

High River has decided to build its own power plant — the main engine of which will be generators run on heavy fuel. Back-up diesel-powered generators stand next to the larger heavy fuel units, and will be used when one of the larger generators has to be shut down for scheduled maintenance.

Combined, the generators will have the capacity to turn out 10 megawatts of power with a capi- tal cost of US$7.4 million and operational costs estimated at US$600,000 per month.

Exploration

High River’s early-bird status in the country has given it a significant advantage in developing its exploration portfolio.

Its most prominent cluster of permits sits roughly 80 km north of Ouagadougou, and is known as the Bissa project. The group consists of 8 permits totalling 1,009 sq. km. A paved road that will lead from the capital into the heart of the site is under construction, and scheduled to be completed by November.

In addition, High River holds 19.9% of Goldrush Resources (GOD-V, GDRRF-O), which has extensive and prospective permits contiguous to some of High River’s claims. High River has back-in and operating rights for those permits.

The current focal point of High River’s Bissa permits is Bissa Hill.

Bissa Hill is actually three hills, two of which host the bulk of the resource SRK Consulting calculated in a 2004 estimate. The third hill — known as the sacred hill — sits between the two others, is much smaller, and is the site of local sacrificial ceremonies, making it off-limits to drilling.

The company estimates that the hill contains roughly 20,000 oz. gold and that in the near future it will be able to come to a resolution with the one chief who is against drilling there.

In the two hills that have been drilled, the company has found strong mineralization pinching off at ground level. Some highlights from drilling include: 9.33 grams gold per tonne over 19 metres, 6.09 grams gold over 20 metres and 6.57 grams gold over 18 metres.

Bissa Hill is part of a 36-km system known as the Sabce deformation corridor. The corridor is structurally defined by shearing running on either side of it in a northeasterly direction.

Gold at Bissa Hill is hosted in the deformed and hydrothermally altered basal conglomerate at the northern contact of the deformation corridor.

Using a 0.5-gram gold per tonne cutoff, Bissa has a measured and indicated resource of 12 million tonnes grading 1.72 grams gold for 662,250 oz. and an additional inferred resource of 16.4 million tonnes grading 1.29 grams for 679,470 oz. gold.

Climbing up the rocky ridge of Bissa Hill, chief geologist John Learn looks westward, down to where trenches scar the dry soil in straight lines.

“We’ve only drilled off about a six-kilometre section of the thirty-six-kilometre strike length of the deformation corridor,” he says.

That potential and the near-surface mineralization that the company’s drill and trenching programs continually hit, fuel Learn’s optimism about the property. Mineralization at Bissa Hill extends 900 metres and descends to a maximum depth of 150 metres with a width of 25 metres.

The near-surface results and the number of promising targets remind Learn of another country back in its mining infancy.

“It’s like Canada in 1925,” he says. “You don’t get deposits like this in Canada anymore.”

One such area sits roughly 10 km from Bissa Hill, and is known as Gougre. High River reported a new gold zone there in mid-April.

The drive from Bissa Hill to Gougre puts the workings of artisanal miners in the area on full display. While the miners aren’t allowed to continue working on high-priority targets, companies will often allow them to mine low-priority areas.

In addition, the government often grants smaller artisanal licences within company permits.

A visit to the artisanal camp shows that relations between the artisanals and High River, as represented by Learn, are open and cordial.

Farther on from the artisanal camp sits the area of mineralization that High River is interested in. When Randgold Resources (GOLD-Q, RRS-L) led a joint venture on the property from 1995 to 2002, it hit upon the same mineralization. But the company had its drills configured at the wrong angle and didn’t detect the extent of the mineralization.

High River reinterpreted Randgold’s data, modelling a different orientation of the gold zones and angled its drills accordingly.

The reconfiguration of the rigs worked, with highlights of drilling including: 4.76 grams gold per tonne over 13 metres, 3.83 grams gold over 9 metres and 2.17 grams over 23 metres.

In all, 13 holes were drilled for a total of roughly 1,200 metres.

Mineralization at Gougre is associated with alteration consisting of strong pervasive silicification and fine-grained disseminated pyrite hosted in massive to weakly deformed basalt metamorphosed to upper greenschist or lower amphibolite grade, likely in the thermal aureole of a nearby granodiorite intrusion.

Occasional smearing of native gold along late pyrite and epidote-bearing fractures has been observed. This mineralized zone does not appear to follow regional structure and is perhaps spatially related to the granodiorite contact to the southwest.

Learn says additional drilling will be done with the aim of extending the zone farther northwest.

Building more than a mine

High River’s geologist and staff are well in tune with the attitudes and culture of Burkina Faso. Exploration manager Yves Delorme has been in the country since 1996, and Learn has been in and out of the country over the past decade. Both show as much enthusiasm for the people of Burkina Faso as they do for its geology.

That commitment is apparent at Taparko, where the company decided to line its tailings dam as extra environmental insurance, even though the soil composition meant that it was not required to do so.

Taparko also boasts a neatly managed landfill site, a water treatment plant and a sewage system. Everything is pointing to a promising mine, in a promising country that is only now beginning its drive to realize its full mineral potential.

And if it gets there, it will be an acknowledgement, in part, of the foundation that High River helped to lay by building trust with the government. That trust is now emerging as a bridge between the government and the rest of the global mining industry, and with some 13 North American-listed companies now operating in the country, it appears the bridge is ever widening.

T.N.M.NUGGET

HIGH RIVER GOLD (HRG-T):

PROJECT:Taparko-Bouroum gold project

OWNERSHIP:90% High River Gold, 10% government of Burkina Faso

LOCATION:Burkina Faso

CONTAINED GOLD:Probable reserve of 8.78 Mt grading 2.99 g gold for 848,000 oz.

MODELLED ANNUAL OUTPUT:100,000 oz. gold in year 1, ramping up to 140,000 oz.

MINE LIFE:7.6 years

CASH COSTS:US$233 per oz.