San Gold Sees Rice Lake Grow

Vancouver — Armed with a new report on its Rice Lake project, San Gold (SGR-V, SGRCF-O) has tallied an increased resource for its gold deposits located near Bissett, in southeastern Manitoba.

The independent study reviews total measured and indicated resources of 1.4 million tonnes grading 8.9 grams gold per tonne (about 403,000 contained ounces) within the Rice Lake and San Gold no. 1 mines, and in the Cartwright and San Gold no. 2-3 zones. An additional 3.7 million inferred tonnes averaging 8.6 grams gold was also tabled for about 1.02 million contained ounces gold.

The engineering report by A.C.A. Howe International also calculated proven and probable reserves of 1.19 million tonnes at 8.9 grams gold (about 336,000 contained ounces) at the Rice Lake and San Gold no. 1 deposits and in the Cartwright zone. Reserves were calculated assuming a US$600-per-oz. gold price, 1.2-metre minimum mining width and 5.1 gram gold cutoff grade.

Based only on tabled reserves, the study projects a 5-year mine life producing a total of 315,200 oz. gold and a life-of-mine break-even gold price of US$345 per oz. Life-of-mine operating revenue is expected at about $105 million and with an EBITDA (earnings before interest, taxes, depreciation and amortization) of about $94 million.

A rosier scenario plays out when resources and reserves are combined, extending the mine life to more than 10 years. In this case, gold production over the life of the mine is projected at 927,000 oz., however the break-even gold price creeps up to US$375 per oz. to allow for recovery of ongoing capital development expenses. Operating revenue is expected at about $294 million with an EBITDA of $242 million.

The recently discovered Cartwright deposit accounts for over 400,000 contained ounces gold in the inferred resource category.

“We are extremely pleased with these results, especially with the significance of the nearby Cartwright zone, which was just discovered in the spring of this year,” said San Gold president Dale Ginn. “Our discovery cost per resource ounce of under ten dollars to date is extremely low by industry standards and we have only explored a very small percentage of our landholdings in the Rice Lake greenstone belt.”

With the gold resource boost, development of the Cartwright and San Gold no. 2-3 zones is anticipated over the next couple of years, at which point the ore feed will push the mill towards its full capacity of about 1,100 tonnes per day.

The engineering firm comments that projections in its economic review are “conservatively high” as they are based on historic operation costs. Past mining was accessed by a deep shaft and internal shaft system, whereas the current San Gold no. 1 mine (as well as planned operations on the Cartwright and San Gold no. 2-3 zones) will be a less costly ramp-access operation.

San Gold celebrated its first bullion pour at Rice Lake last summer, becoming the only gold mine now operating in Manitoba. It aims to produce about 60,000 oz. in 2007, ramping up to an annual level of about 100,000 oz. after that.

“It is an extremely rare situation to be operating multiple mines without debt load and at the same time, possess virtual control over a productive greenstone belt,” Ginn continued.

The project is in the Rice Lake greenstone belt, which occurs in the western portion of the regional Uchi subprovince that also contains the Red Lake, Pickle Lake and Musselwhite gold camps.

Previously known as the Bissett and San Antonio mines, the project first saw production in the early 1930s, operating continuously until 1968 with total output of about 1.4 million oz., and an average grade of 9.6 grams gold. In the mid-1990s, a few companies examined restarting the underground operation, with Rea Gold stepping forward and ambitiously investing about $60 million in upgrading underground workings and building new surface infrastructure including a mill and hoist. Rea Gold fell into bankruptcy before any significant production was achieved and creditors placed the project on the block.

South African producer Harmony Gold Mining (HMY-N, ), looking for a North American beachhead, grabbed the project in mid-1998 for about $14 million. Following modifications to the mill and underground workings, they restarted production in late 1998. Harmony operated the mine until late 2001, only producing about 110,000 oz. gold, when low bullion prices led to the decision to shut down and place the mine on care and main-tenance.

With about 127.6 million shares outstanding, San Gold posts a $171-million market capitalization at its recent trading price of $1.34 per share. The stock has traded in a 52-week range of 41-$2.25.