Shore Gold Pushes Ahead With Reduced Budget

VANCOUVER–Canadian diamond explorer Shore Gold (SGF-T, SHGDF-O) is planning to spend a pared-down $18 million on its Saskatchewan diamond projects this year, focused on preparing a prefeasibility study and reserve estimate for the Star project and a resource estimate for its Orion South joint venture.

The company says the significant reduction in its budget will ensure it remains financially stable through 2010, based on its current cash position and an agreement in principle for a credit facility against the company’s investment in asset-backed commercial paper. But with money tight, there will have to be “a considerable staff reduction” onsite, it says. The company will retain the core group of personnel needed to complete the desktop studies that are now the company’s main focus.

Last year, Shore Gold and partner Newmont Mining (NMC-T, NEM-N) together spent almost $87 million on the Fort la Corne (FALC) joint-venture properties, while Shore Gold spent an addition $8 million on the Star property. Newmont, which has a 40% stake in the FALC JV has elected to not participate in the 2009 joint-venture budget beyond the completion of the Orion South large-diameter drilling in late January, leaving Shore Gold to carry the full financial weight of the project.

Star is Shore Gold’s most advanced project. It sits 60 km east of Prince Albert, in a burned portion of the Fort la Corne forest in central Saskatchewan. In the summer, Shore Gold announced a new resource for the Star kimberlites: 122.7 million measured and indicated tonnes grading 13.6 carats per hundred tonnes and 30.3 million inferred tonnes grading 13.1 carats. Together, the resources host 20.6 million carats. The resource estimate also designated a further 100 to 120 million tonnes of the Star kimberlites as a “potential mineral deposit” carrying a similar grade.

Now Shore Gold wants to complete a prefeasibilty study and reserve estimate for the project so it can deliver a full feasibility by the first quarter of 2010.

The Star kimberlite straddles two projects. Just over 60% of the resources sit within the Star project, which Shore Gold owns fully; the rest are part of the Star West project, part of the 60/40 FALC JV.

In November, Shore Gold took its next big step towards a production decision at Star when it submitted a project proposal for a joint Star-Orion South diamond project to the environmental assessment branch of the Saskatchewan Ministry of the Environment. The proposal includes Shore’s Star project together with the Orion South kimberlite, which is part of the Fort la Corne joint venture.

The submission proposes an open pit on the Star kimberlite and a potential second open pit at Orion South, with a common processing plant. The pit at Orion South depends on the results of underground bulk sampling and large-diameter drilling, currently under way.

In recent months, Shore Gold released results from the last two of five sets of underground bulk samples from Orion South. The fourth sample produced 288.36 carats from 5,674 dry tonnes or 5.08 carats per hundred tonnes and including the largest stone yet recovered from the Orion cluster: a 45.95-carat stone, which is a fragment of a larger stone. Shore Gold was particularly pleased because the stone came from the Pense kimberlite, which generally carries a lower grade than the Early Joli Fou (EJF) kimberlite, the main lithology at Orion South. Finding a large stone in the Pense rock confirms the prospect for coarser-grained sections of that lithology.

Shore Gold also processed the fifth sample from Orion South, which produced 330.54 carats from 2,809 dry tonnes. The EJF portion of the sample carried an average grade of 17.39 carats per hundred tonnes.

The primary goal of underground sampling at Orion South is to collect 5,000 carats from the EJF kimberlite for valuation purposes. Large-diameter drilling is also under way at Orion South. The bulk-sampling and drilling results together will inform a resource estimate for the project, which is Shore Gold’s second major goal for 2009.

As of Nov. 5, Shore Gold had roughly $21.4 million in cash and equivalents, and other short-term investments. On Nov. 24, the company closed a private placement comprising 16.67 million flowthrough shares at 75¢ apiece for gross proceeds of $12.5 million.

In recent weeks, Shore Gold’s share price has ranged from 25- 60¢. The company has a 52-week trading range of 20¢-$4.64 and has 183 million shares outstanding.