Sino Gold adds another gold-silver deposit to its pool of China assets

Several years ago Australian gold producer Sino Gold (SGX-A) identified the Eastern Dragon gold-silver deposit in northern China’s Heilongjiang province as a high-priority acquisition target.

Sino Gold’s dream has finally come true. On Dec. 12 it signed an agreement to spend US$90 million for a 72% interest in the high-grade, near-surface deposit, which it believes has the potential to become a low-cost mine.

Sino Gold described Eastern Dragon in a power point presentation as having a production potential of 80,000 to 120,000 oz. gold per year at a cash cost of less than US$100 per ounce, after silver credits.

“The exploration and development target is to confirm 600,000 to 800,000 ounces of contained gold, with potential average grades of between 7 to 8 grams per tonne gold, 70 to 75 grams per tonne silver, and a potential tonnage range of 2.3 to 2.9 million tonnes,” it said.

The plan is to start with a small open pit and then move to an underground operation with an initial production start-up date anticipated in 2010.

“We believe this acquisition will add significant shareholder value and reinforces our first mover position in a country that is likely to become the world’s largest producer this year,” Sino Gold’s chief executive officer Jake Klein said in a prepared statement.

In order to finance the acquisition and advance development of its China projects, Sino Gold will complete an A$170 million (US$149 million) private placement through a book-build.

Gold Fields (HGO-N, GOF-L, GOGOF-J), Sino Gold’s largest shareholder and strategic partner, will participate in the placement pro-rata to their shareholding of about 16.5%.

Eastern Dragon Lode 5 is a high-grade, low-sulphidation epithermal gold-silver deposit, which has been tested by extensive trenching, diamond drilling and underground development.

Sino Gold’s local joint-venture partner, the Heilongjiang Exploration Brigade, discovered the Eastern Dragon Lode 5 quartz vein in 1998 and completed 45 diamond drill holes and 1.9 km of underground development.

It defined low-sulphidation epithermal gold and silver mineralization over a 600-metre strike length to a depth of 250 metres. Near-vertical veins averaged 6 metres in thickness and initial recoveries were greater than 90% for gold and greater than 70% for silver.