Sutton boosts Bulyanhulu resource

With preliminary estimates suggesting the Bulyanhulu gold deposit in northwestern Tanzania could contain up to 5 million oz., the directors of Sutton Resources (STT-V) have adopted a shareholder rights protection plan.

Sutton’s principal asset is an 85% interest in the Bulyanhulu project, the remainder of which is held by the Tanzanian government.

The plan, which has yet to be approved by shareholders, was implemented because reserve estimates are rendering Sutton increasingly attractive as a takeover target, says company spokesman Patrick Soars. “If someone is interested in taking a run at us, the company will be in a position to get maximum shareholder value.”

Sutton was embroiled in a bitter proxy battle last year with company director James Sinclair and his wife, Barbara, who hold an estimated 1.7 million shares, representing a 13.3% interest. The Sinclairs, together with a group of dissident shareholders, sought control of the company, arguing that the best way to develop Bulyanhulu was through a joint venture with an experienced mining company.

However, management’s plan to develop Bulyanhulu autonomously was supported by a majority of the shareholders. Sutton and the Sinclairs have since initiated legal action against each other, with each party accusing the other of misconduct.

The shareholder rights plan (also known as a “poison pill”) comes into effect when a person or related party acquires or attempts to acquire 20% of the company’s outstanding shares without complying with the “permitted bid” provisions of the plan. The plan would allow shareholders other than the acquiring party to buy common shares at a discount to the market price at the time.

The Bulyanhulu gold deposit is a quartz-sulphide shear-vein (reef) system hosted in an Archean greenstone belt in the Lake Victoria goldfields. The main reef system, consisting of Reefs 1 and 2, is a stratabound deposit in a sedimentary exhalative unit occurring at the contact of intermediate and felsic volcanics. Reef 2 lies 500 metres northeast of Reef 1 and consists of a series of en echelon vein structures hosted in sheared intermediate volcanics.

The resource contained in Reefs 1 and 2 was last estimated at 7.2 million tonnes grading 15 grams gold per tonne (equivalent to 3.5 million contained ounces). The estimate is based on a cutoff grade of 5 grams and a true width of at least 1.5 metres.

Reef 1 hosts the bulk of the resource, over a strike length of 1,100 metres and a downdip of 700 metres. Subsequent deep drilling has expanded the deposit at depth and along strike. A new resource calculation is expected to show an increase of 1.4 million oz.

The company has begun a US$20-million program of underground development and surface exploration aimed at advancing the project to the final feasibility stage.

Sutton is, at present, removing overburden in preparation of going underground via a decline. About 3,200 metres of underground development will be carried out in an attempt to verify reserves, provide a bulk sample for metallurgical testing, and allow for further delineation drilling.

Surface exploration is ongoing, with three diamond drill rigs probing Reef 1 and adjacent zones. In addition, a 10,000-metre program of

reverse-circulation drilling is testing the open-pit potential of near-surface gold oxide mineralization overlying Reefs 1 and 2.

A full feasibility study is expected by the end of the first quarter in 1998.

Preliminary scoping studies suggest a 1,500-tonne-per-day underground mining operation could produce 200,000 oz. gold annually at a cash cost of US$125 per oz. (net of silver and copper byproduct credits) over a mine life of at least 15 years. The capital cost is projected at US$135 million.

Sutton’s holdings in Tanzania also include two nickel concessions: the Kabanga project, which hosts 31 million tonnes grading 1.5% nickel and 0.11% cobalt; and the Kagera project, which has been optioned to BHP Minerals.

Sutton has 12.7 million shares outstanding (or 15.2 million fully diluted).