St Andrew Goldfields: gold production to reach roughly 100,000 ounces in 2012

St Andrew Goldfields (TSE:SAS) continues to perform very strongly with the Holt, Holloway and Hislop Mines forecast to produce 65,000 to 75,000 ounces of gold for the current calendar year, and an increase to around 100,000 ounces in 2012.

Production for the current year for the Holt Mine is expected to reach between 24,000 to 28,000 ounces, while the Holloway Mine is anticipated to see from 23,000 to 26,000 ounces, and the Hislop Mine between 18,000 to 21,000 ounces.

The company controls a 120 kilometre long land package that encompasses a section of the Porcupine-Destor Fault Zone that runs parallel with both the southern shoreline of Lake Abitibi, and the Larder Lake and Cadillac Fault Zone in Ontario, and hosts three producing mines along with exploration projects at Deep Thunder, Smoke Deep, Garrison Creek, Hislop North, Taylor, Clavos and Aquarius that straddle part of an extremely prolific gold trend that lies 50 kilometres to the north of Kirkland Lake, which hosts 47 million ounces of gold.

The largest gold producer is the Holt Mine, with current Proven and Probable Reserve of 3,135,000 tonnes at 5.1 g/t Au for 510,000 ounces, Measured and Indicated Resource of 4, 731,000 tonnes at 5.7 g/t Au for 871,000 ounces; and an Inferred Resource of 1,197,000 tonnes at 6.5 g/t Au for 249,000 ounces of gold, at a cut-off grade of 3.5 g/t Au.

Zone 4, which is accessed via the 925 and 1,075 levels, hosts a Proven and Probable Reserve of 1,677,086 tonnes at 4.34 g/t Au containing 234,011 ounces, which remains open at depth and along strike. Production is currently being carried out from this zone and is ramping up towards 1,000 tonnes per day (tpd) expected by the end of the first quarter of 2012.

The Holt mineralization lies within two parallel fault lines known as the Ghostmont and McKenna Faults that have been traced over a 5,000 metre strike line within the mine area.  Historic and freshly defined mineralization extends from Zone 4 in the southwest, to an area of newly defined mineralization covering a strike of 500 metres in the northeast, known as the Ghost Zone.  

The Holloway Mine hosts a Proven and Probable Reserve of 138,000 tonnes at 4.0 g/t Au for 18,000 ounces, Measured and Indicated Resource of 623,000 tonnes at 4.3 g/t Au for 86,000 ounces, and an Inferred Resource of 1,080,000 tonnes at 6.0 g/t Au for 209,000 ounces.

Resources are being developed for imminent production from Smoke Deep, which is accessed at the 780 level by a 1,250 metre long decline from the Lightning Zone. Smoke Deep contains an Inferred Resource of 747,000 tonnes at 5.9 g/t Au for 140,000 ounces of gold. Smoke Deep has a known horizontal reach of 400 metres and a vertical strike of 300 metres, and remains open along strike and at depth.

A number of additional targets are being drilled to the East of Holloway that lie within a 4,500 metre strike of the Porcupine Destor Fault Zone and Blacktop, Blacktop East, Deep Thunder and Lightning Vein. All of the targets are located along parallel strain zones and are open in various directions.

Deep Thunder has been defined over a horizontal extent of 350 metres and to a depth of 500 metres, with drilling identifying broad zones of alteration and gold mineralization containing higher grade ore shoots that remain open to the east and down dip. A first resource estimate will be calculated before the end of the calendar year.

The Hislop Mine is located 50 kilometres to the west of the Holt and Holloway Mines, and is an open pit operation with a Proven and Probable Reserve of 2,108,000 tonnes at 2.0 g/t Au for 139,100 ounces, Measured and Indicated Resource of 6,230,000 tonnes at 2.0 g/t Au for 395,000 ounces; and an Inferred Resource of 5,338,000 tonnes at 1.8 g/t Au for 309,000 ounces of gold.

The company has currently estimated total Proven and Probable Reserves at Holt, Holloway and Hislop Mines of 5,381,000 tonnes at 3.8 g/t for 666,000 ounces, along with Measured and Indicated Resources of 11,584,000 tonnes at grades ranging from 1.1 g/t Au to 6.1 g/t Au for 1,352,000 ounces; and Inferred Resources of 7,615,000 tonnes at grades ranging from 1.8 to 6.5 g/t Au for 767,000 ounces. 

These expanding reserves and resources will support production of approximately 100,000 ounces of gold in the new calendar year, with the Holt Mine contributing 50%, the Holloway Mine lending 30% and the Hislop Mine adding 20%.

Cash operating costs on the higher production rate are forecast to drop into a range of US$800 to 850 per ounce, before royalties.

St Andrew Goldfields is also developing additional resources and reserves at newer project areas that include advanced exploration at Taylor hosting an Indicated Resource of 1,405,000 tonnes at 7.6 g/t Au for 343,000 ounces, and an Inferred Resource of 737,000 tonnes at 9.1 g/t Au for 216,000 ounces.

The company recently completed 10,500 metres of drilling at Taylor mainly on the West Porphyry Zone, and expects to complete an updated resource estimate and a Pre- Feasibility Study before the end of this year. 

The Aquarius Project hosts an Indicated Resource of 23,111,000 tonnes at 1.5 g/t Au for 1,106,000 ounces, and an Inferred Resource of 502,000 tonnes at 0.8 g/t Au for 14,000 ounces, and will be assessed for development options in the new year.

The fully permitted Clavos Mine was optioned to Sage Gold (CVE:SGX) for a 60% interest, and hosts a Measured and Indicated Resource of 143,000 tonnes at 10.27 g/t Au for 37,100 ounces, and an Inferred Resource of 529,000 tonnes at 6.7 g/t Au for 110,300 ounces of gold.

Sage has completed 12,500 metres of drilling that have outlined new gold zones and is expecting to release an updated resource estimate in the near future. The company is completing a Preliminary Economic Assessment and has commenced negotiations to raise production financing.  

Initial drilling programs have also been completed at Garrison Creek and Hislop North, which abuts the Brigus Gold (TSE:BRD) drilling program on the 147 Zone, where intersections include 7.78 g/t Au over 22.10 metres at a depth of 280 metres. Drilling results and data evaluation are awaited on both project areas.

St Andrew Goldfields reported revenue of $33.345 million and an operating income of $3.207 million for the third quarter of 2011. The company produced 20,018 ounces of gold at total cash cost of US$1,130 per ounce, and secured an average sale price of US$1,715 per ounce.

Cash operating costs are expected to improve significantly in 2012 on a lift in production. The company will also be able to take advantage of $200 million in tax pools that can be offset against income in the current and future tax years.

Analyst coverage on the company is provided by Casimir Capital, Stonecap Securities, National Bank Financial and GMP.