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Monday, 12 November 2012
Sage Gold sees much larger resource at Clavos, along with near-term production potential
Sage Gold (CVE:SGX) has just come off more than doubling the gold ounces at its Clavos deposit in the Timmins gold camp of Ontario, and is now set for further expansion at the project – which it hopes to advance to production.
Just weeks ago, the company announced that the new NI 43-101 compliant resource estimated indicated resources of 1.26 million tonnes at 4.81 grams per tonne (g/t) gold, for a total of 194,600 ounces of gold.
This is in addition to the inferred mineral resources of 796,000 tonnes at 4.7 g/t gold, representing a total of 120,000 ounces.
President and CEO Nigel Lees says the latest resource exceeded the company’s expectations, as the newest estimate represented a 113 per cent increase in total ounces compared to the last published resource of October 2006.
The new report is based on a higher long-term gold price of US$1,600 an ounce and a lower cut-off grade of 2.75 g/t gold, which helped expand the resource, adds Lees. The 2006 mineral resource was calculated with a gold price of U$500 an ounce, and a cut-off grade of 4 g/t gold.
The growth in gold ounces also reflects additional underground and surface drilling within the last two years, and the addition of the 960 zone and Sediment deposits at the property, which is owned 60 per cent by Sage and 40 per cent by St. Andrew Goldfields (TSE:SAS).
“Non-compliant estimates have indicated the potential for a much larger resource, with mineralization still open at depth and along strike.”
Indeed, Lees - founder of TVX Gold – which merged into Kinross Gold (TSE:K) - says there has so far been limited drilling to the west, and below the 350 metre level at the existing Clavos deposit as “very often in the area, the grade of the deposit improves with depth.”
Though some surface drilling is planned to expand the resource, Sage’s CEO says that drilling at the site is more effective from underground. The company plans to tighten the spacing of the holes through definition drilling, with the aim to upgrade resources to the reserve category.
“All we have to do is go back down the ramp and dewater – this is planned for the end of the first quarter next year. A large part of our planned budget will go toward definition drilling to convert resources to reserves, and our capex estimates are very modest,” he affirms.
Already, $46 million has been spent on the extensive infrastructure at the site, with a preliminary economic assessment (PEA) for the project on target for completion by Christmas.
When asked what can be expected from the preliminary report, Lees says that the company believes the project is economic, and that it makes “investment sense” to place it into production, with the report expected to confirm the work Sage Gold has done thus far.
“We have spent a lot of time and money on it, and we think it will be a very successful project.”
Lees says there is already “a lot of available mineralization” that has been identified previously that can be shipped from underground, and once the dewatering process is done and the underground stopes are rehabilitated, this ore will be accessible.
“The net cost of development in the final analysis will be a lot less as it will be offset by revenue from this ore.”
Some surface drilling will also take place before year-end, along with other exploration drilling sometime in 2013. Sage Gold’s CEO explains there have been some “good results” from the 960 zone – a potentially “significant deposit” located 600 metres to the east of the existing Clavos deposit.
Recent drilling highlights from this zone include 12.11 grams per tonne (g/t) gold over 2.0 metres, and 6.38 g/t gold over 4.2 metres.
Lees believes there is the potential to at least triple the size of the resource at Clavos from what it is now. So far, the company has spent over $3 million on drilling and data compilation in determining the resource.
Metallurgical work is also underway, and Sage is on pace to undertake an equity financing by Christmas to improve its balance sheet.
With a joint venture on the Clavos property now in place, expenditures are also split 60/40 (Sage/St Andrews), Lees noted. Previously, St. Andrew Goldfields put Clavos in production from 2006 to 2007 – at a time when gold prices were substantially lower and was forced to halt output.
This doesn’t faze Sage Gold. Looking forward, Lees says his plans involve bulking up staff with experienced mining personnel, as well as looking for more gold assets in the Timmins area.
“We like Timmins as a camp very much. There is the opportunity for consolidation there. But our focus remains to proceed with Clavos toward production.”
Sage’s CEO says he expects between 25,000 to 30,000 ounces per year of commercial production initially, which is anticipated to expand with the resource base.
“Our long-term strategy is to acquire deposits with near-term production potential, and Clavos fulfills this very well. We like the location, the fact that it has a compliant resource estimate, as well as the fact that it has excellent infrastructure, low capex and relatively good grades.”
Lees also notes that the property has a mill available, owned by St. Andrew, so there is no need to build one.
Sage Gold has yet another asset in its portfolio that could fit its criteria – the polymetallic copper-silver-gold Lynx deposit in the Beardmore-Geraldton gold camp, which has an NI 43-101 resource. “It is small right now in terms of a resource, but it is completely open at depth and along strike and it has the potential to be quite economic.”
“With current prices, it could be quite attractive.”
Indeed, the junior miner expects to be in a positive cash flow position within two years’ time. This goal is all the more reachable if commodity markets are favourable.
Lees is bullish on the gold market, which on a seasonal basis, is “about to enter the best part of the year.”
“On a macroeconomic basis, every central bank in the world is printing paper madly, and interest rate structures globally are extremely low.”
The problem is that shares of mining companies have underperformed bullion prices in the last few years, but Lees sees this changing.
“The rate of the increase in mining costs will slow, and bullion will go up faster than the rate increases, giving earnings power to bottom lines. There will be lots of leverage in gold shares, including for juniors that have moved from exploration to near-term production with near-term cash flow.
“There will be a large margin expansion that we haven’t seen previously,” he concludes.
In the last three months alone, Sage Gold’s stock has gone up more than 44 per cent – currently changing hands around 6.5 cents.