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Friday, 8 March 2013
Spanish Mountain Gold could see near-term boost from potentially understated project resource estimate, trade-off studies underway - UPDATE
Spanish Mountain Gold (CVE:SPA) provided investors Thursday with an update on its gold project in British Columbia, saying there could be a potentially material increase in the grades used in its resource estimate in the near future.
After some analysis on data from past work, the company said that it seems the existing diamond drill grade estimates from its latest resource report are "potentially understated by a material amount".
Spanish Mountain is therefore currently evaluating additional reverse circulation drilling requirements to confirm the expected grades during the initial phase of the project, as defined by the preliminary economic report released late last year.
"This could be a significant add on, and I am now working on an in-house report that will give some indication of the magnitude of the expected change," says COO Morris Beattie.
The company also updated Thursday on its strategic review process announced in January, saying it has been investigating a number of options with advisor Rothschild that could "potentially enhance" shareholder value.
"The strategic review process is going quite well, we're talking to a number of groups and there has been a lot of interest in the project," says Beattie, adding that the process will not stop until the company is moving ahead.
Beattie told Proactiveinvestors that the most likely scenario will be an arrangement that would get "some hard dollars" into the Spanish Mountain gold project initially, with the intent of the third party becoming a strategic partner, however all options remain on the table at this point.
"Realistically, we expect the process will come to a conclusion in the next couple of months," he says.
The company is also now working to refine an infill drilling program on its major property to reclassify some of the inferred resource strictly within the pit shell into the measured and indicated category, for use during the eventual feasibility study.
Currently, the property holds 3.18 million ounces of gold in the measured and indicated category, and 3.6 million ounces in the inferred category, both at a cut off grade of 0.20 grams per tonne (g/t).
The Canadian junior explorer late last year announced the results of a preliminary economic assessment (PEA) for the project it has been drilling since 2005, with the report estimating a pre-tax net present value of US$454 million and an internal rate of return (IRR) of 15%, using a 36-month trailing gold price.
The Spanish Mountain gold project in BC is projected to have a 15 year mine life, producing an average of 197,000 ounces of gold per year for the first 14 years, with total life-of-mine production of 2.8 million ounces of the yellow metal and one million ounces of silver.
Initial capital costs were pegged at US$755.9 million, including contingency.
"We are now reviewing multiple scenarios and trade-off studies to improve overall economics, looking at different assumptions to give some alternative," explains Beattie.
"We will finish these trade off studies before committing to a course of action on the feasibility study," he adds.
Aside from the planned infill drilling program, the company is also working to reinterpret current data for an area that lies two kilometres west of the project's main zone. It says it is "encouraged that work thus far has confirmed significant additional exploration potential for the Phoenix Zone area."
Further drilling to the northwest of the most recent Phoenix holes is being evaluated as well to establish whether there is continuity between the areas drilled to date, the company said, which span a strike length of just over 2.5 kilometres.
Both the infill and reverse circulation drilling will be done sometime around mid-year, Beattie says, once weather permits and preparatory work is completed. With regards to permitting and community relations for the project, discussions are ongoing with First Nations and local communities, with this set to be a primary focus for Spanish Mountain Gold this year.
It is anticipated that community open house meetings as required during the environmental assessment process will be organized later in 2013.
Management also recently met with several federal and provincial government officials to provide an overview of the project's proposed development, with Beattie adding that Spanish Mountain was invited to present on its property at the CIM conference in Prince George in June.