Great Basin Gold buys mill for Hollister

Vancouver – Great Basin Gold (GBG-T) is trying to get two mines into production within the next six months and in recent weeks has taken a few important steps towards that goal.

In its most recent move the company announced an agreement to buy the Esmeralda processing plant in Nevada for US$2 million. Esmeralda comprises a mine, a mill with carbon-in-leach recovery, and a tailings facility as well as 8,000 acres of prospective land that has produced almost 2 million oz. gold during its mining history.

For Great Basin the exploration potential is an upside. The company is buying the operation as a processing facility for ore from its Hollister project, which is roughly 460 km to the northeast. Specifically, Hollister is in north-central Nevada while Esmeralda is west of the centre of the state. Great Basin says interstate roads cover 80% of the distance between the sites, leading to a transportation costs estimate of US$55 per ton of ore.

Metallic Ventures Gold (MGV-T) purchased Esmeralda from the receiver of the previous bankrupt owner in 2000. Metallic explored the land package with an eye to re-opening the mill to process small amounts of high-grade ore. The company tried to do just that in 2004 but could not make the operation economic; the mill was put back on care and maintenance.

Importantly, Metallic still holds the permits necessary for the operation of mining, milling, and crushing activities. Great Basin’s deal with Metallic includes the transfer of those rights. The permits at Esmeralda are contingent on the operator put into place a US$2-million bond covering reclamation liability.

The mill can process up to 350 tons per day. The company expects that recommissioning and reconfiguring at the mill will take at least 120 days. During that phase Great Basin will evaluate and, if needed, implement further upgrades to improve gold recovery and expand the capacity of the mill. Costs to get the mill up and running again are expected to total US$8 million; operating costs from there are estimated at US$40 per ton.

Milling costs are therefore expected to come to US$95 per ton, which Great Basin says is significantly lower than the 20% revenue royalty is currently pays for toll milling.

Investors seemed to like the move, pushing Great Basin’s share price up 13 to $1.10. The company has a 52-week trading range of 91 to $3.83 and has 215 million shares issued.

Esmeralda also comes with mineral resources, though tonnage and grade estimates are still historical in nature. Great Basin has undertaken an initial assessment of previous mining activities and plans to review historical resources with the aim of developing a National Instrument 43-101-compliant report. Preliminary observations and data from underground workings indicate the property is home to a high-grade epithermal vein-type target.

To pay for all of this Great Basin is “in advanced negotiations” towards securing a senior secured note debt financing with warrant coverage. The debt financing would conclude the Esmeralda acquisition as well as contributing towards development costs at the company’s Burnstone gold project in South Africa.

Hollister is an epithermal vein system project. Great Basin in currently developing underground access to three vein systems called Clementine, Gwenivere, and South Gwenivere. According to a June estimate the project is home to 1.47 million measured and indicated tonnes grading 29.71 grams gold per tonne plus 1.14 million inferred tonnes grading 17.4 grams gold.

Trial stoping at Hollister has given the company confidence that the strike length of the vein system will be extended. The company is hoping that extension will replace veins to be excluded in the next mineral reserve estimate because trial mining has shown the veins cannot be mined economically. Great Basin is exploring the possibility of using a thermal fragmentation process to access some of these narrow veins.

Development work at Hollister is already paying returns, in fact, as Newmont Mining (NEM-T, NMC-N) signed on to buy and process a 15,000 ton bulk sample from Hollister. Newmont is responsible for transportation and processing costs and will pay Great Basin US$470 per oz. of gold recovered. The Hollister ore is expected to carry an average grade of 1.3 oz. gold per ton as well as 9 to 12 oz. silver per tonne.

Exploration drilling is also paying off for Great Basin. Drilling in the newly-discovered Hatter Graben vein system shows the veins occur in a robust, wide structural zone with several sub-parallel bonanza grade veins similar to the Gwenivere and Clementine vein systems currently being prepared for underground mining. Gwenivere and Clementine are 1.5 km west of the new discovery.

Great Basin’s other big step forward was at Burnstone, where in late October the company’s wholly owned subsidiary Southgold was granted a new order mining right. The right allows Great Basin to mine for gold, silver, and aggregate at Burnstone. In conjunction with applying for this right Great Basin found a black economic empowerment partner in Tranter Gold, which acquired the necessary 26% of Burnstone. At Tranter’s request the 26% interest in Burnstone was converted to shares in Great Basin, giving Tranter 9.3% of Great Basin and making it the company’s biggest shareholder.

Surface and underground infrastructure development is well underway at Burnstone. By the middle of November the decline had been advanced over 2 km, with less then 200 metres remaining. The vertical shaft had reached a depth of 165 metres; it need to reach 500 metres depth. Mining at Burnstone is expected to commence in a few months time.