GBS Gold sees potential at Union Reefs deposits (May 12, 2008)

Recent drill results from GBS Gold International’s (GBS-T, GBSFF-O) Brocks Creek and Fountain Head mines, in Australia, bode well for the company’s Union Reefs operations — fed by ore trucked from several area deposits.

Drilling at the Brocks Creek underground mine has extended the depths of the Main and Central lodes of the deposit. The strike length, average grade and true width of the Central lode in particular all increase with depth.

At Brocks Creek, The company cut 56.6 grams gold per tonne over an estimated 2 metres true width (from 76 metres depth), 44.8 grams over 1.1 metres (from 66 metres), 30.6 grams over 6 metres (from 105 metres) and 34.5 grams over 4.3 metres (from 163 metres) in underground diamond drilling.

“The drilling results within the Brocks Creek underground mine are very encouraging as they demonstrate the potential to extend the life of this mine, which provides high-grade ore to the Union Reefs plant,” said Gil Playford, GBS chairman and CEO.

At Fountain Head, drilling focused on the Tally Ho lodes, defining additional mineralization at depth. Highlights of drilling include 13 metres of 6.1 grams gold at 120 metres depth and 26 metres of 17 grams gold from 118 metres (not true widths). The Tally Ho lodes are still open at depth and along strike.

The company acquired the Union Reefs operations, in the Northern Territory, in 2005 through a takeover of Northern Gold and Terra Gold Mining. Union Reefs consists of a number of past-producing open-pit and underground operations, as well as other deposits within trucking distance of a centralized processing plant.

The plant will soon get more feed with production from the Tom’s Gully underground mine expected to begin mid-year, contributing 35,000-45,000 oz. gold annually at life-of-mine cash costs of A$520-550 per oz.

And new production from the Cosmo Deeps pit is planned for the first half of 2010, at 75,000- 100,000 oz. per year for 4.5 years.

For the year ended Dec. 31, 2007, GBS reported a loss from mine operations of $12.05 million and a total net loss of $36.15 million. Commercial production at Union Reefs began last April.

The company produced 80,090 oz. gold in 2007 at a cash cost of US$645 per oz., with the number projected to grow to 130,000 oz. this year at around the same cash costs. Last year, GBS sold 75,570 oz. at an average price of US$707 per oz.

GBS says growing resources at Fountain Head and the Chinese Big Pit area, as well as new production from Tom’s Gully, should contribute to lower costs in 2009. However, higher than average costs are expected in the first quarter of 2008 due to the tropical wet season.

The company has not completed feasibility studies for its deposits, except for Cosmo Deeps, which has initial probable reserves of 2.2 million tonnes grading 5 grams gold per tonne for 350,000 contained ounces. Operating costs at an underground mine at Cosmo Deeps are expected to average US$400-450 per oz. with initial capital costs estimated at US$30 million. The internal rate of return, at a gold price of US$675 per oz., is 42%, and at a gold price of US$1,000 per oz., payback is projected in two years.

This year, the company is planning to build a flotation plant and bio-oxidation heap leach facility at the project to process refractory gold mineralization from its Maud Creek deposit.

The company has 22.8 million tonnes grading 3.3 grams gold for 2.4 million oz of indicated resources at Union Reefs, plus 20.3 million tonnes grading 2.5 grams for 1.6 million inferred oz.

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