Belo Sun adds lustre to Volta Grande (April 28, 2011)

Belo Sun (BSX-V) is beefing up resources at its Volta Grande gold project in Brazil’s Para state, with plans of completing a feasibility study by year-end.

In April, the company released an updated resource estimate, which saw contained gold oz. in the indicated category grow by 23% from an earlier estimate to 1.3 million contained oz. (or 29.2 million tonnes grading 1.39 grams gold per tonne), while inferred resources increased 5% to 2.1 million oz. (53.6 million tonnes of 1.24 grams gold).

The update included 20 additional holes totaling 4,990 metres from the project’s Ouro Verde deposit, and used a 0.5 gram gold cutoff.

In total, resources at Volta Grande stand at 82.9 million tonnes of 1.29 grams gold for 3.45 million oz. The company says more than 85% of the resource is contained within 200 metres from surface, and the deposits – Ouro Verde and Grota Seca – on the North Block are open in all directions.

“We did a pretty good job upgrading the resource,” says president and CEO Mark Eaton, who took the company’s reins last February. “When we started we had 2 million oz. grading a gram and with the drilling we have done, we are up to just under 3.5 million oz.”

The company changed its name from Verana last July, after reorganizing its board and management team earlier that year. “We inherited a core shack with about 30,000 metres of drilling in it,” Eaton says. “We re-assayed 5% of that and didn’t find anything that didn’t correlate with the drill data,” he notes, adding since then, Belo Sun has drilled almost 20,000 metres.

The company has six drills currently turning at Volta Grande to further upgrade and expand resources. Five of the drills are on the North Block, while the other rig is on the less-drilled South Block. (The South Block is 7 km southeast of Grota Seca, and all three areas have been developed by artisanal workings.)

Shane Nagle, a National Bank Financial analyst, wrote in an April 18 research note, that the preliminary drilling at the South Block looks promising. “We feel Belo Sun will be successful in delineating an economical gold resource at the South Block. We have conservatively included 1 million oz. from the South Block in our model – valuing these ounces at US$65 per oz.”

Similarly, Richard Gray, an analyst at Cormack Securities, wrote in a March 28 note, that “while the South Block has not undergone a formal 43-101 analysis, there are good indications from drilling by previous owners that the South Block hosts gold mineralization (altered diorite and granodiorite with weak to moderate silicification) and similar grades as Ouro Verde and Grota Seca.”

Belo Sun will soon be adding four more rigs to the property, which sits 60 km southwest of Altamira (a town of 100,000) in the northern region of Para state. Volta Grande sits along the west-northwest trending Tres Palmeiras greenstone belt, which crosses the Xingu River.

The belt is 3-km to 10-km wide and extends 70 km along strike. It is interpreted to be composed of a basal portion of predominantly metasedimentary rocks in the southern part of the belt, and mafic volcanic rocks in the belt’s northern part, and synvolcanic intrusions.

The company describes gold mineralization at the project as occurring as two types: primary gold in intrusive rocks and secondary gold in extensive saprolitic zone overlying the primary mineralization.

As the drilling continues, Belo Sun is also wrapping up environmental studies, which the company started last November. Once the company gets its environmental approval, it plans to apply for an installation licence, which it would likely receive in a year or two. With those two receipts in hand, it expects to start building the Volta Grande mine by mid-2013, according to Nagle. 

Based on a 2009 preliminary economic assessment (PEA) by Scott Wilson Roscoe Postle Associates, Volta Grande would be a 20,000-tonne-per-day operation, producing about 1.44 million oz. over its 10-year life, with initial capex estimated at US$295 million. The life-of-mine total cash cost is expected to be US$481 per oz. gold.

The mine should be up and running by 2015, Eaton says, boasting that the company has “very, very solid people on the ground in Brazil” to bring the project online. “If everything goes perfectly, it will be late 2014, or we expect it will be 2015.”

When asked what challenges the company sees at the project, Eaton points out the sensitivity of the project is really to the gold price. “The PEA was done at a US$900 (per oz.) gold price. At that time if you had a gold price which is at US$720, we don’t have a project. It’s not economic. So the biggest challenge is having a gold price above US$900, which doesn’t seem like a challenge at the moment.”

In April, Belo Sun also released assay results from 11 holes from its current drill program. Highlights include: hole 41 hitting 12.9 metres grading 4.42 grams gold per tonne, including 4.3 metres of 12.50 grams gold from 244 metres downhole; hole 66 cut 46 metres of 2.05 grams gold, including 10.3 metres of 3.61 grams gold from 314 metres depth; and hole 58 intersected 20.7 metres of 3.08 grams gold from 251 metres.

The junior has completed 85 holes so far, with assays pending from 16. Helio Diniz, the vice-president of exploration, stated that the holes being released confirm the continuity of the mineralization which remains open. He reckons that the project has “potential to become one of the larger, multi-million-oz. projects discovered in Brazil.”

Eaton says as the company continues to boost Volta Grande’s resources, it is also looking to move its 2.1-million-oz inferred resource into the measured and indicated category, and secure more land near the project, which would increase its land position to about 1,650 sq. km from the current 242 sq. km.

The property is currently accessible by a 60-km gravel road and barge service across the Xingu River from Altamira, or by boat. Though the company plans to pave the road, the project will also become more accessible due to the construction of a major hydroelectric dam, named Belo Monte. The dam will be built some 15 km north (upriver) from the project.

Though Belo Monte may take more than a decade to complete, it is set to benefit Belo Sun, the company says, through the construction of high-voltage power lines, better quality roads from Altamira to the Belo Monte site, and by increasing labour demand in the area.

Nagle has an “outperform” rating on the stock, with a target price of $2.05 (up from $1.90 previously), based on a 1.1x multiple to Volta Grande’s net asset value (NAV) of US$536 million (after taxes, using an 8% discount and a US$1,000 gold price).

Similarly, Gray of Cormack Securities maintains a “buy” on the stock. He writes: “we increased our NAV and target (based on 1.0x NAV) to $2.10 (from $1.8 previously) due to the assumption that further equity dilution to develop Volta Grande will be done at a higher share price than previously.” He adds that the project’s resource growth potential makes it one of the better investments in the junior gold space for the year.

Belo Sun completed a $51.8-million equity financing in March by issuing 45.1 million shares at $1.15. The company, a member of the Forbes & Manhattan Group, currently has about $56 million in hand, which should be enough to take it through to the feasibility stage.

It shares recently closed at $1.24, within a 52-week range of 26¢-$1.54. Belo Sun has about 200 million shares outstanding.