Belo Sun’s Volta Grande on M&A radar

Belo Sun Mining’s (BSX-T) Volta Grande could become a potential acquisition target as the Toronto-based firm continues to expand and de-risk the large gold project in Brazil, analysts say.

The junior led by president and CEO Mark Eaton recently published a resource estimate, outlining a global resource of 6.9 million oz. gold grading 1.82 grams per tonne. This represents a 33% increase in gold ounces over the initial July 2012 estimate, using the same cut-off grades of 0.5 gram for open-pit resources and 2 grams per tonne for underground ounces.

The majority of Volta Grande’s resources are constrained within a pit shell. Global in-pit resources have increased by 32% to 6.6 million oz. gold based on 115.7 million tonnes grading 1.79 grams.

Most of that growth occurred in the in-pit measured and indicated category, which grew 44% to 4.1 million oz. gold based on 73.6 million tonnes grading 1.73 grams, compared to 2.8 million oz. from 52.4 million tonnes at 1.69 grams. The category’s tonnage and grade also improved by 41% and 2%, respectively, over the July estimate. 

In-pit inferred resources rose 16% to 2.6 million oz. (42 million tonnes at 1.89 grams).

“Volta Grande remains one of the highest grade plus five million oz. undeveloped open-pit projects located in a stable mining jurisdiction and not owned by a major,” Canaccord Genuity analyst Rahul Paul writes in a note, suggesting major gold firms may start zeroing in on the project.

BMO Nesbitt Burns’ analyst John Hayes agrees. “With open pit gold grades well in excess of 1 gram gold per tonne, above many similar-sized development stage projects, continued resource growth could put the project on the radar map of potential acquirers and makes the project attractive for potential partners.”

The updated estimate used a higher gold price of US$1,400 per oz., instead of US$1,300 per oz. previously. It also included an additional 75,000 metres completed in 273 holes from April to October 2012, bringing the project’s database to roughly 194,000 metres drilled in 788 holes.

“The material improvement in measured and indicated ounces and grade following closer spaced drilling confirms grade continuity and should provide investors with greater confidence in the resource model,” Paul comments. 

While the company has improved the project’s resources, Volta Grande still remains open to further expansion, which supports the idea that it may be part of a large mineralized system, Helio Diniz, Belo Sun’s vice-president of exploration, said in a statement. “We have no doubt that this will be one of the largest gold deposits discovered in Brazil.”

The current resource will be used in the upcoming prefeasibility study, expected out in early 2013. A definitive feasibility study should begin later that year.

BMO’s Hayes models Volta Grande as a 20,000-tonne-per-day open-pit operation, with an annual average production of 305,000 over a 16-year life. Initial capex are slated at US$700 million. Hayes assumes the project will have a 6-to-1 strip ratio and 10% mining dilution.

Paul is forecasting a similar scope project, with throughput at 19,178 tonnes per day, annual production averaging 311,000 oz., and start-up costs of US$740 million. However, he predicts a shorter mine life of 12 years.

Both analysts expect that the project will come on-stream in 2016. 

The 1,305-sq. km Volta Grande project is located 60 km from the town of Altamira in the northern region of Para State. The project contains two main deposits, Ouro Verde and Grota Seca, and the less defined South Block area.

On the news, Belo Sun lost a penny to close Dec.19 at $1.57 as nearly 3 million shares changed hands.