Burkinabe welcome Goldbelt

SITE VISIT

Ouagadougou, Burkina Faso — Through the cloud of red dust, black lines can be seen stretching out over the flat surface of the Sahel — a desert-like landscape scattered with the woody vegetation of thin trees and low shrubs.

The lines — coming from three different directions — are moving steadily toward us and as the dust begins to settle, the faces of teenagers and children can be discerned.

“They’re coming from villages that are as far as four kilometres away,” says Peter Turner, Goldbelt Resources’ (GLD-T, GLDRF-O) vice-president of exploration.

We’ve landed by helicopter atop a hill that straddles a deposit at Goldbelt’s Inata gold project to survey its mineral potential, but once the wave of bodies pours up the hill, engulfing us with laughter and handshakes, the talk turns to the character of the people instead.

“They don’t have anything, but they’d give you everything,” says Turner, who has spent 12 years working in Africa, nearly four of them in Burkina Faso.

While mining companies setting up shop in other parts of the world often find themselves in situations thick with resentment and antagonism before they even get drills into the ground, in Burkina Faso it’s a different story altogether.

The landlocked West African nation of 14 million holds the unfortunate distinction of being one of the world’s poorest, but to the initiated, it is also known to be one of the safest and friendliest countries on the continent.

With a crime rate low enough to make even a Swiss guard at the Vatican look overworked, it was only appropriate that after a 1983 military coup put Thomas Sankara in charge of Upper Volta, he changed its name to Burkina Faso. Translation: the Land of Honourable Men.

But how such honour will dovetail with the realities of the mining business is still unknown.

The Burkinabe government, headed by President Blaise Compaore since 1987, is keen on diversifying its cotton-dominated economy into the mineral sector.

The opening of High River Gold Mines’ (HRG-T, HRIVF-O) Taparko gold mine in July bodes well for the realization of that goal, even if Taparko is the first mine to be built in the country in 10 years and only the second in its history.

But with Etruscan Resources (EET-T, ETRUF-O) readying its Youga gold mine for planned production in October, Gold Fields (GFI-N, GOF-L) and Orezone Resources (OZN-T, OZN-X) recently completing a feasibility study on their joint-venture Essakane project, and Goldbelt’s feasibility on Inata due by month’s end, mineral momentum in the country is gathering.

The question now facing miners like Goldbelt is how to keep the goodwill flowing between the government, people and industry.

“Burkina is at a much earlier stage of development (compared to other mining countries),” Morgan says by way of explaining the current enthusiasm. “It’s always bothered me that they may simply be happy because they don’t know what is out there. As they find what else is out there, their attitude might change.”

Morgan is intent on Goldbelt doing its part to ensure the enthusiasm doesn’t fade.

By anticipating the worst-case scenario, Morgan and Goldbelt have been able to draw up a plan to avoid it. One of its key components is to ensure that locals see and feel the economic benefits of the industry, and the best way to do that is to fill posts with as many locals as possible.

“Why create a problem for yourself when you can find people that understand and know how to deal with the locals?” Morgan says. “There are a lot of talented people there — it’s just about finding them and using them.”

Once further along in development, Goldbelt plans to set up small businesses to service the mine and put in an airstrip with the aim of funding a group to run a small airplane out of it.

But plans to spread the wealth throughout the communities surrounding the project are connected with the success of the project itself.

And on that front, things look promising. A recently completed resource study showed Inata contains a measured resource of 5.2 million tonnes grading 2.3 grams gold for 378,000 oz. gold. Indicated resources stand at 19.8 million tonnes grading 1.6 grams gold for another 1.02 million oz. and inferred resources came in at 7 million tonnes grading 1.3 grams gold for 298,000 oz.

Those numbers were generated mainly from mineralization hosted in two continuous zones — Inata North and Inata South. The zones are separated by a 250-metre-wide northeast-trending shear.

While its feasibility study is due by the end of the month, its prefeasibility study released in September 2006 pegged production at 635,000 oz. gold with average annual output of 107,000 oz. for the first five years. But since the study was released, measured and indicated resources have grown to nearly 1.4 million oz. gold from roughly 950,000 oz.

Cash costs in the prefeasibility study were estimated at US$290 per oz. over a 6.1-year mine life with total capital costs pegged at US$65.8 million.

The plan is to feed oxide ore through the mill earlier on, with average gold recoveries estimated at 95% for the first four years; after that, when transition and fresh rock moves through the mill, recoveries would drop slightly to 93%.

The study calculated a net present value of US$44 million at a 5% discount rate and an internal rate of return (IRR) of 28%.

Ore will be mined through the creation of three discreet open pits. But Turner says if gold prices rise, the pits could be connected.

While gold extraction is generally straightforward, there is one complication: the presence of “preg-robbing” shale. Preg-robbing is when gold in a cyanide solution is adsorbed by certain components of the ore, meaning less gold is recovered.

The shale exists in some transition and fresh rock and is not an issue with the oxide ore — which makes up the bulk of the deposit. To deal with it, Goldbelt will likely have to pre-condition the ore with a reagent such as kerosene.

While not all transition and fresh ore will need to be pre-conditioned, ore that does can be visually distinguished and will be stockpiled for treatment at the end of operations.

Outside of the preg-robbing issue, ore will run through a carbon-in-leach (CIL) plant in the usual manner.

The plant, however, will have a long way to travel; Goldbelt has bought an existing plant that serviced AngloGold Ashanti’s (au-n, agg-a) Brocks Creek gold mine in Australia from 1996 to 2001, until the project ran out of ore.

Goldbelt paid US$1.7 million for the plant and estimates that dismantling will cost US$2 million, refurbishment another US$1.2 million, and shipping US$500,000.

But Collin Ellison, Goldbelt’s president and chief executive, says the company was targeting something other than short-term cost savings with the acquisition.

“We will end up saving a bit, but cost savings wasn’t the concept — the concept is to save time,” Ellison says. “Time is a bigger cost than actual capital costs.”

Construction of a new mill takes about 85 weeks from the time a contract is signed, whereas Ellison estimates the pre-existing processing plant bought by Goldbelt can be reassembled and ready for operation within 12 months.

The scenario offers insurance against delays in construction. Ellison says standing costs could be as high as US$500,000 if construction of a new plant were held up for any reason.

The mill is currently rated to handle 1.5 million tonnes of ore, but Goldbelt says it will likely boost capacity to 2 million tonnes for 140,000 oz. of gold per year.

Geology

The government’s eagerness to tap into the commodities boom would be all for nought if the country didn’t have significant geological potential.

Courtesy of the Birimian greenstone belt — the same belt that hosts gold mines in Ghana, Cote d’Ivoire, Guinea and Mali — it does. The northern arm of the belt arches through the middle of the country.

Belahouro, the 1,187-sq.-km permit in which Inata sits, is in the western region of the Birimian Djibo belt.

Gold at Belahouro is associated with mesothermal vein-style mineralization linked to the severe deformation of metamorphosed terrains. That deformation means the deposits are structurally controlled.

Mineralization is associated with carbonate pyrite alteration within and adjacent to quartz veining. Gold is present mainly as free grains or as inclusions in pyrite. The host lithologies are shale, siltstone, minor intermediate volcanics and felsic porphyry.

The shear zone encompassing the Inata deposits strikes north-northeast and dips steeply to the west-southwest. Mineralization is broken into Inata North and South, Sayouba and Minfo. North and South are stretched over a strike length of 5.5 km with Inata North lying roughly 300 metres west of the Inata South trend. Minfo is situated 2 km southwest of Inata South and Sayouba sits 350 metres east of Inata North. Sayouba extends 350 metres while Minfo extends 500 metres.

Flying over Minfo, Turner points out that there are pods of mineralization that sit east along strike from Minfo that aren’t currently included in the resource.

But those pods aren’t the only exploration upside. With roughly $4 million in the exploration budget for 2007, the company is looking to better understand gold mineralization farther east of Inata at Fete Kole and Souma — two trends that also lie within Belahouro.

Turner is particularly keen on Souma, roughly 20 km northeast from Inata. Mineralization at Souma is comprised of laminated quartz with tourmaline veins that outcrop sporadically along the length of the trend. Goldbelt interprets the rich mineralization as resulting from a large turn in the contact area between the gold belt and the basin.

“Turns cause more mineralization because they mix things up more,” Turner explains.

One hole drilled in 2006 returned 23 metres grading 15.51 grams gold, but Turner says there likely won’t be continuous zones that wide, and instead the company is looking at each zone individually.

Even though Resolute Mining (RMGGF-O, RSG-A) and BHP Billiton (BHP-N, BLT-L) had done some work on the 11-km-long area, Turner says more needs to be done.

“We understand what’s been done here before, but we’re not necessarily going to believe it,” he says.

Goldbelt is currently interpreting aeromagnetic work and doing geophysical mapping there.

A brief history

When Goldbelt announced the signing of its mining convention on Aug. 16, it represented the last major bureaucratic hurdle it needed to clear to make the Inata mine a reality.

The convention covers fiscal arrangements, taxation, employment, land and mining guarantees, and environmental protection, and is good for the full life of the mining permit, which stands at 20 years. Extensions are available.

“In a short time, we’ve been able to do all the work we need to do, get all the government support, and get it through parliament,” Morgan says.

The expediency of the process has confirmed his instincts in deciding to touch down in the Land of Honourable Men, even if he took a somewhat circuitous route to get there.

As a founding member of Gabriel Resources (GBU-T, GBRRF-O), Morgan has spent considerable time in Romania, but also in Russia, central Asia and other parts of the former eastern bloc.

The prospect of coming to Burkina emerged when Morgan was in Australia representing Gabriel in talks regarding a possible merger with Resolute Mining.

It soon became clear a takeover made little sense.

“However,” Morgan recalls, “(Resolute’s chief executive) Peter Sullivan said the company was deposing of some of its non-performing assets, and this one was the last one left.”

Morgan was keeping an eye open for projects that were advanced beyond the grassroots level for the creation of another company. Inata fit the bill.

Resolute had come on to the property back in 1998 when it agreed to a joint venture with BHP Billiton, which had itself been poking around since 1994. In 2001, Resolute took full ownership, and by 2004 Morgan had secured a deal with Resolute allowing Goldbelt to take full control.

“The thing we liked about Burkina Faso, and a lot of places in West Africa — outside of Ghana — is that a lot of people working at exploration were struggling, living hand to mouth, but they were making discoveries, they just couldn’t sell them to a major because they weren’t big enough,” Morgan says.

“Collin (Ellison) and I built a number of mines in the past, so we saw it as an opportunity to make some money out of exploiting the success others have had.”

Ellison, a mining engineer, and Morgan, a geologist, have over 60 years of mining experience combined and have worked together since the early 1980s. All told, the two have developed 13 mines stretching from Australia to North America and from Africa to Georgia.

“We’re mine builders first,” Morgan says. “Where our skill lies is in developing, financing constructing and producing medium-sized mines.”

It was working together at the Tuckabeyana mine in Australia, however, that cemented their relationship and had them look for other ventures. For Morgan’s part, he’s only too glad that their partnership brought them to Inata.

“After we sold the company and Tuckabeyana to Newmont (Mining), friends told me to go to Africa, but I went to Russia and Eastern Europe. . . It was a silly, stupid decision on my part. I lost ten years on that crap,” he laughs.