Crew Gold poised to sell Nalunaq gold mine in Greenland

Debt-ladened Crew Gold (CRU-T, CRUGF-0), which posted a net loss of US$203.5 million last year and has watched its stock freefall to 40¢ per share from C$13.20 over the last twelve months, says it has reached a tentative agreement to sell its Nalunaq gold mine to Angus & Ross (AGU-L), a London-based exploration and mining company.

Under the proposal, Angus & Ross will pay US$1.5 million in cash for Nanaluq, the first-ever gold mine in Greenland and the first new mine to be developed there for 30 years.

Nanaluq is about 40 km northeast of the town of Nanortalik in the southernmost tip of Greenland, and started commercial production in July 2004, producing a total of about 283,900 ounces of gold.

But it was placed on care and maintenance in September 2008 because high mining, shipping and processing costs made the resource uneconomic.

“Nalunaq has posed considerable challenges due to the simple, yet difficult, geometry of the main vein,” Crew Gold said on its website. “The most challenging factors include a narrow vein width of 0.7 metres and a 30-40 degree dip.”

The narrow width requires exceptional drilling and blasting accuracy to prevent dilution, and the dip precludes efficient footwall layouts for mechanised mining, Crew Gold explains. It also demands additional rock handling activities to make sure that the ore is transferred properly to the bottom of the stope.

Despite the challenges, however, Crew Gold believes the high grade resources remaining at the deposit and the existing infrastructure could still make the mine “attractive to an operator that is able to use less mechanisation and thereby reduce the dilution.”

Last year Crew Gold reviewed Nalunaq’s ore resources and concluded that there was only one area left where there was a “reasonable degree of confidence could be applied to the ore resource” was the Mountain Block. But the Mountain Block cannot be drilled effectively from the surface due to the terrain, the company says.

“The Mountain Block incline was extended from the 680, 690, 700 and 720 levels,” the company says on its website. “On each level ore strike drives were developed to the east and west to verify the exploration data. The overall results have been very discouraging.”

The Nalunaq operation has no processing facility on site. In October 2006, Crew Gold acquired the Nugget Pond processing plant in Newfoundland, Canada. Ore shipments to Nugget Pond began in February 2007.

Nalunaq is a Proterozoic narrow-vein, high-grade gold deposit associated with quartz veins in a major shear zone.

Nalunaq mountain, which contains the gold deposit, is 1,340 metres high and is in a wide glacial valley reaching into the Saqqa Fjord about 9 km from the mine site.

The majority of resources at Nalunaq are classified as inferred because of the narrow vein, nuggety nature of the deposit, and because drilling alone does not provide reliable grade estimation. Total inferred resources have been estimated at 1.5 million tonnes grading about 17 grams gold per tonne for contained gold of about 823,000 ounces.

To date 172 surface diamond drill holes totalling 30,443 metres of core have been drilled. Indicated resources have been estimated at 535,000 tonnes grading 18 grams gold per tonne for about 315,000 oz. gold and are based on data derived from underground drifting and systematic sampling at 1-3 metre intervals.

Current probable ore reserves total 205,000 tonnes grading 18.8 grams gold per tonne for 124,000 ounces contained gold.

Last year Nalunaq mined 107,992 tonnes compared with 132,930 tonnes in 2007.

Angus & Ross is no stranger to the challenges of working in Greenland. Its flagship project is the Black Angel zinc mine on the west coast of Greenland and it also has interests in Brazil and Australia.

Apparently Black Angel was one of the richest zinc mines in the world and closed down in 1990 after 17 years of continuous operation, the company says on its website.

The company received a 30-year mining licence in May 2008 and is in the midst of completing a financing package and production and the first sale of concentrate from the Black Angel is planned for 2010, provided there is some recovery in world markets.

Crew Gold’s principal gold asset is the Maco gold mine on southeastern Mindanao Island in the southern Philippines. Gold mining at Maco dates back to before the Second World War.

The company also has an exploration project in Guinea called the LEFA Corridor gold project about 700 km northeast of Conakry, the capital city.

For the year ended Dec. 31, 2008, Crew Gold had about US$47.5 million in debt and related interest repayments due in 2009 and US$214.9 million due in 2010.

At presstime in Toronto, Crew Gold was trading at 65¢ per share.

In London, Angus & Ross was trading at about £3.13 per share.