Positive economics for Brazilian Gold’s Sao Jorge

Brazilian Gold (BGC-V) takes a step forward by releasing a positive preliminary economic assessment (PEA) for its Sao Jorge gold project in the Tapajos region of northern Brazil.

Spanning some 125,000 sq.-km, Tapajos is the country’s largest alluvial gold province and the world’s third-largest. But it has seen little exploration. Artisanal miners in the region produced up to 30 million oz. gold during the gold rush that began in the 1970s.  

The study, prepared by Coffey Mining, used a resource calculated at a 0.3 gram per tonne cutoff and drill assays up to July 30, 2008. None of the results from this year’s 20,000-metre drill program were included.

It envisions Sao Jorge as a 2-million-tonne-per-year open-pit mine with an on-site processing plant to produce 52,900 oz. gold a year over its 8-year life.

Based on a gold price of US$1,300 per oz. and a 5% discount, Sao Jorge has a net present value (NPV) of US$99.1 million and a 22.9% internal rate of return (IRR).

At a gold price of US$1,560 per oz. and a 5% discount, the NPV increases to US$181.4 million, and the IRR to 36.4%.

Fraser Mackenzie’s analyst Michael Starogiannis says the PEA is an excellent start.

 “The positive economics combined with (the state of) Para’s reputation for efficiency and speed of permitting should enable them to quickly advance the project towards production,” he comments in an email to The Northern Miner.

Company CEO Ian Stalker estimates the project could be in online by late 2013. But, notes the junior will first take time to grasp the potential gold inventory that it has in and around Sao Jorge.

“As we continue to increase our understanding of the gold potential contained in our extensive land package in the immediate vicinity of Sao Jorge, the objective will be to examine the various development and production scenarios of these nearby projects,” he said in a press release.

Stalker continued on to say that if all the projects could feed one strategically located central treatment plant, it could add to the project’s NPV.

It would cost US$126 million to build the mine, which would have an average mining rate of 9.9 million tonnes per year over 8 years, with a strip ratio of 4.5-to-1. Payback is estimated in 3 years.

Brazilian Gold says a lot of potential exists to enhance the project’s economics, given that the recent drill results from Sao Jorge and the nearby Novo and Surubim gold projects were not included in the study.

Similarly, Starogiannis reckons the project’s economics could change as the company hunts the district for what may become satellite deposits. Currently, Brazilian has 10 projects in the area.  

Sao Jorge contains structurally controlled stockwork and disseminated gold mineralization hosted in Proterozoic age granitic rocks.

It has an indicated resource of 11.4 million tonnes grading 1 gram gold for 379,000 oz., and another 20.7 million tonnes at 0.8 gram gold for 558,000 oz. in inferred.

Once the company completes drilling and an updated resource estimate on Sao Jorge, it plans to conduct a prefeasibility study, which could include results on properties near the deposit.  

Starogiannis has a “strong buy” recommendation on the stock with a 12-month target price of $2.10 per share.

On July 21, the day the PEA was released, Brazilian closed down 10¢ to $1 per share. It has a 52-week trading range of 34¢-$1.72 per share.