Sutton to raise funds for Bulyanhulu gold project

A syndicate of investment dealers, led by Bunting Warburg, has agreed to purchase 4.75 million shares of Sutton Resources (STT-V) at $10.65 per share, for gross proceeds of $50.6 million.

The underwriters have, until the scheduled closing date of April 15, the option to purchase up to an additional 1.25 million shares, which, if fully exercised, would increase the offering to $63.9 million.

Sutton plans to allocate the net proceeds to the development of its Bulyanhulu underground gold project in Tanzania, for which a final bankable feasibility study is expected to be completed in late April.

The 52-sq.-km project lies 45 km south of Lake Victoria in the heart of the Lake Victoria goldfields district. By road, it is 127 km southwest of Mwanza and 125 km from Isaka, which boasts a modern rail facility. The property is also accessible by air, with a 1,700-metre-long landing strip on site.

The Tanzanian government maintains a 15% carried interest in the after-tax profits of the project.

Kilborn Engineering Pacific has updated the resource estimate announced in December 1997, based on an additional 78 diamond drill holes completed between June and December of last year. The measured and indicated resource within the Reef 1 & 0 deposits now stands at 10.9 million tonnes grading 13.31 grams gold per tonne, for 4.67 million contained ounces of gold. When mining dilution is factored in, the measured and indicated resource will convert to the proven and probable category for the final feasibility study.

An additional inferred resource is estimated at 5.9 million tonnes grading 13 grams, bringing the total resource in the Reef 1 & 0 deposits to 16.8 million tonnes grading 13.2 grams, equivalent to 7.1 million contained ounces. This resource is based on a total of 463 drill holes.

The Bulyanhulu project consists of a number of steeply dipping quartz-sulphide vein (reef) systems. Most of the resource is contained in Reef 1, a stratabound sedimentary unit sandwiched between two near-vertical volcanic rock types. Reef 0 is a short splay structure off Reef 1 that contains 190,000 oz. gold.

The measured and indicated gold resource is defined over a strike length of more than 1,200 metres and to a depth exceeding 950 metres. Drilling has intersected ore-grade mineralization as deep as 1,100 metres below surface.

The Reef 1 system varies in thickness from less than 1 metre to over 15 metres, with an average thickness of 4.4 metres.

Reef 2 is 500 metres northeast of Reef 1 and consists of a series of en echelon vein structures in sheared intermediate volcanics. The Reef 2 resource was calculated by a previous operator at an inferred 714,000 tonnes grading 11.63 grams gold, equivalent to 267,000 contained ounces. Sutton believes Reef 2 presents a good opportunity to develop another minable deposit on the property.

With both reefs open along strike and at depth, four diamond drill rigs are being used to search for additional deposits along strike from Reef 1, as well as to augment the resource at Reef 2.

The underground ramp development program on Reef 1 is reported to be proceeding well. The structure has been encountered at the 80-metre and 120-metre levels and test-stoping between the levels in is progress. Initial channel sampling in the test stope is said to be showing a slight increase in grade over that predicted from diamond drill information. However, Sutton cautions that complete sampling data must be collected before a definitive trend can be determined.

An underground bulk sample has been collected and shipped to Lakefield Research for further metallurgical testwork to examine, among other things, the appropriateness of a cyanide recovery system rather than a cyanide destruction circuit. This could represent a cost savings because less cyanide would be required.

The ore at Bulyanhulu is of a sulphide nature and contains copper and, in some areas, carbon. The recovery of gold will be accomplished in three stages:

* A gravity concentrate, representing 45% of the gold, will be recovered in the primary grinding circuit with the use of centrifugal rotary concentrators and tables.

* A bulk sulphide flotation concentrate will be re-ground and cleaned to produce a copper concentrate. The re-grinding will liberate gold associated with the sulphides to produce high gold grades in the copper concentrate.

Approximately 40% of the gold will be recovered here.

* A carbon-in-leach circuit will treat the flotation tailing from the copper cleaning circuit and recover a final 5% to 7% of the gold, for a total recovery of better than 90%.

A recent draft of the feasibility study confirms that capital costs of constructing a 2,500-tonne-per-day operation capable of producing 300,000 oz. per year are estimated at US$185 million, including working capital and a contingency amount.

Initial production will come from the area currently being accessed down to the 180-metre level by the decline. In years three and four, a higher-grade section will be accessed by a 970-metre-long shaft, thereby lowering the payback period and increasing the project’s rate of return. Site production costs are pegged at US$150 per oz., while total costs, including smelter, refinery, transportation and royalty charges, are estimated at US$173 per oz.

Engineering for the full feasibility study will provide a more definitive estimate of capital requirements and production costs. In anticipation of the final feasibility report, Sutton has begun preliminary discussions with a number of banks and financiers for the necessary capital to place Bulyanhulu into production, with a targeted mine opening in late 1999.

Sutton currently has 30.6 million shares outstanding, or 35.5 million fully diluted. Working capital, to the end of February, sat at US$35 million.