Gold Mines of Sardinia Limited

Gold production from oxide sources continued at Furtei throughout 2000, with the project surpassing late in the year the important milestone of 100,000 ounces (oz) of gold (Au) poured since start up.

Several new pits were opened to replace those which reached the base of oxidation during the year. The ability to replace exhausted oxide reserves reflects the ongoing exploration success at Furtei.

During the year the mine delivered carbon-in-leach (CIL) material to the mill at a grade 15% above budget predictions while maintaining strip ratios at less than 2:1 (30% below budget). Careful design and control of mining operations are maintaining this low strip ratio.

A total of 916,295 tonnes (t) of material was mined – 272,950t at a mined grade of 4.01 grams per tonne (g/t) delivered to the run of mine (ROM) pad and 26,580t at a mined grade of 0.85g/t stacked on the dump leach pad. This ore was sourced from the eight principal mining areas of Cima, Est, Is Concas, Nord, Ovest, Sud Ovest, Sa Perrima and Su Masoni.

Reconciliation's for benches mined and completed during 2000 – comparing material predicted by reserve estimates with that actually mined, based upon grade control information – are provided in Table 1. These show mine production exceeded reserve estimates for these benches by about 20% of contained metal.

Geological mapping as mining proceeds is allowing geologists to further refine understanding of the geology of the deposits, which improves reserve estimates and aids in locating new drill targets.

A new maintenance agreement with the local Caterpillar agent resulted in fleet maintenance costs for the year significantly lower than budgeted.

The agreement with a local contractor to take waste material from the mine for use in highway construction continued throughout the year, providing cost savings of about 5% a tonne of material moved and reducing future rehabilitation costs for waste dumps.

Oxide ore reserves for the Furtei Project have been re-estimated at 31 December 2000 (Table 2) on the basis of new resource estimates for several current and future mining areas, and an allowance for mining depletions of the reserves previously reported.

Sulphide ore reserves have also been estimated for the Furtei Project, with this material forming the initial feed for the new sulphide flotation plant. Metallurgical assumptions for this material have been based upon a review of available testwork data and indicative smelter terms received.

Studies of the Su Coru resource (see exploration section, Table 6) are expected to result in much of this material being reported as reserve.

Gold production from all sources at Furtei in 2000 exceeded budget predictions by 12%.

The mine delivered 26,580t of ore to the dump leach pads – significantly above budget predictions – at an average grade of 0.85g/t. A total of 467,977t occupies the leach pad, built up since it began operation in 1997. Gold production from the dump leach during 2000 totalled 835 ounces (oz).

The CIL circuit produced 25,520oz of gold in 2000, 2031oz above budget predictions. A total 253,448t of ore were treated at an average grade of 4.17g/t and a recovery of 76.7%.

The five-day week operating roster continued successfully throughout 2000 allowing maintenance to be carried out on weekends. Mill availability exceeded 99% as a result.

The wall of the tailings impoundment facility was raised 2 metres (m) during the year. This work was carried out principally by the mine fleet without interrupting scheduled mining activities, producing significant cost savings. In addition, two new drainage canals were constructed around the perimeter of the impoundment facility to protect against rainwater inflows.

An independent assessment of the impoundment facility by an Australian consultancy confirmed that the condition and management of the impoundment facility were sound.

Construction of the sulphide flotation plant began in September 2000. All stages of the construction proceeded smoothly, despite heavier than normal rainfall during the winter, and commissioning was planned for mid-March 2001.

Stripping of overburden from the sulphide pit designs began during 2000. By year-end 154,510t of material had been stripped and 79,325t of sulphide material stockpiled on surface ready for the flotation plant, at a gold grade of 3.56g/t and a copper (Cu) grade of 0.39%.

Mine planning and preparations continued through the year on the Su Coru and Cima-Est potential underground mines.

Grade control activities carried out during the preliminary sulphide stripping delineated additional areas of oxide ore.

A bacterial oxidation testwork program was performed at Lakefield Research in South Africa, testing conventional stirred tank bacterial leaching and a lower cost heap leaching method developed by GeoBiotics, Inc.

Two flotation concentrates were tested:

Batch bio-oxidation tests were carried out at 38^oC. Four column tests using the GeoBiotics GEOCOATâ process were performed. The following sulphide oxidation percentages and gold recoveries were obtained:

These results indicated the pyrite concentrate was amenable to bio-oxidation. About 10% of the gold was not recoverable after complete sulphide oxidation. Diagnostic leaching results showed this was due to the presence of jarosites as well as quartz occluded gold. Pyrite was effectively bio-oxidised using the GEOCOATâ process. Waste rock support yielded slightly better results than low grade ore support and this was thought to be due to the better pH control achieved with waste rock.

Further testwork on enargite flotation demonstrated that the flotation tails streams could be treated by direct cyanidation.

A composite sample from Is Concas containing 6.7g/t Au, 2.1% Cu and 0.2% As (arsenic) was bulk floated to produce a concentrate for further testwork. Three initial rougher stages were used to produce an enargite concentrate, with a further two rougher stages producing a pyrite concentrate. A further test incorporated a regrind stage ahead of cleaning and recleaning to show the merits of including these stages in the circuit.

These tests showed that an enargite concentrate containing 25% of the mass could be produced at a recovery of 80%. Regrinding would improve grade, at the same recovery. The flotation tails grade, approximately 1g/t, indicated the need for further processing. Diagnostic leaching showed that about 85% of the gold from the "pyrite concentrate" (4th and 5th rougher during enargite flotation) was recoverable by direct cyanidation, or about 4% of the total gold. Direct cyanidation of the enargite float tailing gave 66% gold recovery, or about 8% of the total gold.

A trial of activox leaching achieved 83.1% Cu extraction and 70% sulphide oxidation in 2 hours. Gold recovery after cyanidation was 76%, with high cyanide consumption.

The company is developing on-site trials for pyrite bio-oxidation. Two bacterial heap leach pads using ROM pyrite and crushed pyrite ore were built and operated from July to November 2000. Methods were developed in-house to build, inoculate, operate, monitor and sample bio-oxidation heaps. The trial heaps are the subject of an Italian government research grant application to help defray the costs of development.

Sampling revealed two types of oxidation:

Final cyanidation result was 70% gold recovery after 4 months’ bio-oxidation. A program has started to determine the variability of gold recovery throughout the Sa Perrima orebody.

The average realised gold price for the 12 months to 31 December 2000 was US$286 an ounce (1999: US$304). The average cash operating surplus per ounce was US$129 (1999: US$88). All silver sales were at the spot price on the day of delivery.

Sardinia Gold Mining SpA is the recipient of two decrees, issued by the Italian Government, relating to the successful application by the company for the following:

Sardinia Gold Mining SpA also applied for other grants during 2000 from the Italian Government and the Regional Government of Sardinia:

About 1200 people from surrounding communities, and further afield, attended an open day at the Furtei mine site during the year. The day included tours of the mine and process plant area, inspections of the various plant and machinery used in the operation, viewing of rehabilitation achievements and discussions of general aspects with the company workforce. The program also involved many displays by the SGM's main suppliers.

The SGM's policy of providing assistance to local communities resulted in:

 

1. sealing of one of the access roads from the edge of the minesite to the township of Furtei (in conjunction with Furtei council and the waste haulage contractor);

 

2. several road upgrade works, firebreaks and other site earthworks as requested by the communities;

 

3. assistance for one community to understand and prepare remedial plans for a rainfall/inundation problem;

 

4. contribution to summer festival activities funds; and

 

5. sponsorship of an English teaching program for children.

Throughout the year SGM also hosted several visits from local school and interest groups, and from Sardinian, Italian and European university groups.

Independent water analysis by the University of Cagliari continued throughout 2000 with results indicating that, while cyanide levels within the tailings impoundment and associated seepage catchment sump fluctuated, no evidence exists to suggest that cyanide levels at the other monitoring points are above background levels.

Careful blast design, coupled with routine monitoring of blast vibrations, continued in 2000 to ensure that mining had no adverse effect upon the various civil structures in and around the mine area.

Significant rehabilitation works continued. Large stretches of the Cima mountain and Nord areas (previously cleared for detritus mining) were backfilled and prepared for revegetation following the winter rains at the start of 2001.

Other works included the filling, covering and re-contouring of old drill sites and access roads around the site, seeding of grasses in several prepared areas and general monitoring, weeding and maintenance of previously rehabilitated and planted areas.

Local forestry experts reported favourably on previously rehabilitated areas after a site inspection.

At the end of 2000, the Furtei operation employed 75 people - 65 full time staff and 10 contractors (including site-based geological and exploration staff and operators).

Of this total 44 persons were employed as operators at the actual mine and mill and of these 60% were sourced from the four communities immediately surrounding the mine site. SGM’s policy is to recruit first from these four communities whenever possible.

SGM intends to develop the Osilo field into a stand-alone operation with the potential to produce up to 50,000oz of gold a year, subject to the successful outcome of feasibility studies and permitting. The field consists of numerous quartz veins amenable to underground mining and conventional CIL treatment at a central process plant. Currently, resources are sufficient to plan a five-year project treating about 200,000t/yr, with excellent potential for extending the life further.

Work at Osilo during the year focused on planning and permitting a trial mining/bulk sampling program at the Bunnari vein (one of the two main veins that would comprise the initial mining project at Osilo), and beginning the full project permitting process.

Approvals for trial mining and deep Bunnari resource drilling were received from the regional government during the third quarter, and subsequently vetoed by a national government authority on grounds that the regional approval did not follow due process. The veto related to the administrative process that the regulator followed and did not comment on the merit of the application. SGM appealed against the veto and received legal advice that a very strong case existed to have it set aside. Hearings have been completed.

The preparation of an environmental impact study (EIS) is the fundamental element of major project approvals under Italian law. A selection of Sardinian experts has been identified to undertake the prescribed environmental discipline studies, assisted where necessary by international consultants, and finalization of the individual scopes of work is nearing completion.

The EIS scoping document was compiled during the final quarter of the year. This document will establish in detail the EIS terms of reference for the full-scale development of the Osilo project when it has been reviewed and commented upon by the appropriate regulators. The document will be lodged with the regulators, and be available for public comment, after the land for the preferred surface infrastructure site has been secured.

Exploration results continue to confirm Sardinia as a major gold province in Europe. The gold prospect newly discovered at Monte Ollasteddu, in the Eastern Paleozoic region, has potential to host a large tonnage deposit. The gold is of mesothermal type and is related to granites formed by crustal scale melting following the Hercynian deformation of late Carboniferous age. This orogenic and subsequent metallogenic event is responsible for similar deposits in Europe that total more than 18 million ounces (M oz) of gold in past production and current reserves and resources.

The Tertiary age volcanics that host the Cuglieri epithermal field is similar in size to that at Osilo. A number of new sinters and veins have been discovered, the most promising being the silver-rich vein at Pedra Loabbia. (Tenements Map, Fig. 1)

At Furtei, high grade intercepts were made in infill drilling at Su Coru. New veins have been found in the Osilo epithermal field, including a high-grade structure at Sa Maddelena. Resources and past production (100,000 oz Au produced to 2000) at Furtei and Osilo total more than 1.1M oz Au.

It is likely the new discoveries at Monte Ollasteddu and Cuglieri will add substantially to the future resource base.

Homestake has begun its involvement with exploration and deployed an experienced epithermal geologist to Sardinia in mid-November. Mapping and prospect evaluation began in the North West Volcanics and also in the Monte Ollasteddu region.

Exploration and infill resource definition drilling was carried out around the diatreme (volcanic vent) at Santu Miali Cima, in the structural corridor between Bruncu Laccus in the north and Sa Perrima in the south, and at a number of other targets in the mine corridor area. Eight diamond drill holes were drilled for 1,935.4m and 146 RC and RAB drill holes were drilled for a combined 7,928m (Table 4, Fig 2).

Oxide mineralisation was discovered in four separate areas south and east of the Sa Perrima mine - at Sa Perrima South, Quarry, Sa Crescia and Coronas Arrubias (Fig 3). The oxides are part of the stratabound (gold-pyrite) style of mineralisation where gold is hosted within flat lying pyroclastic units between two andesite flows.

The mineralisation is masked by a thin layer of overlying barren andesite and is generally less than 10m below the surface. This body of oxide ore is part of a second, upper layer of the main stratabound layer of mineralisation. Best drill intercepts included 6m @ 5.06g/t Au, 8m @ 4.63g/t Au, 11m @ 2.30g/t Au, 7.5m @ 4.53g/t Au, 11m @ 2.47g/t Au and 4m @ 7.09g/t Au (Table 5). New oxide resource estimates are expected to provide up to five months of additional oxide mill feed in 2001.

The high grade gold and copper Su Coru deposit was discovered in late 1998. It is located to the south of Is Concas and the mineralisation starts at 40-70m below surface. Two diamond drill holes were drilled into the Su Coru deposit to firm up the geological interpretations and resource estimates. Both holes intersected vuggy silica alteration and stockwork veins of enargite and pyrite (Fig 4).

Drill hole COD118, drilled to infill to 20m between the high-grade intercepts in the middle of the orebody, intersected 33m @ 6.69g/t Au and 2.53% Cu from 130m downhole.

Drill hole COD117, drilled to close off the resource at the southern strike extent, intersected 32m @ 4.78g/t Au and 2.0% Cu, from 116m downhole (Table 5).

The updated geological resource at Su Coru is 345,000t @ 5.74g/t Au and 1.71% Cu. The resource is still open to the south and down dip. These possible extensions will be drilled from underground during underground development and mining.