Gold Mines of Sardinia Limited
A.C.N. 009 234 851
Gold Mines of Sardinia LimitedA.C.N. 009 234 851
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October 31, 2000 Manager - Companies Dear Sir The directors submit their quarterly report for the three months to September 30, 2000. Yours faithfully GOLD MINES OF SARDINIA LIMITED HIGHLIGHTS EXPLORATION
FURTEI MINE
OSILO TRIAL MINE
* * * * * OPERATIONS FURTEI MINE Production Gold production from oxide ore sources continued during the September Quarter 2000, reflecting the exploration successes achieved at Furtei. The project’s initial feasibility study forecast production from oxide sources would be finished by February 1999. A total of 188,290 tonnes of material was mined during the quarter (Table 1), of which 48,330 tonnes were CIL ore delivered to the plant at an average grade of 3.48 grams per tonne (g/t), with a further 1,260 tonnes being placed on the dump leach pad at an average grade of 0.86g/t. Open pits generally continue to produce more gold than was indicated in the modelled estimates. Waste movement from the pits by a local company contracted to supply fill-material for a major road-building project on the island continued to reduce the overall material movement cost at Furtei. Gold production for the quarter was again above budget at 5,677 ounces – 5,561oz from the CIL circuit and 116oz from the dump leach operation. The average ore grade treated in the CIL plant was 4.09g/t. Furtei Sulphide Project Mining of waste material to expose the sulphide orebodies continued through the September quarter. A total of 34,460 tonnes of waste was moved and 930 tonnes of sulphide ore was stockpiled at a grade of 6.81g/t. Some CIL material (12,900 tonnes at a grade of 1.65g/t) was also produced. The local contractor is also removing waste from these areas for use in the road project, thus reducing the overall cost to SGM. After approval from the board, work began on the flotation plant, with tendering and letting of contracts and preliminary earthworks.
TABLE 1 PRODUCTION STATISTICS
FURTEI MINE - KEY PERFORMANCE HIGHLIGHTS Bullion Sales (ounces)
Mine Cash Operating Costs (US$/oz) (Per the Gold Institute Production Cost Standard)
Bullion Sales The average realised gold price for the three months to 30 September 2000 was US$280 an ounce, compared with the average spot price of US$277 for the same period, and a cash operating cost of US$134 gave a margin of US$146 an ounce for the quarter (June quarter, US$98 per ounce). Sales of gold into hedging instruments amounted to 4,457oz at an average price of US$282 an ounce (June quarter, 5,249oz at an average price of US$288 an ounce) and 1,257oz into the spot market at an average price of US$277 an ounce (June quarter, 1,937oz at an average price of US$292 an ounce). All silver sales were into the prevailing spot price on the day of delivery.
Hedging Committed hedging Spot Deferred Contracts 829.48oz at an average price of US$280/oz Uncommitted hedging Call Options 4,500oz at US$305.00/oz Put Options 4,500oz at US$280.00/oz The put options were entered into to cover gold price downside and the spot deferred contracts can be used for the same purpose. Finance SGM has recently received the Decree from the Sardinian Tax Office for the reimbursement of VAT claimed for the year 1997. The amount, Italian Lire 2044 million (A$1,709,030) will be directly cashed by the local Bank BSS, which provided bridging finance to SGM for this credit. SGM has lodged various applications for grants provided by Regional and National laws, as follows:
FURTEI DEVELOPMENT Metallurgical Testing Two bio-oxidation heaps were operated during the quarter, one using run-of-mine pyrite and one using crushed and screened pyrite (-40 +19 mm). Two different modes of operation were trialled on each heap, with and without irrigation. When operating without irrigation, the temperatures in the heaps rose to 5-10oC above average ambient temperatures. Bacterial numbers and activity were satisfactory. Sampling has revealed two types of oxidation:
Physical separation testwork for Furtei stratabound pyrite (head grade 1.75g/t) was completed at Lakefield Oretest. Further testwork on enargite flotation was carried out. An important result was that the flotation tails streams can be treated by direct cyanidation. The final column GeoBiotics test at Lakefield Research in South Africa was stopped after 118 days. As the bacteria took about 30 days to acclimatise, this was equivalent to 90 days’ active bio-oxidation time or a similar length of time to the other column tests. The test treated a 93% pyrite/7% enargite blend with thermophilic bacteria at 65oC. Results are shown together with results from a similar column using mesophilic bacteria.
Copper extraction was higher for the thermophiles column even though the extent of sulphide oxidation was lower. In addition, copper extraction for the thermophiles column appeared to be progressing at a constant rate, whereas copper extraction for the mesophiles column plateaued at 30% halfway through the operation. In summary, a number of outside testwork programs ended during the quarter. Future work will focus on the on-site pyrite bio-oxidation heap trials. OSILO TRIAL MINING Preparation and planning for the trial mining program continued throughout the quarter. Regional government approvals for the trial mining program and deep Bunnari drilling were received during the quarter. A national government authority subsequently vetoed these approvals, on grounds that the regional approval did not follow due process. SGM will appeal the veto and has received legal advice that a very strong case exists to have it set aside. The appeal process has a set timetable and a decision will be given within six weeks. Once the veto is set aside the trial mining and deep drilling programs are free to begin. Deep drilling at Bunnari is expected to confirm the previously intersected high-grade zone in this vein, while trial mining would confirm mining, geologic, environmental and processing parameters sufficiently to complete detailed planning of the full scale mine. Tenders were received from three underground mining contractors for carrying out the trial mining work and these are being analysed. Planning of the permitting process for a full-scale operation, including a stand-alone treatment facility at Osilo has begun. An environmental impact study (EIS) is required for approval by the regional government and a selection of Sardinian experts has been identified to undertake the prescribed environmental discipline studies. The initial meeting of this Scientific Panel has occurred, and detailed scoping of the required studies will follow approval by the regional assessorship committee of the project’s scoping document.
FURTEI EXPLORATION Su Coru High-grade gold and copper results returned from two diamond drill holes drilled into Su Coru augmented the initial block model interpretation of the resource. COD 117, drilled to close off the resource at the southern strike extent, intersected 32m @ 4.78g/t Au and 2.0% Cu from 116m. COD 118, drilled to infill to 20m between the high-grade intercepts in the centre of the orebody, intersected 33m @ 6.69g/t Au from 130m and 2.5% Cu (Table 2). The new resource for Su Coru is 402,000t @ 4.42g/t Au and 1.46% Cu (Cu not updated for COD 117 and 118). Shallow Oxides RC drilling continued in the Coronas Arrubias, Sa Perrima region for oxidised stratabound ore. Best drill intercepts include 11m @ 2.67g/t Au, 10m @ 2.30g/t Au, 8m @ 4.63g/t Au and 6m @ 5.06g/t Au (Table 2). Preliminary resource calculations indicate an additional 200,000t at approximately 1.6g/t Au. Other drilling The first of three 350m diamond drill holes has been completed over the interpreted western boundary of the central diatreme (volcanic neck) (Fig. 1) The drill holes are 700m apart and are targeted to test for an interpreted mineralised system, similar to that at Su Coru and Santu Miali, to occur at depth and blind to the surface. The first drill hole intersected pyrite altered volcanics and pyroclastics but no significant gold mineralisation was intersected. The second drill hole is under way. OSILO EXPLORATION No drilling was carried out because of delays in securing access to the Bunnari vein. The company is confident access issues will be resolved in the near future. An initial program of seven diamond drill holes is planned to test the high-grade shoots at the Bunnari vein. Compilation of all previous data, additional geological mapping and structural analysis are being carried out to optimise drill targets along the known mineralised structures. The cumulative along-strike distance of the known mineralised structural corridors is in excess of 50 line kilometres, most of which have not been drill-tested.
REGIONAL EXPLORATION North West Volcanics Geological mapping and sampling in the Scano Monti Ferru region at the far north end of the Narbolia project area has identified new discoveries of epithermal sinters, veining and silica-pyrite alteration (Fig. 2). The epithermals occur in three separate windows through thin basalt cover over a distance of 3km. Silicification appears to increase to the north and trends under the basalt. The veins and sinter represent high-level erosional preservation of the epithermal field. Anomalous geochemistry includes up to 0.2g/t Au, 0.2% mercury and 600ppm As. An IP program is due to begin in late October before RC drill testing. Anomalous gold results were returned from soil sampling over an aeromagnetic target at the Villanova Monteleone prospect. The target is similar to the "Calabona style" skarn mineralisation associated with porphyry intrusions in the Alghero area. Samples were collected at 100m intervals along lines 1km apart. Results indicate an open-ended anomaly 2.3km long and up to 150m wide, at 10ppb Au contour with a maximum of 31ppb Au. Follow-up mapping and sampling are under way. Ground magnetics and an IP survey are planned. Eastern Paleozoics Results from ridge and spur soil samples collected over a 6km x 4km area in the Monte S’Ollasteddu-Sa Lilla region has delineated three separate gold anomalies. The soils were collected at 50m intercepts on lines spaced 1km apart. The largest anomaly is 500m wide, with gold results ranging from 20 to 60ppb. The soil samples confirm the highly anomalous stream sediment sample results of 160 and 300ppb Au. Detailed mapping and sampling are under way. Rock chip samples from the old workings at Baccu Locci and Baccherutta have returned encouraging results. The quartz-sulphides veins occur as a swarm and individual veins can be mapped over a 300m strike with 1-4m widths. They were mined in the past for arsenic. The veins are polymetalic and carry gold in the range of 1-10g/t, silver from 15 to 300ppm and lead and zinc to 5%. A research application has been placed over the old workings at Baccu Locci and is close to being granted. Siliqua A 50m intercept of strong silicification and 5 – 10 % pyrite mineralisation has been intersected from 40m down hole in the first RC drill hole drilled to test geophysical IP chargeability anomalies. The epithermal silica – pyrite alteration is hosted in Andesitic volcanics of Tertiary age and is similar to that expressed in a shallow well 400 m to the north. Samples excavated from the well return 2 g/t Au. A thin veneer of alluvial cover marks the Tertiary volcanic sequence. Previous exploration concentrated on the porphyry copper – gold style of mineralisation out-cropping in the south of the Siliqua project area. The epithermals are interpreted to represent the down faulted portion of the prophyry system, now preserved in the Campidano Graben. The Siliqua prospect lies on the major north east trending Furtei – Siliqua – Perdaxius structural corridor. Up to six of these corridors have been identified on the Island and they represent an important control on the volcanic centres and gold mineralisation. A total of 10 drill holes are planned, they are spaced 60 m apart along two lines 300 m apart. The assay results are awaited from the first RC drill hole and the second drill hole is underway. * * * Mr Jeff Rayner, Exploration Manager for Sardinia Gold Mining SpA, has been responsible for the preparation of the geological sections of this report. Mr. Rayner is a corporate member of the AusIMM and has more than five years' experience in the estimation, assessment and evaluation of minerals resources and ore reserves which is relevant to the style of mineralisation under consideration.
TABLE 2 FURTEI EXPLORATION FURTEI DRILLING BEST INTERCEPTS, 1 JULY - 30 SEPTEMBER 2000
SU : SULPHIDE TABLE 3 FURTEI EXPLORATION SUMMARY DRILLING, 1 JULY - 30 SEPTEMBER 2000
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