On 15th November, Spanish Mountain Gold released a resource update for the Spanish Mountain gold property in the Cariboo region of British Columbia. The company has been making steady progress this year following the completion of its preliminary economic assessment (PEA) at the end of 2010.
That report envisaged a potentially bulk mineable, large tonnage, sediment hosted gold deposit which could produce over 200,000 ounces of gold per year over a projected 13 year mine life, at a projected cash cost of less than US$600 per ounce. Using the US$1,100 gold price the report gave the project nearly a 15 per cent internal rate of return and payback for the project in five years. The company stresses that the project is highly leveraged to the gold price. If the gold price is US$1,500 an ounce internal rate of return jumps to more than 34 per cent and payback occurs in just over 2 years. For those confident in the future price of gold these figures are encouraging.
The property enjoys all weather road access, extremely cheap electricity, low political risk, and access to a skilled work force. In the 12 months since the release of the PEA, Spanish Mountain has done plenty more exploration work, completed financings, and conducted negotiations with local stakeholders, all in anticipation of a prefeasibility study expected in April next year.
Work began on the prefeasibility study at the end of August. The study will incorporate the new resource update, geotechnical, metallurgical, power supply studies, and optimal mill throughput. The company is now considering a milling capacity of 25,000 tonnes per day to reduce capital expenditures and to exploit higher-grade, near surface resources for the first 3 years of production with an expansion to 40,000 tonnes per day for the remaining mine life.
In mid-October, the company announced the completion of its 2011 drilling program which added a further 18,000 metres of infill drilling to 135,401 metres of historical drilling. The program was primarily designed to provide in-fill data for the main zone of mineralization, but ended up encountering new zones of mineralization.
Highlights included 39.5 metres grading 1.09 grams per tonne gold in the main zone and 50 metres grading 0.62 grams per tonne gold in the north zone. Commenting on the new data generated by the 2011 drill program, company chief executive Brian Groves stated: “Our current understanding of the north zone represents a distinct change from the previous assumptions regarding the orientation of mineralization within this zone. The data from the recently completed infill drilling program have revealed improved continuity in this mineralized body.”
The importance of the new understanding of mineralization at Spanish Mountain became apparent in the November 15th resource update. The update added 800,000 ounces of gold to the resource in the measured and indicated categories and over three million in the inferred category, as against the resource laid out in the 2010 preliminary economic assessment.
So Spanish Mountain now hosts a NI 43-101 resource of just under 2.2 million ounces of gold in the measured and indicated categories, plus 4.04 million ounces inferred.
The company also tested for silver mineralization in the latest round of assays and has added an impressive 2,840,000 ounces of silver in the measured and indicated categories, and 7.1 million inferred ounces to the resource
The plan now is to focus on additional in-fill drilling, principally within the north zone and adjacent to the main zone, with the objective of moving inferred ounces up to measured and indicated. This could mean significant gains to come in the next resource update in April.
While Spanish Mountain continues to focus on expanding and developing its gold resource, exploration continues at the Cedar Creek copper target. Cedar Creek is located just to the west of the main gold mineralization at Spanish Mountain, and has been identified through soil geochemistry as a promising target hosting up to 0.235 per cent copper in soil. We haven’t heard any news on Cedar Creek since July, when drill rigs moved into the area to begin testing gold targets which were defined in a soil geochemical survey. Exploration at Cedar Creek could add more mineral wealth to Spanish Mountain’s books which is always welcome.
Spanish Mountain’s share price has gained over 38 per cent so far this year and has gained 3.66 per cent this week. In October Minesite published an article that anticipated this resource update, characterizing it as a test of whether or not the support Spanish Mountain has enjoyed in the market was well placed.
This resource update has more than met those expectations. Minesite will be standing by to report on the next developments.