Sunridge Gold’s development potential could rival Nevsun Gold’s Bisha Mine
Sunridge Gold (“SGC”) holds the Asmara Project, in Eritrea, that hosts three deposits at Emba Derho, Adi Nafas and Debarwa, holding a NI 43-101 compliant Indicated Resource of 1.28 billion pounds / 580,000 tonnes of copper, 2.5 billion pounds / 1,130,000 tonnes of zinc, 1.05 million ounces of gold and 31.8 million ounces of silver and a fourth prospect known as Gupo, containing an Inferred Resource of 189,000 ounces of gold.
Interest in Sunridge Gold has picked up considerably since Nevsun (TSX: NSU, AMEX: NSU) nears completion of the construction of a substantial mine and process plant at the Bisha Project. This will be the first mine approved by the current Eritrean Government and heralds the development of mineral projects within the tiny country.
The Asmara Project is named after the capital of Eritrea and is located on the outskirts of the city, surrounded by paved roads and all of the infrastructure requirements needed to build a mine and production facilities.
The Debarwa Project is found south of the capital and was partially developed in the 1970’s with completion of a shaft, head frame and 2 levels down to a depth of approximately 100 meters, and contains a high grade VMS deposit that is 10 to 30 meters wide and covers a strike length of over 1.4 kilometers.
The deposit contains a near surface oxide gold cap containing an Indicated Resource of 2.42 million tonnes at 1.71 g/t gold, that overlays a copper enriched supergene zone of 1.34 million tonnes at 5.36% copper. Beneath this zone is a further 699,000 tonnes at 2.53% copper 3.23% zinc and 0.87 g/t gold, which has been drilled to a depth of 150 meters and is open at depth.
SGC has contracted with Senet, and AMC Consultants to complete feasibility studies, including design of process plant, infrastructure and mine design at Debarwa for production of copper gold and zinc.
The proposed mine will include an open pit and process plant to crush the ore and floatation circuit to produce concentrates for export. Additional studies are planned for a near surface DSO Zone that is a high grade copper zone containing +15% copper that will be evaluated for production of 18-20% copper ore for export, prior to completion of the process plant.
The Eritrean Government maintains a 10% free carried interest which can be increased to 30% if it chooses to fund and become a joint venture partner, plus it will collect a 3.5% net smelter royalty on base metals and 5% on gold.
Emba Derho, Adi Nafas and Gupo are all located 15 kilometers to the north of Asmara and are collectively known as the Northern Projects.
SGC has completed a positive scoping study at Embra Derho, which is a copper, gold and zinc VMS deposit containing a NI 43-101 compliant Indicated Resource of 62.5 million tonnes, holding 996 million pounds of copper, 1,907 million pounds of zinc and 574,000 ounces of gold and 20 million ounces of silver.
This mineralization is contained within three zones, consisting of a gold oxide zone, that extends to a depth of 30 meters from the surface, which overlays an intertwined zinc rich primary zone and copper rich primary zone. The zinc and copper zones are open at depth across the system and open at depth to the northwest.
The scoping study indicated a capital cost of $331.8 million, to process 4 million tonnes per year, for a mine life of 10.4 years. At this rate the mine would draw down 42 million tonnes, from a resource containing a total of 62 million tonnes of ore.
On an annual basis the mine would be capable of producing 200,000 tonnes of copper and zinc concentrates containing 55,000 tonnes of zinc, 25,000 tonnes of copper and 20,000 ounces of gold and 600,000 ounces of silver, at a total operating cost of US$21.19 per tonne of milled ore. Assuming a conservative copper price of US$2.50 per pound, zinc of $1.00 per pound, gold of $650 per ounce and silver of $11 per ounce, produces an Internal Rate of Return of 21.6%, with 4 year payback of invested capital, and Net Present Value of US$203.9 million.
Taking the most recent two year average of metal prices as the selling price, drives the Net Present Value up to US$323.8 million and boosts the Internal Rate of return to 27.7%.
SGC is currently drilling 4,000 meters at Gupo, where a shallow Inferred Resource of 189,000 ounces of oxide gold at 2.99 g/t gold has been outlined, and expectations are that this resource will expand. An additional open pit gold target at Medrizien is being drilled for 1,000 meters. This target is located 500 meters from Emba Derho, and is identified as a mineralized strike line 5 to 25 meters in width, extending over 3.5 kilometers.
Prefeasibility studies are expected to follow in 2011 and will assess Emba Derho, Adi Nafas and Gupo. These studies will assess the inclusion of 95,000 ounces of gold in a shallow oxide zone at 0.84 g/t gold, a steeper pit slope for the proposed open pit and potential reduction of operating costs by removing 20% of waste material utilizing a dense media separation plant. Adi Nafas is 6 kilometers from Emba Derho, and has an Indicated Resource of 2.73 million tonnes at 2.85 g/t gold, 99.3 g/t silver, 1.39% copper and 8.38% zinc.
Antofagasta Minerals (LSE:ANTO) is a major investor in SGC holding 17.9%, has also executed a US$10 million Joint Venture agreement to explore a 35 kilometer strike line of leases surrounding the Asmara Project.
Antofagasta is entitled to obtain a 60% interest and can increase this to 75%. The Joint Venture holds highly prospective ground with multiple prospects including Adi Rassi, which may host a potential copper and gold discovery zone. Drilling has identified a zone of 500 meters that is open along strike, and contains significant gold and copper hits up to 85 meters in length.
So how does Sunridge stack up against its peer group?
Nevsun is capitalized at $1.03 billion and is commissioning the Bisha project, 180 kilometers west of Asmara, for a capital cost of $260 million. The deposit holds 1 million ounces of gold, 750 million pounds of copper, 1 million pounds of zinc and 9 million ounces of silver.
It is interesting to note that SGC is capitalized at $200 million and holds a larger resource inventory than Nevsun, and one could argue that as Sundridge move toward production this would have a positive impact on the company’s valuation.
Chalice (ASX:CHN) is another explorer with a major interest in Eritrea, capitalized at A$144.6 million, holds very large tenements to the north of SGC and is going into production at a rate of 104,000 ounces per year on a high grade open pit at 5.1 g/t at Koka. A TSX listing for CHN is imminent.
Interest in the general area is growing with Citadel (ASX:CGG) under takeover from Equinox (TSX:EQN) for A$1.25 billion. Valuation is based on the Jabal Sayid Mine in Saudi Arabia, processing 3 million tonnes of ore to produce 57,000 tonnes per year of copper with gold and silver credits. This again reinforces the view that SGC has solid grounds for further growth in its market capitalization.