The Cannon Gold Resource forms the centre of Southern Gold's Bulong Project. Located within the Company's 100% owned Mining Lease (M25/333), 30 km south-east of Kalgoorlie in WA (Figure 1), it is the project's maiden gold resource. Southern Gold has taken the Cannon Resource through from initial discovery to a Pre-Feasibility Study (PFS) completed in 2013.
Figure 1. Southern Gold's WA tenement package. The map shows the proximity of Southern Gold's tenements to holdings of neighbouring companies with market capitalisations greater than $70 million. It also shows the proximity to a number of nearby gold processing facilities (gold mills).
The deposit is of typical orogenic, lode gold style with characteristic associated biotite, calcite, chlorite, albite and pyrite alteration (Figure 2). Mafic and ultramafic rock types host the orebody, which is structurally controlled, strikes north-easterly and dips to the west. Mineralisation is from surface and remains open down-dip (Figure 3). High grade mineralised zones within the resource appear to be controlled by local scale dilational structures (Figure 2).
Figure 2. Cannon Drill Core - Showing typical Eastern Goldfields type alteration assemblage and dilational structures (A), and visible gold (B).
Section 030 mN
Section 110 mN
Section 175 mN
Figure 3. Plan view of the Cannon Gold Resource Envelope (projected to surface) - Location of significant intersections and drill sections from south to north (Sections 030 mN, 110 mN, 175 mN) shown. Mineralisation from surface and open down-sip at depth to the west.
The resource has been delineated by reverse circulation and diamond drilling (Figure 3) to a vertical depth of 230m. The current JORC compliant resource estimate stands at 812,200 t @ 3.9 g/t for 100,400 oz Au (Table 1), with 92% of contained ounces in the Indicated Category. The estimate was compiled by RungePincockMinarco (RPM) and was used in the PFS.
Table 1. Cannon Gold Mineral Resource Estimate (1.0 g/t Au Cut-off).(1) See ASX release 29/01/2013.
Note (1): Rounding affects totals.
A PFS was recently completed on the Cannon Gold Resource (Table 2) showing approximately 70% of the resource (484,000 t @ 4.4 g/t for 68,200 oz Au) can be extracted from a conceptual open pit and underground development (Figure 4). It demonstrates the operation is technically feasible, can generate robust cash flows, deliver a positive economic return for shareholders and create a pathway for future growth of the Company.
|Mined ounces||oz Au||68,200||68,200||68,200||68,200|
|WA State Royalty(2)||%||2.5||2.5||2.5||2.5|
|Free Surplus Cashflow||A$M||4.95||8.02||14.15||20.28|
Table 2. Key Project Parameters and Scenarios of the Cannon Gold Resource PFS.(3) See ASX release 29/08/2013.
Note (1): Current Case – as at the date of completion of the PFS, August 2013.
Note (2): WA State Royalty of 2.5% is applied to all ounces produced after the first 2,500 oz produced in each financial year.
Note (3): Rounding affects totals.
Mine development has been approved by the Board, subject to securing finance and regulatory approvals and is targeted to commence in the first half of 2014.
A number of toll-treatment options are available for the project which allows development to proceed with a low capital cost structure and unlocks value at an early stage.
Initial site works and infrastructure costs are estimated at A$1.7 million and the underground decline development cost is estimated at A$11.6 million. Decline expenses will be incurred during decline development which will commence in year two of the operation. Forecast C1 cash operating costs including mining, haulage, processing and Southern Gold direct costs are estimated at A$1,028/oz. The initial mine life based on the current resource is 3 years, with strong potential to grow the Cannon Resource which remains open and untested down-dip to the west.
The base case PFS assumed a gold price of A$1400 per ounce and forecast free surplus cash flow of A$8.02 million. Other case sensitivities considered by the PFS included a gold price of A$1500 per ounce, A$1600 per ounce and A$1350 per ounce as shown in Table 2. At a gold price of A$1500, the forecast free surplus cash flow increases to A$14.2 million.
Figure 4. Conceptual Open Pit and Underground Mine Design with Stoping Blocks.
Value Enhancement Opportunities
It is noted that Inferred resource material within the pit design has not been included in the mining inventory nor have any underground inferred resource ounces been included in the PFS (Table 2). It is expected that with grade control drilling, some of these ounces will be converted to Indicated category and included in the production material.
There are a number of value enhancement opportunities which may be achieved, as the resource remains open to the west. Exploration from underground development will be an integral part of the operation to test extensions to the west and south of the current defined resource.
Recently, Southern Gold successfully identified additional near-surface gold mineralisation close to the Cannon Resource both at the Pinner and Monument prospects which, if continued, has the potential to build on the Company's resource inventory. In addition to high grade near surface intersections at Pinner (approximately 100m south-west of Cannon), exciting exploration results from nearby Arsenal (including 54m of Cannon-like alteration intersected below a 450 x 100m gold-in-soil anomaly) and Cannon South are also considered priority targets to add value to the future development of a mining operation within the Bulong Gold Project.
A number of key risks have been identified, which the company will continue to review and manage accordingly. The risks identified may impact (either positively or negatively) on the economics of the Cannon Gold development. These risks include, but are not limited to:
- Gold price and foreign currency exchanges rates
- Capital and operating costs
- Processing optimisation and recoveries
- Project financing terms
Competent Person's Statements
The information in this report that relates to Exploration Results has been compiled under the supervision of Mr Ian Blucher (MAusIMM). Mr Blucher, who is a full time employee of Southern Gold Limited and a Member of the Australasian Institute of Mining and Metallurgy, has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity he has undertaken to qualify as a Competent Person as defined in the 2012 Edition of the Joint Ore Reserves Committee (JORC) Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Blucher consents to the inclusion in this report of the matters based on the information in the form and context in which it appears.
The information in this report that relates to Mineral Resources is based on information compiled by Mr Ian Blucher (MAusIMM). Mr Blucher, who is a full time employee of Southern Gold Limited and a Member of the Australasian Institute of Mining and Metallurgy, has sufficient experience that is relevant to the style of mineralisation, type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the JORC Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Blucher consents to the inclusion in this report of the matters based on the information in the form and context in which it appears.