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Santa Fe Gold acquired the Summit silver-gold project in May 2006.
The project includes the Summit silver-gold property, which consists
of 117 acres of patented mining claims and 740 acres of unpatented
mining claims in Grant County, southwestern New Mexico; and the Banner
mill, including mineral processing equipment consisting of
a crushing and screening plant, a ball mill and a 400 ton-per-day
flotation plant, and related property consisting of approximately 1,500
acres of wholly owned and leased patented and unpatented mining
claims, located approximately 57 miles south of the Summit mine near
Lordsburg, Hidalgo County, New Mexico. We own and operate the Summit
project under the Lordsburg Mining Company, a wholly-owned subsidiary.
Construction of the Summit mine and related Banner mill was the
focus of our activities in 2009 and 2008. In April 2007, we received
results of a preliminary feasibility study carried out by an independent
geological engineering firm that concluded that development of the
Summit deposit would be economically viable. Capital cost was estimated
as $13.4 million and the construction schedule was estimated to require a
minimum of 12 months. In December 2007, we arranged financing of $13.5
million by way of a private placement of senior secured convertible
debentures. We began construction activities during 2008, including
development of the Summit mine and construction of the Banner mill.
Underground mine development and stockpiling of ore is on-going.
Construction of the Banner mill was completed in the second quarter of
2009, except for the tailings disposal impoundment, for which in October
2009 we received a conditional permit that allowed us to proceed with
construction. Construction of the tailings disposal impoundment was
completed at year-end 2009. We expect to commence processing operations
in the first quarter of 2010. We expect the Summit project will achieve
commercial production in 2010. As of June 30, 2009, we had $47.1 million
in tax loss carry-forwards to shelter federal income tax otherwise
payable.

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The Summit mining and processing operation will involve
underground mining of mineralized material from the Summit mine at a
rate of 400 tons per day (120,000 tons per year) and trucking of the
mined material 57 miles to the Banner mill site where metallurgical
processing will take place. At the Banner site, processing will be
accomplished through conventional crushing, grinding and selective
flotation to yield a bulk sulfide concentrate containing the recoverable
precious metals. We plan to market this concentrate to a smelter or to a
third-party precious metals processing plant.
Location and Access
The Summit silver-gold mine is located in a rugged and isolated
setting in Grant County, southwestern New Mexico, near the Arizona state
line. The property lies within the Steeple Rock Mining District, which
has recorded notable historic production of gold, silver, base metals
and fluorspar from several mines, currently inoperative, including
Carlisle, East Camp and Norman King. The property is accessible by paved
and gravel road approximately 15 miles northeast from Arizona State
Highway 75 N and the town of Duncan, Arizona. Electric power is not
available on or near the property and is generated on-site in connection
with the mining operation. Water for limited usage is available on and
near the property.
The terrain of the property is rugged, with steep canyons and
ridges. Elevations range from 4,500 feet to 6,200 feet above sea level.
The Summit siliceous mineralized structure forms a prominent
northwesterly trending ridge.
The Banner mill site lies 57 miles to the south of the Summit mine
near the town of Lordsburg, Hidalgo County, New Mexico. Lordsburg is
connected to Duncan, Arizona via US Highway 70. The Banner mill site is
accessible from Lordsburg by a 4-mile paved road. Utilities on site
include water and electric power. The Lordsburg area is well supported
by transportation services including trucking and rail services, and by a
wide range of fabrication, construction and other support services. The
labor force required for the plant operation can be sourced locally.
Mineral Title
Our holdings at the Summit silver-gold property in Grant County,
New Mexico consist of 10 patented federal mining claims totaling
approximately 117 acres and 62 unpatented federal mining claims totaling
approximately 740 acres. Our holdings at and adjacent to the Banner
mill site in Hidalgo County, New Mexico consist of 86 wholly-owned
patented federal mining claims, 5 wholly-owned unpatented mining claims,
17 leased patented mining claims and 6 leased unpatented mining claims,
aggregating approximately 1,500 acres. All wholly-owned claims are held
in the name of Lordsburg Mining Company. The unpatented mining claims
are located on public land and held pursuant to the General Mining Law
of 1872. We fully own the mining rights and believe the claims are in
good standing in accordance with the mining laws of the United States.
In order to maintain our claims in good standing, for our patented
mining claims we must pay annual property taxes to Grant and Hidalgo
Counties, and for our unpatented mining claims we must pay annual
assessment fees to the Bureau of Land Management and record the payment
of rental fees with Grant and Hidalgo Counties. We are current on
property taxes related to our patented claims. Annual assessment and
recording costs for our unpatented claims total approximately $10,500.
We have paid the required fees for the 2010 assessment year (September
1, 2009 through August 31, 2010).
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The Summit property is subject to underlying net smelter return
royalties capped at $4,000,000 and to a net-proceeds interest on sales
of unbeneficiated mineralized rock with an end price of $2,400,000. The
Summit acquisition is subject to a property identification agreement
between us and our President and Chief Executive Officer.
History of Mining and Exploration
The Summit silver-gold property lies within the Steeple Rock
district, which is one of the historic mining areas in the southwest
United States. The former mines produced gold, silver and base metals
from underground mining of epithermal vein systems. Prospecting activity
dates back to before 1860. The first recorded production was from the
Carlisle property, which operated from 1880-1897. A number of other
mines including the Norman King and Billali also opened up during the
1880’s but ceased operation by the turn of the century. Following this
early production, the district was largely dormant until the 1930’s-mid
1940’s when several mines operated. Subsequently sporadic small-scale
operations continued until the 1990’s on various deposits including the
Summit, Center, Mount Royal and Carlisle deposits.
The US Bureau of Mines estimated that between 1880 and 1986 the
Steeple Rock district produced at least 148,000 ounces of gold, 3.3
million ounces of silver, 1.2 million pounds of copper, and 5 million
pounds of lead and 4 million pounds of zinc. In addition, there was
unrecorded precious and base metal production as part of silica flux
shipments. Some 6,500 tons of fluorspar also were produced.
In the late 1970’s, Summit Minerals Inc. is reported to have shipped about 30,000 tons of mineralized material from the
Summit property to ASARCO’s El Paso smelter as direct shipping silica flux grading 0.102 ounces per ton gold and 4.95
ounces per ton silver.
Exploration work estimated to have cost in excess of $8 million was carried out on the Summit silver-gold property from
1984-1992. This work included drilling totaling 104,700 feet on the Summit and adjacent structures, of which 78,000 feet
was directed to the Summit structure. In 1984-85, Inspiration Mines Inc. reportedly spent about $1.5 million conducting
underground development, shallow core drilling and sampling and mapping. In 1988-89, Novagold Resources Inc. reportedly
expended approximately $2 million in surface and airborne geophysical surveys, underground mapping and sampling, and core
drilling. Novagold’s drilling identified a significant block of mineralized material in the Summit vein. From 1989-1992,
Biron Bay Resources Ltd., in joint venture with Novagold, conducted extensive exploration, drilled 88 core holes, and
reportedly spent over $5 million extending and improving the level of confidence in the mineralized material at the Summit
and in defining exploration potential in adjacent and outlying vein structures.
Geology and Mineralization
The Steeple Rock district contains numerous structurally
controlled epithermal vein systems. The veins are controlled by
conjugate fault systems that cut a thick pile of Tertiary volcanic
rocks of intermediate composition. The deposits are
localized along structurally controlled, hydrothermally altered
zones cutting the volcanic host rocks. The dominant structures
trend northwesterly and dip steeply. Secondary veins trend
easterly and north-northwesterly. The veins can be traced for
distances of up to several miles along strike and have widths that
range up to 100 feet or more.
The epithermal veins have formed as open-space filling by a
mixture of quartz, carbonate minerals and wallrock fragments
and show evidence of multiple episodes of brecciation and
re-cementation. Gold occurs as fine free grains or as electrum.
Silver is found as argentite or in sulfosalts. Base metal sulfides
including chalcopyrite, sphalerite and galena are common
in certain deposits but rare in others. Gangue minerals usually
consist of quartz, pyrite, calcite, barite and fluorite.
Alteration of the volcanic country rocks adjacent to the veins
commonly consists of sericitization, argillization and silicification.
The principal vein structure on the Summit silver-gold property is
the Summit structure, which can be traced for 3,000 feet
from southeast to northwest. The Billali structure forms a farther
2,000 foot continuation of the Summit structure in a
northwesterly direction across an east-west fault. The Summit and
Billali structures dip steeply to the northeast.
These structures form segments of the East Camp Fault, which
constitutes the main ore control in this part of the Steeple Rock
district. The core drilling carried out from 1984-1992 tested both
the Summit and Billali vein structures. Of the two, results
from the Summit structure were the more promising with respect to
vein continuity and economic potential.
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The Summit mineralized vein occurs within a wide, structurally
controlled zone of hydrothermally altered volcanic rocks.
Silver and gold mineralization is epithermal in style and consists
of silver sulfides and electrum or native gold along with
lesser pyrite, sphalerite and chalcopyrite. Precious metals
contents, which are relatively low at the surface, increase
significantly with depth for several hundred feet, apparently a
reflection of vertical mineral zoning within the deposit.
Below 1,000-1,500 feet, the precious metals contents appear to
decrease although little deeper drilling was carried out.
The main block of mineralized material, which occurs along the
footwall of the structure, has been shown by extensive drilling
to trend northwesterly about 1,500 feet in strike length and to
extend 1,000 feet down dip. The true width of mineralization
across the footwall mineralized zone ranges from 6 feet to over 50
feet and averages 10-15 feet.
Ore Reserve
In July 2008, Chapman, Wood and Griswold, Inc. (“CWG”), an
independent geological engineering firm, reviewed the reserve/resource
classification of Summit mineralization and concluded that a
portion of the mineralized material can be elevated to the category
of Probable Reserve under the SEC’s Industry Guide 7. At a cutoff
grade of 0.175 ounces of gold-equivalent per ton, CWG estimated
the in-place, diluted Probable Reserve, for the main footwall
zone, to be 531,509 tons grading 0.129 ounces of gold per ton and
8.62 ounces of silver per ton.
In October 2009, CWG prepared a report according
to standards for Canadian National Instrument 43-101, which included as
a Probable Reserve a significant portion of the minable mineralized
material identified at Summit (see Preliminary Feasibility Study below).
This report is expected to be made available in due course.
Metallurgical Testing
Conventional processing including crushing, grinding and milling
of Summit mineralized material to produce a bulk sulfide flotation
concentrate containing the recoverable precious metals has been
evaluated and tested at bench scale. Based upon preliminary bench
scale flotation tests, we believe that a precious metals recovery
of approximately 80-86% with a concentration ratio of 70 to 1
is reasonably achievable. We believe that the concentrate could be
treated to produce a dore product or alternatively, it could
be marketed to a smelter or to a third-party precious metals
processing operation for final extraction of gold and silver.
Mineral Processing Equipment
With the purchase of Lordsburg Mining in May 2006, we acquired an
inactive 400 ton-per-day flotation plant, including ball mill
and ancillary equipment. Subsequently, in June 2008, we purchased
crushing, screening and conveying equipment. In order to utilize
the flotation plant for mineral processing, we have transported it
from its previous location near Winston, Sierra County, New Mexicio,
and are in the process of refurbishing it as necessary and
erecting it at the Banner mill site in Hidalgo County. In addition to
the
processing equipment already acquired, we plan to acquire and
install other necessary equipment.
Permits
With the purchase of Lordsburg Mining in 2006, we acquired
existing operating permits for the Summit property and the Banner mill
site. The New Mexico Mining and Minerals Division issued these permits
to Lordsburg Mining pursuant to the New Mexico Mining Act. When modified
and revised as necessary, these and other permits for which we have
applied or will apply could facilitate the commencement of mining at the
Summit property and resumption of mineral processing operations at the
Banner mill site.
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Permit No. GR001ME at the Summit mine allows operation of a
“minimal impact mine”. As surface disturbance expands, it will be
necessary to modify the permit and to post financial assurance for
reclamation. Pursuant to the current permit, we have begun underground
mining operations.
Permit No. H1001RE at the Banner mill site is for an “existing
mining operation” and authorizes us to conduct mining and reclamation
operations according to the conditions stipulated in the permit. All
proposed mining disturbances are required to be addressed under a
closeout plan and to be secured by financial assurance. We have applied
for modification and revision of the permit to allow resumption of
flotation milling, construction of a tailings impoundment and discharge
of tailings. We also have applied or will apply for other necessary
permits, including air quality permits for the Banner mill and Summit
mine.
Preliminary Feasibility Study
In April 2007, we received results of an engineering study carried
out by the independent geological engineering firm of Chapman, Wood
and Griswold, Inc., of Albuquerque, New Mexico. CWG concluded that
the Summit deposit would form the basis of an economically viable
underground mining operation.
CWG used an estimation of minable mineralized material for their
study of 758,000 tons grading 10.28 ounces of silver per ton and 0.143
ounces of gold per ton in the main footwall zone. This estimation
was adopted from a previous estimation carried out by St. Cloud Mining
Co., and represents in-place, diluted, minable mineralization with
a minimum six-foot horizontal width, based on results of assays from
core holes and samples of underground workings. All high assay
values were cut to 45.0 ounces of silver and 0.45 ounces of gold per
ton.
The CWG report was prepared in accordance with different standards
than those prescribed by rules of the SEC. The SEC only permits the
disclosure of proven or probable reserves.
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The Summit mining and processing operation would involve
underground mining of mineralized material from the Summit property at a
rate
of 400 tons per day (120,000 tons per year) and trucking of the
mined material 57 miles to the Banner mill site where metallurgical
processing
would take place. At the Banner site processing would be
accomplished through conventional crushing, grinding and selective
flotation to
yield a high-grade bulk sulfide concentrate containing the
recoverable precious metals. The concentrate would be marketed to one of
the
area’s copper smelters or to a third-party precious metals
processing plant.
CWG prepared a mine design that employs rubber-tired equipment to
gain access to the minable mineralization through two declines, one on
each
end of the deposit, which would be driven from existing headings
to and along the mineralized structure to a connecting point in the
central
part of the deposit. Further development of the deposit would
continue by extending a decline to the lower limits of mineralization.
Sufficient longhole drilling and trial extraction methods would be
done to further plan the operation.
At gold and silver prices of $500 and $10 respectively, CWG
estimated Summit revenues over an initial seven-year mine life would
total approximately $96 million, and pre-tax net income would total
approximately $34 million. At higher gold and silver prices of $650 and
$13 per ounce respectively, CWG estimated revenues would increase to
approximately $130 million, pre-tax net income would exceed $70 million,
and payback of capital would be achieved in 18 months after the
commencement of production. The Company has $47.1 million in tax loss
carry-forwards to shelter federal income tax otherwise payable. Direct
operating costs, assuming that mine development and ore production would
employ contract mining, were estimated as $76.65 per ton of ore milled.
The total capital cost to bring the mine into production was estimated
as $13.5 million, inclusive of mine development, mill construction,
bonding requirements, and project management and working capital. CWG
estimated the project could be developed and brought into production in a
twelve-month time frame.
Potential Expansion of Proposed Initial Operation
Establishment of the proposed mining operation at Summit
potentially would allow the Company to further expand the current base
of mineralized material at the Summit deposit and to develop other
properties in the Steeple Rock mining district. The Banner flotation
mill at Lordsburg also might generate mining and processing
opportunities from our ground holdings adjacent to the Banner mill site
in the Virginia mining district and/or from surrounding mining
districts, several of which historically have yielded substantial
production of base and precious metals.
Development Activities
In December 2007 we arranged for the $13.5 million in capital
necessary for project development. We began construction activities in
2008 and estimated a minimum of 12 months would be required for
construction and execution of the major elements of the mining and
processing plan described above.
At the Summit mine, a seven hundred foot long
12’ x 12’ decline ramp intersected the predicted ore body in February
2009. Since then, we have proceeded to drive two development headings in
the ore zone structure, one an incline to the southeast that has
intersected old workings and serves as a secondary escape and a source
of additional ventilation, and the other a decline to the northwest that
has reached additional ore bodies identified in previous drilling.
Assays of the ore bodies show variable silver and gold values, with
occasional very high grades encountered. Assay results when averaged are
consistent with the reserve grades previously calculated for the Summit
deposit (10.28 oz/ton silver and 0.143 oz/ton gold). Ore grade material
is segregated at the mine and trucked to the Lordsburg mill site.
Mining operations are proceeding on the basis of two 10-hour shifts five
days a week.
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At the Banner mill, construction was essentially
completed in the second quarter of 2009, except for the tailings
disposal impoundment. We experienced a delay in obtaining a permit
necessary for construction of the tailings disposal impoundment, which
must be constructed before processing operations can begin. In October
2009 we obtained the necessary permit that allowed us to construct the
tailings disposal impoundment. Construction was completed at year-end
2009. In the first quarter of 2010 we expect to be in a position to
commence processing operations and shake down of the mill. Ramp-up of
mill throughput is planned to occur over a period of several months in
conjunction with increased output from the Summit mine. We expect that
the Summit project will achieve commercial production in 2010.
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http://www.santafegoldcorp.com/03_projects.html
Overview
In August 2004, Santa Fe Gold acquired exclusive rights for exploration, development and mining of
gold and other minerals on 57,267 acres (approximately 90 square miles) of the Ortiz Mine Grant in
Santa Fe County, New Mexico. Previous drilling indicated approximately 2 million ounces of gold in
several deposits. In 2007, Santa Fe Gold voluntarily relinquished 14,970 acres of the leasehold
that it deemed to be without serious exploration potential, leaving 42,297 acres (approximately 66
square miles) as the current leasehold.
In December 2005, we received the results of an independent scoping study for the open pit mining
of approximately 1 million ounces of gold from the Carache and Lucas gold deposits. The study
assessed various processing options for development and provided estimations of capital and operating
costs for each option. It also included an economic analysis complete with sensitivities on gold
price, capital and operating costs. The report concluded that the financial results indicate a
favorable gold project employing high pressure grinding rolls with gravity recovery and contract
mining. The financial model showed production would total 925,036 ounces of gold over 10 years at an
average estimated operating cost of $230 per ounce of gold recovered. The capital cost, assuming
contract mining, was estimated as $38.2 million. The report also stated that considerable upside
exists in estimations of mineralized material in both contained ounces and grade.
Based on these promising results, we believe the Ortiz gold project has excellent potential for
development. Our objective is to begin mining operations as soon as practicable. The next steps are
to complete additional work to optimize mining and processing options and to begin environmental
assessment, an important step in obtaining operating permits.
The geology of the unusually large area under Santa Fe Gold’s control is highly prospective for
several styles of gold deposits and offers superb exploration potential for discovery of additional
major deposits.
Location and Access
The Ortiz Mine Grant is located 30 miles by road northeast of Albuquerque, New Mexico. The villages
of Golden, Madrid and Cerrillos, with a combined population of less than 1,000 people, lie in and
adjacent to the Grant. Paved New Mexico Highway 14 traverses the western portion of the Grant. The
main line of the Santa Fe Railway crosses the northeast corner of the Grant. A network of unimproved
ranch roads provides access to the various land holdings. High-voltage electric power lines cross the
southern part of the Grant.
Terrain in the Grant is hilly to mountainous, with elevations ranging
from 6,000 feet in the valleys to nearly 9,000 feet in the Ortiz Mountains. Annual participation
averages 12 inches. Vegetation is sparse but varied as is typical of the high deserts of the Southwest.
The Grant is largely undeveloped and population is sparse. The land is utilized mainly for cattle
grazing. Other activities include limited subdivision development in the northern part of the Grant,
and mine reclamation work at the former Gold Field Ortiz (Cunningham Hill) mine site.
History of Mining and Exploration
Prospecting and mining of gold and silver in the Ortiz area dates to the arrival of the first European
(Spanish) settlers in 1598. Significant gold production from Ortiz placer deposits dates to 1821.
By 1832, several veins and low-grade gold deposits had been discovered. In 1833, the Ortiz Land Grant,
an area about 10.7 miles square centered on the Ortiz gold vein, was registered and possession given
by the First Alcade of the City of Santa Fe. By the early 1840’s, mining at the small underground
Ortiz Mine had ceased. In the late 1800’s and early 1900’s, sporadic attempts at commercial mining of
lode and placer gold deposits were unsuccessful due to lack of water and/or low grades. Total pre-1980
mine production has been estimated as about 100,000 ounces of gold.
The entire Grant was validated by the United States in 1860 under the terms of the Treaty of Guadalupe
Hidalgo. The owners received fee simple title to the surface and minerals and the area became known as
the Ortiz Mine Grant. Subsequently the Grant changed hands and the surface was sold subject to
reservation of the mineral estate. In 1959 the mineral-interest owners and associates formed Ortiz
Mines, Inc. for the purpose of promoting and marketing the mineral estate.
In 1973, Consolidated Gold Fields leased the eastern portion of the Grant from Ortiz Mines, Inc. and
developed and mined the Cunningham Hill deposit (Ortiz Mine). In the period 1980-1986, Gold Fields
produced approximately 250,000 ounces of gold from an open-pit, heap-leach operation.
From 1972 through the early 1990’s, several companies operating under lease with Ortiz Mines, Inc.
carried out exploration and pre-development activities in the western portion of the Grant. These
companies included Conoco, Inc., LAC Minerals (USA), Inc. and the LAC-Pegasus Joint Venture.
Expenditures by these groups are estimated to have exceeded $40 million. Drilling resulted in the
identification of several deposits estimated to contain in the aggregate approximately 2 million
ounces of gold.
The LAC-Pegasus Joint Venture carried out the majority of the work in the western portion of the Grant,
from 1989-1992. The Joint Venture focused on two deposits in the southwestern part of the Grant, namely
the Carache Canyon (“Carache”) and Lucas Canyon (“Lucas”) deposits. These two deposits were the subject
of 386,000 feet of core and reverse-circulation drilling, metallurgical testing and pre-feasibility
studies carried out by the LAC-Pegasus Joint Venture and by consulting firms and contractors engaged
by the Joint Venture.
Independent Mining Consultants, Inc. (“IMC”), an independent geological engineering firm, was engaged
by the LAC-Pegasus Joint Venture to audit estimations of gold resources at the Carache and Lucas
deposits and to prepare conceptual open pit mine plans based on a gold price of $385 per ounce. In 1992,
IMC estimated the Carache gold deposit, within the boundaries of a conceptual open pit, to contain
mineralized material of 11.8 million tons grading 0.060 ounces of gold per ton, for 706,700 ounces of
contained gold. IMC estimated the Lucas gold-copper deposit, within the boundaries of a conceptual open
pit, to contain mineralized material of 7.6 million tons grading 0.043 ounces of gold per ton and
0.22% copper, for 325,600 ounces of contained gold and 33,440,000 pounds of contained copper.
A 1990 pre-feasibility study produced by the LAC-Pegasus Joint Venture concluded that at gold prices of
$325 per ounce or higher, economics would be positive for open-pit, heap-leach mining of the approximately
1.0 million ounces of gold contained in the Carache and Lucas conceptual pits. The study also concluded
that the project had upside potential to increase both the quantity and grade of contained gold mineralization.
In 1989, the LAC-Pegasus Joint Venture started a decline adit into the Carache deposit for the purpose of
bulk sampling and to provide drilling access for shallow and deep exploration targets. However, after
advancing 1719 feet the decline was halted due to a temporary water inflow coupled with regulatory and
permitting issues. In the face of a declining gold price, mining development of the Carache or Lucas
deposits did not proceed, and the project ultimately was cancelled and the lease returned to Ortiz Mines,
Inc. Subsequently, no additional exploration was carried out and the property remained dormant until
Santa Fe Gold leased it in August 2004.
Geology and Mineralization
The 90 square-mile Ortiz Mine Grant is underlain by mid-Tertiary monzonite and latite porphyry stocks,
plugs, dikes and sills that have intruded Paleozoic to early-Tertiary sedimentary rocks. The intrusive
rocks are part of the Ortiz Porphyry Belt, which comprises from north to south, the Cerrillos Hills,
the Ortiz Mountains, the San Pedro Mountains, and South Mountain. Structurally, the Grant straddles the
Tijeras-Canoncito fault system, a northeast trending zone of fault-bounded horsts and grabens. This fault
zone is a segment of a deep-seated crustal break that has been active intermittently since Precambrian
time and has provided a zone of weakness for the emplacement of granitic magmas and associated
mineralization. Late-stage volcanism resulted in the formation of breccia pipes and zones of intense
fracturing that provided access for hydrothermal fluids carrying gold, silver, tungsten, molybdenum
and base metals.
The Ortiz Porphyry Belt exhibits a number of styles of mineralization that occur in a variety of geologic settings:
- Gold-tungsten mineralization in a breccia pipe at Cunningham Hill adjacent to a volcanic vent, the Ortiz diatreme.
- Gold mineralization associated with a collapse breccia at Carache Canyon.
- Copper and gold disseminated in stockworks and fractures in
monzonite at the Cunningham Gulch (gold) and Cerrillos (copper-gold)
deposits (bulk tonnage low-grade “porphyry”-type deposits).
- Copper – gold skarns in calcareous rocks at Lucas Canyon and San Pedro.
- Lead – zinc – silver veins at the Cash Entry and other old mines north of Cerrillos.
- Lead – zinc – silver pipe-like mantos in limestone at the Carnahan mine, San Pedro area.
- Molybdenite in stockworks and fractures in the San Lazarus monzonite stock, San Pedro area.
- Placer gold deposits on Cunningham Mesa, on the northern
pediment of the San Pedro Mountains, and in most of the arroyos draining
the Ortiz and San Pedro Mountains.
At the Carache gold deposit, relatively coarse-grained free gold is contained in open space fractures
developed in four gently dipping andesite porphyry sills and a sandstone unit around the collapsed margins
of a breccia pipe. At the Lucas gold-copper deposit, mineralization occurs in garnet skarn developed in a
limestone unit, the outcropping portion of which forms a dip slope at the surface.
We believe that the Ortiz Mine Grant holds significant potential for additional discoveries, and several
partially tested prospects have been identified, three of which have been shown by drilling to contain
respectively 60,000, 60,000 and 105,000 ounces of gold. About half the Ortiz Mine Grant is covered by
Quaternary gravels derived from the outwash of adjacent mountains. Exploration targets may also exist
beneath the gravel cover.
Scoping Study of the Carache and Lucas Gold Deposits
In October 2005, we commissioned Mineral Advisory Group, LLC (“MAG”) of Tucson, Arizona, an independent
geological engineering firm, to carry out an engineering review and scoping study of the Carache and Lucas
gold deposits, utilizing as a technical base the information generated by the LAC-Pegasus Joint Venture
in 1989-1991. MAG’s study, which was completed in December 2005, assessed various processing options for
development and provided estimations of capital and operating costs for each option. It also included an
economic analysis complete with sensitivities on gold price, capital and operating costs.
The processing options MAG analyzed included heap leaching, ball milling/gravity concentration, and high
pressure grinding rolls/gravity concentration (“HPGR option”). The optimum processing route was identified
as the HPGR option. The HPGR option was estimated to be able to achieve a gold recovery of 90% employing
simple gravity concentration while minimizing capital and operating costs. As compared to heap leaching
(the processing route previously advanced by the LAC-Pegasus Joint Venture), the HPGR option also
potentially would have advantages with respect to environmental disturbance and permitting in that the
area of surface disturbance would be smaller, chemicals would not be required in processing and there
would be less water usage.
Based on pre-1990 drilling estimations by the LAC-Pegasus Joint Venture, mineralized material from the
two deposits totals 29.1 million tons averaging 0.035 ounces of gold per ton at a cut-off grade of 0.01
ounces per ton, containing 1,027,818 ounces of gold, within the boundaries of two conceptual pits
previously designed by the LAC-Pegasus Joint Venture using a gold price of $385 per ounce. MAG’s scoping
study assumed this material would be mined at the rate of 3 million tons per year. The average stripping
ratio (waste-to-mineralized material) was calculated as 2.6: 1.
MAG’s financial model estimated production would total 925,036 ounces of gold over 10 years at an average
estimated operating cost of $230 per ounce of gold recovered. The capital cost, assuming contract mining,
was estimated as $38.2 million.
At a gold price of $450 per ounce, MAG’s financial model estimated net operating pre-tax cash flow (after
deductions for refining charges, royalty payments and depreciation) as $139.5 million over the mine’s
ten-year life, and estimated the IRR as 33.8%. At a gold price of $500 per ounce, net operating pre-tax
cash flow increases to $180.9 million, and at a gold price of $625 per ounce, it increases to $284 million.
Sensitivity analyses showed that a variation in gold price is the dominant factor affecting the financial
indicators, IRR and NPV.
MAG’s report concluded, “The financial conclusions drawn from this study indicate a very favorable project
employing High Pressure Grinding Rolls with gravity recovery and contract mining.” The report also stated
that upside exists in estimations of mineralized material in both contained ounces of gold and grade, as
had been concluded previously by the LAC-Pegasus Joint Venture.
Permitting. Mining and processing operations at the Ortiz gold property would require permits from the
state and federal governments and also would be subject to county regulations. We have not applied for or
obtained such permits, which would require the completion of additional technical environmental and other work.
Work Program. We plan to conduct additional technical and mining studies to finalize an optimized mine design
and development plan for the Carache and Lucas deposits, and to begin environmental assessment necessary to
initiate the permitting process.
We also plan to continue evaluation of the large 90 square mile area under lease for its exploration potential
for new discoveries of gold and copper deposits. In this regard, we possess a large quantity of geological,
geochemical, geophysical and drilling information.
Overview
Santa Fe Gold acquired the Black Canyon mica project in 1999 and spent $15 million in establishing mining
and processing facilities at the mine site north of Phoenix, Arizona, and at a separate processing plant
in Glendale, Arizona. In November 2002, due to under-capitalization and economic constraints, operations
at the Black Canyon mica mine were suspended. Limited production, marketing and sales continued through
2005 using inventoried mica. In November 2006, we sold all of our ownership interests in our Glendale,
Arizona location, but retained ownership of the mica processing equipment, which we placed in storage.
While it operated on a test basis in 2002, the project achieved limited production and commercial sales.
The operation was successful in achieving two important objectives. First, it demonstrated the facilities
were capable of producing the planned range of products. Second, it validated the high quality and market
acceptability of the two main product lines, namely high-end wet-ground mica, targeted for high value
applications in the plastics and cosmetic industries; and feldspathic sand, targeted for the growing
Phoenix construction and recreational markets.
In 2003-2005, Santa Fe Gold sold, from inventory, limited quantities of its engineered mica-filled plastic
pellets and mica powders to a number of companies, including Dupont Canada and Revlon. The commercial
orders to Dupont followed a program of testing and product development conducted jointly with Dupont.
Dupont used Santa Fe Gold’s plastic pellets in its own formulations to produce plastic end products that
it supplied to the automotive industry. Santa Fe Gold also supplied its high quality mica powder to the
cosmetic industry through distributors, with Revlon as one of the important customers.
In 2003, we sold our entire inventory of feldspathic sand to customers in the Phoenix area. The economics
of a potential mining operation at Black Canyon are attractive. Santa Fe Gold is seeking a joint venture
partner to contribute new funding in the amount of $6.0 million to install the mica processing equipment
at a new location, to upgrade and expand the mining facilities in order to reach planned capacity and to
provide working capital. These expansions are required in order to achieve the higher throughput necessary
for sustained economic operation.
Location and Access
The Black Canyon mine is located about 30 miles north of Phoenix, Arizona, 3.5 miles west-southwest of
Black Canyon City. It can be reached via U.S. Interstate 17, which connects Phoenix with Flagstaff, and by
a connecting dirt road for the last eight miles. The Glendale processing plant was located in an industrial
area on the west side of Phoenix, Arizona, 47 miles to the south of the mine site.
Mineral Title
Our property holdings at and around the Black Canyon mine consist of 67 Federal unpatented mining claims in
Yavapai County, Arizona, and 9 Federal unpatented mill site claims in Maricopa County, Arizona, which in
total cover approximately 1,385 acres.
The claims are located on public land and held pursuant to the General Mining Law of 1872. We fully own
the mining rights and believe the claims to be in good standing in accordance with the mining laws of the
United States.
Mining and Processing Facilities
The Black Canyon project formerly consisted of two integrated operating facilities. The mine site west-southwest
of Black Canyon City contains the ore reserves. The crusher, the concentrator and the feldspathic sand plant are
located at the mine site. These facilities depend on diesel generators for power. Our plans call for mining to
be carried out by conventional open pit methods. The ore would be trucked from the pit and delivered to a nearby
stockpile located adjacent to the crusher and concentrator. Mica flakes would be separated from the pegmatite
host rock in a process that involves multi-stage crushing and screening to -3/16” size. Mica would be
concentrated from the crushed material utilizing air classifiers. The resulting concentrate, containing 95% mica,
would be trucked to the processing plant for further processing.
In the mica concentrating process at the mine site, the majority of the crushed host rock, which otherwise would
be discarded as waste, would be converted into feldspathic sand for sale into the local Phoenix market.
Processing of the feldspathic sand would involve screening and magnetic separation to yield sand fractions of
various sizes. The sand products would be either bagged for shipment or trucked in bulk to customers.
During 2002-2004, we processed mica concentrate at the 5-acre Glendale plant and office site on the west side of
Phoenix. The processing was designed to achieve the desired product sizes and meet the quality requirements of
the market place. The plant was housed in an 18,000 square foot steel framed building, where equipment was
installed for wet grinding, dewatering, drying, and air classification and bagging. The final products were placed
into 50-pound bags or into 1000-pound supersacks ready for shipment to customers.
Permits
In 1999, we obtained approval for the Black Canyon Plan of Operations from the Bureau of Land Management and the
State of Arizona. An Environmental Assessment, Clean Water Act Permit and Air Quality Procedures were all approved.
An Aquifer Protection Permit was not required because processing operations at the mine site did not propose
the use of water.
Geology and Mineralization
The mica deposits occur as pegmatite dikes cutting Precambrian schist and granite. These dikes are steeply dipping
tabular bodies, continuous along strike and with depth. The main pegmatite dikes are hosted by the schist and have
a northeasterly trend parallel to the structural grain of the schist. Because the light colored pegmatite dikes
are more resistant to weathering than is the enclosing schist, the dikes stand out at the surface as elongated
light colored ridges relatively easy to discern and to map geologically.
In the area of the drilled ore reserves, a concentration of pegmatite occurs as a dike swarm and as massive irregular
bodies of pegmatite. An associated major structure, the Central Pit fault, appears to have created a zone of
dilation that provided open space for intrusion of the pegmatite. Drilling has identified seven individual dikes
that range from approximately 4 feet to over 20 feet in thickness. At the surface, massive pegmatite crops out over
a width exceeding 50 feet.
The minerals of potential economic value are all found associated with the pegmatite dikes, and consist of muscovite
mica, feldspar and silica. Muscovite mica, the principal commodity, constitutes a major accessory mineral of the
pegmatite dikes and is ubiquitous in the pegmatite. Based on visual estimates of drill core, the content of muscovite
in the pegmatite ranges from 5% to 35%. The muscovite is light to whitish green in color and occurs as discrete,
coarse-grained inclusions as well as fine-grained disseminations in the pegmatite. Feldspar and silica, by-products
of the proposed mining operation, make up most of the remaining component minerals of the pegmatite on about a 1:1 ratio.
Ore Reserves
In 1998 and 1999, based on geologic mapping, we drilled 41 inclined core holes and collected 59 samples of pegmatite
exposed on the surface, at two central locations. The drill holes and surface samples were spaced approximately 50
feet apart. The holes ranged from 200 to 600 feet in length, and drilling totaled 13,070 feet. The drilling covered
only a small portion of the zones of outcropping mica-bearing rocks mapped on our mining claims.
Mintec Inc., an independent geological engineering firm, analyzed our drilling and sampling results, designed the
mining plan and calculated ore reserves. In-place mining reserves for the pit design were calculated as 2,399,500
tons of proven ore grading 7.54% mica and 1,527,200 tons of probable ore grading 7.37% mica, for total reserves of
3,926,680 tons of ore grading 7.48% mica, at a cutoff grade of 2.47% mica. Approximately 60% of the mica contained
in these reserves is expected to be recoverable after losses due to mining and beneficiation.
Mica
Ourmineral reserves contain high quality muscovite or “white mica”. Mica is a mineral characterized by crystals that
can be easily split into thin elastic sheets and is valued for its unique combination of chemical, physical, electrical,
thermal and mechanical properties. Muscovite exhibits perfect cleavage, flexibility and elasticity, infusibility, low
thermal and electrical conductivity, high dielectric strength, light weight, good insulating characteristics, and is
stable when exposed to moisture, light and high temperatures. Because of these properties, muscovite has found widespread
application in plastics, automotive coatings, cosmetics, paints, catalysis and composite formulations. The project is
planned to produce 10,000 tons (20 million pounds) annually of premium wet-ground mica, the sale of which would require
penetrating existing markets and establishing our own markets in plastics, cosmetics and ultra-micronized applications.
Feldspathic Sands
Our feldspathic sand was produced as a by-product of mica concentration and was screened and sized for sale into the
Phoenix construction and recreational markets. Products included golf course bunker sand and sand used in stucco, mortar
and other specialized construction applications. The project is planned to produce 180,000 tons of feldspathic
sand products annually.
Sand producers in California and Nevada supply sand to the Phoenix manufactured sand market. Because the material has
to be trucked long distances in order to reach Phoenix, trucking costs are significant and constitute a substantial
proportion of the final selling price. The location of our Black Canyon mine only 30 miles from Phoenix may provide a
transportation cost advantage over competitors who import sand into Arizona.
Work Program
The potential economics of a mining operation at Black Canyon are attractive. We plan to seek a joint venture partner
to contribute $6.0 million in new funding necessary to advance the project to full production. The new funding would
be used to install the mica processing equipment at a new location and to upgrade and expand the mining and processing
facilities in order to reach planned capacity and to provide working capital. These expansions are required in order to
achieve the higher throughput necessary for sustained economic operation. If funding were to become available, we
estimate positive cash flow could be achieved in approximately twelve months.
Overview
In 2002, Santa Fe Gold leased the Planet property for its potential to produce micaceous iron oxide
(“MIO”). The Planet property consists of thirty-one patented mining claims totaling 523 acres located
in western Arizona.
MIO is an uncommon flake-like form of crystalline hematite (Fe2O3) valued for the anti-corrosive
properties it contributes to coatings formulated to protect structural steelwork. MIO is an increasingly
recognized eco-friendly base pigment used in coating systems on many of the world’s largest bridges, oil
rigs, production platforms, transmission towers, pipelines, industrial plants and superstructures.
Results of work to date indicate the Planet property contains an exceptional MIO deposit, one of the
largest deposits of its kind in the world and unique to North America. It contains both high grade and
large tonnage. The deposit appears to have the characteristics necessary to produce MIO from open pit
mining at a relatively low production cost as compared to commercial operations currently in production.
Metallurgical work suggests that a high quality MIO product can be successfully produced. For these
reasons, we believe the project appears to exhibit significant potential for eventual production. As is
characteristic of industrial mineral operations, marketing would play a critical role in the success of
any new MIO operation and is identified as an important factor for successful development.
As the work to date has yielded encouraging results, we plan to continue pre-feasibility assessment of
the Planet project
Location and Access
The Planet property is located in the northwest corner of La Paz County, west central Arizona. It lies
just south of the Bill Williams River twelve miles above its junction with the Colorado River. The property
is reached by road, either via the Swansea gravel road, twenty-eight miles north from the town of Bouse;
or via the Osborne Well paved and gravel road, twenty-five miles east from the town of Parker.
The topography of the property is rugged, with hills 100 to 500 feet high cut by numerous steep-sided
canyons. Average elevation is 800 feet. The desert climate is typical of western Arizona, hot and dry in
summer but mild in winter. Vegetation is sparse and confined mainly to the bottoms of the larger drainages.
The project is well served by existing infrastructure for both construction and operation. All-weather roads
connect the Planet property to the town of Parker, situated on the Colorado River with a population of about
4,000. Highways connect Parker to two east-west interstate trucking routes, I-10 and I-40, respectively 35
miles to the south and 60 miles to the north. Parker also is served by the Arizona & California Railroad,
which is part of the national rail system.
Electric power, water and other infrastructure are readily available at industrial sites in Parker. Fabrication
and construction services, and a wide range of commercial and support services also are available in Parker
and other nearby communities. The labor force required for a plant operation could be sourced locally.
History of Mining and Exploration
The Planet deposit was worked for its copper value from 1863 until l884, and then intermittently through the
early 1900’s. Several shafts were sunk and 8,000 feet of underground workings were developed. High-grade copper
ore was extracted and shipped to Swansea, Wales, and to San Francisco. The last mining activity took place between
1915 and 1918 when all remaining high-grade ore was mined and shipped. In total, the property produced approximately
50,000 tons of ore grading 10% copper.
Between 1942 and 1944, the U. S. Bureau of Mines investigated the quantity and quality of mineralized material
containing iron oxide at the Planet deposit. This work was conducted as part of the wartime evaluation of potential
domestic sources of strategic minerals, including sources of iron ore for the steel industry. The Bureau carried
out geologic mapping and sampling, and conducted drilling programs utilizing both churn and diamond drilling
methods. The information that resulted from this work was compiled and recorded. We believe that the information
is reliable and of good quality. In 1945, it was used by the Bureau to calculate the tonnage and grade of mineralized
material containing iron oxide at the Planet deposit.
Work Completed
Work completed since acquisition of the project includes recovery and surveying of the U. S. Bureau of Mines drill
holes from 1942-1944; aerial photography and production of orthophotographs and topographic base maps; compilation
of a comprehensive digital database and construction of a computerized block model incorporating all geological,
geochemical and assay data; estimations of tonnage and grades of mineralized material containing iron oxide; design
of conceptual open pits; preliminary metallurgical testing of MIO material; studies of MIO markets; and conduct of
scoping studies to assess the project’s potential for production.
Geology and Mineralization
At the Planet deposit, MIO deposits associated with a mid-Tertiary, flat-lying, regional detachment fault are found
in the Triassic Buckskin Formation. Rocks in the upper plate above the fault are composed of schist, limestone,
hydrothermal carbonate and quartzite. Lower-plate rocks are gneisses. The upper and lower plates are separated by
fault breccias up to 60 feet thick. The main mineralized bodies at the Planet deposit are found in the lower part
of the upper plate, adjacent to and above the detachment fault. They occur as tabular replacements of hydrothermal
carbonate, limestone and schist. The overall trend of the mineralized bodies is north fifty-five degrees east, and
the plunge is eight to nine degrees to the southwest. Individual bodies dip ten to twenty degrees to the northwest.
The mineralized bodies form discontinuous lenses, irregular bodies and veins that individually are as much as 700 feet
long, 250 feet wide, and 50 feet thick. Mineralized material consists dominantly of specularite and massive hematite
with some limonite, malachite, azurite, chrysocolla, and a little pyrite, chalcopyrite, bornite, gold, and silver.
Associated minerals include quartz and calcite. The mineralized material is very hard at the surface and to a depth of
ten feet, but underground it is soft and powdery.
The U. S. Bureau of Mines and Santa Fe Gold each estimated the quantities and grades of mineralized material containing
iron oxide at the Planet deposit. In 1945, the Bureau of Mines estimated the deposit contained 1.4 million tons
averaging 60 percent iron (85.8% Fe2O3). The Bureau based this estimation on work it had carried out during 1942-1944,
including drilling of twelve churn holes aggregating 3,742 feet, and ten diamond holes totaling 569 feet; and mapping,
surveying, and sampling of surface outcrops and underground workings.
Our new, more detailed estimations employed computerized analytical methods and construction of a block model.
We estimated that a total of 1.4 million tons of mineralized material grading 44.4% iron would be contained in three
conceptually designed open pits. In carrying out our study, we compiled a comprehensive digital database incorporating
relevant information from all sources. The database relied heavily on the information available from the Bureau of Mines,
including geologic and assay data from drill holes, and results of surface and underground channel sampling.
The database contained new survey information that tied the locations of drill holes and underground workings to accurate
topographic maps generated from aerial photographs.
Conceptual Mining and Processing Plan
As presently conceived, the Planet mining and processing operation
would involve low cost open-pit mining of MIO ore,
primary crushing of the ore at the mine site, and trucking of the
crushed ore approximately twenty-five miles to a processing
plant to be located at an industrial site near Parker. At the
plant site, metallurgical processing would be straightforward,
and based on results from preliminarily metallurgical testing,
would include grinding, classification, selective flotation
or other method of separating the MIO, filtration and drying to
yield recovery of MIO and red iron oxide, a secondary
product. A stockpile of ore sufficient for plant operation would
be maintained at the plant site. Because only small
tonnages of ore would be needed during the early years of
operation, mining and related activities would be carried out most
efficiently on a periodic, campaign basis utilizing outside
contractors. The project is well situated with respect to
development infrastructure and transportation networks. MIO
mineralized material is non-toxic and we see no significant
environmental issues that would hinder development.
Micaceous Iron Oxide
MIO is an uncommon flake-like form of crystalline hematite (Fe2O3)
valued for the anti-corrosive properties it contributes
to coatings formulated to protect structural steelwork. MIO
improves UV stability, adhesion, surface tolerance and abrasion
resistance, and significantly increases coating life. It also has
the advantage of being non-toxic to the environment.
In Europe and Asia, MIO is the most important barrier pigment used
to protect structural steelwork from corrosion. For many
years it has been employed with outstanding success on bridges,
oilrigs, transmission towers, pipelines, storage tanks,
industrial plants and structural steelwork of all descriptions.
The Eiffel Tower and Sydney Harbor Bridge are two examples.
Based on limited available market data, world production of MIO is
estimated as around 20,000-30,000 tons (40-60 million lbs)
annually, of which Europe and Asia consume over eighty percent.
Prices are quoted in the range $0.40-$.60 per pound for
quality material. Commercial deposits of high quality MIO are
geologically rare. One supplier from underground mines in
Austria has dominated the world market for many years; however,
production from that source has been declining. Elsewhere
around the world, production comes from only a handful of
suppliers, operating on a small scale and, we believe, at high
production costs.
The United States uses only a relatively small amount of MIO
pigment as compared to other regions of the world. Lack of a
domestic source of MIO has forced U. S. paint manufacturers to
depend on imports and has restricted market expansion for MIO.
The Planet project, if developed, would establish a domestic
source of MIO pigment.
Historically, domestic paint manufactures have used zinc, rather
than MIO, in anti-corrosion coatings of structural steelwork.
However, underlying economic and environmental factors could
result in a shift in usage to MIO. The recent dramatic increases
in zinc prices, we believe, could create a competitive price
advantage for MIO. In addition, MIO is non-toxic to the
environment, another advantage that can be expected to grow in
future importance.