Gold Mines of Sardinia Limited

A.C.N. 009 234 851

Mar 2000
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April 28, 2000

GOLD MINES OF SARDINIA REPORTS FIRST QUARTER RESULTS FOR 2000

-- Europe’s leading gold miner sees further growth --

Gold production up 28.3%, revenues increase over quarter ended 31 December 1999
Successful private placing and additional Italian Government grants boost cash reserves
Strategic alliance signed with Homestake Mining Company of California

Perth/London, 28 April 2000 – Gold Mines of Sardinia today announced excellent results and exciting developments for the first quarter of 2000 (ended 31 March). In comparison to the last quarter of 1999 (ended 31 December) gold production at Furtei was up over 28% from 5652.4oz to 7252.2oz. Revenue from gold sales over the same period increased by 10.5% from US$1,810,432 to US$2,000,835. Meanwhile total cash operating costs fell 37% on the previous quarter, from US$227 to US$142.18 an ounce.

Peter Hambro, Executive Chairman said, "Positive drill results at Furtei and Osilo, a healthy cash reserve of A$14.7 million and a new strategic alliance with Homestake are an excellent start to the 21st Century. In addition, preliminary results from the bioheap leach laboratory test work are very encouraging and a new discovery of visible gold makes immediate prospects exciting."

"Homestake’s arrival, at a time when most of the gold mining industry is having a hard time, is confirmation of our view that Sardinia is a real gold province. I warmly welcome the USA’s most prestigious gold miner to the island as a shareholder and I hope that they are as pleased as I am by this quarter’s results."

Hambro added, "Production from the oxide ore at Furtei is above budget and the net operating margin of US$152 per ounce over cash costs is excellent news. Our two new projects – trial underground mining at Osilo and the test work on the bacterial heap leach at Furtei – are both proceeding according to plan. Initial operations at Osilo alone would have the potential to increase annual production by more than 50,000oz per year. Now that we have cash from the private placing and Italian government grants, we are in a position to push ahead strongly."

Peter Hambro says that he is looking forward to developing a relationship with Brian Calver, CEO of Navan Resources. Subject to shareholder approval in May, Gold Mines of Sardinia will acquire a 10% stake in Navan – which has a gold mine in Bulgaria and base metals mines in Spain – as part of the agreement with Homestake.

Other highlights for the quarter include:

Two new non-executive directors – Vittorio Gori and Rudolph Agnew – to replace Peter Newton
A new gold discovery at Furtei and, even more interesting, visible gold has been found in the north central part of the island

For further information, please contact:

Gold Mines of Sardinia Edelman Public Relations

John Morris Joel Beckman
Chelsea Professional Centre Haymarket House
3/145 Stirling Highway 28/29 Haymarket
Nedlands, WA 6009 London SW1Y 4SP

Phone: +61 8 9389 7711 Phone: +44 207 344 1511
email: gms@gmsltd.com.au email: jbeckman@edeluk.com

HIGHLIGHTS

CORPORATE

 

GMS has agreed a strategic alliance with Homestake Mining Company which will boost exploration activity in Sardinia and adds a A$9.5 million shareholding in London-listed Navan Resources to the company’s asset base.
The Company has raised approximately £4 million (A$10,256,400) by way of a private placement to new and existing institutional investors.
The Italian Government has granted Sardinia Gold Mining SpA («SGM » ) additional Law 752 exploration funding grants totalling 5.5 billion lire (A$4.5 million).
Vittorio Gori was appointed to the GMS and SGM boards in February. Peter Newton has notified he intends to step down at the annual general meeting and Rudolph Agnew has been nominated to replace him.

EXPLORATION

 

New discoveries of gold mineralisation at Furtei, the Eastern Paleozoics and visible gold in quartz veins in central north Sardinia.
Diamond drilling at Bunnari has intersected the vein structure 300m below surface.

FURTEI MINE

Oxide ore production continued and gold output was again above budget.
Oxide production never expected to continue until at least the end of 2001.
Bio-oxidation gold recovery testing continued to produce encouraging results.

OSILO TRIAL MINE

First pass mine design is near-completion and mining contracts are expected to be awarded in the near future.


CORPORATE

Homestake Strategic Alliance

After the end of the March quarter, Gold Mines of Sardinia and Homestake Mining Company announced a strategic alliance in which Homestake would acquire a shareholding in GMS.

Under the agreement, which is subject to the approval of shareholders of both companies, GMS will receive in exchange for GMS shares Homestake’s holding of 6.5 million shares in Navan Resources plc. The middle market price of an ordinary share in Navan Resources at the close of business on 27 April 2000 was 50p. Homestake will hold a three-year option to select up to 20% of GMS’ gold-prospective ground in Sardinia for inclusion in a joint venture, with Homestake holding 75% and GMS 25%. Homestake will be responsible for all joint venture costs through to completion of any final feasibility studies prepared by the venture.

The agreement introduces a strategic partnership with potential to accelerate the exploration of Sardinia's resources and broadens the company’s geographic base. Navan has an extensive gold mine at Chelopech in Bulgaria with similar characteristics to Gold Mines of Sardinia’s operations and also has base metal mining operations in Spain.

Successful Share Placement

The company raised about £4 million (A$10,256,400) on 23 March 2000, by way of a private placement to new and existing institutional investors of 22,222,222 new ordinary shares at a price of £0.18 (A$0.46). The placement was fully underwritten by SG Securities (London) Ltd. Net proceeds after commission and out of pocket expenses amounted to £3.9m (A$10,009,615). This provides the company with sufficient working capital for its current plans.

Grants Received

Sardinia Gold Mining SpA (SGM) has received decrees from the Italian Ministry of Industry for additional Law 752 exploration funding grants totalling 5.5 billion lire (A$4.5 million), of which 2,478,250,000 lire (A$2 million) is for Furtei and 2,977,785,000 lire (A$2.5 million) for Osilo.

Cash related to these grants will be received in several tranches over the next three years, according to the timetable provided by the Ministry of Industry.The company will seek bridging finance against these grants, as it has done in the past, with local Italian banks.

Board Changes

Mr Vittorio Gori was appointed a director of Gold Mines of Sardinia Limited and its 90 per cent. owned operating subsidiary, Sardinia Gold Mining SpA, in February. Mr Gori, aged 53, is chairman and a non-executive director of Gori & Zucchi Group, Italy's largest jewellery manufacturer.

Mr Peter Newton, a founding director of Gold Mines of Sardinia, intends to retire from the board at the annual general meeting on 31 May 2000.

Mr Rudolph Agnew, former chairman of Consolidated Gold Fields and a former director of Newmont Mining, has agreed to join the board of Gold Mines of Sardinia as a non-executive director. Mr Agnew is at present also chairman of Lasmo plc, Stena International and World Conservation Monitoring Committee.

The appointment of another UK-based director is in line with Company's policy of concentrating its affairs in the European time zone.

 

OPERATIONS

FURTEI MINE

Production

Gold production from oxide ore sources continued during the March quarter 2000, reflecting exploration success at Furtei despite feasibility forecasts that production from oxide sources would end in February 1999. The Directors currently estimate that the Furtei oxide project has the resource to sustain current production levels until at least the end of 2001.

A total of 247,790 tonnes of material was mined (Table 1), of which 87,090 tonnes was carbon-in-leach (CIL) ore delivered to the plant at an average grade of 5.17g/t. A further 12,480 tonnes were placed on the dump leach pad at an average grade of 0.88g/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 successfully during the quarter. This arrangement continues to reduce the overall material movement cost at Furtei.

Gold production for the quarter was again above budget at 7,252.2oz – 6,985.5oz from the CIL circuit and 266.7oz from the dump leach operation. The average calculated ore grade treated in the CIL plant was 4.78g/t.

TABLE 1

PRODUCTION STATISTICS

March Qtr

December Qtr

2000

1999

Mining

 

Material moved

tonnes

247,790

291,910

Ore moved

tonnes

99,570

86,890

Strip Ratio

1.49

2.34

Processing – CIL

 

Dry tonnes milled

tonnes

64,995

66,538

Calculated gold grade

g/t

4.78

3.39

Gold recovery

%

70.9

73.1

Gold produced

oz

6,985.5

5,305.7

 

Processing – Dump Leach

 

Gold produced

oz

266.7

346.7

Total Gold Produced

oz

7,252.2

5,652.4

Total Mine Cash Operating Costs

US$

142.18

227

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 31 March 2000 was US$294 an ounce, compared to the average spot price of US$290 for the same period, generating hedge gains of US$4 an ounce against those sales and a cash operating margin of US$152 an ounce over the cash operating cost for the quarter (December quarter US$69 an ounce).

Sales of gold into hedging instruments amounted to 3277oz at an average price of US$292 an ounce (December: all sales were into hedging instruments, amounting to 6115oz at US$296 an ounce) and 3519 oz into the spot market at an average price of US$296 an ounce.

All silver sales were into the prevailing spot price on the day of delivery.

 

Sales

 

Three months to

31 March

2000

Three months to

31 December

1999

Bullion Sales

Gold

Silver

Gold Equivalent Factor

Gold Equivalent

 

oz

oz

oz

 

6,795

6,000

57

6,901

 

6,115

7,000

59

6,233

Average Realised Prices

Gold

Silver

 

US$

US$

 

294

5.21

 

296

5.00

Total Sales Revenue

Gold

Silver

 

US$

US$

 

2,000,835

31,260

 

1,810,432

35,000

Hedging

Committed Hedging

Spot Deferred Contracts 6035oz at an average price of US$286/oz.

Call Options 12,000oz at US$305/oz.

Uncommitted Hedging

Put Options 12,000 oz at an average of US$280/oz.

20,000 oz at an average of US$270/oz.

The Put options were entered into to cover gold price downside and the Spot Deferred contracts can be used for the same purpose.

In summary the group is committed only to deliver 18,035oz at an average price of US$299, with all other future production available for delivery into the spot market while having uncommitted downside cover for 32,000oz at an average of US$273.75/oz.

FURTEI DEVELOPMENT

Metallurgical Testing

A metallurgical testwork program has been running at Lakefield Research in South Africa in conjunction with GeoBiotics Inc.

GeoBiotics has developed the proprietary GEOCOATâ process, which is a low cost heap bio-oxidation process for sulphide ore before gold recovery by conventional cyanidation. A side benefit for copper-bearing ore is the generation of a copper-rich effluent from which a saleable copper product can be recovered by conventional SX/EW technology.

Significant results of testwork in this quarter are described below.

Stirred batch bio-oxidation tests were undertaken to determine the amenability of pyrite and enargite concentrates and a pyrite/enargite blend to bio-oxidation by mesophilic bacteria (38oC).

The following gold recoveries were obtained:

Pyrite

93 % Pyrite, 7 % Enargite

Enargite

Days

% S oxidation

% Au recovery

Days

% S oxidation

% Au recovery

Days

% S oxidation

% Au recovery

0

0

26.0

0

0

30.0

0

0

19.2

4

36.5

71.5

4

19.6

52.8

18

28.9

34.1

7

96.0

82.2

10

78.6

74.3

25

69.1

39.3

10

97.7

87.0

15

94.4

76.1

31

69.2

42.2

12

98.7

85.2

20

97.0

78.3

37

70.4

45.2

These results indicate that the pyrite material is amenable to bio-oxidation. About 10% of the gold is not recoverable after complete sulfide oxidation, probably indicating it is highly refractory. The enargite material is less amenable to bio-oxidation by mesophiles, as expected. The gold recovery from the enargite concentrate is also partly attributable to gold recovery from pyrite which is present. Solution arsenic and copper analyses are also being used as an indication of enargite oxidation. Column tests have been carried out using mesophiles and the results are:

Pyrite on waste rock support

Pyrite on low grade support

93 % pyrite, 7 % enargite on waste rock support

Days

% S oxidation

% Au recovery

Days

% S oxidation

% Au recovery

Days

% S oxidation

% Au recovery

0

0

26.0

0

0

30.0

0

0

19.2

34

53.6

73.1

35

35.4

65.5

34

62.2

68.0

61

84.6

79.2

62

75.4

72.3

61

86.2

80.7

A current trial column is using the pyrite/enargite blend and thermophilic bacteria at 65oC. Results to date indicate the bacteria are multiplying and the success of high temperature bacteria in oxidising enargite will be reported in the next quarter.

OSILO TRIAL MINING

Planning, permitting and landholder negotiations are well under way to open a trial mine on the Osilo vein field in the north of the island. Subject to approvals, work is expected to begin with underground driving and initial stoping of the Bunnari vein by mid-2000.

The trial is being designed to verify grade continuity and general mining conditions, with the ore produced to be trucked to the company’s facility at Furtei for processing and evaluation of metallurgical characteristics.

First pass mine designs will be completed in April and the company is consolidating its land position in the area. The local topography will assist in minimising waste driving during development of the underground access.

Discussions have been held with several mining contractors and it is expected that the trial mining contract will be awarded in April. The company is also currently recruiting a project manager. Local community leaders have been briefed on the company’s intentions and they appear supportive of the project.

Successful completion of the Osilo trial and ongoing drilling would lead to the development of a significant new mining area, incorporating an on-site treatment facility. Mining methods and optimum treatment rates will be selected as trial results become available. Osilo has the potential to add an initial 50,000oz a year to the company’s gold production.

A full scale Osilo mine, based on current knowledge, would have a projected life well in excess of five years. Considerable potential exists to extend this life with feed material sourced from untested portions of the vast Osilo field. Deep drilling at Bunnari is expected to confirm the existence of a large high-grade zone at depth in this vein, the upper sections of which have been intersected by previous drilling.

FURTEI EXPLORATION

Reverse circulation (RC) drilling results confirm a new discovery of gold mineralisation at the Bruncu Laccus prospect, 1km north of the Is Concas group of mines (Fig 1).

An interval of 8m @ 0.92 g/t Au was returned from drill hole BL104. The gold is associated with pyrite, sphalerite (zinc) and galena (lead) and is hosted in quartzites of Paleozoic age.

This is a significant and exciting discovery as it is the first time gold has been intersected in basement rocks at Furtei. The basement sequence itself and the stratigraphic unconformity contact with the overlying Tertiary volcanics have long been targetted as an especially favourable zone to host gold mineralisation.

The geochemical association of gold, zinc and lead is typical of the stratabound style of mineralisation which is known to occur 1km to the south of Bruncu Laccus. This increases the along-strike length of drill intersected stratabound mineralisation to 3km from Bruncu Laccus to Sa Perrima.

Fences of RC drilling are planned to delineate the strike and dip of the gold mineralisation and to locate the unconformity contact between the volcanics and basement rocks.

OSILO EXPLORATION

 

Exploration diamond drilling continued at the Bunnari vein. Three drill holes for 426m (OBD14 in progress) were drilled along a 300m long panel of the 1.4km vein (Fig 2).

Previous drilling to 200m below surface intersected high grades (16 to 25g/t Au). This round of drilling will extend the known vein structure to 300m below surface.

Drill core recovery in drill hole OBD12 was extremely poor with only 30cm of core retrieved from a 2.4m wide quartz vein. Poor core recovery is generally associated with the more friable and brittle parts of the quartz vein, which at Osilo are more likely to be of higher gold grades. The drill contractor has agreed to re-drill the hole.

A wide intercept of 5.5m with average grades of 3.55g/t Au was returned from OBD13. This is an encouraging result. It confirms the tenor of vein development and, at this wide-spaced drilling, significant potential for possible high grade shoot development to extend at least to 300m below surface.

A further eight diamond drill holes are planned to infill drill the vein to 70m spaced centres between 150m and 300m below surface. This will enable better definition for decline development and underground drilling access below the area selected for trial mining at Bunnari in July this year.

REGIONAL EXPLORATION

The Eastern Paleozoics of Sardinia host a number of old stibnite, arsenic, lead, zinc and copper mines. It has been recently recognised that this mineralisation is highly anomalous in gold with rock chip samples returning up to 27g/t Au.

More important, however, is that these deposits are now recognised as being similar in age and style to the gold-stibnite-arsenic mines of north western Spain.

Specimens of quartz veins with visible gold (up to 0.5cm in size) have been shown to company geologists by a local prospector. The gold appears to be related to the Hercynian deformation and is located in a major shear zone in north central Sardinia, an area not previously known for gold. Coarse grains of gold up to 1cm have been panned by the prospector. SGM has first right to the prospect, through the Sandalia which gives the company the rights to explore and develop gold mines in Sardinia.

A recent evaluation of the Eastern Paleozoics indicates that a west-north west trending corridor of 40km by 25km, from Baccu Locci in the east to Genna Ureu in the west, is highly prospective for Hercynian-aged, intrusive-related gold mineralisation.

A reconnaissance investigation confirmed the previous rock chip samples taken at Genna Ureu, Corti Rosas and Baccu Locci. In addition a new discovery of quartz-baryte-iron oxides with up to 0.8g/t Au in a 30m wide zone was discovered in a road cutting 5km north of the town of Ballao, at Genna Quaddari.

* * * * *

Mr Myles Johnston B.Sc (Hons), Manager Resources for Sardinia Gold Mining SpA, has been responsible for the preparation of the geological sections of this report. Mr Johnston is a corporate member of the AusIMM and has more than five years’ experience in the estimation, assessment and evaluation of mineral resources and ore reserves, which is relevant to the style of mineralisation under consideration.

 

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