Gold Mines of Sardinia Limited

A.C.N. 009 234 851

Sep 2000
Up

October 31, 2000

Manager - Companies
The Australian Stock Exchange Limited
2 The Esplanade
PERTH WA 6000

Dear Sir

The directors submit their quarterly report for the three months to September 30, 2000.

Yours faithfully

GOLD MINES OF SARDINIA LIMITED
JOHN C. MORRIS
MANAGING DIRECTOR

HIGHLIGHTS

EXPLORATION

 

 

 

 

High-grade gold and copper drill intercepts from Su Coru augment the resource. COD 117 intersected 32m @ 4.78g/t Au and 2% Cu and COD 118 intersected 33m @ 6.69g/t Au and 2.5% Cu.
New discovery of epithermal mineralisation at Siliqua. A 50m intercept of strong silicification and 5 – 10 % pyrite mineralisation intersected from 40m in the first RC drill hole of the current programme (results awaited).
Significant new discoveries of silica sinter and veins at Scano Monti Ferru. The epithermals crop out in three windows through younger basalt cover over a distance of 3km.
Ridge and spur soil sampling results define new gold anomalies at Monte S’Ollasteddu in the Eastern Paleozoics.

FURTEI MINE

 

 

 

Oxide resource continues to produce gold at above modelled rates.
Gold production 5,677oz, above budget.
Cash operating margin US$146 an ounce.

OSILO TRIAL MINE

 

SGM to appeal national government veto of regional approvals for trial mine and Bunnari deep drilling.

 

 

Scientific Panel of Sardinian experts scoping project environmental impact study.
Underground mining tenders being analysed.

* * * * *

OPERATIONS

FURTEI MINE

Production

Gold production from oxide ore sources continued during the September Quarter 2000, reflecting the exploration successes achieved at Furtei. The project’s initial feasibility study forecast production from oxide sources would be finished by February 1999.

A total of 188,290 tonnes of material was mined during the quarter (Table 1), of which 48,330 tonnes were CIL ore delivered to the plant at an average grade of 3.48 grams per tonne (g/t), with a further 1,260 tonnes being placed on the dump leach pad at an average grade of 0.86g/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 to reduce the overall material movement cost at Furtei.

Gold production for the quarter was again above budget at 5,677 ounces – 5,561oz from the CIL circuit and 116oz from the dump leach operation.

The average ore grade treated in the CIL plant was 4.09g/t.

Furtei Sulphide Project

Mining of waste material to expose the sulphide orebodies continued through the September quarter. A total of 34,460 tonnes of waste was moved and 930 tonnes of sulphide ore was stockpiled at a grade of 6.81g/t. Some CIL material (12,900 tonnes at a grade of 1.65g/t) was also produced. The local contractor is also removing waste from these areas for use in the road project, thus reducing the overall cost to SGM.

After approval from the board, work began on the flotation plant, with tendering and letting of contracts and preliminary earthworks.

 

 

TABLE 1

PRODUCTION STATISTICS

 

September 2000

June 2000

Quarter

Quarter

Mining

 

Material moved

tonnes

188,290

181,835

Ore moved

tonnes

49,590

77,650

Strip Ratio

2.79

1.34

Processing – CIL

 

Dry tonnes milled

tonnes

59,852

65,174

Calculated gold grade

g/t

4.09

3.97

Gold recovery

%

76.7

81.0

Gold produced

oz

5,561.1

6,740.7

 

Processing – Dump Leach

 

Gold produced

oz

116

243.1

Total Gold Produced

oz

5,677.1

6,983.8

Total Mine Cash Operating Costs

US$/oz

134

191

 

 

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 30 September 2000 was US$280 an ounce, compared with the average spot price of US$277 for the same period, and a cash operating cost of US$134 gave a margin of US$146 an ounce for the quarter (June quarter, US$98 per ounce).

Sales of gold into hedging instruments amounted to 4,457oz at an average price of US$282 an ounce (June quarter, 5,249oz at an average price of US$288 an ounce) and 1,257oz into the spot market at an average price of US$277 an ounce (June quarter, 1,937oz at an average price of US$292 an ounce).

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

 

 

Sales

 

Three months to

30 September 2000

Three months to

30 June 2000

Bullion Sales

Gold

Silver

Gold Equivalent Factor

Gold Equivalent

 

oz

oz

oz

 

5,714

5,000

58

5,800

 

7,185

17,500

58

7,485

Average Realised Prices

Gold

Silver

 

US$/oz

US$/oz

 

280

4.84

 

289

4.95

Total Sales Revenue

Gold

Silver

 

US$

US$

 

1,604,886

24,200

 

2,076,663

86,650

 

Hedging

Committed hedging

Spot Deferred Contracts 829.48oz at an average price of US$280/oz

Uncommitted hedging

Call Options 4,500oz at US$305.00/oz

Put Options 4,500oz at US$280.00/oz

The put options were entered into to cover gold price downside and the spot deferred contracts can be used for the same purpose.

Finance

SGM has recently received the Decree from the Sardinian Tax Office for the reimbursement of VAT claimed for the year 1997. The amount, Italian Lire 2044 million (A$1,709,030) will be directly cashed by the local Bank BSS, which provided bridging finance to SGM for this credit.

SGM has lodged various applications for grants provided by Regional and National laws, as follows:

 

To the Ministry of Industry for a law 752/1982 exploration funding grant of Italian Lire 3,013,605,000 (A$2,519,736). Funding will come to hand over the next three years. The Ministry will notify acceptance by December 2000.

 

To the Ministry of Scientific Research for an innovative technology funding grant provided by National Law 488, for an estimated Italian Lire 1,337,500,000 (A$1,118,311). The Ministry will notify acceptance by February 2001.

 

To the Sardinia Regional Government for the Furtei Sulphide Project. The grant is provided by Sardinian Regional Law 15, for an estimated Euro 2,007,472 (A$3,250,000). The Sardinian Regional Government will notify acceptance by February 2001.

FURTEI DEVELOPMENT

Metallurgical Testing

Two bio-oxidation heaps were operated during the quarter, one using run-of-mine pyrite and one using crushed and screened pyrite (-40 +19 mm). Two different modes of operation were trialled on each heap, with and without irrigation. When operating without irrigation, the temperatures in the heaps rose to 5-10oC above average ambient temperatures. Bacterial numbers and activity were satisfactory.

Sampling has revealed two types of oxidation:

 

 

rocks converting to soft clays;
rocks changing colour without disintegrating.

Physical separation testwork for Furtei stratabound pyrite (head grade 1.75g/t) was completed at Lakefield Oretest.

Further testwork on enargite flotation was carried out. An important result was that the flotation tails streams can be treated by direct cyanidation.

The final column GeoBiotics test at Lakefield Research in South Africa was stopped after 118 days. As the bacteria took about 30 days to acclimatise, this was equivalent to 90 days’ active bio-oxidation time or a similar length of time to the other column tests. The test treated a 93% pyrite/7% enargite blend with thermophilic bacteria at 65oC. Results are shown together with results from a similar column using mesophilic bacteria.

 

 

Material

Test

Time

% Sulphide

Oxidation

% Gold

Recovery

Pyrite/enargite

Concentrate blend

Column on waste

rock support

91 days

89.4

(30.7 % Cu diss)

72.4

Pyrite/enargite

Concentrate blend

Thermophiles column

on waste rock support

118 days

(final)

63.6

(53% Cu diss)

 

74.5

 

Copper extraction was higher for the thermophiles column even though the extent of sulphide oxidation was lower. In addition, copper extraction for the thermophiles column appeared to be progressing at a constant rate, whereas copper extraction for the mesophiles column plateaued at 30% halfway through the operation.

In summary, a number of outside testwork programs ended during the quarter. Future work will focus on the on-site pyrite bio-oxidation heap trials.

OSILO TRIAL MINING

Preparation and planning for the trial mining program continued throughout the quarter.

Regional government approvals for the trial mining program and deep Bunnari drilling were received during the quarter. A national government authority subsequently vetoed these approvals, on grounds that the regional approval did not follow due process. SGM will appeal the veto and has received legal advice that a very strong case exists to have it set aside. The appeal process has a set timetable and a decision will be given within six weeks. Once the veto is set aside the trial mining and deep drilling programs are free to begin.

Deep drilling at Bunnari is expected to confirm the previously intersected high-grade zone in this vein, while trial mining would confirm mining, geologic, environmental and processing parameters sufficiently to complete detailed planning of the full scale mine.

Tenders were received from three underground mining contractors for carrying out the trial mining work and these are being analysed.

Planning of the permitting process for a full-scale operation, including a stand-alone treatment facility at Osilo has begun. An environmental impact study (EIS) is required for approval by the regional government and a selection of Sardinian experts has been identified to undertake the prescribed environmental discipline studies. The initial meeting of this Scientific Panel has occurred, and detailed scoping of the required studies will follow approval by the regional assessorship committee of the project’s scoping document.

 

FURTEI EXPLORATION

Su Coru

High-grade gold and copper results returned from two diamond drill holes drilled into Su Coru augmented the initial block model interpretation of the resource.

COD 117, drilled to close off the resource at the southern strike extent, intersected 32m @ 4.78g/t Au and 2.0% Cu from 116m.

COD 118, drilled to infill to 20m between the high-grade intercepts in the centre of the orebody, intersected 33m @ 6.69g/t Au from 130m and 2.5% Cu (Table 2).

The new resource for Su Coru is 402,000t @ 4.42g/t Au and 1.46% Cu (Cu not updated for COD 117 and 118).

Shallow Oxides

RC drilling continued in the Coronas Arrubias, Sa Perrima region for oxidised stratabound ore. Best drill intercepts include 11m @ 2.67g/t Au, 10m @ 2.30g/t Au, 8m @ 4.63g/t Au and 6m @ 5.06g/t Au (Table 2). Preliminary resource calculations indicate an additional 200,000t at approximately 1.6g/t Au.

Other drilling

The first of three 350m diamond drill holes has been completed over the interpreted western boundary of the central diatreme (volcanic neck) (Fig. 1) The drill holes are 700m apart and are targeted to test for an interpreted mineralised system, similar to that at Su Coru and Santu Miali, to occur at depth and blind to the surface. The first drill hole intersected pyrite altered volcanics and pyroclastics but no significant gold mineralisation was intersected. The second drill hole is under way.

OSILO EXPLORATION

No drilling was carried out because of delays in securing access to the Bunnari vein. The company is confident access issues will be resolved in the near future.

An initial program of seven diamond drill holes is planned to test the high-grade shoots at the Bunnari vein.

Compilation of all previous data, additional geological mapping and structural analysis are being carried out to optimise drill targets along the known mineralised structures. The cumulative along-strike distance of the known mineralised structural corridors is in excess of 50 line kilometres, most of which have not been drill-tested.

 

 

REGIONAL EXPLORATION

North West Volcanics

Geological mapping and sampling in the Scano Monti Ferru region at the far north end of the Narbolia project area has identified new discoveries of epithermal sinters, veining and silica-pyrite alteration (Fig. 2).

The epithermals occur in three separate windows through thin basalt cover over a distance of 3km. Silicification appears to increase to the north and trends under the basalt.

The veins and sinter represent high-level erosional preservation of the epithermal field. Anomalous geochemistry includes up to 0.2g/t Au, 0.2% mercury and 600ppm As.

An IP program is due to begin in late October before RC drill testing.

Anomalous gold results were returned from soil sampling over an aeromagnetic target at the Villanova Monteleone prospect. The target is similar to the "Calabona style" skarn mineralisation associated with porphyry intrusions in the Alghero area.

Samples were collected at 100m intervals along lines 1km apart. Results indicate an open-ended anomaly 2.3km long and up to 150m wide, at 10ppb Au contour with a maximum of 31ppb Au. Follow-up mapping and sampling are under way. Ground magnetics and an IP survey are planned.

Eastern Paleozoics

Results from ridge and spur soil samples collected over a 6km x 4km area in the Monte S’Ollasteddu-Sa Lilla region has delineated three separate gold anomalies.

The soils were collected at 50m intercepts on lines spaced 1km apart. The largest anomaly is 500m wide, with gold results ranging from 20 to 60ppb.

The soil samples confirm the highly anomalous stream sediment sample results of 160 and 300ppb Au. Detailed mapping and sampling are under way.

Rock chip samples from the old workings at Baccu Locci and Baccherutta have returned encouraging results. The quartz-sulphides veins occur as a swarm and individual veins can be mapped over a 300m strike with 1-4m widths. They were mined in the past for arsenic. The veins are polymetalic and carry gold in the range of 1-10g/t, silver from 15 to 300ppm and lead and zinc to 5%.

A research application has been placed over the old workings at Baccu Locci and is close to being granted.

Siliqua

A 50m intercept of strong silicification and 5 – 10 % pyrite mineralisation has been intersected from 40m down hole in the first RC drill hole drilled to test geophysical IP chargeability anomalies.

The epithermal silica – pyrite alteration is hosted in Andesitic volcanics of Tertiary age and is similar to that expressed in a shallow well 400 m to the north. Samples excavated from the well return 2 g/t Au. A thin veneer of alluvial cover marks the Tertiary volcanic sequence. Previous exploration concentrated on the porphyry copper – gold style of mineralisation out-cropping in the south of the Siliqua project area. The epithermals are interpreted to represent the down faulted portion of the prophyry system, now preserved in the Campidano Graben.

The Siliqua prospect lies on the major north east trending Furtei – Siliqua – Perdaxius structural corridor. Up to six of these corridors have been identified on the Island and they represent an important control on the volcanic centres and gold mineralisation.

A total of 10 drill holes are planned, they are spaced 60 m apart along two lines 300 m apart. The assay results are awaited from the first RC drill hole and the second drill hole is underway.

* * *

Mr Jeff Rayner, Exploration Manager for Sardinia Gold Mining SpA, has been responsible for the preparation of the geological sections of this report. Mr. Rayner is a corporate member of the AusIMM and has more than five years' experience in the estimation, assessment and evaluation of minerals resources and ore reserves which is relevant to the style of mineralisation under consideration.

 

 

 

 

 

TABLE 2

FURTEI EXPLORATION

FURTEI DRILLING BEST INTERCEPTS, 1 JULY - 30 SEPTEMBER 2000

 

Hole

Area

Oxide/

Sulphide

From

m

To

m

Au (g/t)-Cu %

DIAMOND DRILLING

                     

COD117

Su Coru

SU

 

100

   

102

 

2m

@

1.72

 
   

SU

 

114

   

161

 

47m

@

3.54

Including:

   

SU

 

116

   

148

 

32m

@

4.78

2.00% Cu

COD118

Su Coru

SU

 

130

   

196

 

66m

@

3.98

Including:

   

SU

 

130

   

163

 

33m

@

6.69

2.53% Cu

   

SU

 

173

   

177

 

4m

@

3.79

 
   

SU

 

191

   

196

 

5m

@

2.70

 

REVERSE CIRCULATION

                     

CAR269

Coronas Arrubias

SU

 

21

   

48

 

27m

@

0.51

 

CAR272

Coronas Arrubias

SU

 

27

   

33

 

6m

@

1.40

 

CAR273

Coronas Arrubias

OX

 

29

   

40

 

11m

@

2.67

 
   

SU

 

40

   

45

 

5m

@

1.46

 

CAR274

Coronas Arrubias

OX

 

20

   

24

 

4m

@

1.74

 
   

SU

 

24

   

36

 

12m

@

1.47

 

CAR282

Sa Crescia

OX

 

12

   

20

 

8m

@

1.81

 

CAR286

Coronas Arrubias

SU

 

28

   

39

 

14m

@

1.53

 
   

SU

 

47

   

54

 

7m

@

1.49

 

CAR287

Coronas Arrubias

SU

 

26

   

33

 

7m

@

1.88

 

CAR288

Coronas Arrubias

SU

 

21

   

24

 

3m

@

1.32

 

CAR289

Coronas Arrubias

OX

 

9

   

20

 

11m

@

0.52

 
   

SU

 

27

   

33

 

6m

@

1.67

 

CAR291

Quarry

OX

 

11

   

15

 

4m

@

7.09

 
   

SU

 

15

   

18

 

3m

@

2.28

 

CAR293

Coronas Arrubias

SU

 

25

   

36

 

10m

@

2.30

 

CAR294

Coronas Arrubias

OX

 

12

   

15

 

3m

@

2.77

 

CAR295

Coronas Arrubias

OX

 

17

   

19

 

2m

@

3.52

 

CAR296

Coronas Arrubias

OX

 

10

   

18

 

8m

@

4.63

 

CAR297

Coronas Arrubias

OX

 

12

   

18

 

6m

@

5.06

 

CAR298

Coronas Arrubias

OX

 

6

   

13

 

7m

@

1.55

 

CAR299

Coronas Arrubias

OX

 

17

   

20

 

4m

@

2.54

 
   

SU

 

21

   

24

 

3m

@

1.65

 
   

SU

 

37

   

41

 

4m

@

1.59

 

OX : OXIDE

SU : SULPHIDE

TABLE 3

FURTEI EXPLORATION

SUMMARY DRILLING, 1 JULY - 30 SEPTEMBER 2000

 

 

Area

No. Holes

Metres

Amigu Furoni

4

480.00

Coronas Arrubias

20

1098.00

Cuccuru Crabiolus

3

387.00

Monte Porceddu

4

491.00

Quarry

1

51.00

Riu de s’Alluminu

3

384.00

S. Miali West

1

357.10

Sa Crescia

11

1015.00

Sa Perrima South

4

231.00

Su Coru

2

388.30

TOTAL

 

0

 

 

Mar 2001 ] Dec 2000 ] [ Sep 2000 ] Jun 2000 ] Mar 2000 ]
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