Western United States Gold Mine Investment Opportunities
Project Summaries and Investment Projections
Prepared by Western Lands, Inc. September 10, 2009
This document has been prepared for introductory and discussion purposes only. The executive director of the mine company has provided all of the information contained herein and is believed to be correct and accurate. Western Lands has prepared this document in an attempt to locate qualified investors to begin direct negotiations solely with the mine owners and their legal counsel.
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Table of Contents
Introduction and Disclaimer………………………………………………………………………………… 3 Project Summaries……………………………………………………………………………………………. 4 Executive Summary and Cash Requirements for Mine #1……………………………………………….. 5 Executive Summary and Cash Requirement for Mine #2………………………………………………… 8 Conclusions of Management Regarding the Combination of the Two Properties……………………... 10 Projected Project Cost Summary for Acquisition and Upgrade of Mining Operations……………….... 11
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Introduction and Disclaimer
This document has been prepared as an initial introduction of two gold mine projects located in the Western United States where the mine owner seeks investment funding for operations and property acquisition. It is the wish of the mine owner to omit specific details such as the names and locations of these mines in this report for the purpose of preserving the confidentiality of the projects due to a potential real estate transaction with one of the mine sites. Therefore, the projects are simply referred to Mine #1 and Mine #2 in this report. Mine #1 is the project currently owned and Mine #2 is the project that the mine owner would like to acquire. If, after reading this report, a potential investor would like more specific information, a nondisclosure/non-circumvent agreement will be presented for execution by all parties. At that time, more specific project details will be delivered with project locations, more specific mining plans, maps, full geologic reports, and executive resumes of the management team. Again, this report is an introduction to the projects and is intended to simply bring interested and qualified investors to the table to begin more detailed discussions and negotiations directly with the owners of the mine. The information about these projects has been provided by the mine owner and believed to be correct, but it is the sole responsibility of the investor to verify its accuracy and to accept all risk.
This photo is of the mountain range where the mine is located, but not of the actual mine site
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Project Summaries
The two gold mine projects share many characteristics, both being high-grade underground vein structures with similar ore milling requirements. Being in the same proximity, a very favorable and significant synergistic impact can be realized by each being operated as a profit center under one management team. Additionally, combining the milling operations will result in the reduction of a substantial amount of capital costs. Other savings will be realized in the elimination of certain duplications of rolling stock requirements. With the goal of combining the two operations, the Management has benefited from a free exchange of information regarding the historic operations of Mine #2 and has been working closely with its geologist in developing a project operating analysis. Our intent is to purchase this mine and put it into production with Mine #1. The following information briefly describes each of the projects and the related capital costs as if it was a totally independent operation and the anticipated economic return. Therefore, the synergistic effect of reduced capital and operating costs through the construction of a common mill facility and other shared equipment requirements has yet to be analyzed in detail. The complete project summary on each of these projects provides considerably more information. Following are the Executive Summaries for each project.
This photo is of the mountain range where the mine is located, but not of the actual mine site
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Executive Summary of Project and Cash Requirements for Mine #1
The Company The Company holds 44 twenty-acre lode claims and 12 five-acre mill site claims on land managed by the Bureau of Land Management. The rental fees are paid to the BLM for mining year 2010 The Company owns water rights Patent applications on six of the Company’s mining claims were submitted to the BLM in 1993. The mineral survey has been completed. All patent applications to the Department of Interior have been in a moratorium status since 1994. History of Mine #1 The project commenced in 1980 under the present management. Although the mine and mill were operating profitably, operations were suspended in 1991 in order to construct a new mill in close proximity to the mine and eliminate a long distance ore haulage. Approximately $5.5 million has been invested in the development of the project. During its early, low volume development stages the Company produced and sold 5,100 ounces (present value of $5.1 million) in gold, verifiable by Johnson Matthey confirmation. Historical production costs were $170 per ounce. Recent escalation in raw materials, labor, safety, and fuel costs indicate updated operating costs of $215 to $285/oz are to be expected. Plan of Operations for Mine #1 The Company will conduct a two-phase program in order to put the project back into production. The first phase will consist of geologic mapping, engineering, additional metallurgical testing and the submission of a revised plan of operations to the BLM. After approval of a new Plan of Operations, an eight month second phase will include rebuilding the infrastructure at the mine site, commencing a concurrent three month, 29,000 foot drilling and exploration program on the existing development tunnels and intervening vein structures in the claim block. The existing ore deposits will be further developed with additional adits and drifts to develop the areas of proven reserves. Construction of a new 400 ton per day gravity/flotation mill will be completed during this phase. (In the combined plan with Mine #2 it will be an 800 TPD mill.) Investment Required for Mine #1: Cost to production is budgeted at $29,471,492 in a two-phase development program. o Re-permit Plan of Operations 12-18 months: $ 4,461,400 o Drilling, Exploration, Engineering & Construction 8 months: $25,010,092 o Total $29,471,492 Annual Projections for Mine #1: Recasting the projections to reflect current price and cost expectations reflects: At $1,000/oz price with $285/oz cost. Tons per Year 75,600 25,200 100,800 Ounces per Year 28,894 22,932 51,826 Gross Revenue $28,894,000 $22,932,000 $51,826,000 Total Cost $8,234,790 $6,535,620 $14,770,410 Net Revenue $20,659,210 $16,396,380 $37,055,590
Target #1 Target #2 Total
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Mine #1 Business The project is comprised of several hard rock, underground quartz veins containing high-grade gold ore and identified as Target #1, Target #2, Target #3, and Target #4. o Target #1: All production to date has been on this vein where two major offset faults divide the main vein into three segments. It is a quartz vein, which passes through a gneiss, quartz pebble conglomerate and Kingston Peak sediments. o Target #2: Has not yet been developed, but has three adits (tunnels) which access a very high grade vein hosted in a hornfels layer within the gneiss. o Target #3 and Target #4: Have not been developed and will be core drilled as part of the overall drilling program. A 2,000 foot continuous vein has been developed on Target #1, open on both ends with a vein width from 3 to 12 feet. The ground is very competent with relatively little timbering required. A 10’x10’ adit (tunnel) utilizes rubber tired loaders and trucks for production. The vein is manually drilled and blasted. Prior to production a new 2,300’ haulage drift will be put in 170’ below the adit at the 3290’ level. The Company’s project summary contains complete information and reports. Mine #1 Geology: The geological direction of the project is the responsibility of an independent geologist who spent nineteen years with Anaconda in positions of substantial responsibility and the past twenty-five years as a consultant to major mining companies. He has in the past and will in the future, interface very well with the Company’s Mine Manager, who holds a degree in mine engineering and has many years of underground experience. The average production grade of the ore is 0.42 ounces per ton at the Mine. Inferred reserves of 346,000 tons of 0.42 OPT at the Mine and 100,000 tons of 1.0 OPT Au at Target #2 indicates 245,000 ounces of gold in the areas presently under development. At today’s price of $1,000 per ounce, the reserve is valued at $245 million A 9,093-meter drilling program is planned at a cost of $2,190,000 on the existing deposits and also the intervening vein structures. Conservatively speaking, it is anticipated that the drilling program will more than double present reserves. Mine #1 Ore Processing: The Company has not planned any significant changes in the milling process. Many tests have been performed by independent labs on the ore and concentrates. The processing facility will be a gravity and flotation mill with an anticipated recovery of 92%. Mine #1 Environmental Summary: The Company’s relations with the various regulatory agencies have been good. Our Environmental Administrator will be in charge of the re-permitting effort. He was responsible for permitting on a large, open pit cyanide heap leach project within five miles of this mine project. Because the Mine operations are underground with a closed circuit, non-toxic flotation process, it will be considerably less complicated to permit than a recently permitted cyanide leach project in the same vicinity. This is a re-permitting situation where the ground disturbance presently exists and the BLM presently holds a cash bond to provide for reclamation of the existing site. A Project Summary discusses the timetable and budget allocations for re-permitting a revised Plan of Operations and if we provide a high quality application and maintain continual liaison with the agencies, we will be able to have an approval in less than twelve months. However, as a conservative step, we have allocated a two-year period for the re-permitting phase in our budget projections.
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In the spring of 2005, fieldwork was completed on both botanical and wildlife surveys on the Company’s lode claim block and mill site. The teams report that no endangered species of flora or fauna were detected. At a cost of approximately $50,000, these analyses will be part of our proposed Plan of Operations. The Company’s management is well aware that the agencies will provide it with a great deal of assistance during the re-permitting phase since it is to their personal benefit to perform their job well. We have no great concern about the final approval.
This photo is of the mountain range where the mine is located, but not of the actual mine site
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Executive Summary of Project and Cash Requirements for Mine #2
The Company Another company currently owns 24 claims separated into two blocks with an additional separate mill site near the valley floor. The property is also located within 15 miles of Mine #1. History of Mine #2 The property was first mined in the late 1890’s on several narrow, high-grade gold veins. The upper eleven claims are where the original workings are located. The lower block of claims were discovered in the 1980’s by the current owner/operator. The two vein systems are distinctly different both in structure and mineralogy. Plan of Operations for Mine #2 The project is presently producing under a BLM approved Plan of Operations. Portions of the property are amenable to open pit mining techniques due to the proximity of several veins to the surface, 0 to 50 feet deep and parallel to the slope across several acres. Maps, assay reports, production records, drill hole data and reserve calculations are available. The mine is currently operating on a small scale with one mining crew and shipping ore a long distance for processing. Operating costs are currently averaging $180 per ton of ore mined, shipped and processed. Ore shipments are averaging 1 OPT at this time. When the mine is operating at full capacity of 400 tons per day, with 8 to 12 heading in ore, a cutoff grade of 0.3 OPT with full dilution, and shipping to a local mill, operating costs are expected to average less than $285 per ounce of gold. There is potential of greatly increasing the mine’s production via access tunnels from the two canyon floors. This will allow for up to 4 additional headings with the possibility of stoping 1,600 feet to the surface and a shorter, easier haul to the mill. Mine #2 Geology The upper (elevation) system consists of 6 to 7 parallel, steeply west dipping to nearly vertical, narrow quartz veins, 6-inces to 6-feet thick cutting a Precambrian marble. The gold is both free milling and associated with argentiferous galena. Known values range from 0.25 to 5.0 OPT gold and up to 180 OPT silver. Significantly higher grades are reported from the early workings. Maximum developed depth is 250 feet. Only one deep hole has been drilled on this system and it cut 50 feet of sulfide ore 400 feet below the surface. There is a 1,600 foot cliff at the northern end of the claims which could allow a tunnel to be driven from the existing road in the canyon bottom. The lower (elevation) vein system is a series of mineralized, parallel, west to northwest dipping, detachment faults situated sub-parallel to the slope within a Pre Cambrian quartz mica schist/mylonite. These “detachment veins” are stratigraphically higher than the veins on the upper claims, but crop out on the slope of the lowest claims and along the canyon walls. The “detachment veins” are 3 to 15 feet thick, spaced from a few feet to over one hundred feet apart and are offset by minor displacement (1 to 20 feet) vertical faults trending east-west. Only minor exploration and development has been done on the “detachment veins”. Sampling shows values to be from subshipping grade (0.04 OPT) to over 2 OPT gold. Recent mining of 80 tons of ore on one of these veins averaged 1.1 OPT gold. Exploration drilling has been sporadic and shallow (maximum depth of 400 feet in one hole with an average depth of 100 feet.) Between the sequence of “detachment veins” are north to northeast trending “S” folded, moderately dipping to vertical gash fractures and faults. These gash fractures and faults are replaced by mineralized quartz veins bearing free gold in ore shoots 4 inches to 20 feet thick with an average thickness of over 10 feet. The width of the
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ore shoots have not been explored past 200 feet. Ore grades run from 0.1 OPT to 36 OPT gold averaging over 1.5 OPT gold. Mine #2 Production Recent production has been almost entirely from the lower claims via several cuts and short (50 to 250 foot) tunnels with shrink stoping to the surface. All of the workings are in shipping grade ore at this time. Development consists of assaying the stope walls and selectively mining the 0.5 OPT ore. Ore that has been shipped to various mills around the county averaged between 0.5 OPT and 3 OPT gold. Production had been curtailed in recent years due to closure of all nearby mills. Mine #2 Ore Resources and Reserves Resources and reserves are classified as inferred to measured. Most exploration drilling was done to advance the underground headings. Previous exploration drilling by other mining companies was to investigate the down dip potential of known ore bodies. The owners of Mine #2 have recently acquired some of those drill records. All of the workings are in ore and there are considerable surface outcroppings of ore that have been sampled and assayed. Indicated and measured resources and reserves are in excess of 260,000 ounces of gold and 378,000 ounces of silver with inferred resources in excess of 750,000 ounces of gold. Portions of the property are amenable to open pit mining techniques due to the proximity of several veins to the surface, 0 to 50 feet deep and parallel to the slope across several acres. Indicated and measured reserves are derived from surface and underground sampling of the vein for ore control, development drilling, and an average ore grade of 0.5 OPT gold. Inferred and indicated resources are based upon recent discoveries of new ore bodies, past experience with the ore shoots, exploration drilling, an additional 50 foot radius from sample locations, and an average ore grade of 0.1 OPT gold. Prior to the recent discovery of additional ore bodies, a reserve analysis completed by a mining geologist in 1993 reported a reserve/resource of over 2 million tons of ore containing over 420,000 ounces of gold. Since that report, additional sampling and exploration of known and recently discovered ore bodies and the acquisition of additional drill data from a previous owner, resources and reserves in all categories have been expanded to over 10 million tons of ore containing over 1 million ounces of gold. Based upon the historic average ratio of 1:3 gold to silver, there are over 3 million ounces of silver resources and reserves. Mine # 2 Metallurgy Bottle roll tests on Mine #2 ore show the ore to be amenable to low concentration cyanide leaching (0.55 lbs. NaCN per ton of solution). Recoveries range from 93 to 97 percent within 72 hours at 200+ mesh. The tests also showed that the majority of leaching is complete after only 6 hours. The partnership owns a mill that was built in the 1980’s and consists of crushers, a ball mill, flotation and table circuits capable of up to 40 tons per day throughput. The mill is permitted, currently operating and has been maintained in excellent condition. Flotation and gravity recovery of gold and silver values is currently averaging 84% to 90%. There is space available at the mill to install a cyanide circuit to further improve recoveries and for additions to the crushing circuit to increase the mill’s capacity.
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Conclusions of Management Regarding the Combination of the Two Properties
The owners of Mine #2 would like to sell the property and an approximate price of $30 million has been mentioned. We have reason to believe that we can close the purchase transaction with a maximum of $6 million down and a subsequent contingent payment of up to an additional $4 million. This latter amount would be contingent upon verification of assets, primarily the reserves, and will be determined over a period of more than one year. The verification process will include a drilling program to quantify the reserve and evaluation of grade to qualify the economic value. Mine #2 reserves are of substantial value, but it will be necessary to engineer an operating plan and budget including a capital cost projection to determine the appropriate production plan. Based upon our familiarity with the property and the similarity to the Mine #1 Project, it is anticipated that a drilling program, geologic mapping, operating analysis, and construction of a complete mine infrastructure will require $16,328,233 in capital to achieve a production volume of 400 tons per day. Ore production from both projects will be processed in one 800 ton per day mill. Concentrates can be processed at a mill in the general area with a closed circuit cyanide process. Significant savings in both capital and operating costs will be realized by operating both projects under one management. The combination of the two projects will most likely accelerate the re-permitting phase of the Mine #1 project and result in production by an earlier than projected date. Investment required for the acquisition of the Mine #2 property and construction of new facilities for both projects is estimated as follows: Mine #1 Project Development $29,471,492 Acquisition of Project $ 6,000,000* Mine #2 Acquisition and Development $16,328,233 Total Capital Cost $51,799,725 *Up to an additional $4 million may be paid from future production Anticipated annual net cash flow at $1,000 gold price: Mine #1 $37,055,590 Mine #2 $26,000,000* Total annual projected net cash flow: $63,055,590 *minimum estimate – project summary yet to be prepared The value of ore reserves on the two properties have been established in reports on Mine #1 and Mine #2 from the consulting geologist as summarized below: Mine #1 Mine #2 Total Reserves Gold @ $1,000 $ 245,000,000 $1,010,080,000 $1,255,080,000 Silver @ $13.56 not estimated $5,125,680 $5,125,680
Based upon the known reserves summarized above and the projected production volume, a ten year mine life can be expected. The proposed drilling programs are expected to more than double the Mine #1 reserves and mine life. Prior to preparation of a project analysis on Mine #2 by the Mine #1 management team, it is premature to estimate the results of a drilling program on that property.
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Projected Project Cost Summary for Acquisition and Upgrade of Mining Operations Mine #1 Mine #2 TOTAL $29,471,492 $22,328,233 $51,799,725
Terms and conditions of the investments are negotiable and will be discussed directly with the mine owner and board of directors.
Western Lands, Inc. has assembled this information for the purpose of locating qualified investors and will be compensated by mine owner. We are happy to cooperate with other brokers. If you would like to discuss these projects further, please contact our office and we will gladly provide you any information you require or put you in direct contact with the mine owner. Tom Roberts – President Western Lands 11679 S. Breeze Grass Way Parker, Colorado 80134 USA 720-936-9973 tom@western-lands.com www.western-lands.com
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