Belo Sun Mining’s (BSX-T) Volta Grande could become a potential acquisition target, as the Toronto-based firm expands and derisks the large gold project in Brazil, analysts say.
The junior, led by president and CEO Mark Eaton, recently published a resource estimate outlining a global resource of 6.9 million oz. gold grading 1.82 grams per tonne. This represents a 33% increase in gold ounces over the initial July 2012 estimate, using the same cut-off grades of 0.5 gram for open-pit resources and 2 grams per tonne for underground ounces.
Most of Volta Grande’s resources are constrained within a pit shell. Global in-pit resources have increased by 32% to 6.6 million oz. gold based on 115.7 million tonnes grading 1.79 grams.
Most of this growth occurred in the in-pit measured and indicated category, which grew 44% to 4.1 million oz. gold based on 73.6 million tonnes grading 1.73 grams, compared with 2.8 million oz. from 52.4 million tonnes at 1.69 grams. The category’s tonnage and grade also improved by 41% and 2% over the July estimate.
In-pit inferred resources rose 16% to 2.6 million oz., or 42 million tonnes at 1.89 grams.
“Volta Grande remains one of the highest-grade, [more than] 5 million oz. undeveloped open-pit projects located in a stable mining jurisdiction, and not owned by a major,” Canaccord Genuity analyst Rahul Paul writes in a note, suggesting that major gold firms might zero-in on the project.
BMO Nesbitt Burns’ analyst John Hayes agrees, saying that “with open-pit gold grades well in excess of 1 gram gold per tonne, above many similar-sized, development-stage projects, continued resource growth could put the project on the radar map of potential acquirers, and makes the project attractive for potential partners.”
The updated estimate used a higher gold price of US$1,400 per oz., instead of US$1,300 per oz. previously. It also included an additional 75,000 metres completed in 273 holes from April to October 2012, bringing the project’s database to 194,000 metres drilled in 788 holes.
“The material improvement in measured and indicated ounces and grade following closer-spaced drilling confirms grade continuity, and should provide investors with greater confidence in the resource model,” Paul comments.
While the company has improved the project’s resources, Volta Grande remains open to further expansion, which indicates that it may be part of a large mineralized system, Helio Diniz, Belo Sun’s vice-president of exploration, says in a statement, adding that “we have no doubt that this will be one of the largest gold deposits discovered in Brazil.”
The current resource would be used in the upcoming prefeasibility study, expected out in early 2013. A definitive feasibility study should begin later in the year.
BMO’s Hayes models Volta Grande as a 20,000-tonne-per-day open-pit operation, with an annual average production of 305,000 over a 16-year life. Initial capital expenditures are slated at US$700 million. Hayes assumes that the project would have a 6-to-1 strip ratio and a 10% mining dilution.
Paul is forecasting a similar-scope project, with throughput at 19,178 tonnes per day, annual production averaging 311,000 oz. and start-up costs of US$740 million. But he predicts a shorter, 12-year mine life.
Both analysts expect that the project will come on stream in 2016.
The 1,305 sq. km Volta Grande project is located 60 km from the town of Altamira in the northern region of Para state. The project contains two main deposits, Ouro Verde and Grota Seca, and the less-defined South Block area.
On the resource news, Belo Sun shares lost a penny to close at $1.57, as nearly 3 million shares changed hands.
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