International Goldfields Limited (ASX: IGS) is a gold focused explorer with a portfolio of projects located in the established mining districts of Western Australia, Mali, and Brazil. IGS has entered into a conditional heads of agreement (HoA) to merge with US based Santa Fe Gold Corporation (OTCBB: SFEG) with projects in New Mexico US, creating a global gold and silver company.

In this Open Briefing®, Travis and Pierce discuss:
- Rationale for merger with Santa Fe Gold
- Combined project portfolio
- Summit Gold-Silver Mine

Record of interview:

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International Goldfields Limited (ASX: IGS) and US based gold and silver miner, Santa Fe Gold Corporation have entered a heads of agreement to combine the two companies and have obtained all necessary IGS shareholder approvals (23 November 2012), which will create a gold and silver focused company with projects in the Americas, Africa and Australia. What is the rationale behind the merger?

CEO Travis Schwertfeger
The merger will result in a well-funded, debt free exploration, development and production company with assets in New Mexico, US and in emerging major gold districts in Brazil and West Africa. The new combined company will trade on both the ASX and on the NYSE market exchange in the US. Santa Fe’s producing Summit gold-silver mine and development properties in the pipeline, including Mogollon (gold-silver) and Ortiz (gold-copper), are complementary to IGS’ exploration projects particularly in Brazil. Management of the two groups is complementary and combines the necessary skills and experience to operate existing production operations as well as advancing properties from exploration through to development and production.

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The Ortiz Gold Copper Project has a JORC Measured and Indicated Resource across two deposits, Lukas and Carache Canyon, of 1 million oz gold and 40.6 million lbs copper. How significant to Santa Fe is the recent 1 million oz JORC announcement on Ortiz?

MD Pierce Carson
The value of the 1 million oz JORC resource cannot be underestimated as it directly enables Santa Fe to move forward with its feasibility and production plans on the Ortiz development.

Historical work done in the 1990s and in 2005 to 2006 (over $40 million spent) produced both two open pit designs and low cost production models targeting 100,000 oz of annual gold production. Remember, these studies were done when gold was less than US$500 per oz and all the recent work to date suggests the previous studies were completed to a very high standard and are extremely encouraging.

Key features of the proposed mines at Ortiz are the ability to use gravity recovery on Carache and a flotation circuit to produce a gold-copper concentrate on Lukas. Both processing methods are very environmentally friendly. The ability to recover native “free gold” using water and gravity processing is a key feature of the low cost project.

It is also important to remember that the 1 million oz resource is encapsulated by two pit designs with specific cut-off grades. The actual mineralised resource sitting outside the designed pit shells on the 171 km2 project area is significantly greater and could be subject to further feasibility plans down the track.

We anticipate the permitting process to bring these mines into production may take approximately two years and we plan to commence environmental baseline work in 2013. Of note, the recent change in government in New Mexico has seen the positive advancement of a number of previously stagnated mining projects that had been placed on hold.

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Santa Fe Gold’s producing project, the Summit Gold-Silver Mine, has a JORC compliant Indicated Resource of 220,000 oz gold equivalent (AuEq) and is currently ramping up production to a target of 28,000 oz AuEq per annum.  How is the ramp-up progressing at Summit and what are your plans for the Lordsburg mill? 

MD Pierce Carson
We are in the process of ramping up metal production. The recent September quarter revenue line was up to $5.9 million and this will keep increasing over the next few quarters as we reach the higher grade portions of the ore body. Beginning mid 2013 we anticipate reaching substantially higher grades from ore that forms the bulk of the value of Summit’s production over the next five years. From detailed exploration from underground, we are finding extensions of ore shoots not previously in the reserves. In addition to mining we are continually testing along strike and given the width and length of the Summit structure we are confident that we should see a mine life of at least seven to 10 years. Previous surface drilling results also support this scenario.

Our fully permitted Lordsburg flotation mill is a valuable strategic asset with processing capacity substantially greater than  is currently being utilised for Summit. We see significant opportunities to bring in additional ore from both our new Mogollon project and other third party mines looking for toll treatment options in the area.

The Mogollon Project itself was the subject of significant exploration work done in the 1980s which identified high grade gold-silver mineralisation. We will be proceeding with confirmatory drilling Q1 and Q2 2013 with a view to commence underground development through a lower valley adit in Q4 2013. The proposed mine will have minimal surface impact and disturbance and will target a simular mining head grade to that of Summit.

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Summit is expected to have a five year average gold equivalent direct operating cash cost per oz of US$400 to US$450.  This compares with an average 2012 global gold cash cost of US$730 per oz (GFMS 2012 Gold Survey).  Can you explain the key reasons for Summit’s low expected cost profile and the key risks to achieving the expected profile?

MD Pierce Carson
We are currently mining in the upper part of the ore body where grades are about half those expected beginning in mid 2013 (10 to 12 g/tonne). As we reach the higher grades, cash costs will fall in line with the five year average projections. In addition to increasing grades, cash costs also improve with completion of some small capital injections that have payback on their investments in under a year, such as hard-line power to the mine, and relocation of the primary crushing unit that will have  several synergies for material handling.

With respect to risk, most of the risk has been taken out of the project. The long hole mechanised mining method is working well, the ore body is close to that originally predicted and our product is a high quality clean concentrate readily marketable to smelters. We are continuing to work to introduce greater efficiencies at the mine and mill, which also will be helpful in reducing operating costs.

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The Brazilian Latin Gold Project has seen some successful exploration activity recently, what are your current exploration plans for this asset?

MD Pierce Carson
The project represents a vast land package of 3,000 km2 in a district that has seen artisanal production of over 5 million oz of gold. Two key discoveries have been made on the exploration ground and we are now focused on the next stage of drilling with an aim of establishing a minimum 1 million oz project. There are additional synergies across the Brazilian project and Santa Fe’s assets in that it hosts copper-gold sulphides and Santa Fe’s mining engineers have significant experience in operating these types of deposits. It is also important to note that the deposits lie on cleared farm land close to infrastructure such as roads, water and electricity.

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What are the company’s plans for the existing West African exploration assets?

MD Pierce Carson
The West African projects are early stage exploration assets with significant potential based on several new geochemical gold anomalies including a 10 km long anomaly that reconnaissance work has uncovered. With three projects in New Mexico and the exploration ground in Brazil, our focus will be on the Americas. We intend to retain an interest in the West African ground for the benefit of our shareholders but will actively seek joint ventures and farm-out financing for continued exploration.  

On that point it should be remembered that IGS also recently entered into an agreement with regards to its Plumridge assets in Western Australia, which upon completion will see IGS holding up to 25% of ASX listed AAQ Holdings (ASX: AAQ). The assets to be financed and operated by AAQ represent a large land holding adjacent to a number of AngloGold Ashanti Limited tenements which host the sizeable Tropicana Gold deposit. 

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Post merger, IGS will remain listed on the ASX, with American Depositary Receipts (ADRs) listed in the US.  IGS is forecast to have at least A$10 million in cash and minimal debt.   How will these funds be allocated and what will be the immediate focus of the new board and management team?

CEO Travis Schwertfeger
The immediate focus of the new board and management team will be to increase ore supplied to the Lordsburg Mill.  Our Lordsburg mill is a strategic asset with excess processing capacity and an important focus for IGS in the short-term will be to identify additional sources of ore for the mill.    This will be achieved through a combination of efforts including increases to Summit mine production and advancing development properties towards production as a matter of high priority. We intend to allocate funds for drilling of targets with near term potential to increase cash flow. Funds will be allocated to the Mogollon historic resource for drilling in early 2013, as well as other drill targets near Lordsburg.

Underground development of Mogollon as well as technical and permitting work to advance the Ortiz Gold Project also will also receive funding allocations. The Latin Pold Project has returned early positive results in a district with potential for discovery of multi-million ounce gold deposits and we may also allocate funding for follow up drilling programs.

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Thank you Travis and Pierce.

For more information about International Goldfields, visit www.intgold.com.au or call Travis Schwertfeger on +61 8 9221 7729.

To receive future Open Briefings by International Goldfields by email, visit openbriefing.com.

DISCLAIMER: Orient Capital Pty Ltd has taken all reasonable care in publishing the information contained in this Open Briefing®; furthermore, the entirety of this Open Briefing® has been approved for release to the market by the participating company.  It is information given in a summary form and does not purport to be complete. The information contained is not intended to be used as the basis for making any investment decision and you are solely responsible for any use you choose to make of the information.  We strongly advise that you seek independent professional advice before making any investment decisions. Orient Capital Pty Ltd is not responsible for any consequences of the use you make of the information, including any loss or damage you or a third party might suffer as a result of that use.

Competent Person Statements
The information included in this release that relates to Santa Fe Gold resources for the Ortiz Project is based on information compiled by Michael G. Hester, FAusIMM. Mr. Hester is employed as Vice President and Principal Mining Engineer by Independent Mining Consultants, Inc. (IMC) of Tucson, Arizona, USA, and has worked as a consultant in resource modeling, mine evaluation and mine development for 33 years in precious and base metal deposits.  Mr. Hester has sufficient experience which is relevant to the style of mineralization and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person.  Mr. Hester consents to the inclusion in the release of the matters based on his information in the form and context in which it appears.
The information included in this release that relates to Santa Fe Gold resources for the Summit mine is based on information compiled by Douglas F. Irving, who is a professional member of a ‘Recognised Overseas Professional Organisation’ (The Association of Professional Engineers and Geoscientists of British Columbia) included in a list promulgated by the ASX from time to time. Mr. Irving is employed by Chapman, Wood and Griswold, Inc. and has worked as a consultant in exploration and mine development for 40 years in precious and base metal exploration. Mr. Irving has sufficient experience which is relevant to the style of mineralization and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person.  Mr. Irving consents to the inclusion in the release of the matters based on his information in the form and context in which it appears.
The information in this release that relates to exploration results for Brazil or West African Projects is based on information compiled by Mr Travis Schwertfeger.  Mr Schwertfeger is the Chief Executive Officer of International Goldfields Limited.  Mr Schwertfeger is a member of The Australian Institute of Geoscientists and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’.  Mr Schwertfeger consents to the inclusion in the report of the matters based on information in the form and context in which it appears.