Sage Gold Production Starts to Roll – Article by Christopher Ecclestone, Hallgarten & Company

Mar 26, 2018

Production Starts to Roll

+ Production was achieved in the 4^th quarter of 2017

+ Minimal capex due to existing mine and utilisation of McEwen Mining’s Black Fox mill for processing

+ Sage cleverly bought out the 40% minority interest in the Clavos project from Kirkland Lake Gold for a bargain CAD$1 million in 2016

+ Enhanced return metrics since PEA was published in April 2013 due to decline in Canadian dollar exchange rate against the USD

+ Dewatering to 270 metre level complete with only 30 metres remaining

+ Further exploration over the last eight months has shown the potential to expand resource

both along strike and downdip

X Technical difficulties, largely related to weather, have slowed initial production

X Financing markets remain tight, but company has managed a small placing in February

X Upside for gold is limited to just above the current price in our opinion

Moving into the Producer Category

Sage Gold, through persistence, survived the down years and as recovery set in snapped up the 40% share held the Kirkland Lake (after it had taken over St Andrew Goldfields). The mine has now resumed production and is doing so on minimal capex. In this update on our previous coverage we shall examine the progress made thus far and the potential upside at its Clavos mine.

Refresher on the Background

The Clavos mine is located within the Timmins mining camp in German, Stock and Clergue townships and is comprised of 69 patented and leased claims and 14 unpatented claims. The patents, leases and claims are 100% owned by SGX. The Clavos property comprises 2,540 hectares in total area. Clavos is close geographically (20kms) to the Hoyle Pond mine which has produced more than 2.4mn ozs since 1985 and is still in operation.

The Clavos deposit was mined briefly between mid-2005 until August 2006 and again until May 2007. The processed production from the Clavos Project from the beginning of 2006 until shutdown of operations in 2007 totalled 120,746 tonnes grading 4.3 g/t Au containing 16,745 ounces of gold.

Geology

Gold mineralization occurs in a series of quartz and quartz-carbonate veins which are interpreted from

the drilling to be steeply dipping and east-west striking, roughly parallel to the PFZ. There are five gold-bearing zones for which mineral resources have been estimated. These are the Hangingwall Zone (HW Zone), the Footwall Zone (FW Zone), the Contact Zone, the Sediment Zone, and a group of miscellaneous intersections listed as Other Mineralization.

Of these zones, the HW Zone has been the main target of past mining activities.

The HW Zone and FW Zone represent the majority of the mineralization at Clavos and vary from 1.5 m to more than 3.0 m in horizontal thickness along the south and north contacts of the feldspar porphyry bodies respectively. These zones consist of quartz and quartz-carbonate veins and stringers hosted within a sulphide-rich package of fuchsite and sericite altered ultramafic volcanic rocks. Up to 10% sulphides consisting of pyrite arsenopyrite, and rarely galena, gersdorffite (nickel arsenide), chalcopyrite occur as disseminated grains in the altered host rock and within narrow fractures/veinlets within the quartz veins. Gold occurs as coarse nuggets predominantly within the quartz veins but occasionally within the volcanic host, and also as inclusions within the sulphide grains.

The Black Fox Mill – a Key Consideration

Part of the strategy to minimize the capital spend at Clavos is the utilization McEwen Mining’s nearby mill to process the ore from the mine. The mill is a 2,500 tonnes per day carbon in leach (CIL) facility with electricity supplied from a local 27kv power line.

Sage Gold has signed a binding toll milling agreement with McEwen Mining over the flow of ore they expect to send to the mill, processing up to 200,000 tonnes per year for a total of 1.1 million tonnes over the estimated seven-year mine life of the Clavos Mine.

In November 2016, Sage Gold signed a custom milling agreement with Primero Mining Corp. In October 2017, McEwen Mining completed the purchase of the Black Fox Mill and other nearby assets from Primero, thereby inheriting the custom milling agreement with Sage Gold. The mill was previously owned by St Andrew when they were also operator of the Clavos gold mine. Many of the current McEwen Mining operating team at the mill were part of that St Andrew team and are familiar with the Clavos ore, having previously processed approximately 120,000 tonnes. It is currently estimated that approximately 183,000 tonnes of Clavos ore will be processed annually, with an estimated 1.1 million tonnes processed over the expected seven year mine life of the Clavos Project. The cost under the toll milling agreement is very competitive. Since McEwen Mining does not currently have sufficient mill feed from its operations to support the capacity of the Black Fox Mill, the Clavos mill feed forms an important and meaningful contribution to the successful operation of the mill complex.

The haul road between Clavos and the mill is owned jointly by Sage and McEwen Mining. The haul road is not part of the Provincial highway system and enabling Sage to use larger haul trucks between Clavos and the mill than would otherwise be permitted on the Provincial highways.

The original plan was that ore from the mine would be loaded underground and trucked directly to the mill. However this was altered to crushing at the mine where it is now stockpiled there (for reasons explained anon) and then trucked to the mill which alternates between feed from Clavos and feed from the Black Fox mine in 4,000-16,000 tonne batches.

The Mining and Processing Plan

The PEA for the Clavos deposit dates back to April 2013. It envisaged a mine production rate of 600 tonnes per day was selected as being optimum for the mineralized structures contained within the Clavos deposit. . The PEA was defined at a base case gold price of US$1,500 per ounce at a USD to CAD exchange rate of 1:1 with a base case gold price of CAD$1,500 per ounce. However, the current price of gold in Canadian dollars is in excess of CAD$1,700 per ounce. The mine is currently permitted to produce at a rate of 700 tpd.

Within the PEA, it was estimated that approximately 1,148,900 tonnes will be mined and processed from the existing Mineral Resource estimate which was calculated at a CAD$1,600 per ounce gold price, using a 2.75 g/t Au cut-off and a 60 g/t Au capped grade. This tonnage was based on a 2.75 g/t cut-off proposed tonnage estimate, with a 60 g/t cut grade, and would permit a life of mine of seven years (with a two-year payback) to extract 70% of the outlined mineral resource estimated tonnage of Indicated 1,258,400 tonnes plus Inferred 796,000 tonnes.

The PEA estimated:

> LOM Capital Expense and Sustaining Capital per ounce was estimated at CAD$1,266, including Operating Cost and Royalties

> Average head-grade of gold ranging from 6.45 g/t in Year One to 4.37g/t in Year Seven

At the time Sage took full control of the mine there was substantial existing infrastructure in place, including underground ramp access to the 300 metre level, underground levels developed every 25 metres, power to site, surface ventilation system and a water management system. The project has an existing mining permit valid up to 2019.

In the Clavos mine plan, there is readily available 847,133 tonnes of the 1,148,900 tonnes to be extracted prior to having to extract the remaining 301,767 tonnes which includes removing the crown pillar. The remaining 45% of the Indicated and Inferred resource estimate was not included in the mineralized material extraction scheduling process.

A 23-month period to undertake mine dewatering (done), mine rehabilitation (done), definition/delineation diamond drilling (on-going) and pre-stope development (on-going) is envisaged to achieve a full production rate (in years four and five of the seven years) of 600 tonnes per day, or 210,000 tonnes per annum based on 350 operating days per year.

For complete article, click here

http://www.sagegoldinc.com/in-the-media/