Brazilian Gold

The advancing price of gold continues to have heady trickle-down effects on the junior resource sector. At resourceINTELLIGENCE we track and evaluate every new 43-101 resource estimate. Lately, we’ve seen a sharp increase in the number newly viable projects — that is to say, projects that may not have been entirely viable in a world with gold trading at less than $1,000 per ounce.Brazilian Gold Corp (TSX.V:  BCG) recently announced its first 43-101 resource estimate for the Sao Jorge deposit in Northern Brazil. It’s a deposit that could net the company an NPV of $99.1 million at $1,300/oz gold and $181.4 million at $1,560/oz. In production, a mine at Sao Jorge would produce 52,900 oz gold per year for eight years, at a cost of $16.36 per tonne. Capital costs of $126 million would be paid back in three years at the base case and in just two years at recent metal prices.

View the full BGC chart at Wikinvest

The company actually has a resource totalling about 30-million tonnes in the indicated and inferred categories, but for the purposes of the recently announced Preliminary Economic Assessment, consulting company Coffey Mining included just 16-million tonnes in the pit model (two-million tonnes multiplied by eight years). This translates to about $220 million in revenues over the life of the mine, or about $2.50 per share. 

How did I get these numbers? By using the calculators at www.resourceintelligence.net:

§  16,000,000 tonnes X 1 g/t (it may be a little lower, however) X 91% recovery rate

§  Less the company’s operating costs and capital costs

§  Divided by 88,452,207 shares outstanding

Since the company owns 100 per cent of the project, 100 per cent of the spoils go to them, less taxes and any applicable royalties.

The company is operating in Brazil’s Tapajos region, which over the past 100 years has yielded 30-million ounces of gold to artisan miners. As James West of the Midas Letter wrote about Tapajos in 2009, “Due to its previously remote nature, it is only now that modern exploration companies are experiencing success that is likely to soon have the region on world maps as a major producer of gold.”

During the 1970s and 80s, West points out, Tapajos produced as much as 40 per cent of the country’s gold output. This recent success in the region has added substantial infrastructure, which is key to building mines.

That said, Sao Jorge does require significant input of capital to upgrade roads and build other mine infrastructure. Another costly aspect of the mine would be the stripping ratio of 4.5 to 1. These will lead to higher capital and operating costs (respectively), but with gold prices regularly hitting new all time highs, Brazilian Gold still has a winner here. The company is also enjoying positive drill results (1.37 grams/tonne over 86 metres) from ongoing expansion drilling down dip of historic drilling. The company will add 7,000 metres of Phase II drilling later this year to its present 5,000 metre drill program for an updated 43-101 Resource Estimate in early 2012. We expect the market to take notice with marked upside sometime between now and then.

Brazilian Gold is also exploring several other projects in the region that contribute value to the company’s market share. Check out to recent drill results on the Rio Novo and Boa Vista projects elsewhere in Brazil, and evaluate the company’s projects HERE, at resourceINTELLIGENCE.com.

BRAZILIAN GOLD CORPORATION

T: 604.602.8188 | C: 778.994.4333

E: gdawson@braziliangold.ca