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DESERT
SUN MINING CORP.
(TSX Venture Symbol: DSM
American Stock Exchange Symbol: DEZ)
OVERVIEW
Desert Sun is a Canadian mining company that is putting the Jacobina mine in
Brazil back into production.
The mine, located near Jacobina in the state of Bahia, has had US $ 110 million
invested in the property and contains a 1 million tonne per year processing
plant. It produced 670,000 ounces of gold between 1983-1998, before the low
price of gold at that time made production unprofitable and the property was
mothballed.
With gold at US$ 424 currently and with production costs estimated to be US$ 189
per oz., the mine is expected to be highly profitable, producing an estimated
100,000 ounces of gold per year (which would realise US $ 42 million in annual
revenues, at current prices).
THE COMPANY
Desert Sun is listed as a mining company on the Toronto Stock Exchange and on
the American Stock Exchange (AMEX). The Company's head office is in Toronto.
The Company has closed a financing (Oct. 20, 2004) in the
amount of $ 20 million, which will be used to bring the mine into production.
Initial production is slated for Q1 2005, with full production expected from Q2
2005.
Cash at hand at Sept 30, 2004 (prior to the financing above) was $ 15.8 million,
with $ 27 million invested in hard assets, no debt, all other liabilities
totaling less than $ 2.5 million.
THE MINE
Small scale mining has been done in the area since the 17th century. Anglo
American did the development of the mine at Jacobina in 1980 until William
Resources acquired it in 1996. The mine produced almost three-quarters of a
million ounces of gold till 1998, when depressed gold prices made production
uneconomic (gold had dropped under US$ 280/oz., compared to US$ 424 today).
In January 2002, Desert Sun optioned the property from William Resources and
began the process studying the economics of re-opening the mine. In 2003, SNC
Lavalin did a feasibility study for the Company, which confirmed that
investment in the mine was justifiable, and which outlined a total gold Reserve
of
758,600
ounces
(the value of the metal in the ground at today's prices is
about US$ 320 million, assuming full recovery).
The Feasibility study assumed a gold price of US $ 350 and estimated a
production cash cost of US$ 189. The mine is expected to operate from 2005 to
2011, producing over 100,000 ounces a year (though its life may be extended if
further reserves are confirmed). The Company subsequently exercised its option
to acquire 100% of the mine from William Resources and now is the sole owner of
Jacobina and the surrounding large exploration ground.
The total capital cost of the project is expected to be US$ 30.7 million. The
after tax Internal Rate of Return (at a gold price of US$ 350) is expected to
be 39.2% over the seven years of mine life.
Further work done by SRK Consulting shows a potential inferred resource of
another 2 million ounces of gold, based on historical data (however this will
require additional drilling to confirm the economics related to these
resources, and there are no assurances that further drilling will upgrade those
resources).
EXPLORATION
(Note: Reserves are defined as gold in the ground that is economic to produce,
while Resources are firm indications of the presence of gold, but which need
further analysis to determine the quantity that can be economically extracted
(i.e. converted into the Reserve category). Within Resources, the categories
are Measured, Indicated and Inferred (which are stated in decreasing order of
confidence about the nature of the gold deposit.)
In addition to the gold classified as Reserves at the mine, the Company has
additional properties, which are gold bearing. The table below summarises the
results of the work done by a consulting company Micon in 2003 in verifying the
gold contained in the various properties that the Company has mineral rights
to:
Summary of Mineral Resources, Reviewed and Confirmed by Micon
as of August 2003 and updated November 2004
|
Category | Area | Tonnes | Grade
g/t Au | Contained Gold
oz |
| |
| Measured |
Jacobina Mine (João Belo) |
2,300,000 |
2.41 |
180,000 |
|
Itapicurú |
250,000 |
5.70 |
45,000 |
|
S.Corrego |
10,000 |
7.50 |
3,000 |
|
Canavieiras |
56,000 |
6.73 |
12,000 |
|
SUBTOTAL |
2,616,000 |
2.83 |
240,000 |
| |
| Indicated |
Jacobina Mine (João Belo) |
10,300,000 |
2.37 |
790,000 |
|
Itapicurú |
3,860,000 |
3.51 |
440,000 |
|
S.Corrego |
910,000 |
2.39 |
70,000 |
|
Canavieiras |
600,000 |
5.80 |
110,000 |
|
SUBTOTAL |
15,670,000 |
2.78 |
1,410,000 |
| |
| Total M&I |
TOTAL |
18,290,000 |
2.79 |
1,650,000 |
| |
| Inferred |
Jacobina Mine (João Belo) |
5,300,000 |
2.33 |
390,000 |
|
Itapicurú |
12,200,000 |
2.00 |
780,000 |
|
S.Corrego |
1,800,000 |
2.95 |
170,000 |
|
Canavieiras |
4,000,000 |
3.55 |
460,000 |
|
Other Areas |
2,900,000 |
3.26 |
300,000 |
| |
|
TOTAL |
26,200,000 |
2.51 |
2,100,000 |
It is worth noting that less than 10% of the properties
that Desert Sun has rights to have been explored. Thus, having gold bearing
properties in a proven development region, the Company intends to do
significant future exploration, seeking to increase resources and valuation
over time.
BOARD OF DIRECTORS/MANAGEMENT
Stan Bharti (Chairman and Director):
Stan Bharti brings over 25 years of experience in operations, public markets
and finance to Desert Sun Mining Corp, having raised over $200 million in
public markets over the last decade. His experience in public markets includes
acquisitions of companies in Europe, Australia and North America. He is a
Professional Mining Engineer, has a Bachelors degree from Moscow, Russia and
holds a Masters Degree in Engineering from the Royal School of Mines,
University of London, England.
Gerald P. McCarvill (Vice Chairman & Director):
Mr. McCarvill has more than 20 years experience in the financial sector holding
senior positions with major investment firms including as a member of the
executive committee of Wood Gundy. Most recently, Mr. McCarvill was CEO of
McCarvill Corporation, a diversified financial services company and previously
was CEO of Repadre Capital Corporation, a mining royalty company.
Bruce Humphrey (President & CEO):
Mr. Humphrey is a mining engineer with 30 years experience in the mining
industry. He has worked for several major mining companies in operational and
executive management positions. In his most recent position, Mr. Humphrey was
Senior Vice President and Chief Operating Officer of Goldcorp Inc., (TSX:G)
(NYSE:GG). His responsibilities included the re-development, start-up and
operation of the high grade Red Lake Mine as well as the Exploration Group and
Goldcorp's operations in South Dakota and Saskatchewan.
Stephen Woodhead (Chief Financial Officer):
Mr Woodhead has worked for the Department of Finance in South Africa and as the
corporate financial manager for Trans Hex Group Limited, a South African
diamond producer and exploration company listed on the Johannesburg Stock
Exchange. Mr. Woodhead relocated from Cape Town to Toronto in 1997 to establish
and manage the Canadian corporate headquarters of Trans Hex International Ltd.
He holds a Bachelor of Commerce from the University of Cape Town, South Africa
and is a member of the South African Institute of Chartered Accountants.
Peter Tagliamonti (Vice President Operations & COO):
Mr. Tagliamonti has worked with such mining companies as Falconbridge, Noranda,
Newmont, Inco and Inmet. Mr. Tagliamonti has been based in Brazil for the past
6 years, where he has been responsible for major cost and productivity
improvements and a large expansion program at the Sao Belo Mine. In addition,
he is proficient in Portugese and French. Peter Tagliamonti is a graduate
mining engineer and an Ontario registered Professional Engineer with 20 years
of mining experience. A graduate of Laurentian University in Ontario, he also
has an MBA from the Richard Ivey School of Business at the University of
Western Ontario.
Bill Pearson (Vice President Exploration, Director):
Bill Pearson is an Economic geologist with over 28 years experience in the
national and international mining industry. He received a B.Sc. in Geology
Honours from UBC and M.Sc. and Ph.D. degrees from Queen's University. He has
experience in all phases of mining from grassroots exploration through to
advanced exploration, mine development and underground/open pit production in a
wide variety of geological environments for precious metals, base metals and
industrial minerals. Projects have been completed across Canada and in thirteen
countries in South America, Europe, Australia and Africa.
Ken Taylor ( Director):
A former member of Canada's Foreign Service, Mr. Taylor's experience have
ranged from trade development in Gautemala and London to foreign aid matters in
Pakistan to crisis management in Iran. He is a recipient of the United States
Congressional Gold Medal and is an Officer of the Order of Canada. Currently
Chancellor of Victoria University of Toronto, he serves as a Director on the
Boards of Skylink Aviation Ltd., Devine Entertainment Corp., Jaffre Incorp.,
and Hydro One. He has previously worked as a Senior Vice President of Nabisco
Brands/RJR Nabisco and has worked with Ottawa consulting firm, Global Public
Affairs, counseling clients on issues of political risk, international
marketing and strategic accommodation with Government.
Peter Bojtos (Director):
Over his career Mr. Bojtos has visited and evaluated properties in about 80
countries and has been involved with operations in about 30 of them. He has
carried out 17 significant corporate acquisitions, mergers or sales that
involved 24 mines. Mr. Bojtos has participated in the development, building or
reopening of 19 mines and has had a hand in the operation of 24 producing
mines. He is a Professional Engineer and a graduate of University of Leicester,
England.
Nancy E. McInerney-Lacombe (Director):
Ms McInerney-Lacombe is a senior executive with close to 30 years of domestic
and international experience in the financial sector. Ms McInerney-Lacombe's
previous roles included Senior Vice President, Royal Bank of Canada; Director,
Deposit Taking Institutions, The Office of the Superintendent of Financial
Institutions; Financial Sector Specialist for the World Bank and consultant to
the Central Bank of Trinidad & Tobago. Her educational background includes
an MBA from The University of Western Ontario, Richard Ivy School of Business
(1980).
VALUATION
To assess the merits of investing in the Company, it has created a table to
compare valuation with its industry peers.
SUMMARY
The Company is well on its way to initiate production at its Jacobina mine, with
full-scale production expected in Q2 2005. The economics of the investment in
the mine look very attractive, with further upside potential if existing
resources are converted to reserve status.
The mine has produced substantial amounts of gold in the past, ameliorating the
risks associated with new ventures and the normal operating risks relating to
cost overruns, delays, etc. are cushioned by the price of gold which is well in
excess of the price assumed for the Feasibility Study. With a capable
management team and adequate funding in place, Desert Sun Mining offers
investors a promising opportunity to participate in a business with strong cash
flow potential and growth prospects.
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