Mining lease and 9 surrounding claims 50% owned by Blue Note with binding agreement in place to acquire the remaining 50 % by the end of 2011
70 km by road east of Val-d'Or in Pershing, Vauquelin and Haig Townships.
Project Ownership Details
Prior to July 19, 2010, Blue Note owned 100% of the exploration claims while the mining lease and 9 surrounding claims were owned on a 50/50 joint venture basis by Blue Note and First gold exploration. On July 19, 2010 a binding agreement was signed whereby through a cash and equity transaction, Blue Note will acquire 100% ownership of the mining lease contingent on satisfying the cash aspect of the deal.
Royalties Croinor Deposit: 5% of net income from production of 97 claims, 15% of net profit from commercial production on 92 claims. Other royalties also exist on other claims on the property
Project Overview
The Croinor gold deposit located approximately 70 km from Val d'Or, Quebec, consists of 38 high grade gold bearing quartz veins and remains open laterally and at depth.
From November 2003 to May 2005, a total of 8,081 ounces was extracted from the Croinor deposit in three phases from two separate open pits. The material was processed at the Camflo mill near Val-d'Or. After the open pit operations ceased in May 2005, two Mineral Resource estimates were completed for the Croinor gold project. The first, prepared in November 2005 by Carl Pelletier of InnovExplo Inc. and was entitled "NI 43-101 Technical Report for the Mineral Resource Estimate of the Croinor gold project" evaluated a measured and indicated resource of 620,218 Mt grading 10.37 g/t Au for a total of 206,792 ounces at a 5.00 g/t Au cut-off. This formed the basis of the July 2009 Preliminary Economic Assessment by Francois Chabot of Golder Associates (the "PEA"). The second, prepared by Pierre O'Dowd in September 2009 entitled "NI 43-101 Resource Estimate Update and 2008 Technical Report on the Croinor 1 and 2 Projects", incorporated a 12,648-meter drill program conducted from 2007 to 2009 and projected evaluated a measured and indicated resource of 814,228 Mt grading 9.11 g/t Au for a total of 238,414 ounces at a 5.00 g/t Au cut-off (NI 43-101 compliant). The latter formed the basis for a NI 43-101 compliant prefeasibility study completed in July, 2010 (modified in June, 2011).
Reserve Estimation
The PEA prepared by Golder Associates in July 2009 provided for a probable economic reserve of 309,000 tonnes based on the 2005 InnovExplo resource estimate. The Prefeasibility Study provides for 689,829 tonnes based on the 2009 O'Dowd resource estimate and a gold price related reduction in the cut-off grade.
This Prefeasibility Study also provides a complete update on the information provided in the PEA and includes a detailed mine plan and project pricing and economic forecast updates. Mill throughput increased by 109% compared to the PEA. While the life of mine capital expenditures increased due to the increased mined tonnage, the increased production rate and other changes arising from the full review conducted during the Prefeasibility Study, the pre-tax cash flow rose to $67.6 million, an increase of 214% compared to the PEA.
The underground mine reserves were determined using an undiluted cut-off grade of 5.0 g/t and minimum mining width of 1.8 metres. The estimated proven and probable reserves totaled 185,260 oz after applying a mining recovery of 85% for room-and-pillar mining and 95% for long-hole mining, with a dilution factor of 5% for room-and-pillar stopes and 20% for long-hole stopes.
Following is the Mineral Reserve Summary:
Mineral Reserve Estimate
Category
Undiluted Cut-off 5 g/t Au
tonnes
g/tonne
ounces
Proven
13,619
8.00
3,504
Probable
5.19
10.9
91.0
Total Reserve
689,829
8.35
185,260
Other key Highlights of the Prefeasibility Study are:
Parameters
Results
Proven & probable mineral reserve
689,829 tonnes at 8.35g/t
Total contained gold reserve
185,260 oz
Mine life (including 14-month preproduction)
5 years
Daily mine production
500 tonnes per day
Gold recovery
97.5%
Annual gold production
39,181 to 45,631 oz
LOM recovered gold
170,556 oz
Average cash operating cost
$171/tonne
Average cash operating cost
US$628/oz
Capital cost (including $7.4M sustaining/working capital)
$ 24.8 million *
Total cost per ounce
US$768/oz
Total revenue
$225.9 million
Total operating cost
$110.8 million
Total project cost
$135.5 million
Total operating cash flow (before tax & royalties)
$75.7 million
Net cash flow (pre-tax after royalties)
$67.6 million
NPV (pre-tax @ 7% discount )
$51.3 million
IRR (pre-tax)
124%
Payback period
25 months
Pre-production period (including 42,000t of production)
14 months
*Includes capitalized preproduction operating cost net of associated revenue
*Bloomberg base case consensus forecasts:
2012
2013
2014
Gold Price ($US/oz)
1,373
1,296
1,168
Exchange Rate ($C/$US)
1.01
1.05
1.03
OUTLOOK
The financial analysis for the base case (Bloomberg consensus gold and exchange rate forecast) provides for a pre-tax undiscounted NPV of $67.6 M with an IRR of 124%. Discounted at 7%, the NPV is $51.3M.
Subject to successful project financing, mine dewatering is expected to commence during the fourth quarter of 2011. Commercial production is anticipated 14 months following commencement of dewatering. During the pre-production period, 42,000 tonnes of ore will be processed and 10,073 oz of gold will be produced commencing in the 10th month following the announcement of the decision to commence mine dewatering.
The current mine plan provides for using an 80/20 ratio of room and pillar to long hole mining to extract the resource. The ore will be shipped to a mill in the Val d'Or area that will have extra capacity for the life of mine.
Exploration drilling will continue within the currently defined deposit laterally and at depth after operations commence to investigate the excellent potential that Croinor has for an extended operation.
DEPOSIT GEOLOGY AND MINERALIZATION
The Croinor deposit is situated in the dioritic syn-volcanic Croinor Sill. The latter ranges from 60 to 120 metres in thickness and is hosted within the volcanic rocks of the Assup Domain. The deposit is characterized by gold-rich lenses consisting of quartz-carbonate-tourmaline-pyrite veins, altered, pyritic host-rock material and/or tectonic breccia (pyritic fragments of host within a quartz-carbonate-tourmaline-pyrite vein). The mineralized lenses are spatially controlled by reverse-oblique shear zones which crosscut and displace both the lenses and its dioritic host. A hydrothermal alteration halo surrounds these structures. Zoning begins with an epidote-chlorite envelope that gradually changes unto a chlorite-carbonate zone closer to the shear. Within the shear structure itself, the host-rock has undergone extensive alteration characterized by a sericite-ankerite-pyrite assemblage.
Gold mineralization is typically associated with metasomatic pyrite located in quartz veins as well as in the strongly altered host-rock material or tectonic breccia. Gold occurs as inclusions within and along the edges of pyrite grains. Minor amounts of chalcopyrite and pyrrhotite are sometimes present with the pyrite. Occasionally, free gold is found within quartz veins of shear zones as well as in their strongly metasomatized walls.
The mineralized lens range between 60 and 120 metres in length (Chénard and Turcotte 2003). The lenses form tabular bodies variably inclined to more or less sub-horizontal and consist of shear veins, tectonic breccia and tension veins. The lens can generally be followed from one section to another (10-meter sections) over distances varying from several tens of meters and up to 600 meters laterally. To date, about forty gold-rich lenses have been identified.
