Sabina Gold & Silver’s two world class projects are attracting a lot of admirers

by Richard Badauskas

Sabina Gold & Silver Corp (TSX:SBB)(“Sabina”) is a company with a growing fan base. Shares in the company have powered ahead from a 52 week low of just 77 cents to almost $5.00, thanks to solid progress at the company’s two major projects - Back River and Hackett River - in the Nunavut Territories of Northern Canada. Sabina has 163 million shares, options and warrants for a fully diluted capitalization of C$766 million and holds cash of $60 million.

The Back River Project comprises 7 properties including Goose Lake, George Lake, Boot Lake, Boulder Pond, Needle Lake, Del Lake and Bath 1 Claim and is located to the south of Bathurst Inlet. The earlier exploration focus was on Goose Lake and Lake George where 247,605 meters of drill core produced a NI 43-101 compliant resource for a high grade, low tonnage underground gold mine for an Indicated Resource of 3,415,000 tonnes at 10.9 g/t for 1,193,000 ounces and an Inferred Resource of 3,556,000 tonnes at 10.2 g/t for 1,162,000 ounces of gold.

More recently Sabina switched its effort to define potential resources for a bulk open pit operation over topography that consists of gentle rolling hills and grassland. 27 conceptual gold targets were identified in 2008 confirming the excellent potential to find more gold across the project area. Gold deposits in the Back River area are hosted by sulphidized carbonate oxide and silicate iron formation rocks and clastic sediments. Similar style deposits are found at the Lupin Mine, 225 km to west, and the Meliadine Deposit at Rankin Inlet and Meadowbank Mine at Baker Lake, which are both operated by Agnico Eagle. Most of the known gold mineralization at Goose Lake is associated with quartz veins, silification and shearing and is structurally complex.

The proposed open pit at Goose Lake is the most advanced project at Back River and has only been drilled over half of its surface extension. Additional drilling could potentially add 700,000 ounces of high grade open pit ore. SSB has discovered new gold zones at Echo, Llama Lake and Umwelt, which are all close to Goose Lake. Echo Lake was discovered in 2009 and lies 2 kilometers to the south of Goose Lake, hosting a 25-30 meter thick mineralized zone, within a strike line of 400 meters that is open in both directions. At Del Lake a low grade gold halo was identified measuring 2.7 kilometers in length by 300 meters in width within a larger target 3.6 kilometers in length.

Drilling is currently directed to Llama Lake and Umwelt where the potential for high grade open pit gold is much greater. These two prospects lie about 8 kilometers from Goose Lake and both run along the same strike line. They have been drilled for a combined strike of 1. 5 kilometers and are open in both directions.

Drilling at Llama Lake is more advanced and has produced a series of high grade results including 25.9 – 38.5 meters depth, where 12.6 meters intercepted 14.59 g/t gold, and at 232 – 252 meters for 20.00 meters at 25.43g/t gold. Umwelt has had some spectacular intersections including one hit at a depth of 28.45 – 94.00 meters for 65.55 meters at 10.52 g/t gold. These high grade results have increased the tempo of drilling from 20,000 to 41,000 meters for the current campaign ending before the onset of winter. SBB plans to complete an upgraded resource estimate for Goose Lake, Llama Lake and Umwelt at the end of this year and to commence a preliminary economic assessment in early 2011. Potential for a very significant upgrade in resources is highly likely.

Preliminary studies indicate that the ore is suitable for conventional SAG ball mill grinding. Rough floatation test work indicates that 85 – 90% of gold can be concentrated into 20% of the original mass. Early trials indicate that he ore reacts slowly to leachates and carries both sulphur and arsenic values that will have to be dealt with in advanced trials.

The Hackett River Project is located 50 kilometers away from Back River and can be considered an elephant sized Volcanic Massive Sulphide deposit, consisting of 4 main zones known as the Main Zone, Boot, East Cleaver and Jo zone extending over 5 kilometers of strike. A NI 43-101 Technical Report confirms an Indicated Resource of 43,340,000 tonnes at 144 g/t silver for 200,480,000 ounces, zinc at 4.65% for 2,016,000 tonnes, copper at 0.42% for 180,000 tonnes, lead at 0.64% for 278,000 tonnes, and gold at 0.30 g/t for 419,000 ounces. Inferred Resources include 14,620,000 tonnes at 136 g/t silver for 64,020,000 ounces, zinc at 4.46% for 652,000 tonnes, copper at 0.31% for 46,000 tonnes, lead at 0.57% for 84,000 tonnes, and gold at 0.31 g/t for 144,000 ounces. SBB estimates that the open pit ore has a value of $180 per tonne.

An assumed production rate of 12,000 – 16,000 tonnes per day produced a Net Present Value of $975 million, with an Internal Rate of Return of 25.9%. Capital cost of an open pit operation is C $668 million, which includes $200 million for a port at Bathurst Inlet. This investment establishes a 16 year mine life with 5.5 year pay back.

The Hackett River resources are contained within the Sabina controlled Wishbone greenstone belt that extends for 150 kilometers. All of the resources have only been drilled to a depth of 250 meters and some are open at depth. Typical VMS deposits can be mined to great depths and usually appear in clusters. Sabina has identified a number of targets including May Zone, Yava and Musk and has mounted a 24,000 meter drill program to improve the economics of proposed open pit operations, seeking high grade stringers of copper, gold and silver and identification of new discoveries. Sabina claims that Hackett River already falls with the top ten of worldwide VMS deposits.

Both Hackett River and Back River projects have logistics issues related to theirs remote location and extreme weather, but infrastructure may build up as the Nunavut Territories reported 142 projects underway by a large number of major explorers and producers including Xstrata (LSE:XTA), BHP Billiton (NYSE:BHP, LSE:BLT), AngloGold (NYSE:AU) and Vale Inco, the Canadian arm of Vale (NYSE:VALE).

Additionally, Newmont Mining (NYSE:NEM, TSX:NMC) purchased the nearby Hope Bay Project for $1.5 billion, which hosts potential for 9 million ounces, along with the Madrid and Boston projects. Hope Bay has its own dock and airstrip facilities and is part of the infrastructure build out that will occur throughout Nunavut.

Agnico Eagle (TSX:AEM, NYSE:AEM) also owns two projects that are located to the west and east of Hackett River and Back River. AEM has committed $130 million to drilling and development of the Meliadine Project which hosts a resource of 5 million ounces. AEM also purchased Meadowbank for $710 million, and has built a $370 million mine to extract a reserve of 3.7 million ounces that has tremendous potential for additional resources.

It is also worth noting that Dundee Precious Metals (TSX:DPM) holds 14% of Sabina’s shares and warrants, currently valued at $108 million, and was the vendor for the Back River Properties, which entitles it to further equity on development of the project. Dundee has cash of over CAD$100 million and is a producer with substantial cash flow, and may have second thoughts about the potential of Hackett River, which would provide it with a world class long life mine and potentially catapult the company to major producer status. Based on approximately 125 million shares outstanding (undiluted), Dundee has a market capitalization of CAD$800 million.