Out of the hundreds of junior mining companies out there, why is Sacre-Coeur Minerals worth a look? While I have been following the company for a few years, recent developments on one of their projects have introduced the possibility that the company could generate significant cash flow in the near future (by this fall). But first, some background...

Sacre-Coeur has an extensive property portfolio in Guyana which, in my opinion, is one of the better jurisidictions for mining in South America. While they have several projects there, the most advanced one is the Million Mountain project. Million Mountain is where the company has been focusing their efforts recently. In response to economic and market conditions, the company has deferred exploration activities on some of the other projects and is concentrating on Million Mountain, where almost 1/2 million 43-101-compliant ounces have already been identified through an extensive drill program.

Earlier this summer, the company announced the discovery of nine alluvial zones that correspond with the area that hosts the Million Mountain deposit. Here is an excerpt from the 6/29/09 press release that announced this discovery:

To date the Company’s exploration team has identified nine zones on the Puruni River Paleo-channel which it believes are highly prospective. A systematic program of test pitting and gravity beneficiation of the samples collected has recently been completed for Alluvial Zone 2. A total of 83 test pits were excavated, spaced nominally 100m apart along grid lines located approximately 160m apart. A compilation of the results demonstrates a gold bearing alluvial sand and gravel resource target measuring approximately 1.66 km by 0.80 km.

The measured thickness of the sampled auriferous sand and gravel zone ranges from 0.8 meters to greater than 5.0 meters, with an arithmetic mean of 2.5 meters thick. At these dimensions the resource target volume in the sampled zone is estimated to range from 2.5 to 4.0 million cubic meters of auriferous alluvial material with preliminary sampling suggesting a grade in the range of 2.0 to 9.0 grams Au/cubic meter. The mineralized horizon is overlain by sandy clay averaging 2 meters thick for an overall stripping ratio of 0.8 overburden : 1 alluvial zone.

The average gold particle count per 10 kilo sample recovered by gravity concentration was 71.2 particles less than 0.5mm in diameter, and 19.7 particles greater than 0.5 mm in the alluvial zone. A table of the test pit results is presented overleaf. While no site specific data is yet available for the fineness of the recovered gold from the sampling program on Alluvial Zone 2, alluvial gold produced from this immediate area has historically measured approximately 930 fine gold. The potential quantity and grade suggested by this sampling program are conceptual in nature. Insufficient work has been completed to qualify as a Mineral Resource. It is uncertain whether further exploration and test mining will confirm the results presented herein.

Test pits were excavated on a systematic grid through the overburden and the sand/gravel zone to underlying in situ material. A ten kilogram, vertical channel sample was then collected from the bottom of the zone to the top in each test pit. Each sample was then carefully panned to collect the gravity recoverable gold. The gold particles collected for the sample were then counted and characterized. The concentrates from all 10 kilo pit samples in a sample line were then combined and re-panned. Finally, the recovered gold concentrate from all sample lines was combined and weighed on a precision balance. The weight of the total recovered gold concentrate was 4.23 grams from the 830 kilos of total sample weight. The Company believes that this procedure produces a good preliminary simulation of potentially recoverable gold by simple gravity means.

In order to test the economic viability of recovering alluvial gold from Alluvial Zone 2 initially, and other zones subsequently, the Company is constructing a simple gravity processing plant designed to treat 1000 cubic meters per day. Test mining and processing is expected to begin this Summer, as soon as all imported equipment is received and assembled. Permitting for the project is complete. The Company has been issued a Mining License and full approval to commence production. If the system proves to be successful as expected, the Company’s strategy will be to expand its alluvial production program, and pursue it concurrently with its on-going hard-rock mineral exploration program. The alluvial program will require little infrastructure development, as all infrastructure will be shared with the exploration program which is ongoing on the Million Mountain block of properties.

http://scminerals.com/news_20090629.htm

So, to summarize, 83 test pits on Alluvial Zone 2 indicate that there are 2.5-4.0 million cubic meters of material that test results showed 2.0-9.0 grams Au/cubic meter. Assuming that grades are consistent through this area, then the gold contained in this zone would be somewhere between 166,167 and 1.2MM ounces of gold. Using a $900 gold price, that represents a value of somewhere between $150MM and $1,080MM.

The alluvial zone has only a couple of meters of overburden, so getting at this material should be relatively easy and inexpensive. Here's where it gets interesting. This type of material has the potential to be extremely inexpensive to mine relative to conventional operations. Best case, the alluvial material can be run through gravity separation equipment that will literally shake the gold out of the alluvial material.

The company is currently installing test mining equipment that will enable them to determine what kind of recovery they can get through gravity separation. If the recovery rate is less than optimal, they can improve it by adding a chemical process which will increase costs somewhat, but not significantly, from what I understand.

The test mining equipment has a rated capacity of 1,000 cubic meters/day. Using the 2-9 grams/cubic meter shown from the test pits, that would yield somewhere between 67 to 300 ounces of daily gold production, or annual gold production of $21.6MM to $97.2MM using a $900 gold price. The test mining equipment is going to run somewhere around $2.5MM. Putting operational costs aside, that means that the payback for the test mining equipment could be LESS THAN TWO MONTHS.

If all of this works out, it means that the company will immediately transition from an exploration stage junior mining company dependent on the capital markets for regular infusions to a producer that will generate cash flow well in excess of what the company requires to continue their hard rock exploration program...from an investment of less than $3 million.

But wait...there's more. All of the above is specific to Zone 2, but there are eight other alluvial zones that have been identified. Most of the zones are roughly the same size as Zone 2 (1.6 x 0.8 km), but Zone 8 is much larger, about 6 km x 1 km. It is not yet known if the other zones will show the same grades as Zone 2, but in my opinion, it seems highly improbable that Zone 2 is the exception. In fact, a couple of pits on Zone 8 indicate that the material is consistent with what has been shown at Zone 2, though much more work has to be done for this to get anywhere near conclusive.

There are a couple of big questions that still need to be answered. First, the company has to get the test mining equipment installed and prove that they can begin producing gold. If the company can get acceptable recovery rates without needing a chemical process, then they will be in a position to begin producing gold before the end of the year. The second big question is whether the market will care. It is possible that as intriguing as I find this development, that the market will find this development to be less exciting than stellar drill results, for example. That said, if the company can generate cash flow anywhere near what it looks like is possible, it seems to me that the market must ultimately re-assess the value of this company to a much higher level.

The management team has a track record of delivering value to shareholders (Pan African Mining) and I believe that they are on to something here that could do the same. The good news is that it will not take much time before we know a lot more about this development. The equipment is being installed now, all required permits have been granted, so mining operations should be able to commence by fall. If the company is able to demonstrate consistent cash flow generation by the end of the year, then I believe the story will indeed generate investor interest.

The company recently announced a private placement to cover the cost of the test mining equipment. Until it is closed, that should keep the stock tethered to the 0.65 range and until we get more information there may not be much to move the stock. So while I do not anticipate an imminent moon shot, I think that the company at least deserves a spot on the radar screen and monitoring over the next few months as the test mining gets underway.