LEFA Corridor Gold Project - Guinea

Project description and location

The LEFA Corridor Gold Project is located approximately 700 km northeast of Conakry, the capital of the Republic of Guinea. The principal concession, governed by the Convention de Base, covers an area of approximately 1,500 square kilometres and is known as the Dinguiraye Concession. LEFA also has a further six contiguous properties over which the Corporation has rights derived from six prospecting permits not governed by the Convention de Base, bringing the total project area to approximately 2,379 square kilometres.

The tenements comprising the LEFA gold project are set forth in the following table:

Mining approvals from the Government of the Republic of Guinea’s Ministry of Natural Resources will be required to commence mining operations on Kobedara East, Kobedara West, Iroda, Boubere, Nonim and Dantinia. An application for such an approval must also include a feasibility study. Such properties are subject to the general mining laws of the Republic of Guinea.

Ownership and History

On October 17, 2005, Crew announced an offer to purchase 100% of the shares of Guinor (references in this section to Guinor includes its subsidiaries), at a price of CAD 1.50 per common share, in an all-cash transaction valued at approximately USD 330 million.

On the date of initial acquisition by Crew, Guinor had an 85% interest in its subsidiary, SMD. SMD is the Guinor subsidiary which owns the LEFA mineral property and related net assets. Crew completed the purchase of the remaining 15% of SMD from the Government of Guinea on June 30, 2006 through cash payment of USD 15 million and the issue of 7,836,908 Shares having an aggregate fair market value of USD 15 million. The Shares were placed into escrow pending agreed upon amendments to the Convention de Base being ratified by the Government of Guinea. The Corporation has extended the deadline for the GOG to ratify the amended Convention de Base until March 31, 2009, after which time if the ratification has not occurred, the Shares may be cancelled and returned to treasury.

The Guinor purchase was financed by raising approximately USD 340 million through a USD 194 million issue of 6% convertible bonds and USD 146 million issue of new equity. On closure of the tender process on December 14, 2005, approximately 94% of the issued and outstanding Guinor common shares were validly deposited (or guaranteed for delivery) pursuant to the Offer. Crew acquired a sufficient number of Guinor common shares to permit it to carry out a compulsory acquisition of the remainder of the outstanding Guinor common shares not deposited to the Offer. The Corporation announced it would commence the compulsory acquisition of these shares on February 7, 2006. The process was completed on March 3, 2006, with the Corporation securing 100% of Guinor’s shares.

In November 2004 Guinor signed an agreement with the Government of Guinea paving the way for a substantial expansion of LEFA. The agreement was signed on behalf of the government jointly by the Minister of Mines, the Minister of Economy & Finance and the Governor of the Central Bank. The agreement confirms that the Government of Guinea and Guinor will adhere to the terms of the existing Convention de Base, which defines the fiscal regime for any investment by Guinor. It also confirms the right of Guinor to import and transport heavy fuel for power for mining purposes free of any taxes or government charges.

Guinor was established in 2004, and on April 26, 2004 acquired 100% of the shares of Kenor ASA (“Kenor”) which held the interests in LEFA through subsidiaries. Kenor was founded in 1981 for the purpose of developing trade links and relationships between Norway and Africa. In 1994, Kenor was first listed on Oslo Børs. The LEFA gold mine was opened in 1995 and the first gold bar was produced from the mine in April 1995.

Kenor commenced the Large Exploration Program (“LEP”) on the LEFA gold project in September 2002, which was designed to attempt to define sufficient mineral reserves to justify development of the CIP plant. In September 2003, as a result of the LEP, Kenor commissioned a feasibility study aimed at defining a large scale gold project to exploit both oxide and primary (sulphide) ores and to identify new mineral reserves to justify a CIP plant on the Dinguiraye Concession that can process both ore types. The feasibility study was completed in March 2005 and construction of the CIP plant expansion was commenced shortly thereafter. See Section Error! Reference source not found. “Ore Processing — CIP Plant”.

Geology

Regional Setting

The LEFA Gold Project lies within the Siguiri Basin, part of the Birimian volcano-sedimentary series, which dominates the basement geology of the West African Shield. The Birimian Series, including the Firifirini Basin, is under-plated by a cratonized block of Archaean-aged high-grade metamorphic and intrusive rocks termed the Man Shield. A collisional environment resulted in the development of dominantly greenschist facies metamorphism and regional northeast to northwest trending deformation zones, considered to be fundamental to the development of gold mineralization in the Firifirini Basin.

Project Setting

The Siguiri Basin can be subdivided into two distinct formations - the upper Matagania Formation and the lower Firifirini Formation. The Matagania Formation is dominated by inter-bedded claystones and siltstones, better represented throughout southern portions of the Dinguiraye Concession. The Firifirini Formation comprises intercalated siltstones and arkosic sandstones or greywackes and occasional conglomerates, which are more prevalent in northern portions of the Dinguiraye Concession. Deformation and metamorphism appear to have been substantially more subdued within the Firifirini Basin compared with other West African Birimian terrains. Within the LEFA Corridor the basement stratigraphy is essentially sub-horizontal and significant fault offsets are rare. Primary mineral assemblages reflect low-grade regional metamorphism and are characterized by broad monoclinal folding.

The entire stratigraphy has been intruded by massive dolerite dykes and sills during the Jurassic period, associated with the break-up of the Gondwanan continental landmass. Being more resistant to erosion and lateritization, these intrusions form prominent hills and bluffs within the northern half of the concession, and their magnetic susceptibility can be distinguished in airborne magnetic data.

At the regional scale, gold occurrences are more numerous in the coarser grained arkosic unit (Siguiri Formation). The lithological sequence in the LEFA Corridor area is dominated by sediments and is composed mainly of arkosic siltstones with subordinate horizons of true arkoses.

Mineralization is preferentially developed in the more permeable, altered, coarser grained sediments, within and adjacent to east-northeast oriented structures and north to north-northwest trending fracture zones. Mineralization is localized by a combination of lithological and structural controls. The dip and strike of mineralized zones, and to a lesser extent the style of mineralization, varies considerably between deposits. Gold mineralization is dominantly associated with stockwork and sheeted quartz-carbonate-sulphide veining, stockworks of albite-carbonate-sulphide veinlets, or as sulphidic haematitic breccia. Pyrite is the dominant sulphide species. Gold is largely developed within fractures in pyrite grains, rarely larger than 50 microns, and is non-refractory.

Extensive weathering and lateritization of the mineralization and surrounding host rocks has resulted in the development of economic laterite and saprolite gold deposits. Both transported and residual laterites, up to 15m thick, host economic gold mineralization, which typically averages lg/t to 2g/t gold over extensive lateral areas. Saprolite mineralization tends to be higher grade (1.5g/t to 5g/t gold), but is generally developed over more restricted zones between 2 m and 30 m wide. The base of oxidation extends to over 100 m, but may be locally depressed within zones of fracturing and brecciation. The width and grade of primary mineralized zones appear to be little different from their equivalents within the saprolite profile.

Resources

The 2006 drilling program gave results for resources and reserves that were a substantial increase from those of 2005.

Higher-grade (+3 g/t Au) satellite deposits were identified at Firifirinini and Banora in 2007 and Toume Toume in early 2008. Resource expansion at LEFA is focused on targets like these that have higher-grade potential.

In June 2008, the Company announced further resource increases for LEFA including Firifirini and Toume Toume. Total measured and indicated resources have increased by 0.47 million oz (7%) from the 5.95 million oz announced in March 2007 to 6.42 million oz and take into account mining of 175,849 oz (3,383,207t @ 1.62g/t). 

The new mineral resources are based on drilling from 2007 and early 2008.

Mineral Resources

Mineral resources, prior to an update for the resources identified above, on the Dinguiraye Concession, as at December 31, 2006, are set out in the table below.

View table

Quality Assurance and Control, Qualified Person and Notes to resource estimates

Reserves

Reserves showed a 34% increase from 2.51 million oz in December 2005 to 3.38 million oz a year later. In October 2007, Crew announced an increase in reserves (as at September 1 2007) to 3.87 million oz, a 14% increase from the previous figures. Reserves are not additive to Resources.

Mineral Reserves

The following table sets out the mineral reserves estimated on the Dinguiraye Concession as at September 1, 2007, assuming a gold price of US$575 per ounce of gold.

Figure 1: Mineral Reserves⁽¹⁾⁽²⁾

Quality Assurance and Control, Qualified Person and Notes to reserve estimates

Mining

All open-pit mining practices adopted by SMD within the LEFA gold project follow modern mining techniques. Pits are generally mined bench by bench with approximate heights of 2.5 m per flitch, leaving a ramp behind for access. Some lateritic cap rock requires drilling and blasting, however the majority of the laterite and saprolite ore types are free digging. Dewatering is undertaken by way of bores and/or trenches and sump pumps. SMD has engaged a third party mining contractor with a Guinean registered subsidiary for all material movement. SMD, however, undertakes the mine planning, scheduling, grade control, surveying and quality control.

Application of a relatively high mining cut-off grade for the heap leach operation has historically resulted in a substantial quantity of mineralization of marginal or sub-economic grade being assigned to the waste dump. This is particularly the case at the Fayalala deposit, where the mineralization is generally lower grade and distributed in a more diffuse manner. As a result, material lying above 0.5g/t Au and below the present cut-off grade applied in each pit is now assigned a ‘sub-grade’ category and stockpiled separately adjacent to the pit.

The mining operations are equipped with a modern fleet of equipment comprising 5 Komatsu PC 1800 excavators and 18 Komatsu 785 haul trucks. The two major mining areas are the Fayalala and Lero Karta pits. These pits are approximately 8 km apart and will be mined over the entire life of the project. Several smaller, higher grade satellite pits will provide supplementary feed for the mill over the life of the project.

On September 26, 2008, the Corporation announced that its operating subsidiary had taken over the works being performed under its third party mining contract. The takeover was considered necessary to protect the serviceability of the open pit mining fleet. The transition has been smooth with minimal disruption to mining operations and no increase to costs. As the Corporation noted in its press release of September 26, 2008, the take-over was, in the Corporation’s opinion, carried out fully within the scope of the contract. A court hearing has been scheduled in the Republic of Guinea for November 20, 2008, to deal with certain specific matters relating to the ownership of items of property and equipment at issue between the parties to the dispute.

Mining operations continued uninterrupted while the plant was shut down in mid October 2008, and a significant tonnage of high grade ore was stockpiled. Processing of that ore commenced in late October 2008.

Mine production will supply some 7.0 million tonnes of run-of-mine (“ROM”) ore per annum with the current mine life extending for 11 years. The average total material movement is approximately 32Mtpa. The mining method for the development of the open pits is a conventional excavator-truck operation allowing for selective mining of the ore grade material using a mining contractor.

Pit design parameters are generally in keeping with established mining practice for excavator-truck operations. The pit haul ramps are designed with a width of 2lm and a gradient of 10%. The bench height for drilling and blasting will be five to six metres in both ore and waste with excavation of these benches done in two cuts or flitches.

Mining of both oxides and primary ore and waste material will be carried out over the life of the project. The fresh rock units are all competent, and drilling and blasting will be required.

Ore from the Fayalala pit will be hauled directly to the process plant ROM pad by the primary haul fleet. Ore from the Lero Karta operation will be trucked to a ROM pad and primary crusher facility at the vicinity of the Lero-Karta pit entrance for subsequent crushing and conveying to the main process plant at Fayalala.

All other satellite pit ore will be hauled to the process plant ROM pad as required, using the mining fleet haul trucks.

It is intended that the majority of ore trucked to either of the two ROM pads will be direct tipped into the ROM bin by the haul trucks. Ore, which is stockpiled on either ROM for operational reasons will be fed into the respective crusher by a dedicated front end loader.

Ore processing

Heap Leach Processing

From its inception until December 31 2006, LEFA utilized heap leach processing. Heap leaching involves the treatment of the finer grained and more clay-rich ‘high-fines’ laterite and saprolite ore types.

CIP Plant

In March 2005, the Corporation received a completed bankable feasibility study (the “Feasibility Study”) on the portion of the Dinguiraye Concession known as the LEFA Corridor Gold Project. The Feasibility Study was produced by a Perth, Australia-based team of independent consultants led by Lycopodium Engineering Pty Ltd., and including RSG Global, Knight Piesold, METS, SENET Engineering (South Africa), supplemented by input from management of Guinor. Construction of the CIP plant expansion was commenced shortly thereafter.

The CIP processing plant consists of the following major unit processes. Following crushing, the ore is fed into the grinding circuit comprising SAG and ball mills where it is ground to 80% pass 150 µm. The density is then increased to around 48% by the addition of flocculants and is then pumped to the leach circuit where sodium cyanide is added as a lixiviant to dissolve the gold. The ore is leached for approximately 24 hours before passing to the adsorption circuit. Activated carbon is added to the circuit to absorb the dissolved gold. The loaded carbon is recovered and washed with a hot solution of sodium hydroxide and sodium cyanide. This is done in the carbon strip columns. Gold is recovered from this concentrated solution by electrolysis, which causes it to be deposited onto steel wool cathodes. The dried precipitate from the cathodes is then smelted to produce doré bullion. Tailings are pumped to a specially constructed tailing storage facility.

The CIP processing plant consists of the following major unit processes. Following crushing, the ore is fed into the grinding circuit comprising SAG and ball mills where it is ground to 80% pass 150 µm. The density is then increased to around 48% by the addition of flocculants and is then pumped to the leach circuit where sodium cyanide is added as a lixiviant to dissolve the gold. The ore is leached for approximately 24 hours before passing to the adsorption circuit. Activated carbon is added to the circuit to absorb the dissolved gold. The loaded carbon is recovered and washed with a hot solution of sodium hydroxide and sodium cyanide. This is done in the carbon strip columns. Gold is recovered from this concentrated solution by electrolysis, which causes it to be deposited onto steel wool cathodes. The dried precipitate from the cathodes is then smelted to produce doré bullion. Tailings are pumped to a specially constructed tailing storage facility.

Ore is blended on the ROM pad to ensure a suitable mix of saprolite and primary ore for feeding to the SAG and ball mills. Primary crushing takes place at both Lero Karta and Fayalala locations. The ore from Lero Karta travels on an overland conveyor to the plant located at Fayalala. Two-stage milling occurs with gravity gold recovered by a Knelson concentrator. Pre-leach thickening then occurs followed by leach and absorption onto carbon in a 12-tank CIP circuit. Elution and electrowinning uses a split AARL elution system.

As previously announced, the Corporation is undertaking a rectification and upgrade program directed towards addressing certain deficiencies associated with the operation of the re-built former Kilean plant. The major elements of the rectification and upgrade programme comprise replacement of the leach and adsorption tank agitators, gearboxes and motors, total refurbishment of the Fayalala and Lero crushers, repair at the SAG and Ball Mills, installation of additional pump capacity, refurbishment and replacement of generators and conversion of the power station to operate on heavy fuel oil (“HFO”) in place of more expensive diesel.

The LEFA CIP Plant upgrade and rectification project has progressed during the first ten months of 2008 with significant items on the rectification plan being completed. A debottlenecking exercise is ongoing to increase reliability of process plant.

The LEFA CIP Plant rectification and upgrade projects progressed during the third quarter of 2008 with significant items on the rectification plan being completed. The critical work remains on schedule to be completed by year end with exception of Ball Mill 01 which is scheduled for completion and restart in mid February, 2009. The remaining major items to be completed before December 31, 2008, are the repairs to SAG Mill 02 and the completion of the HFO (Heavy Fuel Oil) delivery system.

During the first half of 2009 there are scheduled upgrades planned to improve the reliability of the plant through all weather conditions and to reduce operating cash costs. The items to be upgraded are the tailing pumps, return water system, cyclone feed system, gold elution circuit and gear system on both SAG mills. In addition, scheduled overhauls of the mining fleet will commence in the latter part of 2009.

During Q3, the apron feeder at the Lero crusher was replaced. The belt and belt tracking system on CV04 (main overland conveyor from Lero Crusher) were also replaced and repaired. In addition, repairs to the conveying system from the emergency stockpile at the plant were completed on schedule. The replacement of the apron feeder at Fayalala completed during Q2 has resulted in excellent reliability in the feed to the process plant.

The HFO delivery system for the power plant was installed per OEM standards and the test run has been completed. Results indicated that the system was operating correctly, but there was insufficient relief bellows inline to handle thermal expansion and commissioning and remedial work will now be completed by December 31, 2008.

The drive motor for Ball Mill 01 failed in mid August. Replacement of the bearings, rework of the shaft and rewinding of the motor are being carried out. It is expected to be running by mid February 2009. The scheduled repairs of Ball Mill 02 were completed during the third quarter and it has recently been returned to production.

As scheduled, SAG Mill 01 was taken offline in late September 2008 for reline, bearing replacement and realignment. This work was completed ahead of schedule in late October 2008. In mid October 2008, an inspection of SAG Mill 02 following high bearing temperatures revealed that the repairs could not be delayed without risking major damages. As a result, the work to carry out the bearing replacement and realignment of SAG Mill 02 originally scheduled for mid November 2008 was accelerated and is scheduled to be completed by the end of November 2008, which is four weeks ahead of the original schedule. However, production in October 2008 was impacted by the shutdown as both SAG mills were down at the same time.

SAG Mill 01 and Ball Mill 02 were restarted in late October 2008, and are currently running above expectations at approximately 575 tonnes per hour with 80% availability of the mills.

During the first six months of 2008, the major earthworks for the river diversion allowing the expansion of the Lero pit were completed. Deployment of mining equipment to complete this diversion reduced the mining production rate but this was planned and the diversion was completed on time and budget.

The plant was deemed by management to be in commercial production for accounting purposes from July 1, 2008 onwards, which means that sales revenues and operating costs for LEFA that apply after that date will be recorded in the Company’s income statement and not capitalized.

Ore mined in the quarter ended September 30, 2008 totalled 1,087,027 tonnes at an average grade of 2.3 g/t (quarter ended September 30, 2007 – 503,475 tonnes at an average grade of 1.5 g/t). The mining rate returned to expected levels from the 0.8 million tonnes in Q2 2008 when equipment was deployed as planned on the river diversion project. Total ore mined for the nine months ended September 30, 2008 was 3,089,304 tonnes at an average grade of 2.1 g/t (nine months ended September 30, 2007 – 1,425,266 tonnes at an average grade of 1.5 g/t).

Ore throughput at the CIP plant in the quarter ended September 30, 2008 was 848,001 tonnes at a head grade of 1.9 g/t (quarter ended September 30, 2007 – 612,842 tonnes at a head grade of 1.6 g/t). Throughput for the nine months ended September 30, 2008 totalled 2,437,585 tonnes at a head grade of 2.0 g/t (nine months ended September 30, 2007 – 1,690,753 tonnes at a head grade of 1.4 g/t).

Gold produced in the quarter ended September 30, 2008 was 46,078 oz (quarter ended September 30, 2007 – 27,122 oz) and for the nine months to September 30, 2008 was 144,652 oz (nine months to September 30, 2007 – 66,484 oz).

The gold produced over the six quarters to June 2008 is shown in the table below:

The slight decrease in gold production between Q2 and Q3 2008 was the result of the rainy season and  scheduled stoppages for the rectification programme.