Sabina adds new discoveries to Back River in Nunavut

Sabina Gold & Silver's (TSX: SBB) Back River project is already expected to produce an average of 198,000 ounces of gold a year over an initial mine life of twelve years at all-in sustaining costs of US$620 per oz. gold. However, those numbers were released in a September 2015 feasibility study, and the company has continued to make significant new discoveries on its 54,000-hectare property in Nunavut.

Drilling this summer at the Nuvuyak target returned an intercept of 11.58 grams gold per tonne over 39.50 metres from 797.90 metres downhole, with abundant visible gold. The hole, 18GSE545, was drilled 1 km to the west of Goose Main along strike and 1,000 metres down-plunge of Back River's largest deposit - Goose Main - and prompted Sabina to double its 2018 exploration program to 20,000 metres.

The latest batch of drill results released in mid-October have only heightened the company's enthusiasm for Nuvuyak, with intercepts in drill hole 18GSE558 of 7.78 grams gold over 12.40 metres starting from 719.10 metres; 16.39 grams gold over 13.20 metres from 740.50 metres downhole and 13.32 grams gold over 5.10 metres from 783.70 metres downhole. A second hole, 18GSE553, returned 8.58 grams gold over 4.90 metres from 723.40 metres.

Significantly, the drilling also showed an immediate extension of the zone by between 130 and 500 metres from the discovery hole toward a previously identified target on the property called Hook, which the company believes could demonstrate a link to the Goose Main deposit, whose resource now exceeds one million ounces of gold.

The camp at Sabina Gold & Silver's Back River gold project in southwestern Nunavut. Credit: Sabina Gold & Silver.

The mineralization at Nuvuyak is hosted within a polyphase fold sequence of Back River lower iron formation stratigraphy and coincident gold structures that are interpreted as being a significant component of the major mineralizing horizon at the Goose property.

Early interpretations of the Nuvuyak zone and its similarities to Back River's high-grade Umwelt Vault zone suggest the potential for a large-scale mineral trend extending from the Goose Main deposit to Umwelt Vault deposit, which may intersect large portions of the central Goose property, much of which is largely underexplored, the company says.

"What is most exciting about Nuvuyak, our newest discovery, is that we believe that it shows the potential of interconnectivity between the Goose and Umwelt targets," says Bruce McLeod, Sabina's president and CEO. "It's always been a geologic theory, but now at least there is some indicative evidence that it could exist. It's too early to say that for certain, but it gives us more information and data to take something from concept to plausibility."

Sabina's summer exploration program also discovered a new area of mineralization, 15 km northwest of the Goose Main deposit, called Boulder. The geology at Boulder is similar to other prospective locations throughout the Back River district with extensive poly-deformed sequences of oxide iron formation, the principle host to gold mineralization in the district.

Exploration at Boulder focused on a more than 1.6 km trend of underexplored, folded iron formation that had anomalous gold in till signatures. The best intercepts include 7.90 metres of 2.41 grams gold from 134.80 metres downhole, with 11.46 grams over 0.95 metre in hole 18BRP046; and 1.63 grams gold over one metre in hole 18BRP047 from 106.60 metres downhole.

"We're very encouraged by the results from our Boulder property targets because they further demonstrate the district potential of the belt," McLeod says. "Usually a full-blown discovery takes us five to ten holes to vector in, so we will keep working this target but we're pretty encouraged by early-stage results."

Back River's deposits, 520 km northeast of Yellowknife in the Northwest Territories and about 75 km southwest of Bathurst Inlet, consist of Goose Main, Echo, Llama, Umwelt and George. All of the deposits, with the exception of George, are located within a 2.5 km radius of each other. The George deposit, which is about 50 km away, was not included in the feasibility study.

The mine plan outlined in the feasibility study based on a 3,000 tonnes per day scenario, describes a combination of open pit and underground mining. Over the life of mine, 72% of all production would come from open pit mining, with no underground production scheduled until year three, after payback.

Open-pit mining would begin in the Umwelt pit and would then transition sequentially to the Llama and Goose Main open pits. Underground ore production would begin at Umwelt.

The feasibility study was based on a resource estimate completed in October 2014 of 28.24 million measured and indicated tonnes grading 5.87 grams gold for 5.33 million oz. contained gold and 7.75 million inferred tonnes grading 7.43 grams gold for 1.85 million oz. contained gold.

The project goes back well over thirty years from the initial discovery, Goose Main. Goose was discovered in the late 1980s, and after Sabina acquired the Back River project in 2009, the Llama, Umwelt and Echo deposits were discovered.

Sabina's Goose gold property at the Back River project in Nunavut. Credit: Sabina Gold & Silver.

"In our current mine plan at Goose - at 6 grams gold per tonne - we believe our pits are the highest grade undeveloped open pits in the world," McLeod says in an interview. "If you look at our discoveries in the last three years, the Vault, which is a portion of the Umwelt underground, Llama Deep and Nuvuyak, they are already all high grade and realistically all of them have components that are over 10 grams per tonne. What we're seeing at depth are truly spectacular grades and widths, so we're really excited about the potential."

Initial capex to build Back River is estimated in the 2015 feasibility study at $415 million. Using a base case gold price of US$1,150 per oz., the project delivers a potential after-tax internal rate of return of about 24.2% and a net present value of $480.3 million with a payback of just under three years.

Rather than spend time and money updating its 2014 resource estimate for Back River, Sabina is concentrating on exploration and on building infrastructure and logistics.

In September the company completed the earthworks for the marine laydown area, which includes an airstrip and laydown pads. In November the Nunavut Water Board granted Sabina a Type A Water License, the last major licence required for construction and operation activities at Back River. The next step will be moving equipment to Back River along the ice road for initial site construction next year.

"We're through the environmental assessment process. We have our agreements with the Kitikmeot Inuit Association - our social licence - and we've started to do some infrastructure improvements," McLeod says during a break in a marketing tour in Europe. "We've built our port and completed our initial sealifts bringing fuel equipment and supplies into Back River. Essentially, we're 'shovel-ready'."

Unfortunately, he adds, the market environment "truly isn't rewarding these accomplishments," and while the debt market is the strongest he's seen it, the weak equity market means the company is better off de-risking the project for now.

"The market is clearly not interested in building a mine at this point so we will take a balanced approach. We will continue to de-risk the project with prudent capital allocation, work on refining our project capital costs and engineering and continue to explore. We believe this approach will poise us to be ready when the market turns and we can make a production decision."

As for resource updates, it will be cheaper for the company to define resource updates after more infrastructure has been built, he says.

"The reality is, we're drilling off on a pretty wide spacing and for us to convert those to measured or indicated, and a new study would probably not be a good use of proceeds today," McLeod reasons. "We already have 12 years of reserves, which is only 2.5 million ounces of our global resource, which is over 7 million ounces."

McLeod says there is significant growth potential on the belt.

"I always joke and say I don't need a corporate development team to grow. When we get this first mine up and running, our growth is going to come from the belt, so I need more geologists and more drills."

So far all the deposits at Back River are open and McLeod is excited about the prospects of Back River become much larger than what has been found to date.

"It's only in frontiers like this that you can assemble a land package that you own 100% of," he says. "It is truly infrastructure and logistics that we will build and will enable us to develop other parts of this trend."

The company currently has roughly $40 million in cash and equivalents.

In addition to Back River, Sabina also owns a silver royalty on Glencore's (LON: GLEN) Hackett River project. The royalty consists of 22.5% of the first 190 million ounces produced and 12.5% of all silver produced thereafter.

At press time in Toronto, Sabina's shares were trading at $1.42, within a 52-week range of $1.11 and $2.62 per share. The company has about 264 million shares outstanding for a market cap of $388 million.