Desert Sun Mining Corp.

Desert Sun Mining Corp.

August 11, 2005 04:30 ET

Desert Sun Increases Jacobina Mine Area Reserves by 22% with Morro do Vento Project

TORONTO, ONTARIO--(CCNMatthews - Aug. 11, 2005) -

- Morro do Vento pre-feasibility study increases mineral reserves from nearly 1 million to 1.2 million in the Jacobina Mine area

- Study indicates reserves of 241,000 ounces of gold from above 800 metre level at past-producing Morro do Vento Mine

DESERT SUN MINING CORP. (TSX:DSM)(AMEX:DEZ) announced today a 22% increase in mineral reserves for the Jacobina Mine area with the addition of 3,586,000 tonnes grading 2.09g Au/tonne containing 241,000 ounces of gold from the Morro do Vento project. With this addition, reserves in the Jacobina Mine area are 17,620,000 tonnes at 2.11g Au/t containing 1.2 million ounces of gold (see Table 1). Morro do Vento is located in close proximity to the reactivated Jacobina Mine on the Bahia Gold Belt near the city of Jacobina in the Bahia state of Brazil. The results from the recently completed pre-feasibility study confirm the economic viability of developing the Morro do Vento Mine.

Pre-Feasibility Study Highlights:

- Morro do Vento Mine to produce an additional 50,000 ounces per year at cash cost of US$240 per ounce beginning in early 2007

- Capital cost (net of pre-production cash flow) is estimated at US$17.2 million

- Recovered gold including pre-production is estimated at 229,000 ounces

- 20% Internal Rate of Return with a Net Present Value of US$8.4 million at a 5% discount rate

- 5.5 year mine life with excellent potential to outline additional mineral reserves

"The increase in mineral reserves for the Jacobina Mine area to 1.2 million ounces of gold is another important step in Desert Sun's overall growth strategy for the Bahia Gold Belt," commented Bruce Humphrey, P.Eng., President and CEO. "Bringing the Morro do Vento Mine on stream is expected to increase our total production capacity to 150,000 ounces per year from the current full production rate of 100,000 ounces per year. Our strategic plan includes further increasing resources and reserves through continued aggressive exploration programs."

Mineral Reserves

The pre-feasibility study estimates probable mineral reserves above the 800 level at 3,586,000 tonnes grading 2.09g Au/t containing 241,000 ounces of gold. Dilution was estimated by adding 0.5 metre of wall rocks from the hangingwall and footwall that would be excavated with the ore. The overall dilution added was approximately 13% at an average grade of 0.38g Au/t. The block cut-off grade was 1.3g Au/t which was the same cut-off grade established in the Jacobina Mine feasibility study previously completed by SNC Lavalin (see press release September 12, 2003).

Mineral Resources

The total indicated mineral resources at Morro do Vento are estimated to be 5,790,000 tonnes grading 2.18g Au/t containing 406,000 ounces of gold. Inferred mineral resources are estimated to be 2,470,000 tonnes grading 2.42g Au/t containing 192,000 ounces of gold. The pre-feasibility study considered only the measured and indicated resources above the 800 metre level, which total 5,018,000 tonnes grading 2.08g Au/t containing 335,000 ounces. There is potential to both upgrade and expand mineral resources below the 800 metre level.

At Morro do Vento, the bulk of the mineral resources is hosted in two conglomerate reefs separated by a 30-metre thick quartzite unit that are part of the Intermediate Reefs in the upper part of the Serra do Corrego Formation. The reefs strike approximately north-south and dip between 40 degrees to 70 degrees to the east. The two reefs range in thickness from 1 metre to 12 metres averaging about 6-7 metres and extend for the full 2-km strike length of the Morro do Vento zone.

Development Approach

Desert Sun declared commercial production effective July 1, 2005 at the Jacobina Mine and will report gold sales and operating costs for the current operation using this as a start date. The Jacobina Mine is on track to achieve the target production rate of 100,000 ounces per year for the fourth quarter of this year. Earlier in 2005, Desert Sun entered into an agreement with BankBoston to purchase Brazilian Real (R$) for monthly delivery of the equivalent of US$1 million per month beginning January 1, 2006 at an exchange rate averaging R$3:US$1 for the year. This equates to approximately 60% of the Jacobina Mine capital and operating budgets and the rate is in line with the exchange rate assumed in the 2003 feasibility study.

The Morro do Vento Mine will be the second production area in the Jacobina Mine area and will add an additional 50,000 ounces per year bringing overall production to 150,000 ounces per year. The mining method and equipment will be similar to that currently used at the Jacobina Mine operations. The pre-feasibility study recommends that the throughput of the processing plant should be expanded from 4,200 tonnes per day to 6,500 tonnes per day to accommodate the additional ore. The cost of this expansion is included in the pre-feasibility capital estimates.

Mining and Processing

Access to the Morro do Vento deposit will be achieved by slashing existing adits on the 720 metre level and 800 metre level. Mining will be by conventional long hole open stoping using top hammer long hole drills, 6.2 m3 LHDs (Load-Haul-Dump), and 35-tonne low profile haulage trucks. A review of the geotechnical aspects of the mine design indicates that ground conditions are expected to be good and there should be no problems with ground stability with the current mine design.

"As recommended in the pre-feasibility study, we will carry out exploration and development programs below the 800 metre level," commented Peter Tagliamonte, P.Eng., Vice President, Operations and Chief Operating Officer. "It is important to note that we believe additional drilling will further expand resources and provide us with development options that will optimize the potential of this mine and plant expansion. The development crews have already started work enlarging the mine access to allow large mechanized equipment to operate. The ordering of the required equipment has started and we have assembled a strong mine team that will oversee all work on the project."

Existing mine infrastructure including mechanical shops, warehousing, dry/changehouse facilities, and food services, will be utilized to accommodate the Morro do Vento operation.

The pre-feasibility study indicates that the Morro do Vento mineralization will behave in a metallurgically similar way to the Joao Belo ore currently being processed and that treatment of any ratio of these ores will not significantly impact metallurgical plant performance.

The results of the study have identified a number of modifications to the milling facilities to increase the throughput from 4,200 tonnes per day to 6,500 tonnes per day:

- Installation of a new secondary crushing circuit to produce a finer crushed product prior to grinding.

- Replacement of the grinding cyclones and corresponding feed pumps with higher capacity units in order to handle the increased throughput.

- Installation of a new thickener that would function in parallel with the existing circuit. The current sand/slime system would be abandoned.

- In the leaching area, an increase in the number of mechanically agitated leach tanks to provide the optimal leach residence time is required. A new leach feed vibrating screen, leach feed sampler and leach transfer pumps are also required to handle the increased capacity.

- Installation of a new carbon-in-pulp tails vibrating screen and sampler to handle the increased tailings capacity.

- Replacement of the tailings disposal pipeline with a new larger diameter pipeline to handle the increased capacity.

- Installation of new process water distribution pumps to handle the increased water requirements.

- Primary crushing, carbon-in-pulp, carbon stripping and reactivation, reagent handling and refining circuits were deemed to have sufficient capacity to accommodate the increased capacity.


No additional environmental licenses are required for the Morro do Vento operation. The existing freshwater supply and discharge water systems will be utilized as well as the stormwater drainage system. Closure costs associated with the Morro do Vento Mine are considered to be included with the Jacobina Mine complex closure plan.


Total capital costs are estimated to be US$31.2 million for the project. Gold produced from capital development in ore of US$14 million will be offset against development costs, making the total new capital requirements for the project of US$17.2 million. The underground mine sustaining capital has been estimated by Desert Sun to be US$ 5.8 million. Most of the expenditures are to be incurred in 2007 and 2008 for equipment rebuilds and ongoing mine development.

With US$15.9 million cash on hand at June 30th and operating revenues projected to start in the third quarter, Desert Sun has the financial resources to maintain its exploration program, fund administration and working capital requirements and move forward with the Morro do Vento project. Work on alternative financing strategies, including Brazilian and international project finance facilities, to fund completion of the Morro do Vento project as well as the development of additional mining areas over the next three to four years, is at an advanced stage.

Operating expenses are expected to average US$13.50 per tonne of ore once full production is achieved. The average cash cost per ounce during full production is estimated to be US$240 per ounce.

Based on operating and capital cost estimates, an Internal Rate of Return of 20 % was calculated for the project with a Net Present Value of US$8.4 million at a discount rate of 5 %.

A summary of the results of the financial analysis at a gold price of US$400 per ounce is given below.


Activity Estimated Project Totals
Ore milled 3,586,000 tonnes

Recovered gold 229,000 ounces

Revenues US$91,606,000

Capital expenditures US$31,154,000

Sustaining capital US$5,787,000

Expenses US$42,089,000

EBITDA US$49,517,000

Project estimated internal
rate of return (IRR) 20%

Project net present value
(NPV) @ 5% US$8,400,000

Implementation Schedule

Site work for the underground mine has already begun using equipment available from the Jacobina Mine operations. The pre-feasibility study indicates that mine development will require approximately seven months before stope production can be started. The overall process plant upgrading will require approximately sixteen months to complete. The ramp-up implementation of the mill upgrade will correspond and accommodate the ramp up of ore production from Morro do Vento.

Pre-feasibility Study Consultants

Devpro Mining Inc. (Devpro) was contracted by Desert Sun Mining to co-ordinate the preparation of this Pre-feasibility level report. Mr. B. Terrence Hennessey, P.Geo. of Micon International Limited (Micon) reviewed the geological aspects of the study and the mineral resource estimates. Mr. Rick Adams, P.Eng. of Devpro reviewed the mining methods and layouts, preparation of the mineral reserve estimates, and mine capital and operating cost estimates. Mr. Joe Milbourne, P.Eng. of AMEC Americas Inc. of Vancouver, B.C., (AMEC) prepared a study of the milling and metallurgical aspects of the Morro do Vento deposit mineralization, and, MLF Geotecnica Mechanica de Rochas Ltda (MLF) of Nova Lima, Brazil reviewed the geo-mechanical aspects of the project with respect to ground stability. The individuals cited above are all independent qualified persons as defined under National Instrument 43-101.

The pre-feasibility report is intended to comply with the requirements for Technical Reports (as defined in the Canadian Securities Administrator's (CSA) National Instrument 43-101), as such Items are described in Form 43-101F1 - Technical Report Table of Contents. The report will be filed shortly on SEDAR.

Dr. Bill Pearson, P.Geo. is the Qualified Person as defined under National Instrument 43-101 responsible for the scientific and technical work on the exploration program. Mr. Peter Tagliamonte, P.Eng is the Qualified Person, as defined by National Instrument 43-101, for all mining engineering work at the Jacobina Mine.

Desert Sun Mining is a Canadian gold mining company listed on the Toronto Stock Exchange and the American Stock Exchange with 100% ownership of the Jacobina Mine and the 155 km long Bahia Gold Belt in the state of Bahia, in northeastern Brazil. Proven and Probable mineral reserves in the Jacobina Mine area are now 17,620,000 tonnes at 2.11 g Au/t containing 1,200,000 ounces of gold. This includes the addition of reserves from the Morro do Vento project. As a result of the Desert Sun's exploration programs to date, Measured and Indicated resources total 24,800,000 tonnes at 2.53 g Au/t containing 2,050,000 ounces of gold, and Inferred Resources total 22,200,000 tonnes at 2.61 g Au/t containing 1,900,000 ounces of gold. The mineral reserves are included within the Measured and Indicated mineral resources.

Statements in this release that are not historical facts are "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Readers are cautioned that any such statements are not guarantees of future performance and that actual developments or results may vary materially from those in these "forward-looking statements". This news release also uses the terms "measured resources", 'indicated resources' and 'inferred resources'. Desert Sun Mining Corp. advises investors that although these terms are recognized and required by Canadian regulations (under National Instrument 43-101 Standards of Disclosure for Mineral Projects), the U.S. Securities and Exchange Commission does not recognize them. Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into reserves. In addition, 'inferred resources' have a great amount of uncertainty as to their existence, and economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or pre-feasibility studies, or economic studies except for Preliminary Assessment as defined under 43-101. Investors are cautioned not to assume that part or all of an inferred resource exists, or is economically or legally mineable.

Table 1 - Estimated Mineral Reserves in Jacobina Mine Area

Estimated Mineral Reserves as of August 1, 2005(1)
Area Proven Probable Proven &
Tonnes g Tonnes g Tonnes g Ounces
Au/t Au/t Au/t Con-
(2) 1,955,000 2.02 9,147,000 2.04 11,102,000 2.04 727,000
(3) Nil Nil 2,304,000 2.51 2,304,000 2.51 186,000
(3) Nil Nil 972,000 2.14 972,000 2.14 67,000
tal 1,955,000 2.02 12,423,000 2.14 14,378,000 2.12 980,000
to Nil Nil 3,586,000 2.09 3,586,000 2.09 241,000
Total 1,955,000 2.02 16,009,000 2.13 17,964,000 2.11 1,221,000
Mar05-Jul05 341,980 2.08 22,869
(4) 17,620,000 2.11 1,200,000
(1) Mineral reserves have been classified in accordance with CIM
standards under NI 43-101
(2) Desert Sun Mining mineral reserve estimate March 1, 2005 (Pearson
and Tagliamonte, 2005) (see DSM Press Release March 3, 2005)
(3) As per original Dynatec mineral reserve estimation of September
2003 in the SNC Lavalin feasibility study (see DSM Press Release
September 12, 2003)
(4) Totals have been rounded

Contact Information