re: Ann: Drill Program expanded by 50% at Bor... April 19,...

re: Ann: Drill Program expanded by 50% at Bor... April 19, 2011

Crusader Resources Should Shortly Go Through The Million Ounce Mark At The Borborema Gold Project In Brazil.

By Alastair Ford / www.minesite.com

"This project just doesn't stop giving." So says Rob Smakman, managing director of Crusader Resources, the Australian-listed company working up a suite of gold and iron ore assets in Brazil. He's talking about the Borborema project in Rio Grande do Norte state, which already boasts a gold resource of 839,000 ounces at an average grade of 1.70 grams per tonne, but which is shortly due for a fairly substantial update.

And since that resource was released, in November last year, the drills have barely ceased turning. The company has already completed more than 7,000 metres of an originally budgeted 10,000 metre programme in calendar 2011, but following on from some decent drill results and thanks to a successful fundraising that was concluded in the wake of the last resource upgrade, Crusader was able to announce early in April that the total programme will now amount to 15,000 metres.

So don't expect anyone from the Crusader team to be pausing for breath once the new resource is released in late May. The likelihood is that the new number could stretch as far as 1.2 or 1.3 million ounces, and that's pretty much what Rob Smakman said to our 78th Minesite forum held in London on 12th April. His opening slide spoke of targeting an "immediate increase to greater than a million ounces in the current quarter", but that statement was preceded by a clear statement of intent: the company now has five rigs at Borborema and intends to keep on drilling through 2011 and into 2012. More than likely there'll be a second resource upgrade in June or July, and further upgrades to follow.

How big Borborema will be at the end of the whole process is a fascinating question, and one that will depend partly on what cut-offs the company chooses to use in its headline calculation. At the moment it uses two: one at 0.5 grams gives the current 839,000 ounce number, while another at one gram gives a slightly lower 731,000 ounces. It will also depend on whether Crusader actually gets to close the whole thing off any time soon, since by the time the 2012 results are coming in the company will already be well on the way towards production and the focus will have turned to construction. Still nothing wrong with having a healthy resource to support a planned mine, and with gold beginning to chart a course beyond US$1,500 it's worth remembering that certain hedge funds both in London and North America are more than willing to invest on the basis of ounces in the ground.

Crusader is certainly hoping for plenty of those. But the company is also beginning to get going with plans to get the gold out of the ground too. Rob's intention is to get going with a pre-feasibility study as soon as the May resource upgrade is out. Ongoing drilling will then be incorporated into a bankable study which the company will initiate shortly after the prefeasibility study is finished, and which should be ready by the first quarter of next year. Then will come the issue of how to fund construction, but that may not prove too much of a heavy lift. Rob spent much of the week of 12th April in London building relationships, and the company is already well connected in North America. Dundee holds 15 per cent of the shares, while a Dallas fund holds four per cent.

He reckons that the capital requirements for Borborema could come in at between US$120 million and US$140 million, and that the likely costs per ounce will be in the region of US$575. With gold currently at US$1,495, that allows for a nice looking margin, and should ensure a fairly rapid payback. Rob cautions that the numbers are "really rubbery" at this stage, so we ought not to hold him to those parameters in particular. But the broad brush strokes are clear. Crusader will be pushing on towards two million ounces later this year, and will be looking to build a mine in fairly short order. The plan is to be producing at a rate of 100,000 ounces by 2013, all things being equal.

The way there should be eased by cashflow from the company's other major project, the Posse iron ore operation in Minas Gerais, a state world famous for its iron ore. One way or another Posse's not been an easy project to get going, as the Brazilian bureaucratic machine has proved idiosyncratic to say the least. But Rob's now confident that the company will be able to start selling iron ore by the middle of this year. No doubt about it, he'd like to bring Posse on stream as quickly as possible, not least because the iron ore price has been on something of a tear lately. But he's also sanguine.

"We're fully funded to the end of December", he says. "All the way through to the BFS". So Posse will be a bonus - one that will remind the bean counters what it's like to have cashflow and a profit and loss account, but which won't be make or break for the company. As Rob said when he took the podium at the Minesite forum: "We're really a gold company. We see ourselves as a gold company supported by the potential of near-term cashflow from iron ore." The market seems to agree. The problems at Posse have not prevented Crusader's shares from tripling in value over the past 12 months. It'll be interesting to see where they go from here.