trading halt, page-5

Minesite
March 22, 2007
Bolnisi Gold Plans A Corporate Clean-Up

By Our Man In Oz

In the middle of last year a few close observers of the mining world, including Minesite, wondered whether a takeover bid would emerge for Canadian-listed Palmarejo Silver & Gold Corporation because of its controlling interest in one of Mexico’s best mineral discoveries. The bid never came, but the idea hasn’t died, only this time it looks like the bid could be an internal affair with Palmarejo’s parent, the Australian-based Bolnisi Gold, thinking hard about a mopping up exercise. “We’re certainly looking at the structure,” said Bolnisi chief executive, Norm Seckold, when Minesite caught up with him for a cup of coffee in the basement of Australia Square in downtown Sydney. “A bit of a disconnect has developed in the valuations being assigned to Palmarejo and Bolnisi. Perhaps the structure has served its purpose and its time to simplify things.”

Many outsiders would be quick to agree. There appears little doubt that neither Bolnisi, nor Palmarejo, is receiving fair value for their ownership of the extensive silver and gold discoveries made in the northern Mexican state of Chihuahua. Over the past few weeks, as some other precious metal producers have been rising, Bolnisi’s shares have slipped a bit. Some of the blame can be attributed to the silver price, but an equal amount can be assigned to the complex project ownership structure, especially at a time when the construction work at Palmarejo is running full tilt and first metal looks like being poured later this year, or in early 2008. Once operational, Palmarejo will yield around 300,000 ounces a year of gold equivalent in the form of 110,000oz of gold and 11 million ounces of silver at a cash cost of less than US$1 per ounce of silver – at a time when the silver price is well north of US$13 an ounce.

With good news expected on the construction and production front, and the potential for even better news on the exploration front, it would be reasonable to expect Bolnisi to be rising, not falling. That observation takes us back to the ownership structure which sees the Palmarejo project (in Mexico) owned 100 per cent by Palmarejo Silver & Gold (listed in Canada) which is, in turn, 74 per cent owned by Bolnisi (listed in Australia). The logic, and yes dear reader, there was some of that despite what you’re thinking, was that Australian investors did not like foreign assets, and had failed to follow Bolnisi on its march from the former Russian satellite, Georgia, to Mexico. Canadians, however, were deemed to be more sophisticated and had a better understanding of things North American. Whatever the reason, it was enough for Bolnisi to raise C$75 million through the creation of Palmarejo Silver & Gold, accelerate exploration and now be within sight of completing construction of a substantial mine.

“Work is proceeding well,” Seckold said. “We’ve been able to locate a second hand mill from one of Boliden’s operations in Spain. Getting it when we did was a stroke of luck because today there’s a long waiting list. Minesite stripping is scheduled to start in July, with the target still being to have production from three pits to provide a smooth flow of ore. If all goes well, plant commissioning will be underway in December, with first metal in the first quarter of 2008.” The latest resource estimate for Palmarejo is for an indicated and inferred 1.3 million ounces of gold and 126.7 million ounces of silver for a combined 3.85 million ounces of gold equivalent – sufficient for a mine life of eight years, but unquestionably with a lot more to come.

Welcome as it is, production is only half the appeal of Bolnisi. The other half is exploration. Seckold said a US$16 million budget had been set aside for exploration this year with four rigs on site and two more on the way. “We have drill-ready targets right across our tenement package,” Seckold said. “At Guadalupe, seven kilometres from Palmarejo, we’ve traced mineralisation 1500 metres along strike, and believe we’re 200 metres higher in the epithermal system than at Palmarejo.” Early drill intersections from Guadalupe include 29.5 metres at 2.84 grams a tonne of gold and 193 grams a tonne silver for a gold equivalent of 6.1g/t. Another 12metre section containing a gold equivalent assay of 30g/t. The first resource estimate at Guadalupe is 155,000oz of gold equivalent, but that is confidently expected to increase.

Seckold said by any equivalent measure Bolnisi and its Canadian cousin Palmarejo Silver & Gold were being substantially undervalued. A quick check of a map, and a geological cross section, demonstrates his point. Apart from Palmarejo and Guadalupe, Bolnisi has targets to develop at La Prieta, La Blanca, Rosario, Maclovia and La Virginia, to name a few. But, when look at as a “long section” it can be seen that the hilly country which makes up the project area means that the different targets are at different stages of exposure with drilling generally only going down around 200 metres.

As cash flows from production, Bolnisi will further step up its exploration effort to gain a better understanding of precisely what it has under its control. That’s the good news on the geological front. Of equal interest on the corporate front is how quickly Seckold will proceed with his plan to simplify the Palmarejo ownership structure, providing another potential trigger for the re-rating of Bolnisi.