From the ASX announcement this morning:ASX / Media Release21...

From the ASX announcement this morning:

ASX / Media Release
21 June 2011
ENVIROGOLD TO RETAIN 100% OF AZUAY GOLD MINING
DEVELOPMENT IN ECUADOR
HIGHLIGHTS
 EnviroGold elects to retain 100% ownership of Azuay gold mining project.
 Company proceeding with studies to expand mining production to 300,000 tpa.
 100% ownership will provide EnviroGold with significant flexibility to accelerate
development.
 Company set to benefit from higher returns.
 Channel sampling of high grade veinsets underway on San Gerardo lease.
Australian-based mineral resources company, EnviroGold Limited (ASX: EVG)
(EnviroGold or the ?Company?) has elected to develop its Azuay gold mining project in
Ecuador on a 100% ownership basis.
The Company had previously committed to the involvement of local minority partner,
Empresa Minera Papercorp S.A., however, it has now decided not to proceed with that option
after receiving recent demands for an increased profit share for transferring their Papercorp
mine to a proposed joint venture. The demand was made despite the commercial
arrangements and basic terms of the joint venture having been formally established.
Mr Brian Johnson, Executive Chairman of EnviroGold Limited, said the Company?s wholly
owned subsidiary, EnviroGold (Azuay) SA, would now proceed with the concept of expanding
ore production to a total of 300,000 tpa from a grouping of four small-scale operating
underground mines covered by the 2200ha San Gerardo lease (shown as Paraiso, Oso de
Oro, 29 De Septembre, and La Poderosa on the attached sketch).
The aim is to make a development decision in mid-2012 to expand mining operations in these
mines and to construct a process plant and associated infrastructure, including tailings dams
at a site approximately 7km from the mines and 2km from a major highway and power grid.
?As a result of the decision to progress the Azuay project on its own, EnviroGold will gain
significant flexibility in decision making and the rate of progress of development, and also
increase its return on funds invested,? Mr Johnson said.
Registered Office: Tel: 61 2 4861 1740
Level 2
12 O?Connell Street Fax: 61 2 4861 7665
Sydney NSW 2000
Australia Email: [email protected]
The tight grouping of the four mines will result in efficiency in surface drilling which will
commence when environmental approval is received for the San Gerardo property. The
environmental permitting process is well advanced and expected to be handed down within
two months.
Channel Sampling of High-Grade Structures
The Company?s consultants are currently channel sampling and surveying vein sets in
approximately 1200m of drives into the ore body from within these mines, in advance of
developing a computer model which will assist in positioning surface drill holes.
Underground drilling to better understand structures will commence following completion of
the sampling program.
Mining is currently being carried out by contractors in the four mines nominated for
expansion, as well as three others on the San Gerardo property, under subleases registered
with the Ecuador Mines Department. The subleases terminate concurrently with EnviroGold
(Azuay) SA?s exercise of its US$4.0 million option over the concession in November 2013.
Processing of ore is carried out offsite and the property has no environmental or social
liabilities from past operations.
Historically, mining in the narrow vein (0.5m to 1.0m) structures on the San Gerardo lease
has consistently been in ore grading from 10g/t Au to 15g/t Au and the current channel
sampling program should confirm this advice provided by mining contractors.
Metallurgical testwork has indicated local ore could contain up to 50% of free milling gold
which will not require cyanidation for recovery, with the balance of gold reporting to silicates
and refractory ore which will probably require ultrafine grinding and oxidation prior to cyanide
leaching, to efficiently recover the contained gold.
The preliminary flow sheets and plant design for the proposed project, established after
metallurgical testwork for a recent Scoping Study, incorporates combined gravity, Albion and
CIL circuits.
Capital and operating costs established in the Scoping Study remain in line with previous
advice, except that EnviroGold will now need to fund approximately US$27 million equity for
the US$87 million development.
EnviroGold will provide approximately US$5 million for drilling and feasibility studies
progressively through to mid 2012. Following a decision to proceed with the development, the
Company will provide an additional US$22 million of equity over the following 12 months. This
may be funded from free cash flow from its Las Lagunas gold and silver project in the
Dominican Republic, where production will commence in early 2012.
It is anticipated that a gold royalty may be sold for around US$10 million and a project loan
established for US$50 million to fully fund the project.3
On this basis, the Scoping Study indicated the following:
EnviroGold Ownership 100%
Total Development Costs US$87 million
EnviroGold Equity US$27 million
Mining Target 4.0 Mt
Project Life 12 years
Annual Mining Rate (after 12 months ramp up) 300,000 tonnes
Head grade 11g/t Au
Recovery 90.0%
Average Annual Production 96,000 oz Au
Total Project Production 1,134,000 oz Au
Assumed Average Gold Price US$1,200/oz
Budgeted Operating Costs (after 12 months ramp up) US$423/oz Au
Contingency (capital & operating costs) 10%
Vendor Royalty 2%
Gold Royalty (10 years) 2.5%
Government Royalties 5.0%
Corporate Tax Rate 25.0%
Average Annual After Tax Profit (Project Life) US$41.6m
Average Annual Cash Flow (Project Life) US$44.6m
NPV Project * US$180.3m
EVG NPV/Share * AUD 34.1?
*NPV based on 10% discount rate, exchange rate of A$1.00 = US$1.00, and current shares on issue (528 million)
In addition to the widespread occurrence of high-grade quartz-pyrite-calcite-chlorite veins on
the San Gerardo concession which will be exploited as part of the Azuay project, the
concession covers five identified areas of mineralised hydrothermal breccia and a prospect
with extensive copper, gold, molybdenum mineralisation, all with open pit potential.
A soil sampling program over approximately 1,000ha covering these areas is underway with
first stage results due shortly.
From this work and subsequent Induced Polarisation resistivity and magnetometer surveys,
the Company?s consultants expect to nominate several drilling targets for open pit prospects
which could form the basis for a second project on the San Gerardo concession.
Brian Johnson commented, ?As with EnviroGold?s Las Lagunas project, where the Company
has moved to 100% ownership, the Board has decided that more value can be extracted for
shareholders by retaining ownership and control of the Azuay project. With an aggressive
growth strategy we can now push ahead on decision making and funding requirements
without the inherent problems associated with minority partners.?
?The San Gerardo concession is an exciting, and possibly Company making property, and we
are currently moving our drilling camp and personnel across to this property from the
Papercorp minesite in preparation for an extensive and aggressive exploration campaign.?
Ends

Cheers
OZ