Goldsource Moves Eagle Mountain Gold Project Big Step Forward

Goldsource Mines (GXS – $0.24) published an excellent Preliminary Economic Assessment (PEA) report for its Eagle Mountain gold project located in Guyana, South America.

In order to minimize initial capital and project risk, the Company applied a phased-approach business model in which the easy accessible near-surface soft weathered rock (gold mineralized saprolite) will be mined first.

This conceptual approach encompasses four phases over four years. Phase I mining rates would be 1,000 tonnes per day (one 12-hour shift, 7-days per week) in year one. Upon successful completion of Phase I, the Company plans to systematically install and operate three additional similar plants over a four-year schedule with a cumulative rate of 3,500 to 4,000 tpd. The additional processing plants will be paid for through operating cash flow.

If all goes well, production could be initiated early 2015. Cash operating costs, exclusive of sustaining capital, for saprolite mine life only averages $480 per ounce gold including a 15% contingency.

PEA Highlights

• Phase I, pre-production capital costs of $5.9 million including a 15% contingency.
• Pre-tax Net Present Value (“NPV”)(5%) of $69.4 million and after-tax NPV(5%) of $45.6 million.
• Pre-tax Internal Rate of Return (“IRR”) of 84% and after-tax IRR of 63%.
• Cash operating costs, exclusive of sustaining capital, for saprolite mine life averages $480 per ounce gold including a 15% contingency.
• Pre-tax undiscounted operating cash flow before capital expenditures totalling $123.4 million.
• Conceptually, the first four years of gold production would be 5,600, 14,400, 21,600 and 28,800 ounces gold, respectively.
• Not considered in the PEA are the in-situ “fresh-rock” resources of Indicated 2,331,000 tonnes @ 1.52 g/tonne Au containing 114,000 oz and Inferred 13,433,000 tonnes @ 1.13 g/tonne, containing 486,000 oz (both at 0.5 g/t Au cut-off).

Mine Plan

The mine plan consists of standard open cut mining using conventional mining equipment. For Phase I, a team of excavators, bulldozers and wheel-loaders would excavate the saprolite at a rate of 100 tonnes per hour (1000 tonnes per day) and deliver the material to the in-pit grizzly, scrubber, screens and Falcon gravity concentrators. Gold concentrate from the gravity concentrators will be further concentrated using a shaking table and refined on site for production of dore bars.

Initially, only sub-2mm material will be delivered to the processing plant. Larger than 2mm material will be stockpiled for potential processing in the future. Total mine inventory for mineralized saprolite is 8,563,000 tonnes grading 1.20 g/tonne gold. Of this estimated inventory approximately 7,303,000 tonnes grading 1.20 g/tonne gold is considered plant feed representing the undersize sub-2mm material. Recent metallurgical test work has determined an approximate gold recovery of 60% for the saprolite resources for sub-2mm material.

No blasting or truck hauling is required for mineralized saprolite. Waste material will be loaded and truck hauled to a nearby storage facility. The strip ratio has been estimated at 0.9 to 1 (waste to mineralized saprolite).

The processing plant is powered by a 300 to 400 Kilowatt (“kW”) diesel generator. Total electrical load for the plant is approximately 250 kW. A backup generator will be in place for redundant purposes. Ample water is locally available for all processing needs for all proposed phases of the project.

Conceptual mining would consist of one 12-hour shift, 300 days per year based on equipment availability and rainy season conditions. Potential exists to significantly increase production by adding a second shift and/or increasing production days by effectively mitigating periodic heavy rain conditions.

Expansion Potential

In 2012, ACA Howe prepared on behalf of Eagle Mountain Gold Corporation (“EMGC”), now a subsidiary of Goldsource, a mineral resource estimate for the Eagle Mountain gold deposit, which had been tested by drill campaigns completed between 1947 and 2011. Neither EMGC nor Goldsource has completed additional drilling since this estimate was completed. ACA Howe has therefore reissued the resource without change for the purpose of the 2014 PEA.

Category	Material	Tonnes	Au Grade (g/tonne)	Contained Ounces Au
Indicated	Saprolite	1,590,000	1.45	74,000
	Fresh	2,331,000	1.52	114,000
	Total	3,921,000	1.49	188,000
Inferred	Saprolite	7,202,000	1.32	306,000
	Fresh	13,433,000	1.13	486,000
	Total	20,635,000	1.19	792,000
Eagle Mountain Mineral Resource. Source: Company press release.

Note that the resources are open in most directions and good potential exists to initially expand mineralized saprolite.

Conclusion

The PEA has shown that Eagle Mountain is a relatively low-risk gold project with very attractive Rates of Return. Both the low CAPEX and low operating costs are extremely important in these tough days for mining companies.

The creativity of the phased construction approach, its modular design and the simplicity of the mining and processing of the low-strip ratio saprolite material have resulted in an optimized development scenario.

In addition, the inventory of potentially recoverable ounces of gold in the oversize materials and the underlying hard rock resource provide significant ‘blue-sky’ potential for further development.

We sincerely believe the experienced management team of Goldsource will be able to raise to relatively low amount of funds needed to bring Eagle Mountain into production within a few quarters.

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