Santa Fe Gold to Commence Production of Gold and Silver in New Mexico

Santa Fe Gold Corporation (SFEG) is scheduled to begin processing gold-silver ore as early as March of 2009. It has begun stockpiling ore from its Summit mine near Duncan, Arizona, for processing at its mill in nearby Lordsburg, New Mexico. We have visited the Summit mine and Lordsburg mill site three times in the last two years. While a modest operation, scheduled to process only 400 tpd, the ore is fairly high grade averaging an estimated 0.143 ounce per ton (opt) gold and 10.28 opt silver, which should provide an IRR of about 82.8% over the project's scheduled seven year mine life. While the mill had been relocated from Winston, New Mexico, we have never seen a used mill that was in such "new" condition.

The Banner Mill, Lordsburg, New Mexico

Source: Analyst

It was gratifying to see a project move forward during a period of national distress with little difficulty (from our perspective). Prior to the Summit project, management spent a considerable amount of time and effort with two industrial mineral properties in Arizona, its potential two million ounce Ortiz gold project located near Albuquerque and Santa Fe, New Mexico, and corporate restructuring.

The Summit Mine, near Duncan, Arizona

Source: Analyst

Santa Fe acquired the Summit mine near Duncan, Arizona, a mill site near Lordsburg, New Mexico, and a 400 tpd mill in Winston, New Mexico. Santa Fe completed a modest $13 million financing and relocated the mill to the Lordsburg mill site and is now completing work on water and electrical systems. It recently began mining and stockpiling gold-silver ore from the Summit mine and anticipate that the project will soon be in production.

Banner Mill Ball Mill and Historic Banner Mill Headframe, Lordsburg, New Mexico

Source: Analyst

Santa Fe's success in pulling together the necessary components in a few short years is impressive, as it is difficult to bring a discovery to production in less than ten years. The timing was excellent as well; we believe precious metal prices will be stable or increasing in the near term and that operating costs should moderate with lower fuel costs and the increased availability of skilled and unskilled labor now available following staff reductions at nearby base metal mines. We also suspect that mine life will be extended through underground exploration at the Summit mine, or that operation may be extended at the Lordsburg mill through acquisitions of other precious metal deposits within trucking distance of the Lordsburg mill.

The author does not have a position in SFEG.OB.