Junior regroups to tackle Hackett River

Sabina Silver Corp. is striving to grow into its role as developer of the giant Hackett River silver-zinc property in Nunavut, which it calls "Canada's last mining frontier." New management took charge of the Vancouver, BC company in 2008 and set about crafting a new strategy to bring the property, one of the three largest silver deposits of its type in the world, into commercial production.

Fueled with a fresh perspective developed in a rigorous review last fall, Sabina told investors this spring that the Hackett River Project was pushed to development studies too soon, and the company was unable to spark interest for the venture in the market because of delays in the studies, which affected its stock price.

"Although Hackett River has reached a critical mass sufficient to support infrastructure on a standalone basis, Sabina as a company needs to build the critical mass to be able to obtain the resources to finance, build and operate the project," said Sabina President and CEO Tony Walsh in an update April 27.

Walsh has said Sabina believes the key to developing a large base-precious metals project in the Arctic that can provide robust returns despite volatile metal markets is to maximize tonnage and to increase the component of higher value mineralization that goes through the mill, for example copper, silver or gold.

Hackett River, also one of the largest undeveloped massive sulphide deposits in Canada, is located 104 kilometers, or 63 miles, south-southwest of Bathurst Inlet in Nunavut.

Silver-zinc rich property

The property hosts at least eight known massive sulphide occurrences scattered over 12,250 hectares, or about 29,523 acres. Of these, the most significant silver-zinc-rich deposits are the East Cleaver Lake, Boot Lake and Main zone (also called "A" zone), which includes the Main West, Main East, and Main Keel zones. Other significant occurrences include Knob Hill zone, Downie, Finger Lake and Jo zone, with the Patricia Lake zone as a regional exploration target.

Indicated open-pit and underground mineable resources at Hackett River total 40.1 million metric tons grading 4.72 percent zinc, 147.9 grams per metric ton silver, 0.34 percent copper, 0.58 percent lead and 0.33 g/t gold. An additional inferred open-pit and underground mineable resource totals 8.8 million metric tons grading 3.89 percent zinc, 153.1 g/t silver, 0.28 percent copper, 0.55 percent lead and 0.31 g/t gold. These resources do not include Jo zone mineralization.

Sabina completed 43 holes covering 5,325 meters in 2008, with 26 of them drilled for geotechnical purposes. Drilling at the Jo zone deposit, located 250 meters to the southeast of the Main zone, intersected 284.3 g/t silver, 5.4 percent zinc and 2.6 percent copper over 30.0 meters, including 756.8 g/t silver and 13.88 percent copper over 4.55 meters. The Jo zone is still open to depth and along strike to the southeast.

Sabina undertook a pre-feasibility study in 2008 at Hackett River as a result of a positive preliminary economic assessment by Wardrop Engineering the previous year. The study concluded that the property could annually produce 324.7 million pounds of zinc, 12.4 million ounces silver, 20.7 million pounds copper, 37.0 million pounds lead, and 17,200 ounces of gold, over a mine life of 13.6 years.

More resource potential

The junior's new managers conducted a review of the project last fall that suggested there are opportunities not only to increase the size of the project but also to discover higher value mineralization such as more copper, gold and silver.

"Maximizing throughput through the mill allows significant offsetting against the large fixed costs required, especially with a large project like Hackett that requires a road and port. Lowering the incremental costs provides opportunity to enhance project economics.

The time to find that tonnage is prior to completion of the pre-feasibility study," Walsh said.

"Significant new opportunities at Hackett River have presented themselves over the last few months.

Management's recent review of Hackett River Project has resulted in some very positive impressions about the potential for increased resources.

In particular, we are intrigued by the high copper values being encountered near surface in the Jo Zone.

The work program for 2009 will focus on some of these targets."

Sabina reported a new resource estimate for Hackett River March 11 that indicated increases of 3 percent more silver, 10 percent more zinc and 34 percent more copper. In particular, the open-pit portion of the resource increased by 40 percent with no significant change in grade, the company said.

New modeling completed during the review not only indicated that the existing resource at Hackett River is more robust than originally interpreted, but also confirmed Sabina's assessment that there is significant potential to add higher-value mineralization to the resource base. Detailed modeling of all the deposits also clarified metal zoning and "hot spots" leading to high potential exploration targets, the junior said in an update April 27.

"From a project economics perspective, the opportunity to open pit mine the higher grade mineralization first could have substantial impacts on the project, reducing mining costs as well as the initial capital payback period," the company said. "Also, the bulk of the existing resource is within the first 400 meters of surface, providing the opportunity to open pit (mine) all deposits and perhaps allowing the project to defer or eliminate any underground capital required."

Sabina also said it is in the process of reviewing results of the new mineral resource estimate, metallurgical recoveries and other ongoing development-related studies to determine the appropriate path going forward, taking into consideration the improved geological model and the significant positive changes and opportunities identified in the resource estimate.

New exploration a priority

Last fall, Sabina identified several high priority targets with potential to find extensions to existing deposits and perhaps make discoveries of new near-surface deposits.

The company said it will continue work this season to identify opportunities for optimizing project economics at Hackett River for the pre-feasibility study as well as to look for opportunities to build a mine.

To pursue this opportunity, Sabina planned a 6,700-meter drill program for 2009 to test 11 target areas. Eight of the targets will test for significant extensions to known mineralized deposits occurring along the main horizon and the remaining three targets will evaluate parallel horizons to test for stacked mineralization. Target selection will be focused on previously untested geophysical anomalies in favorable geological settings generally along the prospective mineral horizon, the company said.

The junior planned a two-phase - 4,300-meter spring and 2,400-meter summer - drilling program, with the spring phase beginning in April and continuing through May. The summer drilling is planned for August.

Sabina also undertook detailed ground electromagnetic and magnetic geophysical surveys this spring in order to refine drill targets.

Geological work is planned for June and July. Certain historic drill holes will be re-logged and whole rock samples collected for geochemical characterization. Infill 1:1000 scale geological mapping is planned for the deposit areas.

The 2009 field season is scheduled to be completed by mid-September and will cost about $4.5 million, according to Sabina.

As large as possible

Sabina said any development undertaken at Hackett River will need to be as high-grade and as large as possible to cover projected high fixed capital costs. The project will require construction of both a dedicated road and a deepwater port, infrastructure that Sabina says it will likely have to fund, though various groups have long advocated building the proposed Bathhurst Inlet Port and Road Project.

Rather than an obstacle, Sabina views this requirement as an opportunity to control or benefit from development on a regional scale.

With this in mind, Sabina agreed March 30 to purchase the nearby Back River gold properties from Dundee Precious Metals for C$7 million in cash, 17 million common shares totaling about 19 percent of Sabina outstanding common stock, and 10 million warrants worth 1.5 common shares each and exercisable for five years.

Sabina said the acquisition culminated work done in 2008 to fulfill its corporate strategy to acquire accretive, synergistic precious metals assets in Canada.

The Back River Assets consist of two main components, the original Back River property hosting the George and Goose Lake iron-formation-hosted gold deposits and a recent new project area, the Wishbone Project. George Lake is located about 40 kilometers, or 25 miles, southeast of Hackett River. The Wishbone property covers a large portion of the Hackett River Greenstone Belt and hosts Sabina's Hackett River Project as well as other smaller base- and precious-metal deposits. The combined properties total about 3,000 square kilometers, or roughly 1,158 square miles.

The assets that add immediate tangible value in the transaction are the George and Goose Lake banded iron formation gold deposits which host 3.4 million metric tons grading 10.9 g/t for a total of 1.2 million indicated ounces of gold and 3.5 million metric tons grading 10.2 g/t for a total of 1.1 million inferred ounces of gold.

Sabina said the acquisition of the Back River Assets could allow it to spread the large fixed costs estimated for developing Hackett River over a larger and higher-value resource base.

"Further, the established infrastructure at Hackett River could become an economic driver for the region and the territory," the company said.

Early stage exploration assets

Sabina said it also obtained a large early stage exploration play in the deal with Dundee in the Wishbone Project, a combination of staked claims and prospecting permits covering the known extents of the Hackett River Greenstone Belt. The claims and permits extend for nearly 150 kilometers, or 90 miles, north to south and up to 50 kilometers, or 30 miles, east to west.

"We have not fully exploited the exploration potential that Hackett can provide and have new exploration opportunities at Back River and Wishbone," Walsh said in April. "We believe the systematic growth of our company's value can be driven by exploration success at Hackett and Back River."

Sabina plans to seek shareholder approval for the Back River purchase at its annual general and special meeting to be held in Vancouver June 4.