The reason why we do have them as shareholders is because they see this deposit being similar to some of the Canadian examples and they’re mega deposits. Australia hasn’t really got its head around this type of deposit yet.

Cisco in Canada operates on a 20 million tonne per year operation gold mine, similar type of grade so it’s certainly possible.

The end of the merger, I think the project just dropped off the interest of the market. It’s time to come back, the merger’s completed, we’ve got new management and it will basically be a new story with the Pre-Feasibility out in the third quarter I think people will start to see this as a very valuable project.

The increase from 2.4 million ounces to 3.2 million of contained gold ounces is primarily the result of new zones of mineralisation intersected, particularly north of the Phoenix Pit.

Managing director John Lawton said significant new gold mineralisation has been discovered within the 8 kilometre long Bullabulling Trend over which the previous 2.6 million ounce resource was estimated.

“The global estimate of the February 2012 grade is lower compared to the August 2011 estimate because of the discovery of this significant new mineralisation with lower average grades of 0.7-0.9 grams per tonne gold incorporated into the new resource,” he said.

“The tonnage has improved significantly at all cut-off grades, which can be reasonably expected to have a direct positive influence on operating cost estimates for the project through reducing strip ratios with further optimisation studies.

“While the joint venture is focused on the current Pre-Feasibility Study, the results of the drilling program indicate further upside to the current resource estimate.”

Notable gold intersections include 8 metres at 5.73g/t, 1 metre at 73.1g/t, 17 metres at 3.37g/t, 8 metres at 3.35g/t, 1 metre at 27.7g/t, 9 metres at 3.52g/t, and 1 metre at 19.3g/t.

As with the previously announced assays there are generally at least four intersections per drill hole relating to the multiple stacked lodes defined by the structural mapping.

High grade mineralisation continues to be intersected within the broad low grade halo providing additional encouragement for targeting high grade ore shoots within the Bullabulling Trend beneath the currently mineralised stratigraphy.

Three drill rigs were used during the phase two program, infilling the historic drilling between the Phoenix and Hobbit prospects to increase the confidence in the current resources and to upgrade the current 78.8 million tonne at 1.03g/t for 2.6 million ounces of contained gold Resource.

Auzex is targeting sufficient reserves to support an initial 10 year mine life.

“The new resource estimate confirms the Scoping Study scenario of an operation with an initial life of mine production of 2 to 2.5 million ounces of gold over a 10 year mine life with potential to expand the current resource in the future,” Lawton said.

Since the start of the phase two drilling campaign in mid-May 2011 74,542 metres across 425 holes has been completed.

Bullabulling: plus 200,000 gold ounce per annum potential

The Bullabulling Gold project is a large tonnage, low grade deposit with high grade shoots, associated with the regional Bullabulling shear zone.

The mineralised structure is 500 metres wide, consisting of multiple west dipping low grade stacked zones with narrower higher grade gold mineralisation.

Drill results to date have continued to confirm the resource and geological model, with about 99% of drill holes intersecting gold mineralisation.

A Scoping Study has identified a substantial gold project capable of producing about 230,000 ounces of gold per annum over a 10 year mine life.

The study showed the potential for cost improvements at the operating and capital cost levels that would enhance the project economics.

The Bullabulling joint venture with GGG Resources (ASX: GGB, LON: GGG) is targeting an initial reserve exceeding 1 million ounces of gold to begin production in 2015.

Bullabulling Gold – Auzex, GGG Merger

Auzex is moving closer to achieving its goal of creating a new company to be known as Bullabulling Gold, which will be listed on the ASX and AIM markets, through a merger with GGG Resources.

Earlier this month the company received Queensland Supreme Court approval for the Scheme Booklet for the proposed merger

The booklet included some major support for the merger, with the independent expert’s report by BDO Corporate Finance concluding that the advantages of the merger outweigh its disadvantages, and therefore the deal is in the best interests of Auzex shareholders.

Bullabulling Gold Limited has been incorporated and is due to be listed on the ASX in March.

Auzex has completed the demerger of its non-Bullabulling assets into a new public unlisted company, Auzex Exploration, while GGG will re-domicile to the ASX.

The implementation date for the merger is proposed for March 27, 2012.

Bullabulling: plus 200,000 gold ounce per annum potential

Currently Bullabulling has a JORC Resource of 78.8 million tonnes at 1.03 grams per tonne (g/t) for 2.6 million ounces of gold based on a 0.5g/t gold cut-off.

Drill results to date have continued to confirm the resource and geological model, with about 99% of drill holes intersecting gold mineralisation.

A Scoping Study has identified a substantial gold project capable of producing about 230,000 ounces of gold per annum over a 10 year mine life. The study showed the potential for cost improvements at the operating and capital cost levels that would enhance the project economics.

The demerger is part of the company’s plan to enter an all scrip merger to combine the Bullabulling Gold project, (previously a 50:50 joint venture), under a single corporate entity to be named Bullabulling Gold.

Auzex demerged its non-Bullabulling assets into a newly incorporated unlisted public company.


Substantial Shareholder Increases Stake

Meanwhile, substantial shareholder Baker Steel Capital Managers LLP has increased its shareholding in Auzex to 13.7% from 9.3%.

The results  confirming that the Bullabulling gold deposit's excellent recoveries at head grades of less than 1.0 g/t Au, with 40% of the contained gold recoverable by gravity.

Significantly, compared to other deposits in the Goldfields, the ore at Bullabulling is not hard nor abrasive due to the lack of quartz associated with the gold mineralisation, positively impacting operating costs.

The gold recoveries are sensitive to grind size and additional test work is planned to optimise the required grind.

Planning and sampling of additional ore from the entire length of the Bullabulling Trend to increase the number of variability test work samples has commenced and these data will be used in the next phase of work to more accurately estimate processing and capital costs and assess recoveries at lower head grades.

John Lawton, managing director of Auzex Resources said the results were "highly encouraging and confirm that the Bullabulling Gold project has excellent recoveries at head grades of less than 1.0g/t Au with the master composite producing recoveries of 92.5% with low cyanide consumption."

Previous operations during the 1990‟s produced average recoveries of approximately 94%, Lawton said.

"The Bullabulling mineralisation is not hard or abrasive in the context of the Eastern Goldfields which should have a positive impact on operating costs. Bullabulling continues to demonstrate all of the characteristics of a robust long term gold project.”

Metallurgy Test Work

A program of diamond drilling was completed to provide fresh sample material for extractive and comminution testing.

Five PQ diamond core holes (two collared at the base of Bacchus South and Phoenix pits drilling directly into fresh rock, and three from surface requiring pre-collars to reach the base of oxidation prior to commencing PQ diamond tails) were completed for a total of 506 metres.

Holes were designed to intersect gold mineralised zones in fresh rock as defined by the resource model, ranging from 10m to 19m in width to obtain sufficient sample (330kg per hole) for the test work. Where possible, drillholes were oriented partially down the dip of mineralised zones in order to extend the intersection width.

All mineralised samples contained visible silicification and disseminated sulphide mineralisation at the contact with felsic and mafic lithologies. All core was logged and photographed before selecting 20-25m (300kg) mineralised intervals from each drillhole for transportation to Perth where they were assayed and prepared for processing.

The core was reviewed and various samples selected for comminution (crushing and grinding), recovery and variability test work based on the assay results to produce one composite sample of approximately 1.0 g/t Au and five samples for variability test work.

The metallurgical test work program included the following:

- Sample preparation.
- Head assay analysis.
- Comminution test work.
- Gravity separation and cyanidation optimisation.
- Lime demand test work.
- Carbon loading test work.
- Oxygen uptake rate determination.
- Rheology test work.

Process water, obtained from the existing borefield at Bullabulling, was used for all parts of the test program where wet grinding and slurry preparation were required.

The head assay analysis on the master composite sample gave a grade of 0.96 g/t Au, 0.3 g/t Ag, 150 ppm As and 0.88% S. The variability samples gave grades ranging 0.56-5.44 g/t Au, 0.3-0.8 ppm Ag, <10-480 ppm As and 0.42-1.32% S.

The company said it is considered that the variability samples provided a complete range of potential ore types from low grade to high grade samples.

Follow up Metallurgical Testwork

Although the metallurgical test work for the scoping study is of a very high quality and gave results similar to previous operational data, additional variability data are required from the entire length of the Bullabulling Trend that potentially may be mined.

A program of PQ diamond drilling to obtain core samples for the variability testing using the optimised pit shells from the scoping study has been agreed by the metallurgical consultant and completed (see sample location map). The metallurgical drilling program comprises 17 drillholes totalling 1,935m including 770m of RC drilling in 15 pre-collars and 1,100m of PQ diamond drill core.

The drilling provided 27 samples (each 300kg in weight of full PQ core) made up of mineralised transitional partly oxidised material and fresh material.

The drilling and testwork are critical path tasks for the pre-feasibility study, consequently this work has been commenced and currently well ahead of schedule.

Additional water sampling for the pre-feasibility study test work has also been completed and the sample delivered to the laboratory in Perth.

Auzex  is currently on track to complete phase two infill drilling at the Bullabulling Gold Project by December. The company expects results to add further to the JORC Resource of 2.6 million gold ounces.

Auzex is currently in a very interesting phase of its development, and is currently on track to complete phase two infill drilling at the Bullabulling Gold Project by December.

The significance of this round of drilling is that the company expects results to add further to the JORC Resource of 2.6 million gold ounces.

The two companies, who are in the process of merging to form Bullabulling Gold, are working to extend their existing properties to add operational efficiencies.

An additional drilling rig has been added to the program and airborne magnetics are currently being flown to further assess the exploration potential directly due south of Bacchus pit and to assist in the planning for the deep drilling program expected to commence in the first quarter 2012.

There are currently three drill rigs working on the Phase Two program infilling the historic drilling between Phoenix and Hobbit to enable the current Inferred resources to be upgraded to Indicated resource category, thereby increasing the confidence in the current resource base.

Exploration drilling is also underway, including exploration targets to the south-east of the main Bullabulling Trend such as Sphinx, Edwards, Medusa, Gryphon, Kraken and Minotaur where previous RAB drilling has intersected widespread gold mineralisation which is expected to add additional resources to the resource figure announced in August 2011.

A key aim of the Phase Two resource drilling program is to infill the current and historic drilling to a drill spacing that allows the Inferred resources in the recently announced resource estimate to be reclassified to an Indicated resource category, and in turn enable initial JORC reserves to be established for the project.

The total remaining infill drilling from Bacchus to Bonecrusher is about 25,000 metres. At the assumed current production rates of 360 metres per day the infill drilling program should be completed by December 2011.

There are approximately 9,000 metres of infill drilling remaining in the Titan-Phoenix area, which should be completed by mid-October 2011.

Following a review of drill results at Bacchus East, the total number of metres has been increased to more effectively test the footwall lodes, with the company expecting this program to be completed by early November.

Near Surface Exploration Results

Preliminary scout exploration drilling has been completed between Edwards and Minotaur with low grade mineralisation intersected similar to that along the Bullabulling Trend.

However, this mineralisation appears to be less continuous and in the holes drilled to date have not intersected the higher grade zones of mineralisation found between Bacchus to Hobbit.

Better intersections include 11 metres at 1.16 g/t gold from 76 metres from the Kraken prospect and 2 metres at 8.71 g/t gold from 100 metres from the Edwards prospect.

A number of new holes are planned to test the full section of the ultramafic to cover both contacts on fence lines with a SW-NE orientation.

Auzex said it is clear that the historic drilling does not fully test significant areas of alluvial cover that are associated with low level gold soil anomalies to the south along the Bullabulling Trend within the newly granted Exploration Licences.

Six regional scale targets have been identified that require follow up exploration drilling, which is planned to start immediately after the infill drilling is completed.

Potential for Deeper High Grade Mineralisation

The company continued planning the Deeps exploration program with a review on the potential for using deep geophysical techniques to map the 3D geology at depth at Bullabulling completed.

A combination of detailed magnetic data will be used in combination with 2D seismic and gravity to develop a detailed 3D model of the structure and geology of the Bullabulling Trend.

This model will then be used to target mineralisation at depth. The detailed magnetic data acquisition will be carried out over the regional extent of the Bullabulling Trend and is expected to commence in mid-October.

Auzex will be presenting at the Proactive Investors One2One Forums - Sydney, on Wednesday the 21st September 2011, CLICK HERE to register.

An agreement will combine the 2.6 million ounce Bullabulling Gold project, (previously a 50:50 joint venture), under a single corporate entity to be named Bullabulling Gold.

The new entity will be Australian domiciled and listed on the ASX and AIM markets.

Chris Baker, chairman of Auzex Resources, commented on the transaction and said, “This transaction delivers an outstanding outcome for all parties, it has been complex to structure and negotiate due to requirements of both parties ensuring the interests of all shareholders was recognised and that they benefited equally from the outcome.

"This merger will provide the opportunity to unlock significant value for both parties and ensure the fast-track development of the Bullabulling Gold project at a critical time in its development.”

The outcome

The deal will create an advanced exploration / pre development gold-focussed company, which will wholly own the Bullabulling Gold project - which is strategically located 65 kilmoetres south-west of Kalgoorlie, in Western Australia.

The merger outcome is Auzex and GGG shareholders own 50% each of Bullabulling Gold, subject to adjustment for cross share holdings and relative cash holdings.

The merged entity’s pro-forma diluted market capitalisation post completion will be around A$95 million.

Auzex will also demerge the company's non-Bullabulling assets.

Transaction mechanics

The transaction requires the implementation of two schemes:

- GGG will create an Australian registered company called Bullabulling Gold and go through a UK Scheme of arrangement to exchange each ordinary share, warrant and option in GGG for an equal number of shares, warrants and options in Bullabulling Gold.

Bullabulling Gold will then seek admission to the Australian Stock Exchange, with a secondary listing on the AIM market.

- All scrip merger of equals of Auzex and Bullabulling Gold by Scheme of Arrangement with Auzex shareholders to be issued new Bullabulling Gold shares - for their Auzex shares held.

- Existing Auzex options to be exchanged for equivalent options, or converted into shares in Auzex prior to Scheme taking effect.

- The directors of Bullabulling Gold will consist of two non-executive directors nominated by Auzex and two non-executive directors nominated by GGG.

Bullabulling Gold will appoint 3 new independent directors including the chairman and managing director.

The formation of Opco

Immediately upon execution of the Agreement, Auzex and GGG will form a management company, to be named Opco, to be equally owned.

This entity will immediately assume management of the Bullabulling Gold Project to deliver upon the agreed development strategy.

The board of OpCo will initially comprise 3 directors from each of Auzex and GGG with Chris Baker and Nigel Clark acting as co-chairman, until a new chairman is appointed.

Importantly for the progression of the project joint venture with 50:50 partner GGG Resources (ASX: GGB; AIM: GGG), drilling at the Bacchus and Phoenix pits have converted 711,700 ounces to the higher confidence Indicated Resource.

The impact from the latest drilling at Bullabulling is that the project has now been partially drilled to a JORC standard enabling the joint venture to move to JORC Reserves from Resources.

John Lawton, managing director, said “The Bullabulling Gold project continues to demonstrate that Bullabulling is a very large and highly continuous system.

"Initial optimisation modelling based on the new resource estimate has indicated potential to achieve an initial reserve of between 1.5 million and 2.0 million ounces of gold with a minimum mine life of approximately 10 years depending on the annual rate of production selected."

Auzex said that the company expects a high conversion of resources to reserves due to the holes drilled within optimised pit shells.

The phase two 70,000 metre infill drilling program is currently underway targeting an upgrade in a substantial portion of the Inferred Resources to Indicated by the end of the year - which will allow the initial Reserve to be estimated.

Highlighting the potential of Bullabulling, preliminary project optimisation studies indicate a reserve target of 1.5 to 2.0 million gold ounces within the known resource base.

Lawton added, "Further resource upgrades can be expected from the current phase two drill program from within the Bullabulling Trend which commenced in May 2011 and will run through to November 2011."

A 20,000 metre exploration drill program is also in progress targeting Gryphon, Kraken, Minotaur and Edwards on the southern extension of Bullabulling Trend.

The 2.6 million gold ounce Resource

The Snowden Group completed the resource upgrade for the joint venture, with the resource 75,013,000 tonnes at 1.08 g/t gold for 2.61 million ounces of contained gold at a 0.5g/t gold cut off.

The estimation used assays from all the historic reverse circulation and diamond drill hole data, but excludes the rotary air blast drilling from the August 2010 resource estimate completed by CSA Global.

Bullabulling is located near Coolgardie and around 65 kilometres south-west of Kalgoorlie in Western Australia, and historically has been mined producing 371,000 gold ounces in the 1990’s.

Project Optimisation

Four optimisations scenarios were developed to check the new resource estimate and to assess the economic potential of the project.

These were carried out using a spot gold price US$1,500 and exchange rate of US$1.07, recovery of 92.5%, a discount rate of 8% and process rates of 3.5, 5.0, 7.5 and 10mtpa.

No mining dilution was applied on the basis that the MIK resource model incorporates some degree of dilution and a mining recovery of ore 95% was used.

The outcome was very positive - with all scenarios returning positive economics and all scenarios mine a main pit 3.1 kilometres long and 180 metres deep and a second pit at Bonecrusher that is 1.0 kilometre long and 120 metres deep.

The scenarios provide between 9-13 year mine life, with potential reserves in the range of 1.5 to 2.0 million ounces of gold, which equates to a resource to reserve conversion of between 55 and 80%.

The annual production range is 105,000 to 240,000 ounces of gold at an average grade of from 0.8 to 1.0 g/t gold and the strip ratio ranges from 3.4 to 2.6.

Importantly, all scenarios include a significant proportion of the new Indicated and Inferred resources, which means with infill drilling these resources will convert directly to reserves.

Better still, Auzex said consequently the confidence of meeting the new reserve targets is high.

Analysis

While Auzex is still under takeover, it continues to progress the Bullabulling project.

Lowering the cut off rate to 0.5g/t gold is likely to allow Auzex to develop a bulk mining operation, with potential 5-6Mtpa processing capacity from a pit 4 kilometres in length.

Moving toward a maiden reserve will further increase the confidence levels as the project moves closer to production.

The Auzex share price has fallen back to EV/Resource ounce levels that are just a fraction of its peer group.

There appears to be significant potential for re-rating for Auzex.

The joint venture partners agreed with geological consultants the required drill spacing to define JORC Indicated resources could be increased to 75 metres north-south and 35 metres east-west.

The widening drilling will reduce both the timeline and cost to complete the current infill drilling program along the Bullabulling Trend which exceeds eight kilometres in length, and importantly confirms Bullabulling as consistent and highly predictable mineralisation.

The phase two infill drilling which is currently underway will be completed using the wider drill spacing with over 25,000 metres already completed.

There is now less than 45,000 metres of infill drilling required to convert Inferred resources to Indicated resources, which is about half the total originally reported.

With the drilling program now taking less time, the other major plus is that the drill rigs can be released to accelerate the exploration program.

Auzex said the substantial historic drilling data acquired on acquisition has now been significantly duplicated and will now only be used as a supplement to future JORC estimates, with an updated JORC estimate in the process of being finalised with release imminent.

John Lawton, managing director of Auzex, commented, “This is a highly encouraging result and confirms the understanding of our technical team, that Bullabulling is a very large and highly continuous mineral system.

"The planned infill drill program has been halved to less than 45,000 metres remaining, as a result of the drill spacing study and will now be completed by November.

"This outcome will enable the joint venture to further accelerate the exciting exploration program along strike of the Bullabulling Trend.”

The current JORC Resource at Bullabulling is; 41,517,000 tonnes at 1.48g/t gold for 1.98 million ounces of gold at a 0.7g/t gold cut-off.

Bullabulling is located near Coolgardie and approximately 65km south-west of Kalgoorlie, Western Australia, and has been previously been mined producing 371,000 ounces gold in the 1990’s.

Auzex's joint venture partner at Bullabulling is GGG Resources (ASX: GGB; AIM: GGG), with both companies holding a 50:50 interest.

Auzex Resources will be presenting at the Proactive Investors One2One Forums - Melbourne, on Tuesday the 16th August 2011. To register, CLICK HERE.