Sino Gold Limited has approved the early start of the underground development at its flagship Jinfeng Mine.

Pre-production capital to first ore production from the underground mine in early 2008 is estimated at US$20 million.

Sino Gold chief executive officer Jake Klein says the recent increase in ore reserves to 2.9 million ounces has provided additional confidence to accelerate Jinfeng's potential.

"Ongoing exploration drilling continues to provide encouragement that Jinfeng's reserves and resources will be further increased," Jake Klein says.

"Sourcing ore from the open pit and underground concurrently will provide us with great operational flexibility in delivering feed to the mill.

"This decision to bring forward development of the underground mine at Jinfeng will assist us in determining Jinfeng's optimal production level and maximising the project's value".

In April, Sino Gold announced a 38% increase in Jinfeng's ore reserves to 16.4 million tonnes at 5.4 grams per tonne gold, containing 2.87 million ounces. The planned open pit contains 1.04 million ounces and the planned underground mine contains 1.83 million ounces. The mine has a life of at least 14 years with the processing plant operating at its nominal 1.2 million tonnes per annum design capacity.

Geotechnical drilling has started in order to test ground conditions in the areas for decline development, shafts and backfill plant sites.

Portal construction is planned to start in the December quarter and it is estimated that the first ore production level will be accessed in early 2008.

Access will be via a decline and all ore production has been scheduled using the conservative cut-and-fill mining method. At full capacity the mine is expected to operate on three main levels, each of which will have an annual production capacity of approximately 400,000 tonnes of ore.

The decline will initially utilise mining equipment transferred from Sino Gold's Jianchaling Mine. A new mining fleet suited to the conditions at Jinfeng will be ordered as required.

Developing the underground mine will provide the capacity to deliver in excess of the nominal 1.2 million tonne annual design capacity of the plant. The current plant layout has been designed for an expansion.

The scale of expansion to the Jinfeng processing plant will be dependent on the actual performance of the plant now being built; underground mining conditions; and exploration successfully increasing reserves at Jinfeng and discovering new deposits within trucking distance.

Over the course of next year, Sino Gold plans to assess the actual plant throughput rates achieved and underground mining conditions encountered in order to determine what modifications to the plant are necessary to achieve expanded throughput rates.

Jinfeng is located in southern China approximately 180km south-southwest of Guiyang, the capital of Guizhou Province.

Sino Gold has 82% equity in Jinfeng. Jinfeng is considered to be the largest known Carlin-type deposit and the largest undeveloped gold deposit in China. Ore reserves total 2.9 million ounces and Mineral Resources total 4.0 million ounces.

Sino Gold has a positive view on the gold endowment of the Jinfeng region and the potential to increase Jinfeng's gold production.