Chesapeake Advances to Prefeasibility Their World Class Mexican Gold Project
Summer 2010
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Volume 13 | Number 2 | Summer 2010 Vancouver, British Columbia www.ReportOnMining.com Planning for Profits - Report on Mining edition is published four times a year by Fusion Publishing Inc. All rights reserved. Any reproduction or duplication without prior written consent of Fusion Publishing Inc. is strictly prohibited. Published by Fusion Publishing Inc. Canadian Office Fusion Publishing Inc. #317 – 1489 Marine Dr. West Vancouver, BC Canada V7T 1B8 1.888.925.0313 (Toll Free) USA Office Fusion Publishing Inc. #1537 - 145 Tyee Dr. Pt. Roberts, WA USA 98281-9602 1.888.925.0313 (Toll Free) Publisher Terry Tremaine Associate Publisher & Editor Connie Ekelund Production Manager Christie Smith
As we’re preparing this edition, issues within the European Union are causing volatility within equity markets as cautious investors seek security in the U.S. dollar and gold. Personally I feel the strength of the world economy is going to be most dependent on the growing economies of China, India and Brazil. It’s these economies which will add the lustre to the mining companies we focus on. Through the years we have published this magazine many of the companies we’ve highlighted have seen their share price increase dramatically. It’s interesting to note when we released the last issue we recorded the share price of the companies presented and then again a month later. The average share price increase was an astonishing 78%. I believe this strength in market acceptance is strictly a reflection of the changing dynamics of the world economic order. Sitting here in Canada we benefit substantially from this changing world order. The Toronto Stock Exchange raises more money for mining companies than all the other exchanges in the world combined. Some would say the TSX controls the mineral wealth of the world. For investors seeking a relatively safe haven plus an opportunity for substantial incremental growth, I would suggest the mining companies trading on the TSX are well worth a look. I have little doubt that many of our long-time readers would nod their head in agreement.
Contributing Editors Grant Campbell Elvis Picardo CFA Account Managers 1.888.925.0313 Terry Tremaine Maureen O’Brien Marie Richards Linda Arnes
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Publication Mail Agreement #41124091 Circulation & Distribution Canada Post Distacor Inc. Newsstand Zinio Digital Non-deliverables please return to: Fusion Publishing Inc. Report On Mining Magazine #317 - 1489 Marine Drive West Vancouver, BC Canada V7T 1B8 Subscriptions: 1 year $14.95 in Canada (+$8.00 in USA) 2 years $28.00 in Canada (+$16.00 in USA) 1.888.925.0313 x1001 info@ReportOnMining.com www.ReportOnMining.com Free Digital Subscription www.tiny.cc/rom The information in Planning for Profits - Report on Mining has been carefully compiled from sources believed to be reliable, but its accuracy is not guaranteed. www.ReportOnMining.com
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Cover Story Chesapeake Gold Corp.
10 12
Mexico Mining in Mexico by Grant Campbell
14 16 18
North America Molycor Gold Corporation
20
Commodities Outlook Gold Glitters in Solitary Splendour by Elvis Picardo
On the Move El Tigre Silver Corp.
South America Sandspring Resources Ltd. Africa Energizer Resources Inc.
On the cover: Chesapeake Gold Corporation
Century Mining Corporation: starting in Canada, expanding in Peru.
Spring 2010 | Planning for Profits | Report on Mining 3
Mexico’s Sleeping Giant
Panoramic view of the Metates project
C
hesapeake Gold Corp. is a Vancouver, BC-based precious metal exploration and development company listed on the TSX.V stock exchange, symbol CKG. Chesapeake is currently advancing one of the largest undeveloped, disseminated gold-silver deposits in the world. The 100%-owned Metates property is located in Durango State, Mexico approximately 175 kilometres northeast of Mazatlan. Earlier this year Independent Mining Consultants of Tucson, Arizona completed a NI 43-101 compliant resource estimate which indicates Metates contains a measured indicated and inferred resource of 19.8 million ounces of gold, 530 million ounces of silver and 3.8 billion pounds of zinc. The resource estimate was based on a gold price of $900 per ounce and a cut-off grade of 0.40 g/t gold equivalent (gold-silver). Recently, M3 Engineering & Technology of Tucson, Arizona (M3 Engineering) completed a Preliminary Economic Assessment (PEA) on the project which indicates a large tonnage open pit mine is economically viable. Considering the current price of gold and silver Metates offers an exceptional opportunity for creating wealth over the long term. 4 Planning for Profits | Report on Mining | Spring 2010
You may be surprised to learn that Metates was first discovered over 20 years ago. After the first few drill holes the potential for hosting a world class size deposit was recognised. Cambior Inc., the previous owner, drilled 49,000 metres from 1993-1995 in an effort to define the size and grade of the deposit. The results were very compelling but the metallurgy was considered a challenge, and with gold prices at historically low levels, the deposit was deemed uneconomic. Since 1995 significant improvement achieved in the treatment of refractory gold-silver mineralization, coupled with a substantial increase in the price of precious metals Metates has enabled Chesapeake to capitalize on the unlocked potential in this huge world scale resource.
“Metates contains a measured, indicated and inferred resource of 19.8 million ounces of gold, 530 million ounces of silver and 3.8 billion pounds of zinc.� www.ReportOnMining.com
Chesapeake’s management has been working in Mexico and Latin America for over two decades and during this period followed Metates developments. President and CEO Randy Reifel has a tremendous exploration track record. He was first with Carson Gold Corp., one of the first Canadian junior mining companies to recognize and acquire concessions in Venezuela’s Kilometre 88 district before Placer Dome’s Las Christina gold project became forefront on the international stage. Then, he served subsequently at the helm of Francisco Gold Corp. Mr. Reifel’s vision and strategy led to the grassroot’s discovery of two world class gold deposits, El Sauzal in Mexico and Marlin in Guatemala. Francisco advanced El Sauzal to the pre-feasibility stage and was drilling Marlin when Glamis Gold acquired Francisco in 2002 for $390 million when gold was trading around $300 per ounce. Until last year El Sauzal was the largest gold mine in Mexico and Marlin is expected to produce 289,000 ounces of gold in 2010. Chesapeake’s management also includes Mark Malfair, VP Exploration, who has over 15 years of international exploration and development experience. Alberto Galicia, Exploration Manager, with over 15 years experience in Mexico and Latin America, is the co-discoverer of the Marlin deposit. Gerald Sneddon, Executive VP Operations, has over 45 years international experience in the development and operation of base and precious metal mines. Gary Parkison, Metates Project Manager, has over 34 years experience in exploration, project evaluation and development of precious metal projects. Mr. Parkison was the project manager at Metates for Cambior during 1993-1997 and similarly with Chesapeake since its acquisition of the project.
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In the mid-2000s Mr. Reifel was able to negotiate a very innovative agreement to acquire the Metates property. The deal was negotiated when gold was trading in the $450 per ounce range and a portion of the purchase price was pegged to an $850 per ounce gold price, offering the selling company increased sale proceeds if gold remained at the higher price. The deal also reduced the development risk for Chesapeake if gold remained at the lower price over the long term.
Spring 2010 | Planning for Profits | Report on Mining 5
Aerial view of the Metates Main and North zone
6 Planning for Profits | Report on Mining | Spring 2010
There have been a number of hurdles which have had to be overcome to position the Metates project for development. Cambior initially determined that the mineralization is contained in two zones, the Main and the North zones, and was planning to develop these as separate deposits. Cambior earned its interest in Metates by completing a pre-feasibility level study on the Main zone which contains approximately 25% of the gold and silver. From the outset, Chesapeake’s objective was to determine whether both the Main and North zones could be mined as one deposit utilizing existing conventional methods scalable to a large open pit operation. In testament to Chesapeake’s extensive experience with input from several prominent consultants, the technical and operational challenges have been methodically resolved. The large open pit mine outlined in the PEA estimates the life of the mine direct operating cash costs will be very industry competitive with similar scale operations today. Mineralized from surface, this enormous open pit will be approximately 2,500 metres long, 2,000 metres wide and up to 600 metres deep. The gold-silver mineralization at Metates is largely contained in the sulphide mineral pyrite which is present as veinlets and disseminations throughout the ore body. Because the gold and silver is so fine grained as to be invisible and largely refractory, the ore cannot be processed directly with the standard cyanidation process. www.ReportOnMining.com
“Overall recoveries (from ore to dore) are estimated at 85% for the gold and silver using a conventional cyanide leaching process.”
Metates mine site plan
After evaluating a number of processing options to treat this refractory ore, Chesapeake and M3 have concluded that a combination of conventional processes will provide excellent gold and silver recoveries on a cost effective basis. The ore mined from the open pit will be crushed and then fed to a sulphide flotation plant which will separate the pyrite from the rest of the rock. The volume of concentrated pyrite will be only about 10% of the original rock and will contain 90%-95% of the gold, silver and zinc. The mine is located in the Sierra Madre Mountains and large areas suitable for processing facilities are limited. As such, Chesapeake proposes to develop a slurry pipeline which will move the bulk sulphide flotation concentrate 140 kilometres downhill to a site close to available water, supporting infrastructure and large limestone resource. The slurry pipeline system is a proven technology which is being used in several existing mines globally. The separation of mining and processing takes advantage of the site topography and infrastructure downhill. An acid pressure oxidation plant or autoclave will be used to break down the pyrite and make the resulting product amenable to gold-silver recovery in a conventional cyanidation plant. The processing facilities will be adjacent to a limestone quarry allowing for the project’s own limestone feed stock to neutralize the acidic solutions from the autoclave operation. Saleable zinc sulphide is recovered from the autoclave solutions. Overall recoveries (from ore to dore) are estimated at 85% for the gold and silver using a conventional cyanide leaching process. The Metates mine will produce gold and silver dore bars and the zinc concentrate to be shipped to a smelter.
“Average of 800,000 gold equivalent ounces annually over 27 years... direct operating cost of $419 per ounce not including zinc...”
Metates processing location site and infrastructure
www.ReportOnMining.com
Spring 2010 | Planning for Profits | Report on Mining 7
As defined in the PEA, the open pit operation is projected to mine 90,000 tonnes of ore per day and produce an average of 800,000 gold equivalent ounces annually over a 27 year mine life. At a $900 gold price the life of the minte operating cash cost is estimated to be $419 per ounce, not including zinc production revenue ($366 per ounce including zinc). Chesapeake sees the keys to achieving such an attractive cash cost is the excellent gold-silver recoveries into the flotation concentrate, incorporation of the slurry pipeline, a source of high quality limestone close to the autoclave plant and a dedicated power plant to supply low cost electricity over the mine life. The project’s low cash costs provides strong economics with less than a six year payback on the initial capital investment of U.S. $3.2 billion, a pre-tax IRR of 13.0% and a NPV (8% discount) of $1.2 billion. The Metates project would be the largest gold mine in Mexico in terms of ounces produced, exceeding that of Goldcorps Inc.’s Peñasquito mine. Metates is beginning to attract companies interested in adding long life gold and silver reserves particularly in a politically friendly jurisdiction. It is becoming a growing concern to many large producers to find and develop enough reserves to offset the depletion of reserves from current production. Metates is on the radar screen of many of these companies as they scramble to replace and grow their asset base. In addition to the Metates project Chesapeake holds other properties in Mexico and Nevada. The company is currently in negotiations with Christopher James Gold Corp. for a reverse takeover which will see Chesapeake vend its Talapoosa property in Nevada and possibly two Mexican properties into a new company. Christopher James will be renamed Gunpoint Explorations Ltd. and Chesapeake will hold a minimum 75% ownership in Gunpoint. Terms of the proposed transaction are expected to be finalized by the end of May 2010.
8 Planning for Profits | Report on Mining | Spring 2010
“The project’s low cash costs provides strong economics with less than a six year payback on the initial capital investment of U.S. $3.2 billion, a pre-tax IRR of 13.0% and a NPV (8% discount) of $1.2 billion. The Metates project would be the largest gold mine in Mexico in terms of ounces produced, exceeding that of Goldcorps Inc.’s Peñasquito mine.”
Chesapeake is in the strategic position of having 100% ownership in one of the largest undeveloped precious metal deposits in the world. The PEA indicates that the project can be brought on stream with robust economics using proven conventional technologies. The management team has an enviable track record of successful mine development leading to the creation of shareholder value. Chesapeake is moving forward to complete a pre-feasibility study within the next 12-15 months.
www.ReportOnMining.com
Without considering a leverage takeover by a major, Chesapeake is trading at a compelling valuation on a stand alone development basis. At Chesapeake’s current market capitalization, the in-situ value of it’s gold resources alone (excluding silver) is about $20 per ounce, and $14 per ounce in terms of gold equivalent, with silver, the lowest amongst its industry peers which average over $45 per ounce for similarly advanced projects.
www.ReportOnMining.com
Chesapeake Gold Corp 201-1512 Yew Street Vancouver, BC Canada V6K 3E4 Phone: 1.604.731.1094 Fax: 1.604.731.0209 E-mail: chesapeake@shaw.ca www.chesapeakegold.com TSX.V: CKG Year Hi/Low: $10.00/3.76
Spring 2010 | Planning for Profits | Report on Mining 9
Mining in Mexico by Grant Campbell
F
or many North Americans, Mexico is thought of as a place to go for low cost all-inclusive winter vacations. The reality is that Mexico has become a globally significant economic power. NAFTA has enabled this country of 109 million people to move forward developing a modern economic infrastructure. Mexico has been and continues to be a very active mineral exploration area. The country has established itself as a very mining friendly jurisdiction. In the years since the NAFTA agreement was implemented, the Mexican government has worked to implement a transparent and consistent mining policy. Mining companies operating in Mexico now have a clear legal framework to reference when exploring and developing a project.
10 Planning for Profits | Report on Mining |Summer 2010
The regulations administered under the Mining Law allow direct foreign investment up to 100% ownership of a company’s capital stock. The Mining Law was updated and amended in 2005 to combine exploration and exploitation concessions into a single entity which runs for a 50-year term. The concessions allow the holder to perform exploration work on the ground in order to identify mineral deposits and exploitation work to extract mineral products from these deposits. By offering a modern system of exploration and development criteria established in law Mexico has been able to attract substantial long-term investment into the mining sector.
www.ReportOnMining.com
Mexico has a long history of mining activity going back nearly five centuries to the Spanish Conquistadors. The country has seen exceptional amounts of exploration activity over this period. As with the Conquistadors the main attraction has been the pursuit of silver and gold, but the region has seen a substantial amount of base metals such as copper, zinc and lead produced as well. There are four major domestic mining companies, Industrias Penoles, S.A. de C.V., one of the largest producers of refined silver in the world, a conglomerate consisting of over 50 companies and employing in excess of 10,000 employees; Grupo Industrial Minera Mexico which produces approximately 90% of Mexico’s copper; Expresas Frisco; and Luismin. Mineral production has predominantly occurred in three states which account for over 50% of the total annual production, Sonora (24%), Zacatecas (13%) and Chihuahua (13%). In an effort to expand exploration the government has created the Mexican Geological Survey which has established a database of prospective exploration areas throughout the country. The country has rapidly moved forward economically and is now the tenth largest exporter globally. Mexico produces a wide variety of products from a number of sectors including the traditional agricultural, industrial and mining segments. Mexico is one of the top ten global producers of barite, manganese, salt, lead and zinc. The country produces 17% of the global supply of silver, 38% of base metals and 29% of gold annually. In 2007, Mexico produced 99.2 million ounces of silver — the second highest globally. It was the fifth largest producer of zinc at 410,000 tonnes, the sixth largest producer of lead at 120,000 tonnes and the 11th largest producer of copper at 318,000 tonnes. The value of metal and minerals exported has been strengthening to over U.S. $8.1 billion annually. A history of successful mining development has attracted investment by a wide range of companies from large and globally dominant to small junior exploration companies.
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Mexico sees approximately $1 billion invested in exploration and development by foreign companies annually. There are approximately 200 foreign mining companies operating in Mexico. The majority of these companies are either Canadian or American-controlled. The Mexican Stock Exchange has a total of 250 companies listed; the main widely quoted index is made up of 40 of the most actively traded shares. Foreign investors are restricted to “Series A” listed shares or American Depository Receipts (ADRs). These are available on the larger and most liquid stocks. The Mexican Bolsa is Latin America’s second largest following only Brazil. Since signing the NAFTA agreement over 15 years ago, the Mexican government has been actively arranging other free trade agreements and now has agreements with over 50 countries. In the pursuit of trade the Mexican government has established a stable and identifiable set of criteria for investors and businesses to follow. The establishment of transparent legal framework has allowed the country to move forward rapidly in the expansion of mineral development. Clarity and adherence to the rule of law have reduced investment risk and has positioned Mexico as one of the world’s most desirable regions for mineral exploration and development. The country offers investors an opportunity to participate in mining exploration in a region with a long history of the discovery of exceptional mineral and metal deposits.
Summer 2010 | Planning for Profits | Report on Mining 11
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l Tigre Silver Corp. (TSX.V: ELS) is a new publicly traded company, which is committed to becoming a leader in mineral exploration and development. The company has its head office in Vancouver, BC and a mine site office in Hermosillo, Mexico.
“The original El Tigre mine operated from 1903–1938 and was one of the largest producers in Mexico of high grade silver...”
El Tigre’s current main focus is developing an old silver mine in Mexico. The company owns 100% of nine mining concessions to date comprising 43,098 hectares located in the Sierra El Tigre, northeastern Sonora State in Mexico (The El Tigre Property).
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Mineralization at Sierra El Tigre was originally discovered in the higher elevations of the district as a high-grade gold vein. A shaft was sunk on the vein and, as mining progressed downwards, rich silver ores were found. Thereafter, mining concentrated on exploitation of the rich silver ore bodies. The original El Tigre mine operated from 1903–1938 and was one of the largest producers in Mexico of high grade silver at that time. Originally discovered around 1900 by Lucky Tiger Combination Gold Mining Company, the original El Tigre Mine exploited the principal veins of the district, recorded production of about 75 million ounces of silver and possibly as much as 400,000 ounces of gold from 1904 to 1939 (Thoms, 1988). During that time, an estimated additional 5 million ounces of silver were produced from the mines north of the El Tigre in the Pilar de Teras area. The mines also produced unknown amounts of lead, copper and zinc, contained in the silver-rich sulfide concentrates.
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The company has recently begun a work program on the property to evaluate the most attractive targets at the El Tigre property as outlined in the NI 43-101 Technical Report. The company has hired a consulting geologist, Eugene (Gene) Schmidt. Gene also worked for Anaconda Mining in the early 1980s as project manager on the El Tigre property and was present during the time that the work program was carried out by Anaconda Mining. His previous work experience on the El Tigre will be invaluable to the company as it proceeds with its exploration and development program.
www.ReportOnMining.com
El Tigre Silver Corp. 1207 - 409 Granville Street Vancouver, BC, Canada V6E 1A6 Phone: 1.604.728.7145 E-mail: jross@eltigresilvercorp.com www.eltigresilvercorp.com TSX.V: ELS Year Hi/Low: $0.35/0.21
Spring 2010 | Planning for Profits | Report on Mining 13
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olycor Gold Corporation (TSX Venture: MOR) (Pink Sheets: MLYFF) (Frankfurt: M1V) (the “Company”) is a mineral exploration and development company with base and precious metals properties throughout North America. The Company has three resource assets as part of their holdings. The most significant of these assets is located in Nevada consisting of a huge dolomite structure containing consistent grades of magnesium (Mg in the periodic table). The project is named the Tami-Mosi Property and is located 6.5 kilometres south of Ely, Nevada with infrastructure such as major highways, high tensile power lines and logistical support within the immediate area and Quadra’s copper mine operating nearby. With China producing over 87% of the global supply and the United States being a net importer, the Tami-Mosi Magnesium project is a possible alternative source for the magnesium metal within North America with a brine producer named US Magnesium Corporation as the only other source for domestic supply. The inferred deposit size as per NI 43-101 is as follows: 236.18 million tonnes grading 10.00% magnesium translating to 51.75 billion pounds of contained magnesium and open in all directions and to depth. (See www.sedar.com). The resource estimate is calculated at an 8% cut-off and applied a specific gravity of 2.84 tonnes per cubic metre for the dolomite host. The mineralized blocks were extended to 200 metres below the existing surface, a depth practical for an open pit mining operation. Mineralization is near surface as demonstrated by hole #TM-07-13 which assayed 11.40% Mg over 164.6 metres starting at a 1.5 metre depth. The dolomite is of high purity and favourable to the extraction of magnesium. Molycor engaged Teck Cominco Global Discovery Labs to analyse a 9.2 metre (30 ft.) section of hole #TM-07-13 to test the purity of the dolomite. Results returned a high purity form with relatively low iron and aluminum concentrations resulting in a virtually identical sample as that with the National Bureau of Standards (‘NBS’), “Standard 88B”. The Tami-Mosi dolomite compares to five past producers in North America, Europe and Japan and after extensive research on concentrator methodology, Molycor has engaged Hazen Research Inc. to initiate a process development study for the exploitation of the magnesium metal. 14 Planning for Profits | Report on Mining | Spring 2010
Top row, left to right: Southeast pit wall; samples. Bottom row of photos, left to right: Sample rock; Northern Mosi claims - our geologist studying mineralization in old prospect trench; Core; mid-Mosi claims, East; trench in shared and altered precam granite; drilling.
“...the Empress resource is displaying the need for further exploration and development.” Magnesium metal is as strong as steel and 40% lighter than aluminum. With its high strength to weight ratio, durability, resistance to impact, and casting characteristics it lends itself to a wide range of applications. In 2007, approximately 36% of magnesium was used in aluminum-magnesium alloys, 32% in die casting applications, 16% in iron and steel desulfurization and the remaining for other applications. With the continuing pressure from government agencies to increase efficiencies in sectors such as the auto industry, magnesium has become one of the leading metals to help reduce the overall weight of contained metal to improve fuel economy and lower CO2 emissions. The Company is continuing to explore the Tami-Mosi through drilling to further define and expand the existing NI 43-101 resource. Nevada is considered to be one of the most favourable states to permit a new mine and together with a highly experienced management team and a recovering global economy; the Tami-Mosi Magnesium Project has become an exciting opportunity. The second resource asset is the Empress Molybdenum Project, a 50/50 joint venture with Goldrea Resources Corp. situated just 15 kilometres south of Brenda Mines, a former copper-moly producer near Summerland, B.C. www.ReportOnMining.com
As molybdenum prices and the global economies rebound and the insatiable demand for the metal increase, the Empress resource is displaying the need for further exploration and development. During 2008, a drilling program consisting of 19 BQTW drill holes totalling 3,493 metres (11,429 feet) was drilled in the center of a mineralized 730 X 360 metre area. A NI 43101 indicated and inferred resource study was completed by Norm Tribe and Associates Ltd. which quotes: 1,703,000 tonnes @ 0.094% Mo indicated and 1,657,498 tonnes @ 0.094% Mo inferred at a 0.05% Mo cut-off and further states: 3,996,155 tonnes @ 0.0605% Mo indicated and 3,498,000 tonnes @ 0.0619% Mo inferred at a 0.02% cut-off. The resource is exposed at surface and is open in all directions and to depth. The third resource asset is the Davis Gold Project, located
in Nye County, Nevada, 13 kilometres southeast of Gabbs, Nevada. Since 2007, exploration has occurred on 50% of the claim unit consisting of geological mapping, rock chip and soil sampling that has identified six mineralized gold and silver anomalies. The geological structuring of the anomalies comprise of potential high-grade, epithermal gold and silver veins, as well as stratabound mineralized zones similar to the nearby Paradise Peak Mine (1.46 M oz gold and 38.9 M oz silver) which was active from 1985 to 1995. To date, these six mineralized gold and silver anomalies contain individual mineralized strike lengths up to 2,200 metres and rock chip outcrop samples with highs grading up to 14 g/t gold and 11.8 opt silver over and includes one with a Historic (Non-compliant) NI 43-101 inferred gold/silver resource as reported by William T. Worthington, Consulting Geologist for the previous owners USSRAM Exploration Company in 2000 as being: www.ReportOnMining.com
“Six drill holes at the Davis (vein) strike length of 300 to 400 feet. The zone extends to a depth of at least 500 feet and is between 20 and 30 feet (wide). It should be easy to infer a block reserve of over 300,000 ton. The average grade of the six holes weighted by core length is 0.11 ounces of gold per ton and 0.9 ounces per ton. (33,000 ounces gold and 270,000 ounces silver) A portion of this should be amenable to mining by open-cut.� In 2008, Molycor completed a seven diamond (HQ core) drill holes totalling 2948 feet to test mineralization up slope and along strike and returned high values up to 3.53 g/t (0.105 opt) gold over 4.3 metres and 11.8 opt silver over 1.3 metres. The Company is planning further exploration programs to test all six anomalies and is actively looking to joint venture possibilities.
Molycor Gold Corp 15782 Marine Drive White Rock, BC, Canada V4B TE6 Phone: 1.604.531.9639 Fax: 1.604.531.9634 E-mail: connieir@molycor.com www.molycor.com TSX.V: MOR PINKS: MLYFF FRANK: M1V Year Hi/Low: $0.105/0.035
Spring 2010 | Planning for Profits | Report on Mining 15
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S
andspring Resources Ltd. (TSX.V: SSP) is an exciting new public company representing 10 years of private operational experience in the Republic of Guyana. The former private company predecessor is now a wholly owned subsidiary of Sandspring. The production history of the company is surface alluvial and saprolite mining in Guyana. The future of the company is based on development of an underlying primary bedrock gold-copper deposit at Toroparu discovered in 2007. To date, a total of 900 metres strike length have been drilled on a 10 kilometre alluvial gold trend defined by historical artisan mining in this historically rich mining area in the Upper Puruni River region.
The Toroparu deposit is a large, potentially open pittable resource which was independently modeled by P&E Mining Consultants Inc. as a potentially open pittable deposit with an NI 43-101 compliant Indicated mineral resource of 1,369,400 oz. gold and 164 million pounds copper or 1,992,600 ounces gold-equivalent comprised of 45,574,000 tonnes at 0.93 g/t gold and 0.16% copper and an additional inferred mineral resource of 973,400 oz. gold and 105 million pounds copper or 1,372,500 ounces gold-equivalent comprised of 36,800,000 tonnes 0.82 g/t gold and 0.13% copper. The full NI 43-101 technical report may be viewed at http://www.sedar.com as publicly disclosed by Sandspring on May 20, 2009, or on the company’s website. Sandspring currently holds a medium-scale mining permit, which allows the company to mill up to 3,000 tonnes-per-day. The company has also initiated the permitting process for large-scale bedrock mining. In the area surrounding the Toroparu deposit, Sandspring presently controls and continues to explore over 100,000 hectares. Toroparu
16 Planning for Profits | Report on Mining | Spring 2010
www.ReportOnMining.com
Intensive drilling continues at this time. Sandspring’s current drill program is focused on increasing the drilling density and improving the quality of the resource to measured and indicated. In addition, the deposit is open along strike to the west and east and also to depth. The immediate goal of the company is to add ounces on step-out drilling leading up to a recalculation of the mineral resource in 2010. There is also a medium to longer-term objective to move into a scoping study (Preliminary Economic Assessment) and through feasibility on the expansion of the current operating permit from 3,000 tpd to upwards of 20,000 tpd and into large-scale bedrock production at Toroparu. The Toroparu Project is the newcomer amongst several very large gold deposits located along the edges of the Athabasca-like Roraima Basin. These deposits include the 20 million ounce Kilometer 88 trend, the 20 million ounce El Callao deposit, the 4.5 million ounce Aurora deposit, and the 3 million ounce Omai deposit, which was successfully mined out by Cambior Inc., a Canadian company. In the immediate geological environment of the Toroparu Deposit in the Guiana Shield, there are over 50 million ounces of NI 43-101 compliant gold resources known to date. Toroparu is located in “elephant country” and has been directly compared geologically to the 10 million ounce Las Brisas deposit on the Kilometer 88 gold trend in Venezuela. The advantage to Sandspring is that the 100% controlled Toroparu Deposit is located across the border from Kilometer 88 in business-friendly Guyana.
The company also has accomplished leadership behind it. Mr. John Adams, Lead Director of Sandspring, is the original founder of ETK Inc., which acquired, mined and developed the Toroparu asset, prior to vending into Sandspring. Mr. Adams was previously President of family-owned Energy Fuels Corporation, a private Denver-based uranium and coal mining company which was the largest uranium producer in the USA in the 1980s. Sandspring’s CEO Rich Munson, JD, LLM, joined with John Adams in 1985 as Corporate Counsel for Energy Fuels and is a practicing resource lawyer in Colorado. Rich is an experienced practitioner and has directed the company’s operations in Guyana since inception. In addition, Mr. Gerald Grandey, President and CEO of Cameco and Mr. Bradley Doores, VP and Assistant General Counsel of Barrick Gold Corporation recently joined the Board of Directors. President and Director Abraham Drost, M.Sc., P.Geo., former President of Sabina Silver Corporation, leads execution of the technical operations at Toroparu and oversees the company’s investor relations and marketing function, ensuring adequate working capital and management of capital markets requirements. Sandspring’s operations at Toroparu are road accessible to tidewater. The company has previously operated a truck and shovel open pit mining operation in saprolite to feed a 3,000 tpd gravity mill. While the future plans involve a much larger scale of mining operations supplying a conventional froth flotation and cyanide leach plant, the company should have little difficulty in procuring and delivering the necessary equipment. As for manpower, Sandspring is already a significant employer in Guyana and plans to grow. The Republic of Guyana is a stable English-speaking parliamentary democracy with British Common Law, a well-established Mining Act and a mining friendly perspective. Historical large-scale bedrock gold production in Guyana took place at the Omai Mine, operated by Cambior in the 1990s.
Sandspring Resources Ltd. Abraham Drost, President 1136 Alloy Drive Thunder Bay, ON Canada P7B 6M9 Phone: 807.252.7800 adrost@sandspringresources.com www.sandspringresources.com TSX.V: SSP Year Hi/Low: $2.00/0.65
www.ReportOnMining.com
Spring 2010 | Planning for Profits | Report on Mining 17
Africa
Green Giant Project Madagascar
• Potentially one of the largest vanadium discoveries in the world 100%-owned • 100% owned • Targeting V2O5 production for steel & battery markets
She Amb Cob
• Unique Uniq e geological deposit - hosted in sediments • Anticipated low operating costs and capital costs • Low-cost producer • Savannah-like terrain with low-population density • Minimal flora and fauna
Sakoa Coal Project $400m j
Green Giant Vanadium Property Vanadium Property
Green Giant Vanadium Project a Potential Game-Changer E
nergizer Resources Inc. (TSX-V: EGZ, OTCBB: ENZR) has discovered a unique, sedimentary-hosted vanadium deposit in the south western part of Madagascar, called the Green Giant Project. Extensive drilling and trenching to date, totalling 29,691 metres has quantified and confirmed through assays a continuously mineralized vanadium trend 21 kilometres long with widths varying along the trend from 40 metres wide to over 250 metres wide. The Company just released a National Instrument 43-101 compliant resource estimate, which confirms that a significant amount of vanadium has been discovered in two mineralized zones that account for a very small portion (1.35 kilometres) of the overall 21-kilometre trend. To date, 25.8 million tonnes V2O5 (21.7 of which is indicated and the remaining 4.1 being inferred) have been delineated and the Company has just commenced their second phase of resource drilling to expand this resource. With an average grade of 0.74% V2O5, indications are clear that the Green Giant is going to live up to its name-sake and will be a deposit of such size and grade that it could be of the largest vanadium discoveries in the world.
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One high-grade zone in particular, the “Manga” zone, has a high-grade core with vanadium values assaying as high as 1.2% V2O5 and is open along strike to the south and at depth. In just 500 metres of strike-length drilled to date, the Manga zone has an indicated resource of 16.3 million tonnes at 0.770% V2O5 and counting. Blue-sky Potential Energizer Resources is encouraged by the fact that they have found such a large amount of high-grade vanadium in a very small section of the overall vanadium trend, with almost 95% of the overall trend left still to quantify. This current phase of drilling will expand the initial resource to a targeted 55 million Vanadium battery tonne resource, which would equate to a 20year mine life producing approximately 14% of current world supply. By producing V2O5, the project can supply both the steel and battery industries. www.ReportOnMining.com
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The vanadium discovered by the Company is unique in that it is sediment-hosted, unlike the majority of intrusive-hosted deposits, and based on initial metallurgical work, is expected to result in a simpler extraction and process flow sheet. Contributing to the expected low cost of the project are the infrastructure synergies that will be created with the current development of a thermal coal project some 35 km from the Green Giant project that is expected to provide opportunities for cost savings. Due to the potential magnitude of the Green Giant project, it is being positioned to be highly scalable to meet the anticipated increase in demand of vanadium as a result of increased global infrastructure projects and vanadium’s emerging role in energy storage (battery) systems. Rapidly Rising Demand and Limited Supply Without doubt, vanadium is growing into one of the most important metals no one has ever heard of. Vanadium has been used for decades as a strategic metal that strengthens and hardens alloys like steel. In 2007, the world annual supply of vanadium was approximately 107,000 tonnes V2O5 coming mostly from South Africa, China and Russia. Demand for vanadium is forecasted to grow 6% annually to 2017 based on the steel side alone. While there are some opportunities for substitution in steel production, the same is not true for other markets, including the military and aerospace industries, and the energy storage markets, where vanadium is irreplaceable. New demand channels for vanadium in the alternative energy and clean technology arenas are rapidly emerging, and could result in significant vanadium shortages. Vanadium to Play a Key Role Battery Technology Vanadium is positioned to play a major role in emerging battery technologies, both in electric car batteries and large-scale energy storage. Vanadium, when combined with lithium, increases the energy density of a battery – in essence “supercharging” it. When it comes to electric vehicles, a higher energy density equals longer range. There are now three companies developing, and in one case, soon producing, vanadium-lithium technology. Subaru’s all-electric G4e concept car employs a vanadium-lithium battery and is reportedly scheduled to come to market in 2011. BYD Co., the Chinese maker of autos and batteries that’s backed by Warren Buffett is preparing to sell electric cars in the U.S. this fall and just announced it is locating its North American headquarters in Los Angeles. The debut car will be the all-electric e6, which is reported to use a lithium-vanadium-ferrous-phosphate battery. Texas-based Valence Technology has been manufacturing lithiumion batteries for mobile applications for almost 15 years. CEO Robert Kanode spoke during the company’s quarterly earnings call on February 2010 revealing that Valence will be shifting their chemistry and will soon be producing a lithium-vanadiumphosphate battery. He described vanadium as a “break-away material” that will deliver “breathtaking performance”. Both Valence and BYD have announced plans as well to develop large-scale stationary batteries for energy storage. www.ReportOnMining.com
Where vanadium has an almost position monopoly is in large-scale energy storage. The vanadium redox flow battery (VRFB) is understood by many industry analysts to currently be the leading viable solution to storing renewable energy. A VRFB can charge and discharge simultaneously and release power at the drop of a hat – two key characteristics that enable a VRFB to connect directly to the power grid. Cellstrom GmbH is a private company based in Austria that exclusively manufactures VRFB’s for “backyard” applications and has now set its sites on the power grid. Just fresh from a strategic acquisition by the massive German company Gildemeister GmbH, Cellstrom will be supplying Gildemeister’s renewableenergy division, a+f GmbH, with energy storage solutions. Cellstrom’s 200/400kwH VRFB modules are designed for storing energy produced from solar and wind farms and will debut at the world’s largest solar show in Munich this June. Given that each of these batteries requires almost one tonne of V2O5 for every 100kwH, the off-take potential for vanadium can become huge. These developments make it apparent that the tipping-point for the mass adoption of vanadium in next-generation battery technology could soon be upon us. Energizer is also readying its team for the future. The Company’s President and Chief Operating Officer Julie Lee Harrs, joined Energizer last year from Sherritt International Corp., where she was Chief Legal Counsel. She has extensive international mining experience having worked on mining projects in Canada, New Caledonia, Cuba and Madagascar. The Company has also established a Special Advisory Committee, comprising of The Hon. Brian V. Tobin (Chairman) and Mr. V. Peter Harder, a former long-serving Deputy Minister in the Canadian federal government. The Company recently completed a private placement financing, with Dundee Corporation and Consolidated Thompson Iron Mines Limited as participants. Realizing that vanadium-based manufacturers have frequently suffered from supply and price volatility, Energizer Resources believes its Green Giant Project could be a potential game-changer for the industry. With its size and expected low-cost profile, the Green Giant project has the ability to bring sureness of price and supply, which will encourage further investment in and rapid development of vanadium-containing products.
Energizer Resources Inc. 520-141 Adelaide Street West Toronto, ON, Canada M5H 3L5 Phone: 1.800.818.5442 Fax: 1.416.364.2753 Email: info@energizerresources.com www.energizerresources.com TSX.V: EGZ; OTCBB: ENZR; FWB:YE5 Year Hi/Low: $0.70/0.05 Spring 2010 | Planning for Profits | Report on Mining 19
Gold Glitters in Solitary Splendour By Elvis Picardo, CFA
I
n my previous column in the Spring edition of this publication three months ago, I identified two major risks that could weigh down commodity prices – tighter monetary policy in China, and sovereign debt. Since then, concerns about mushrooming sovereign debt have greatly intensified, with the current focus squarely on the heavily indebted European nations of Greece, Portugal, and Spain. These concerns are placing unprecedented strains on the European Union and calling into question the longterm viability of the euro. At the time of writing in mid-May, the euro had resumed its slide against the U.S. dollar to trade at a 14-month low of just over 1.25, despite a rescue package of almost $1 trillion unveiled by European leaders earlier this week to halt the growing debt crisis and support the currency.
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Commodity prices have been weighed down by EUR weakness / USD strength and by concern that the contagion effect from struggling European economies will spread globally and impede economic growth. Commodities have also retreated on worries that growth in China may slow down significantly, as the correction in Chinese equities has turned into an official bear market following a decline of over 20% in the benchmark Shanghai Composite index. Gold, however, is charting its own course, reaching a record high of U.S. $1,249.20 this week. The precious metal is setting new highs because of three factors: • The currency vacuum – The euro’s woes have threatened its status as an alternative reserve currency to the U.S. dollar, which has some well-publicized problems of its own. The dearth of strong reserve currencies and loss of faith in fiat currencies is fuelling a massive move into gold. The precious metal is once again in the limelight as a safe haven during economic turmoil and store of value over the long term. • Correlations are breaking down – The global appetite for bullion has resulted in the breaking down of time-tested correlations between gold and currencies such as the euro and U.S. dollar, as I had noted in the “Global Securities Market Bulletin” of April 30. The correlation between gold and the euro for the one-month period ending May 13 was -0.190, compared with 0.527 over the past 12 months. The correlation between gold and the U.S. dollar (using the Dollar Index or DXY as a proxy) was 0.042 for the same one-month period, compared with -0.541 for the past 12 months. Gold has also decoupled from other commodities, with its correlation versus the CRB Index at -0.001 for the one-month period compared with 0.484 for the past 12 months. These figures imply that gold’s traditional negative correlation with the U.S. dollar and positive correlation with the euro has diminished very significantly in recent weeks, as the euro has been caught in a downward spiral. Figure 1 shows gold’s march higher in graphical form. www.ReportOnMining.com
Figure 1 – Gold vs. the Euro and CRB Index: 2005-2010 (weekly)
Source: Bloomberg
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• Renewed market volatility – Notwithstanding increasing risks on the global macroeconomic front, investors seemed to have been lulled into complacency until recently by the steady stream of robust earnings reports and improvements in economic data. This complacent attitude was exemplified in the decline in the CBOE Volatility index or VIX in April to its lowest levels since July 2007, and the plunge in the TED Spread to a nine-year low a month earlier. Our proprietary FAIL® indicator, which combines the VIX and TED Spread to provide a composite measure of concern about global systemic failure, registered this headlong rush to complacency, falling in March to its lowest levels since early 2007 (Figure 2).
Summer 2010 | Planning for Profits | Report on Mining 21
Figure 2 – Gold vs. the VIX and FAIL®: 2005-2010 (weekly)
Figure 3 – Gold in C$ vs. TSX Global Gold Index: One year (daily)
Source: Global Securities Research, Bloomberg
The Dow Jones Industrial Average’s intra-day decline of a record 998 points on May 6 (800 points of that drop occurred in less than 20 minutes) is a grim reminder that market volatility is back. Gold is currently shining as the safe haven of choice in this volatile environment. In my opinion, there is a distinct possibility of gold moving sharply higher in the near term, given that the euro currently appears quite vulnerable and may have another leg lower. Against this backdrop, Canadian gold miners may offer significant upside potential.
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As Figure 3 demonstrates, the 49-member TSX Global Gold Index has now caught up with the price of bullion (denominated in Canadian dollars), after lagging it by a considerable margin earlier this year. However, with a number of producers trading well below their December highs even as gold appears on course to set new records, I believe this is as opportune a time as any to add quality gold stocks to diversified investment portfolios. (Elvis Picardo is Vice President – Research, and a strategist & analyst at Global Securities Corporation in Vancouver. The opinions expressed herein are his own).
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