SOUTHEAST ASIA SPECIAL — Australian juniors secure North American listings

A growing number of Australian-listed junior resource companies are turning to North American markets for investment support.

Lone Star Exploration secured a listing on the Vancouver Stock Exchange in early February and has since raised $25.2 million through a private placement of 24 million special warrants.

The company is based in Perth, Western Australia, and owns, as its principal asset, a 45% interest in the Awak Mas gold project on the Indonesian island of Sulawesi. Its joint-venture partner in the project is Australian-listed Gasgoyne Gold Mines, which also owns 45%. The remaining 10% is held by PT Asminco Bara Utama.

Gasgoyne Gold, whose assets include a half interest in the Yilgarn Star open-pit gold mine in Western Australia, was recently the target of competing takeover bids by Coeur d’Alene Mines (NYSE) and Australian-listed Sons of Gwalia. As it stands, Coeur d’Alene holds a 35.4% interest in Gasgoyne, while Sons of Gwalia holds approximately 60%.

Awak Mas is an advanced-stage exploration project, with an indicated and inferred resource estimated at 40.4 million tonnes grading 1.58 grams gold per tonne based on a cutoff of 0.7 gram. This amounts to just over 2 million ounces of contained gold.

Using a 1-gram cutoff, the resource is calculated at 27.8 million tonnes grading 2.02 grams, which is equivalent to 1.8 million contained ounces.

The project is in the Masmindo contract of work, which covers 36,294 hectares of land in the South Sulawesi province. It is accessible by a 40-km dirt road off the main road between the provincial capital of Ujung Pandang, 367 km to the south, and Palopo, 45 km to the north.

The terrain varies from moderate in the eastern half of the contract-of-work area (CoW) to extremely rugged in the western half. Elevation at the project area ranges from 850 metres above sea level at the base camp to 1,400 metres above sea level along the project’s southern boundary.

Equity interest

In early 1994, Lone Star reached an agreement with Battle Mountain Gold (NYSE) to acquire an equity interest in PT Masmindo Eka Sakti, an Indonesian foreign investment joint-venture company, which holds the exclusive exploration and mining rights for Awak Mas through a CoW issued in October 1987. Lone Star optioned half of its interest to Gasgoyne in late 1994.

A CoW provides for the exploration, development and mining of minerals in a project area and is granted by the Indonesian government. It is divided into extendible periods comprising: general survey (1 year); exploration (2 years); feasibility studies (1 year); construction (3 years); and operating (30 years). Awak Mas is, at present, undergoing a feasibility study.

Prior to Lone Star acquiring the project, Battle Mountain Gold incurred exploration expenditures of roughly US$4 million on the CoW. Reconnaissance exploration and follow-up sampling and mapping defined not only the Awak Mas gold-in-soil anomaly, but six other soil anomalies, which have yet to be drill-tested.

The main area of mineralization at Awak Mas is on the eastern and north-eastern limbs of an antiformal, or possibly domal structure. The bulk of the mineralization is associated with sheet-like intervals of quartz breccia and stockwork along shallow-dipping shear zones within the upper sequence of a low-grade metamorphic package (Latimojong Formation). Anomalous gold grades have also been noted in steeply dipping, sheeted quartz vein stockworks.

Infill drilling

Higher-grade gold values appear to be related to an increase in pyrite mineralization, although the overall pyrite content of the deposit is low.

In late 1994, Lone Star completed 10,000 metres of infill drilling on Awak Mas, which resulted in an upgrade of the mineral resource to 11.4 million tonnes grading 1.8 grams using a 1-gram cutoff, or 17.2 million tonnes grading 1.5 grams based on a cutoff of 0.7 gram.

A prefeasibility study in February 1995 envisioned a 2-million-tonne-per-year open-pit operation producing an annual 86,000 oz. at a total operating cost of about US$235 per oz. Capital costs were estimated at US$51 million for plant facilities and US$14 million for a mining fleet.

The joint venture drilled a further 23,473 metres in 1995, increasing the resource to its present level of 40.4 million tonnes grading 1.58 grams using a 0.7-gram cutoff. The bulk of the resource is outlined in the Rante and Lematic domains. To date, only half of the Awak Mas soil anomaly has been systematically drill-tested, with mineralization open to the south, west, north and at depth.

Development plans call for a 3-million-tonne-per-year open-pit operation producing an annual 150,000 oz. over a minimum mine life of seven years.

Capital expenditures are estimated at US$60-65 million, while operating costs are forecast at US$180-US$200 per oz. The overall stripping ratio is projected at 2.6-to-1.

Recovery exceeds 90%

Metallurgical tests, consisting of flotation followed by regrind and carbon-in-leach cyanide leaching, indicate a gold recovery greater than 90%.

A bankable feasibility study is under way, with a completion date anticipated for mid-year.

Lone Star and Gasgoyne are carrying out a US$5.3-million, 30,000-metre drill program, with the objective of expanding the existing resource of Awak Mas by at least 1 million oz.

The drilling is being directed on the Ongan domain to the north, Mapacing to the west, stepouts on the western and southern extensions of the Lematic, and infills on the central Tanjung.

During the first quarter, more than 6,000 metres of drilling were completed.

Significant results included 37 metres of 2.35 grams from the Lematic domain and 33 metres of 2.13 grams from the Tanjung domain, which lies between Rante and Lematic.

Management of Lone Star believes the near-surface mineralization is possibly associated with a deep feeder zone, which suggests the zone could be expanded at depth.

At present, the company has 54 million shares outstanding, or 128 million fully diluted. Lone Star says it has sufficient funds in hand to assure the project is moved through to production in 1998. Rothschild Australia has confirmed a mandate to provide a project loan facility for up to US$50 million for the construction of a plant and infrastructure.