LATIN AMERICA — Minefinders pins hopes on Dolores — New resource calculation improves on 1997 estimate

The downturn in the gold market has taken its toll on the share price of Minefinders (MFL-T), which is trading at the bottom end of a 52-week range of 80 cents to $2.65. However, exploration progress at the Dolores gold-silver project in northern Mexico is giving the company some cause for optimism.

Dolores, situated in the northern state of Chihuahua, is the main asset of the Vancouver-based junior, and geologists have outlined a medium-size, bulk-tonnage deposit that is currently the subject of an independent prefeasibility scoping study by MRDI Canada, a division of H.A. Simons.

Comprising more than 400 sq. km, the Dolores project is set in rugged terrain in the Sierra Madre Occidental mountains in the west-central part of the state, near the border with Sonora. Access to the property is limited to a small local landing strip, though locally it can also be reached by a 5.5-hour drive along 87 km of rough gravel logging roads from the town of Madera (pop. 35,000).

The project centres on a past-producing gold mining camp, which saw about 300,000 oz. gold and 14 million oz. silver produced between 1906 and 1929 from narrow, underground, high-grade veins. Fire destroyed the vat leach cyanide mill in 1929, ending all mining and exploration. By 1993, when Minefinders acquired an option to earn a 100% interest, the property had undergone little modern exploration and had never been drilled.

Following a corporate reorganization in August 1995, a new management team, led by President Mark Bailey, decided to focus exploration and development efforts on Dolores.

Surface mapping and geochemical sampling program revealed a north-northwesterly trending zone of mineralization extending 4,000 metres along strike. Anomalous to potential ore-grade gold-silver values were recorded along the entire length over intervals of 15-100 metres of width.

The mineralized trend occurs in an older sequence of andesitic volcanic rocks locally intruded by a series of northwesterly trending, sub-parallel latite dykes and plugs, and overlain by caldera-related felsic ignimbrites and mafic volcanic flows. The older sequence is exposed in a horst-like structure that uplifts and exposes the older sequences in a window through the younger, unaltered volcanics.

The Dolores deposit is a low-sulphide, epithermal, quartz-adularia-sericite system structurally controlled by northwesterly trending, high-angle shear zones. Gold-silver mineralization is associated with intensely silicified, brecciated and stockwork-veined latite dykes in contact with the andesites.

Electrum

The principle ore mineralization is electrum and native gold and silver, with complex silver sulfosalt assemblages, including acanthite, pyrargyrite, miargyrite and stromeyerite. The main sulphide mineral associated with the veins and wall rock is pyrite, with traces of galena, sphalerite, marcasite, arsenopyrite and chalcopyrite. Oxide minerals include hematite, goethite, manganite and limonite.

The main trend is divided into four zones along strike: the North, the central Chabacan and Hondo, and the South.

Since drilling began in September 1996, a total of 134 diamond core holes and 110 reverse-circulation holes have been completed, including 56 holes drilled by Echo Bay Mines (ECO-T) in 1997 during a short-lived period in which it held an option to earn a 60% interest. Minefinders re-acquired a 100% interest in Dolores almost a year ago by paying $4 million cash and surrendering 1.25 million of its shares to Echo Bay. That transaction increased Echo Bay’s ownership in Minefinders to 25%.

Drilling to date has tested about 2,800 metres of the 4,000-metre strike length, with the bulk of the drilling focused on a 1,800-metre length of the main trend that includes the Chabacan and Hondo zones. The zones have been tested to a vertical depth of about 200 metres and remain open.

In early June, Minefinders announced a revised resource calculation, prepared by Mineral Resources Development Inc. (MRDI), that was based on the results from more than 35,000 metres of drilling in 160 holes covering a 1,800-metre strike length of the main trend. Using an Inverse Distance 5 model, MRDI estimated an indicated and inferred resource of 53.5 million tonnes grading 0.71 gram gold and 35.39 grams silver per tonne, based on a cutoff of 0.5 gram gold-equivalent. This is equivalent to a contained resource of 1.2 million oz. gold and 60.9 million oz. silver, or 2.5 million oz. gold-equivalent. An additional 30 million tonnes of material are classified as a potential resource.

(By comparision, last year’s estimate, by Nevada-based Humboldt Mining Services, was 25.3 million tonnes grading 1.29 grams gold and 47.4 grams silver, equivalent to 1.1 million oz. gold and 38.4 million oz. silver, based on a 0.5-gram cutoff and a total of 107 drill holes. This previous estimate included the East Dyke zone, which is not included in MRDI’s revised calculation.)

MRDI used several modelling techniques to calculate the resource but felt the Inverse Distance 5 capped model best represented the mineral deposit at the current stage of development. Drill assays are composited on 5-metre intervals, and modelling was developed using 10-by-10-by-5-metre blocks. To limit the influence of high-grade intercepts, gold and silver composite values were capped at 4 grams for gold and 180 grams for silver.

Gold-equivalent grade and ounces are calculated using prices of US$300 per oz. for gold and US$6 per oz. for silver, with estimated recoveries of 75% for gold and 50% for silver.

Minefinders envisions an open-pit, valley-filled, heap-leach mine utilizing Merrill-Crowe recovery methods. Initial bottle-roll tests by McClelland Labs and Colorado Mines Research Institute confirm that the mineralization is amenable to heap-leach cyanide processing with recoveries in the range of 70-80% for gold and 40-50% for silver. The metallurgical recoveries are still subject to ongoing testing.

Waste-to-ore stripping ratios are projected at a 4-5-to-1.

In a recent research report, Don Poirier, a mining analyst with Goepel McDermid Securities, estimates that a 3.5-million-tonne-per-year operation could produce, on a yearly basis, 113,000 oz. gold and 2.6 million oz. silver (or 157,000 oz. gold-equivalent) at a projected cash cost of US$225 per oz. gold, including royalties, with silver as a credit. On a gold-equivalent basis, the cash cost falls to US$161 per oz. over an 8-year mine life. Silver accounts for about 25% of the forecast mine production.

Capital costs are estimated by Poirier at US$65 million. Major cost items would include leach-pad construction, a crushing plant, road access and power. A concern of Poirier is that the ore material may require additional crushing to expediate the leach cycle time, owing to the presence of electrum, a gold- and silver-bearing mineral.

Victor Flores, an analyst with HSBC Securities, predicts capital costs will range between US$70 and $110 million. He adds that costs will depend on the crushing circuit requirement, access infrastructure and the geometry and siting of the leach pads. Flores notes that it will take a further 12-18 months of additional drilling and feasibility work before Dolores is ready to move into the construction phase.

Drilling on the property has been temporarily suspended because of the rainy season, though it is scheduled to resume this fall with an emphasis on infill drilling to advance the project to final feasibility. Management anticipates drilling an additional 200-300 drill holes.

Bolsa drilling

In the meantime, Minefinders has resumed drilling on its wholly owned Bolsa property, 30 miles west of Nogales in Sonora state. There, the drilling of 49 holes between October 1995 and April 1996 partially defined a potential open-pit, heap-leach prospect containing an indicated and inferred resource of 4.5 million tonnes grading 0.91 gram gold and 9.41 grams silver, equivalent to 120,000 contained ounces gold and 1.4 million contained ounces silver.

The follow-up drilling was delayed until this year, to allow the company time to complete
a land-use agreement with a local rancher and obtain additional environmental permits.

The Bolsa property is underlain by an altered and mineralized sequence of sedimentary, volcanic and intrusive porphyritic rocks of Cretaceous to mid-Tertiary age. The primary gold-silver anomaly previously tested extends 800 metres in length and over 215 metres in width. The anomaly is open in three directions and holds the potential for further expansion.

The large altered zone is characterized by intense silicification, sericitization and quartz-adularia stockwork veining.

Minefinders recently announced that 17 of the first 19 stepout holes encountered encouraging gold mineralization. Selected highlights include:

* 7.6 metres averaging 0.45 gram gold and 8.1 grams silver, starting at a down-hole depth of 50.3 metres in hole 98-43;

* 1.5 metres grading 0.4 gram gold and 1 gram silver, beginning at a depth of 64 metres in hole 98-45;

* 39.6 metres averaging 0.68 gram gold and 3.9 grams silver, starting at 16.8 metres in hole 98-48;

* 59.4 metres averaging 0.67 gram gold and 4.46 grams silver, from a depth of 22.9 to 82.3 metres in hole 98-49;

* 25.9 metres averaging 0.97 gram gold and 9.2 grams silver, beginning at 65.5 metres of depth in hole 98-58; and

* 6.1 metres averaging 0.4 gram gold and 3.75 grams silver, starting at 112.8 metres in hole 98-63.

Two of the holes intercepted near-surface, higher-grade values in what are interpreted to be feeder structures:

* Hole 98-8C intersected 20.6 metres averaging 1.22 grams gold and 29.33 grams silver (including 4.1 metres grading 3.23 grams gold and 93.6 grams silver), starting at a down-hole depth of 9.9 metres.

* Partial assays from Hole 98-9C include 18 metres averaging 2.87 grams gold and 11.7 grams silver (including 4.3 metres grading 10.39 grams gold and 43.3 grams silver), from a down-hole depth of 41.7-59.7 metres. Assays for the bottom half of the hole are still pending. The two holes lie 244 metres apart.

Stepout drilling is continuing at the Bolsa property.

Minefinders has 14.1 million shares outstanding, or 15.7 million fully diluted. As of May, working capital stood at US$4.2 million.