Nugget effect could mean higher grades at McFinley

There seems to be little doubt that the third gold producer in the Red Lake, Ont., gold camp will be up and running in October.

Located at Bateman Twp., about five miles north of the defunct Cochenour Willans mine, the McFinley Red Lake Mines (TSE) project is expected to add about 14,000 oz annually to the camp’s gold output which reached 299,000 oz last year.

But if exploration at the nearby Dickenson and Campbell Red Lake mines are any indication, the McFinley project could turn out to be a much larger concern than current milling capacity would suggest.

Part of the same formational horizon that hosts the Campbell and Dickenson deposits, the McFinley property was until recently a joint venture involving McFinley Red Lake and Phoenix Gold Mines (COATS). After McFinley bought the Coniagas Mines (TSE) affiliate’s 50% stake for $3 million, DRX Inc. of Denver acquired 800,000 units or 20% interest in McFinley from Alexandra Mining of Bermuda. (Phoenix retains a 8.6% royalty interest once McFinley has recouped its costs).

Like the other Red Lake mines, the McFinley mineralized zones are characterized by the presence of coarse erratically distributed native gold which gives a “nugget effect” in terms of contained gold.

As a result, McFinley President Bill Cummins said he won’t know until testing on a 15,000-ton bulk sample is complete, what operating grades will be. Reserve inventory

The 30-claim McFinley property is known to host a drill-indicated reserve inventory of 890,000 tons of grade 0.21 oz gold per ton in an area 1,700 ft long to a depth of 1,700 ft.

That figure is based on 12,500 ft of underground drifting, crosscutting and 135,000 ft of surface and underground diamond drilling.

But metallurgical testing on 16 composite samples from three mineralized areas showed the actual grades to be higher by as much as 0.22 oz. “This suggests that a calculated grade level of 0.20 oz for a given zone may add up to an actual grade in the 0.40-oz-per-ton range,” said Cummins at the company’s recent annual meeting in Toronto.

While the metallurgical results pose an intriguing dilemma for McFinley watchers, Cummins said existing reserves won’t be recalculated until the bulk sample is completed in 12 weeks.

Meanwhile, after making an investment of $25 million so far, the company is spending about $600,000 per month to bring the project to a production mode. A 100-ton-per-day test mill was constructed to carry out the bulk test and the company is currently renovating hydro lines before bringing electricity from Cochenour.

“The gravity end of the mill is up and running and we see no problems with the cyanide circuit,” said Cummins who expects the facility to settle in at a rate of 175 tons per day or higher. Second shaft

Since almost all of the exploration work has centred on an area 2,000 ft in length and 400 ft deep, Cummins told The Northern Miner that it will be necessary to sink a second shaft once the operation starts to generate some cash flow.

For the year ended March 31, McFinley raised $9,250,000 via flow- through share financing. But since construction of the test mill is not covered by flow-through, the company plans to raise $2.5 million through a placement to DRX Inc. of 735,000 voting, convertible 7% preferred shares at $3.40 per share.

As part of the placement, DRX will receive 367,500 common shares at an exercise price of $4. McFinley is also negotiating a private placement of one million common shares to raise cash for a feasibility study and underground exploration at Bateman Twp.

The McFinley issue was trading recently on The Toronto Stock Exchange at $2.95 in a 52-week range of $9.50 and $2.75.