EDITORIAL PAGE — Eyeball assaying

Investors who bought shares of Cartaway Resources at peak prices are obviously not happy about the way the company handled the release of information from the drill program at the Cirque property in Labrador. This isn’t surprising, as they shelled out more than $20 a share to invest in a high-flyer that crashed back to earth after drill results fell far short of expectations.

Granted, some blame must go to the overheated market for resource-sector stocks, particularly those with potential to be “Voisey’s Bay II” or the next Bre-x. The market can be irrational at times, and this is one of those times.

And some of the buying frenzy can be chalked up to the old adage, “buy on mystery, sell on history,” such as occurred at Fortune Minerals’ less-than-fortunate mineral prospect in Canada’s North. But even after taking into account these factors, Cartaway could have handled the situation more responsibly; it is, after all, headed by experienced mining professionals.

Speculation was triggered by the company’s announcement that it had encountered sulphide zones in the first two drill holes. Unfortunately, they showed no nickel concentrations above 0.3% and no copper above 0.185%.

Two major issues underlie the Cartaway story. The first relates to disclosure, and whether or not the presence of sulphides in core is a material fact that ought to be reported. Those that argue yes should bear in mind that some parties might report the presence of sulphides in core even when those sulphides are mainly pyrite or pyrhottite, thus stimulating speculation by investors unfamiliar with basic mineralogy. On the other hand, the presence of sulphides in core prior to assay results was reported at Eskay Creek in British Columbia and at Voisey’s Bay in Labrador. In both cases, the companies were able to deliver the real goods.

Unfortunately, in the aftermath of each of these discoveries, there were incidents of “eyeball assays” performed by parties working nearby who, it would seem, are badly in need of corrective eyewear.

Perhaps it is time for securities regulators to consider whether or not “eyeball assays” should be reported, so that disclosure rules be made more clear.

The other issue relates to accountability. Based on visual inspection, Cartaway reported that its third hole contained chalcopyrite in the range of 5-10% (which would translate into 1.7-3.5% copper). Some investors speculated that with these copper values, nickel grades might be even higher.

Unfortunately, the visual calculation proved incorrect. When the assays came in, there was no copper concentration greater than 0.23%. The mining community was flabbergasted that such an error could have occurred.

Geologists often are asked to estimate the percentage of sulphides by volume in core, and this task is not outside the expertise of those who work in the field.

Sometimes those who log core are too rushed or inexperienced to do the job right; also, there may be several different sulphides complicating the process. In these cases, management should assess the soundness of the estimates before releasing them publicly. When in doubt, it might be prudent not to release them at all.

Cartaway management is obviously distraught by recent events. It has promised an explanation and says that, henceforth, it will release results only when assays are in-hand. Others might want to take note, as an ounce of prevention is still worth a pound of cure.