RX revitalizes Drumlummon mine

SITE VISIT

MARYSVILLE, MONT. — The gold dribbles off the shaker table as the various players behind RX Exploration (RXE-C, RXEXF-Q) look on with excitement. Crowding around the machine in a small mill, many among the directors, geologists and financiers who had worked hard to reach this point are seeing the final product for the first time.

It’s been a big day for a company that had only optioned the historic Drumlummon gold-silver mine near Marysville in late 2006. The development ore churning through the mill comes from what everyone affectionately refers to as “Charly” — a newly discovered high-grade vein outside the old mine workings. While not in commercial production, the company is working on bulk sampling that should bring in fresh capital.

Murray Nye, president of RX Exploration, says the sight was almost unbelievable as he watched the mill churn out the gold, his wife Karen by his side. “When we started this four years ago, I had no idea, just a lot of hope,” says Nye.

Many challenges remain for the company, but for the day the mood has been buoyant as Nye and others take in the sight. Hours later, they would be witnessing the first gold pour from the Drumlummon mine in over six decades.

Humble beginnings

It was Nye who first approached Harold (Mike) Gunsinger in 2006 about the possibility of opening up a gold mine. The two had met as directors of Clifton Mining (CFTN-O), a Utah-based company. At the time, RX Exploration was a shell company with no property and little money.

Gunsinger told Nye he knew of some mines in Montana that might be a good fit. He approached Roy Moen, an old colleague who owns several mining properties in the area, about the mine he wanted. Moen said no. But, as Gunsinger tells it, while he was sitting in Moen’s office he stumbled upon another opportunity.

“While I was talking to him about that (mine) I saw the Drumlummon map on the wall,” says Gunsinger. “I was sitting there looking at it and talking to him about the other property and he didn’t want to sell it. So I said ‘what’s the story on this one,’ because I could see something that had potential in that big old rural map.”

He asked Moen if he could buy that mine, and the answer this time was yes, for US$1.2 million.

Nye got to work raising capital.

“We had no money and I had to raise fifty grand for a down payment,” says Nye as he stands beside the shaker table. “Then we had to raise the next $240,000.”

Payments were bumpy at first, with RX requiring an extension on its first installment, but the company has now almost paid in full. Moen’s company still holds a 2% net smelter return royalty and also owns the mill where RX has been processing its first bulk sample.

In the deal, RX secured 26 contiguous patented claims covering roughly 1.2 sq. km. In 2007, RX added another 68 contiguous unpatented claims that partially overlap the initial claims.

The company recently secured a further 22 patented and 50 federal claims spanning 4 sq. km directly southwest of the mine, collectively called the Bald Butte property. The area has seen gold and silver production in the past and was recently explored for molybdenum. RX has agreed to a 35-year incremental payment schedule for the property that will total US$5 million if fully paid.

Meanwhile, Gunsinger was appointed director of underground operations at Drumlummon and is currently using his 40-plus years of experience in the industry to bring the mine to development. Everyone at RX seems to have deep respect for Gunsinger and gives him much of the credit for keeping development on track.

Charly

Today, the company continues to develop the mine, pumping out water, driving tunnels, sampling and drilling. Provided everything goes well, the plan is to soon start producing roughly 300 tonnes of ore daily from development activities.

The game changer for RX was hitting the Charly vein, a new system outside of the old mine workings.

“When we drilled hole number 5, which was two years ago, we hit this Charly vein at the 500 level,” explains Gunsinger. “Six feet of multiple ounce gold. I knew then that I had a tiger by the tail.”

Gunsinger had a ramp driven down from the 400-ft. level to the Charly vein so miners could access it directly, cutting across the vein at the 500-ft. level.

Most recently, a channel sample of Charly cut a true width of 2.3 metres averaging 107.31 grams gold per tonne and 1,906.29 grams silver per tonne.

The Charly vein system has an inferred resource of 141,100 tonnes grading 15.43 grams gold and 421.71 grams silver, which was established in late 2008. Gunsinger says, since then, he has concentrated efforts elsewhere rather than on upgrading the estimate.

“We just spent all our money in the ground preparing for what we’re doing right now,” he says.

When RX first hit the Charly vein and realized it had something big, geologist Ben Porterfield was brought in to help. He was supposed to be there for two weeks, but is now lead geologist for the mine.

“The mine is so interesting that it’s fun,” Porterfield enthuses. “If it was boring, I wouldn’t be here. You learn something new every day.”

He shares in the general enthusiasm for the Charly vein.

“It’s something that can be easily developed since there’s no old stopes. The grade is phenomenal. You can afford to set up custom mills to process the ore and still make good money. This is over (US)$3,000-a-tonne ore and it’s costing (US)$21 to truck, (US)$35 or whatever to mill. You can afford to do it.”

The team has now driven the ramp past the Charly vein and plans to set up more drill stations underground to better assess the vein structure.

“The big problem is where do you drill from,” Porterfield says. “That’s why we’re going to set up a drill station and drill back. . . we’ll finally be able to drill Charly from the hangingwall down, which will be very nice, and hopefully we’ll pick up some more veins in the process.”

Gunsinger has a theory that the Charly vein links up to the rich Christmas vein discovered in the late 1940s. The two line up 250 metres apart and if joined together would make for a 370-metre strike length, but the team has yet to prove they connect.

If diamond drilling on the Charly vein proves it down to 800 ft., RX will drive a new ramp from surface down to that level. RX had already started construction on the ramp, but is holding off until more drilling is done.

Elsewhere in the mine, RX recently reconnected to the historic Drumlummon vein in the mines D block, 120 metres west of the Charly vein.

The most recent drill results from the Drumlummon vein have confirmed more high-grade gold and silver. Hole 123 cut 2.4 metres averaging 15.09 grams gold and 85.71 grams silver starting at 18.9 metres and then 1.5 metres grading 26.74 grams gold and 318.86 grams silver starting at 29.9 metres, both true widths. Hole 124 hit 3.4 metres carrying 9.94 grams gold and 44.57 grams silver, also a true width.

While Drumlummon has been busy lately, the story of the mine goes back to the 1870s, when Thomas Cruse discovered the deposit. For years he worked the prospect, penniless and alone, searching for rich veins. Apparently, many locals called him “Crazy Tommy” Cruse for his dedication to what others saw no value in.

But when Cruse did strike gold, he struck big. He brought the mine into production and promptly sold it for roughly $1.5 million at the time to the Rothschilds of London. The mine saw several decades of production, with over half a million ounces of gold and significant amounts of silver extracted before it closed. The miners who chased the high-grade epithermal veins cut over 57 km of tunnels as deep as 1,600 ft. by the turn of the 20th century.

In 1899, the Rothschilds were embroiled in a court battle over whether they had mined past the property’s boundary. After years of legal fights that reached the U.S. Supreme Court
, the Rothchilds lost and, rather than paying damages, gave up their mine. The victor leased out the mine for a number of years, with more gold extracted. But mining only continued in the upper levels of the mine because, after losing the first court case, the Rothschilds had flooded the mine below the 400- ft. level.

Finally, William Wade’s company mined Drumlummon between 1946 and 1951. During that time, it extracted 21,284 oz. gold from 62,000 tonnes of ore, as well as 138,773 oz. silver and some copper, lead and zinc. The company had dewatered the mine to the 800-ft. level and discovered the rich Christmas vein, but in 1951 its mill burnt down and it was unable to raise enough money to rebuild it. Drumlummon went quiet and, other than some exploration in the ’80s, remained dormant until RX came along.

Montana

The day before the mill visit, there was a gathering at the mine to see the famous Charly vein. The guest of honour was Montana’s Governor Brian Schweitzer, who was at the mine for a second visit.

Schweitzer is a Democrat who wants to make the most of Montana’s resources. He is promoting shale gas, oil, coal and other commodities to keep the state financially healthy, and working hard to dismiss the idea that Montana is not mining friendly.

In 1998, a citizen’s initiative to ban cyanide use passed by a margin of 53% to 47%. The ban only applies to heap-leach operations from open pits that were not already operating, but many unfamiliar with the details just heard “cyanide ban.” Even among the directors and financiers at RX there seemed to be some confusion as to what exactly the ban entailed. Gunsinger, however, was quite clear on it.

“You can mine in Montana, you can use cyanide, and you can get permitted,” he says.

Gunsinger had felt the skepticism of Toronto financiers when he went there two years ago to raise money for RX.

“I spent six weeks in Toronto, I tried to raise money and it was pointed out to us several times that you can’t mine in Montana because of the cyanide initiative. I pointed out that the cyanide initiative has nothing to do with hardrock mining. . . I would really like to dispel that myth, not for me, but for the state of Montana,” he asserts.

Financing and the future

Despite the skepticism, funding has come in, even though it was tight at first.

“It was very hard, the first year,” Gunsinger says. “It was not so bad after we hit that high-grade gold, but it’s been a bit of a struggle. We had to watch our money, we had to put it in the right place, and we did. We couldn’t go overboard with extra costs, so, we had to work on a shoestring but it was okay — we got it done.”

The company is currently working towards listing on the TSX Venture Exchange.

For now, the company has roughly $4 million in funds, which Nye says is enough to carry out what is planned for the next 12 months. Nye notes that the company should now be able to make some money by processing the development ore.

Nye says there are no immediate plans for more financing. With 72 million warrants and options outstanding, the company could raise a significant amount of money if they were exercised. The company has 94 million shares outstanding that have been trading at a little over 50¢ since the recent Charly vein samples were released.

For the year ahead, RX will be concentrating on bulk sampling and test mining, as well as continued drilling.

Nye says, for the near future, the biggest challenges are to extract the development ore from the mine, and to ensure the mill is tuned up so that it can efficiently achieve good recoveries.

The company is close to finalizing an agreement with an existing mill in the area, but has yet to pin down the details.

There is still much to learn about the gold and silver hidden under the hills outside Marysville, but for now the mood at RX is optimistic. Back at Moen’s small mill, looking at the gold from the Charly vein come across the table, Porterfield is reflective:

“This is when you start believing it’s real, not just numbers on a page.”