Chieftain finds new feeder zone

Parts of the Tulsequah Chief orebody in northwestern B.C., 100 km south of Atlin and 65 km northeast of Juneau, Alaska, were mined by Cominco — now Teck Resources (TSX: TCK.B; NYSE: TCK) — from 1951 to 1957.

Chieftain Metals (TSX: CFB; US-OTC: CFTMF) entered the picture in September 2010, when it bought the polymetallic volcanogenic massive sulphide (VMS) project from receivership after its previous owner Redcorp Ventures went bankrupt. 

Since then Chieftain has moved quickly to advance Tulsequah, completing a feasibility study in January 2013 and nailing down all the approvals and permits it needs to start construction. Management is targeting production in the second quarter of 2016.

In the meantime, the company has been optimizing Tulsequah’s feasibility study, raising project financing and exploring for more mineralization, with the help of Jim Pickell, an expert on VMS deposits. Pickell received the Prospectors & Developers Association of Canada’s Bill Dennis Prospector of the Year Award in 2000 for discovering VMS deposits in the Flin Flon–Snow Lake greenstone belt, and after joining Chieftain as a consultant in October 2012, set to work re-examining 50 years of historic data, including historic drilling, soil samples, trenching and induced-polarization (IP) work.

Within six months, Pickell had come up with a geological model for the property that persuaded management to acquire more land north of the project boundary, which led to drilling into a new feeder zone similar to the one that fed the Tulsequah orebody.   

“Earlier this year Jim developed an overall geologic model that convinced us that not only did we have numerous targets that we didn’t appreciate before, but it caused us to go out and more than double the land package to over 300 sq. km for a total strike length of 43 km,” Victor Wyprysky, president and CEO of Chieftain, says in an interview.

Pickell’s work suggested there were untested extensions to the known Tulsequah Chief and Big Bull VMS zones occurring within tightly folded paleo-fault-controlled paelotroughs that parallel the margins of two newly identified and regularly spaced sub-basins. It also concluded that there were precious and base-metal mineral occurrences within the historic Tulsequah property that were underexplored, and that also occurred within local, felsic volcanic settings, bearing similarities with the Tulsequah Chief and Big Bull VMS deposits.

Chieftain has recently released the results of a nine-hole (3,540-metre, $1.3-million) drill program that targeted the reinterpreted geological, geophysical and geochemical anomalies, in conjunction with recently modelled 3-D–IP geophysical inversion data from the Tulsequah Chief, Big Bull and Sparling–Banker areas that were collected earlier this year. (The three areas are within 10 km of each other.)

Of primary interest, the company says, are the base-metal values intersected in four holes aimed at a strong 3D–IP chargeability anomaly, 350 metres southwest of the Tulsequah Chief orebody. The company found that it was associated with a prospective, newly discovered VMS alteration zone and its corresponding wide zone of footwall massive sulphides and altered rhyolitic stratigraphy. Highlights include a 0.5-metre interval containing 3.28% copper, 10 grams silver per tonne and 0.22 gram gold per tonne.

Five of the eight holes drilled next to the Tulsequah VMS deposit hit semi-massive to massive sulphides within strongly altered footwall feeder-system rocks.  Moderate to high-grade zinc and copper sections were cut in two of the eight Tulsequah deposit holes. 

“We believe we have uncovered a feeder zone that looks, as far as we can tell, more or less identical to that which fed Tulsequah itself,” Wyprysky says. “We think we have found the twin of the Tulsequah feeder zone . . . we’re happy with Tulsequah itself — it [will have] huge cash flow when we build it — but now it appears as though we have every chance of doubling or tripling what Tulsequah is.”

Wyprysky adds that Chieftain “may have an entire mine camp, not just one mine,” and notes that VMS deposits have a history of adding resources as mining progresses. As an example, he points to the Myra Falls VMS deposit on Vancouver Island, which started operations in 1966, and today has nearly the same resource as when it started.

“These VMS deposits occur like pearls on a string, or in clusters,” Wyprysky says, “and the indications are that the latest drilling has found the indications of another cluster.”

News of the latest drill results — released after markets closed on Nov. 20 — sent Chieftain’s shares up 18% the next day to 16.5¢ per share, within a 52-week trading range of 14¢ to $3.10.

Of Chieftain’s 16.7 million shares outstanding, institutional investors hold 80% and management holds 10%. Toronto-based investment management firm West Face Capital is the largest shareholder with 24.9%, and Procon Holdings owns 17%.

According to the feasibility study completed in January this year, a 2,000-tonne-per-day under­ground-mining operation would have a mine life of 9.5 years, with average annual metal production of 69 million lb. zinc, 16 million lb. copper, 11 million lb. lead, 47,000 oz. gold and 1.4 million oz. silver.

Initial capital costs were estimated at $440 million, and the mine was forecast to generate $120 million in operating cash flow each year. The after-tax net present value (NPV) estimate at an 8% discount rate was pegged at $139 million, with an after-tax internal rate of return (IRR) of 14.7%, and a payback period of 4.3 years.

The numbers in the feasibility study were based on metal prices of US97¢ per lb. zinc, US$3.66 per lb. copper, US$1.01 per lb. lead, US$1,455 per oz. gold and US$28 per oz. silver, and the life-of-mine total zinc cash cost was expected to average negative US90¢ per lb. net of by-product credits. The study was based on a probable reserve of 6.4 million tonnes averaging 5.59% zinc, 1.12% copper, 1.04% lead, 2.30 grams gold per tonne and 81.4 grams silver per tonne.

In March, the junior looked for optimization opportunities to improve the project’s economics and redid the numbers using a throughput rate of 2,500 tonnes per day, and cutting the projected initial mine life to eight years. The effort improved the after-tax NPV to $162 million, and the after-tax IRR to 16.6%.