ASIAN EXPLORATION — Colony forges ahead in Indonesia

Like many Canadian juniors exploring in Indonesia, Colony Pacific Explorations (CYX-T) is struggling to withstand the fallout created by the Bre-X Minerals scandal.

The company’s share price has taken a beating since March, when it first started to emerge that the vaunted Busang deposit was nothing like it was cracked up to be.

The dust continues to settle at Busang, on the Island of Borneo. But across the Karimata Strait, on the island of Sumatra, Colony continues to work its four properties in a joint venture with Inco (N-T).

The agreeement affecting the 1.3-Million-ha land package, which comprises the Aceh, Karang, Gedang and Ranau projects, was formed one year ago. It allows for a 1997 budget of US$6 million, with US$2.5 million to be spent on Aceh and US$3.5 million on the other three.

Inco’s 59%-owned subsidiary, PT Inco, has operated the Soaroka nickel mine on the island of Sulawesi since 1978.

.SNo regrets

Colony has 19.6 million shares outstanding, fully diluted, and $5 million in working capital. The company is 53%-owned by Imperial Metals (IPM-T), and 4% by Inco, leaving a float of some 7 million shares.

Colony’s stock enjoyed a 52-week high of $9.25 and was trading at $7.60 when susicions started to mount over Bre-X at the end of March. The issue recently closed at $3.40. But the company believes its relationship with the nickel giant should reassure jittery investors, and it does not regret its 1995 decision to shift its focus from California to the Southeast Asian nation.

“Everyone with exposure to Indonesia was affected [by the Bre-X scandal],” says Colony’s operations manager, Maryse Belanger. “But in our case, we don’t believe we should be concerned. We entered into the joint venture with Inco, and Inco has 30 years’ experience in Indonesia.”

The Inco-Colony alliance can acquire a 60% interest in the Aceh project, in northern Sumatra, by spending US$10 million over four years. Because the property was acquired after the joint venture’s creation, an agreement has been reached to the effect that Colony will assume the first US$6 million in exploration expenditures, and Inco, the next US$15 million. After that, the interest will broken down as follows: Inco 36%, Highlands Gold of Australia 30%, Colony 24%, and 10% for the Indonesian partner.

In April, the joint venture received approval from the Indonesian government for the sixth-generation Tripa contract of work, which covers the southern half of the 5,738-sq.-km Aceh property. The northern half is held under the fifth-generation Woyla River contract of work.

Deep drilling is under way at the Beutong prospect, in the southern portion of Aceh, where a porphyry copper system was discovered last autumn. The discovery hole intersected 120 metres grading 1.06% copper and bottomed in mineralization.

Subsequent stepout drilling during the second quarter expanded the mineralized area, which is partially covered by a leached cap of weathered porphyry material. The company plans to complement drilling with ground-based geophysical work. In doing so, it hopes to expand the mineralized system, which is centred on a 10-by-2-km stream-sediment anomaly.

Mapping and follow-up stream-sediment sampling are being carried out on some of the 17 other prospects identified during a preliminary evaluation, as well as on other projects in the southern portion of the island.

Work is set to begin at Seunagan, a large porphyry copper target, and at Isep and Pacarra, which are porphyry copper-gold targets. Colony decided to acquire the southern part of Aceh, known as Tripa, after preliminary evaluation of the Pacarra area.

On the southern end of Sumatra, Colony is spending US$12 million to earn 100% of available interest in the Karang, Gedang and Ranau properties. Inco will fund the next US$30 million to buy back a 60% interest.

Those properties are seventh-generation contracts of work and are, as yet, unsigned. Forty-Nine targets have been identified on Karang, 15 on Gedang and nine on Renau.

If any other properties are acquired and added to the Colony-Inco portfolio, expenditures will be shared on a US$6 million-US$15 million basis between Colony and Inco, respectively.

.SPorphyry copper-gold

“The targets on all properties are porphyry copper-gold and were first assessed by Inco,” Belanger says. The major also assumed all costs for acquisitions and applications for contracts of work.

Inco’s selection criteria requires that properties be siutated along the Sunda-Banda volcanic arc. Other criteria include:

* the presence of miocene to pliocene intrusions;

* the presence of copper-gold porphyries and/or epithermal gold mineralization or alteration; and

* the presence of stream-sediment geochemical anomalies.

The island of Sumatra sits on a tectonically active and geologically complex zone created as a result of the collision of the northward-Moving Indian Oceanic plate and the Sundaland Continental plate. The collision has been ongoing since the late Permian period.

All of Colony’s joint-Ventured properties lie along the Great Sumatra Fault.

Aceh covers 75 km of strike length along the fault system, with evidence of repeated intrusive activity over a wide area.The southern properties are also situated along the fault.

At Gedang, in the Lebong gold district, several epithermal gold and skarn showings have been identified. Scarn occurrences have also been reported at Karang, along with stream-sediment anomalies, mineralized quartz float and alluvial gold zones.

“On Ranau it’s a similar story, with strong geochemical anomalies, epithermal gold and mineralized altered intrusions along strike,” Belanger says.

In light of the Bre-X debacle, Colony is eager to reassure the mining community about the reliability of its assaying procedures. All assaying is carried out by Bondar Clegg or Chemex.

Colony plans to stay focused on Indonesia for the long term. But the Bre-X scandal has created an climate of uncertainty.

“A lot will depend on the reaction of the Indonesian government,” Belanger says. “Maybe people won’t feel that Kalimantan is elephant country, but Indonesia still offers what is probably the best prospective ground in the world.”