Bayfield insiders sell as Rainy River area play overheats

Vancouver – A 400-metre by 800-metre claim block on the eastern side of Rainy River Resources (rr-t) flagship gold project in northwestern Ontario is causing a big commotion over at Bayfield Ventures (byv-v).

Bayfield has drilled into a bonanza-grade mineralized zone there at least twice since optioning the small sliver of land called the Burns Block in late 2007. This year, it plans to complete close to 100,000 metres of drilling in an attempt to prove economic mineralization from Rainy River’s main OMD/17 zone extends onto its property.

To that end, Bayfield reported an eye-catching intersection last month grading 8.66 grams gold per tonne and 57.67 grams silver over 79.5 metres starting from a downhole depth of just 15.5 metres, including a smaller bonanza-grade zone about halfway through. The results shot the company’s shares up 50.8% from 59¢ to 89¢ on record-high trading volume of 10.44 million shares on June 27, the day they were released.

The problem, at least according to the British Columbia Securities Commission, is in the way Bayfield reports its assays. On June 30, the BCSC forced Bayfield to restate its latest drill results as well as selected results dating back to September 2010 in order to “clarify certain details of its technical disclosure of drill results,” with Bayfield admitting, “The drill results are potentially confusing as certain larger intervals were reported by diluting high-grade intercepts over longer intervals of lower-grade gold and silver mineralization.”

The BCSC says the 79.5-metre intersection grading 8.66 grams gold and 57.67 grams silver is more accurately reported as a 25.5-metre intersection grading 26.7 grams gold and 170.69 grams silver, with most of that in turn coming from an 11.2-metre section grading 60.05 grams and 362.96 grams silver, starting from a depth of 48 metres. The rest of the interval, says Exploration Insights newsletter writer and geologist Brent Cook, is essentially “waste rock.” (Bayfield calls it a “broad halo of anomalous to multigram-level gold and silver mineralization.”) Indeed, when the 11.2-metre section is removed using a tool designed by Cook called the Drill Hole Interval Calculator, the remaining 68.3 metres of the drill hole have a residual grade of just 0.23 gram gold and 7.6 grams silver.

In a June 28 telephone interview with The Northern Miner from his office in Vancouver, Bayfield’s president Don Huston defended his way of reporting the assays, arguing it is a regular practice to calculate an average of high- and low-grade sections and that it was compliant with National Instrument 43-101. “I’m not trying to smoke anybody,” Huston asserts, “I’m showing that we have tonnage and grade equal to the $9 stock [Rainy River] – and that’s a fact… Should I report every metre and show a chart 12 metres long?”

Huston later acknowledged the vast majority of the hole outside of the high-grade zone graded below 0.4 gram gold, below Bayfield’s cut-off grade and therefore not reportable. He declined to comment on Cook’s methodology, though he said he was familiar with it.

Huston further maintains there is “good reason to believe” the mineralized zone found near surface in the latest hole (RR11-71) is the same zone or is connected to a high-grade zone found at the other side of the property in September 2010. That hole, RR10-18, returned an impressive 81 metres grading 5.08 grams gold, though again most of that can be attributed to a 10-metre section grading 35.93 grams gold starting from a depth of 497 metres.

The holes are about 350 metres away from each other on surface but because of the variance in depth the actual distance between the holes -and the potential length of the high-grade mineralized shoot – is approximately 600 metres.

According to Cook, who spoke to The Northern Miner about Bayfield’s latest results via telephone from just north of San Diego, “When you get these high-grade veins… usually they are nuggety, and Bayfield has showed pictures of coarse gold in the core so you know it’s nuggety. So, the issue becomes one of continuity. How far can you project a high-grade intercept along strike or plunge? Usually not far.

“My sense of what they’ve got is maybe there is a rather small shoot that plunges from north to south that goes across what they’re drilling. Certainly, from the data we’ve seen, this is not a very disseminated deposit.”

Bob Marvin, Bayfield’s exploration manager and senior project geologist for Burns Block, acknowledged it has been “very difficult” to establish continuity of the high-grade shoot over a significant length. Speaking from Bayfield’s field camp near the Burns property, Marvin told The Miner, “There’s absolutely no intention on our part, or certainly my part, to say that we see a lot of continuity because clearly we have not. Now, whether that’s because we’ve missed or because there’s a true lack of continuity, I really think you’d have to go underground to establish.”

Marvin noted the high-grade shoot is contained within a well-established east-west-trending zone of strong foliation, sericite alteration, locally intense deformation and highly variable pyrite mineralization. He pointed out drill hole RR10-15 may have picked up the shoot at a depth of around 190 metres, with assays returning 9 metres of 12.88 grams gold, including a 3-metre section grading 31.71 grams gold. Many other holes have nevertheless failed to demonstrate much continuity within high-grade zone, including hole RR10-9, which was drilled about 25 metres along strike of the original high-grade discovery hole (RR10-18) and returned 20 metres of 1.2 grams gold, with the best interval within that intercept grading 9.93 grams gold over 2 metres.

According to Marvin, Bayfield has yet to prove much economically significant gold mineralization exists outside of the broader envelope that includes the high-grade shoot. “There is [some] evidence, but at this point 98% of every ounce if we were to do a resource would be within the zone.”

It remains to be seen whether this would be enough to entice Rainy River into acquiring either the Burns Block or the company outright, with much more exploration likely needed to be done in any case. Rainy River previously optioned a majority interest in the property from Bayfield in 2007 but dropped the option amid the financial crisis in November 2008 after drilling just seven holes.

Rainy River’s namesake project already boasts 4.1 million oz. gold measured and indicated in a conceptual open pit contained within 115.5 million tonnes grading 1.11 grams gold, as well as 1.8 million oz. gold inferred. Besides hosting significant silver values, the deposit also has a small underground resource estimated at 1.8 million tonnes measured and indicated grading 4.82 grams gold for 290,800 oz. gold.

Having raised over $10 million in the past year, Bayfield should be well equipped in 2011 to drill out much of the tiny Burns Block and explore parts of its nearby properties in the Rainy River area, including its C Block half a dozen kilometres to the west and its B Block a few kilometres to the north.

Helping raise about half of Bayfield’s money was the Casey Research Group, which has been touting the stock as a major potential takeover target since September 2010. The Casey Group’s monthly International Speculator newsletter has recommended its readers buy the stock no less than seven times in the subsequent 9 months. Some of them must have listened, as three Casey employees (Marin Katusa, Marc Bustin and Joe Hung) found themselves the recipients of a $249,999 cash finder’s fee in October 2010 after helping Bayfield sell $5-million worth of stock in a flow-through private placement at $1.40 a share. The trio also received 178,572 finder’s warrants for their efforts.

Those investors might have done well to check the insider trading reports of Bayfield’s management before placing their orders for the pri
vate placement: no fewer than six insiders sold a combined total of approximately 589,000 shares shortly after the company released the first set of drill results that found the high-grade mineralized zone in late September 2010. The stock fell almost 65% in the following 9 months, reaching a low of 50¢ in mid-June.

The latest round of drill results have proved little different, with four Bayfield insiders selling stock on the day the company released the assays.  President Huston sold 80,000 shares at 83¢ each; chairman Jim Pettit sold 90,000 shares at prices ranging from 87¢ to 94¢; exploration manager Marvin sold 64,000 shares around 83¢ apiece; and Burns Block project geologist Shane Hu sold all 25,500 of his shares at an average of 91¢ each. (Note: Huston and Pettit exercised options a week later to buy 50,000 shares and 200,000 shares, respectively, at 39¢ a share.)

After their big leap on June 27 from 59¢ to an intraday high of $1.02, shares of the company have retreated back to a low of 66¢ on July 4. At presstime on July 5, they were trading up 5¢ to 71¢ on 327,000 shares traded. Bayfield has 62 million shares outstanding, 72 million if fully diluted.