Carpathian triumphs in Romania

SITE VISIT

Timisoara, Romania — When most miners and investors ponder the topic of gold in Romania, the first thought that comes to mind is the environmental hysteria that has so needlessly hampered and delayed Gabriel Resources’ (GBU-T, GBRRF-O) work at the 15.8-million-oz. Rosia Montana gold project in the Golden Quadrilateral of western Romania’s Transylvania region.

However, outside the mainstream media’s spotlight but just down the road from Rosia Montana, there is the unqualified success story of Carpathian Gold (CPN-T, CPNFF-O) and its fast-track development of two substantial, wholly owned copper-gold porphyry deposits, named Rovina and Colnic.

Based in Toronto, Carpathian Gold originated in the 1990s as the European exploration arm of Michael Martineau’s Samax Gold, one of the early entrants into the 1990s gold rush in Tanzania’s Lake Victoria district, a move which paid off handsomely with Samax’s acquisition by Ashanti Goldfields in 1998.

From the mid-1980s to early 2003, Dino Titaro, Carpathian Gold’s current president and CEO, was president and a partner of consulting firm A.C.A. Howe International, which did work for Samax. When he was with A.C.A. Howe, Titaro had liked what he’d seen of Samax’s exploration team and assets in Romania and Hungary. They had been spun off as a private company after the Ashanti takeover, and remained under the influence of one of Samax’s original backers, Addax & Oryx Group of the U.K., which also supported Martineau’s next African venture, the gold junior Axmin (AXM-V, AXMIF-O).

Thus, in January 2003, Titaro left A.C.A Howe (though he remains a director) to head up the privately held Samax spinoff. The company, which he took public on the TSX Venture Exchange in May 2003 under the name Ore-Leave Capital, had the distinction of being Ontario’s first Capital Pool Company. It was renamed Carpathian Gold in mid-2004, and graduated to the main TSX board last November.

Carpathian’s chairman since 2003 is Geneva-based businessman Peter Lehner, who served as managing director of Addax and Oryx Advisory Services from 1992 to 2002. He owns 10 million Carpathian shares, compared with Titaro’s 800,000.

In the first half of this decade in western Romania, Carpathian and its predecessor companies focused on several early stage projects along the Carpathian Arc (see map at left): in the northwestern Baie Mare district; in the eastern Golden Quadrilateral in the Apuseni Mountains; and in the southwest near the Serbian border. The entire Carpathian Arc, which snakes its way through more than a half dozen East European countries, has produced some 250 million oz. of gold over the last few millennia.

However, Carpathian’s big breakthrough in Romania came in August 2005, when it was awarded the 94-sq.-km Rovina exploration licence in the heart of the Golden Quadrilateral, some 300 km northwest of the capital Bucharest and 140 km northeast of the city of Timisoara. The licence is valid for four years and can be extended another three.

“The Golden Quadrilateral is the richest gold district in all of Europe,” Titaro says. “This district has produced fifty-five million ounces of gold and another nineteen million ounces or so have been discovered in the past few years and yet, it’s underexplored. To us, that’s the key. Look at Romania. Look who’s here — hardly anybody.”

Indeed, majors such as Rio Tinto (RTP-N, RIO-L), BHP Billiton (BHP-N, BLT-L) and Barrick Gold (ABX-T, ABX-N) have come to Romania, quickly sized up its mining potential and taken a pass. The only foreign major with any kind of toehold in the country is Newmont Mining (NEM-N, NMC-T), with its 20% stake in Gabriel Resources (an interest that may yet be sold off as part of Newmont’s merchant banking division, which is now on the auction block).

Rovina history

The Romanian government’s mineral exploration branch, Minexfor, explored the Rovina property between 1974 and 2000, drilling 34 core holes totalling 23,000 metres into the Rovina copper-gold porphyry deposit between 1974 and 1986.

Geologically, Minexfor found that the Rovina deposit is characterized by altered porphyritic microdiorites containing magnetite both in veinlets and desseminated agglomerates.

In 1999, Rio Tinto swooped in and carried out more reconnaissance exploration of the Rovina licence but then exited Romania entirely the next year.

After acquiring Rovina in 2005, Carpathian purchased all of Rio Tinto’s data, which included regional stream-sediment and soil surveys, rock-chip sampling and helicopter-borne magnetics and radiometrics.

“We’ve been using it and it’s helped us a lot,” says Randall Ruff, Carpathian Gold’s chief operating officer.

Carpathian followed up on Rio Tinto’s efforts by contracting Romania’s Belevion to complete a ground mag survey totalling 480 line-km and covering 24 sq. km. This work has proven critical in generating more copper-gold targets on the property.

Significant deposits and showings within the Rovina licence now include Rovina, Colnic, Ciresata, Cordurea and Valisoara.

Carpathian and Rio Tinto found that the government’s drilling and other work at Rovina was poorly documented, but Minexfor did say it had outlined a historic resource for the Rovina porphyry of 108 million tonnes grading 0.24% copper to a depth of about 400 metres.

The Romanian communist regime’s isolation at that time from both the West and the Soviet Empire meant that government geologists restricted their field work to within the country’s borders and were not well exposed to new geological concepts being developed elsewhere.

As a result, the Romanian geologists were not fully aware of the concept and economic potential of copper-gold porphyries, and therefore neglected to adequately assay the Rovina cores for gold. On top of that, what little gold assaying was being done suffered systemic errors in the lab that resulted in gold values being under-reported by roughly 25%.

Today, after two years of furious core drilling into the Rovina porphyry, Carpathian has made up for those decades of neglect and misunderstanding. In late May, the company tabled the first National Instrument 43-101-compliant, in-pit resource for the Rovina deposit of 144 million inferred tonnes grading 0.3 gram gold per tonne and 0.26% copper, or 1.4 million contained ounces gold and 829 million contained pounds copper. The deposit covers an area 500 metres long and 350 metres wide.

(For comparison, the Golden Quadrilateral’s Rosia Poieni — the largest porphyry deposit discovered in Romania — originally had grades of 0.5 gram gold and 0.4% copper, and in 2003 still had 350 million tonnes of resources grading 0.29 gram gold and 0.36% copper.)

Ongoing drilling at Rovina is still generating some great results, including the best hole to date, no. 23, which returned 526 metres (from surface) of 0.69 gram gold and 0.28% copper in mid-June. This is the highest gold grade yet recorded at Rovina, and it suggests there may be a higher-grade gold zone within the porphyry.

As well, another 200 metres west of Rovina, two new holes that tested the Baroc Valley target — which Carpathian identified from a magnetic anomaly and rock-chip sampling — returned values such as 105 metres of 0.19 gram gold and 0.14% copper.

These results, combined with encouraging mineralogical and geophysical data, have Carpathian geologists considering that the Rovina porphyry may be open to the west and that the Rovina and Baroc Valley targets may even be one continuous zone of porphyry mineralization. More drilling is now planned between the two targets.

Colnic

Meanwhile, Carpathian is just as busy over at the Colnic gold-copper porphyry, situated within the Rovina licence, 2.5 km south of the Rovina deposit.

Carpathian isn’t the first to have a go at Colnic; There are old workings at Colnic dating to the Austro-Hungarian empire, with galleries dug in a ring around the porphyry.

Stat
e geologists returned to Colnic in the 1970s to reopen and resample several of the old galleries and dig new ones. They had been inspired to take another look at Colnic and any other potential porphyries in the Golden Quadrilateral by the discovery of Rosia Poieni in the 1970s, situated 3 km east of Rosia Montana.

They drilled a few deep holes in Colnic, including one to 650 metres depth, and encountered sub-economic copper grades, but didn’t assay for gold.

Then, government geologists found and started drilling Rovina, where they hit better copper grades of 0.3-0.4% copper. The Colnic work was thus put aside in order to focus on Rovina, which they drilled out on 90- by 90-metre grids, and also put in two levels of galleries.

“They generated a resource estimate at Rovina in 1983, then work basically stopped,” Ruff says.

After Rio Tinto’s year at the Rovina licence, Minexplor’s geologists returned and drilled about a dozen holes in the area, including deep holes in the centre of Colnic. Two of the Colnic holes hit gold mineralization but, this time around, Minexplor didn’t assay for copper.

“There were two phases of government exploration, the first where they were assaying for copper, and the second, when they were assaying for gold,” Ruff explains. “The key is that they did not recognize it as being a gold-rich porphyry system. They thought it had to be epithermal or mesothermal. The point is, the model wasn’t in place.”

Colnic mineralization has been broadly described as microdioritic porphyry with hornblende and minor pyroxene, and pervasive propylitic alteration.

Carpathian has been finding that the highest-grade gold at Colnic is in the areas of lowest magnetite.

“I think we understand why that is now, because around the edges of this core there is a magnetite destructive alteration. Now Rovina is a little bit different, in that the best mineralization is right in the core of the mag anomaly,” Ruff says.

“We are constantly humbled by how difficult it is to predict the grade. The best we can do right now is break out packages of alteration style and say, ‘that should be a good section.’ When you go metre by metre, you’re almost always going to lose.”

As it did with Rovina, Carpathian has quickly made up for decades of relative neglect at Colnic and recently delineated an NI 43-101-compliant, in-pit indicated resource of 68 million tonnes grading 0.64 gram gold and 0.12% copper, or 1.4 million oz. gold and 175 million lbs. copper. Another 17 million tonnes at roughly similar grades lie in the inferred category. The deposit covers an area about 300 metres wide by 520 metres long.

Consultants AMEC Americas calculated the resources for Rovina and Colnic using a gold price of US$550 per oz. and a copper price of US$1.30 per lb. The base case cutoff grades used were 0.25% copper equivalent for Rovina and 0.4 gram gold equivalent per tonne for Colnic.

AMEC used Carpathian drilling data to the end of 2006 for its calculations; Carpathian spent US$6.5 million on exploration last year, drilling 17 core holes at Rovina totalling 8,400 metres and 49 core holes at Colnic totalling 15,700 metres.

Counting the contained metal as “gold-equivalent” ounces, Carpathian has managed to outline an impressive 5.5 million oz. gold equivalent at Rovina and Colnic in just two years since it acquired the Rovina licence.

In addition, Carpathian describes as “excellent” the results of initial flotation test work by SGS Lakefield Research, which demonstrated that a saleable copper concentrate containing a significant portion of the gold can be produced from composite samples from both Rovina and Colnic.

While there’s plenty more drilling and related work ahead before a full feasibility study can be completed, Carpathian’s broad plan is to mine both Rovina and Colnic using open-pit methods. Ore would be trucked to a central mill for processing into concentrate, which would likely be sent by rail eastwards to a deep-water port on the Black Sea for shipping to a foreign smelter.

While there would be a 2% net smelter return royalty owed to the Romanian government on any production, the Rovina licence has no other underlying royalties or similar charges.

The logistics of any mine development shouldn’t be too tough; local mining infrastructure and access to the site are very good.

The mine can be staffed locally, as unemployment is high in the area owing to the government’s shutting down of many inefficient, heavily subsidized mines as it has been obligated to do under the terms of Romania’s recent acceptance into the European Union.

Blue sky

Even as Carpathian continues to drill out the Rovina and Colnic porphyries, the company is intent on exploring the rest of the Rovina property’s geological potential.

The northern portion of the Rovina licence covers a deep-seated magma feature, and the magnetic signature of the area suggests the Colnic and Rovina deposits occur within a 6-km-long, arc-shaped area that hosts more porphyry targets.

As well, down in the southeast of the property is a prospect called Valisoara, where there is a large brecciated andesite zone grading from 0.6 to 4 grams gold per tonne. Valisoara is similar to Baia de Aries, where there are base metals plus gold.

West of Valisoara is Carpathian’s Cordurea prospect, where there is epithermal gold-silver mineralization in dacites, a fairly rare occurrence in the Golden Quadrilateral. Here, Carpathian has done soil sampling and opened up a couple of old galleries, where there was minor precious metal production from high-grade veins between the First and Second World Wars.

Carpathian has been using the Romanian drilling contractor Genfor at a cost of roughly US$125 per metre and sending samples to ALS Laboratory Group’s lab at Rosia Montana, where turnaround is quick.

Ruff notes that all of the past production in the Golden Quadrilateral has come from Miocene-age volcanics that are intruding Jurassic-Cretaceous folded sediments.

“A lot of people will say that you need to focus on these belts where the production has come from, but in our work — we now have quite an extensive database of the Golden Quadrilateral — we are starting to see features that to me suggest important controls striking northeast,” he says. “If you look at the whole Golden Quadrilateral, eighty percent of the gold production comes from this northeast-striking corridor, and this is one of the reasons we were keen on the Rovina licence (which is in this corridor).”

Also of note, an 8-km-diameter circular feature is centred on the Rovina and Colnic porphyries, while a similar, 16-sq.-km circular feature is centred on Rosia Montana.

“I believe that as the Golden Quadrilateral matures, people will start finding gold in less traditional settings,” says Ruff, who has been grappling with the region’s geology since becoming the company’s lead man on the ground in Romania in 1999.

Beyond the Rovina licence, Carpathian is less actively hunting for gold and copper at several major land packages that make the company Romania’s largest licence holder: at Baia Mare in northwestern Romania; at Oravita in southwestern Romania’s Banat copper-gold porphyry belt; and in Hungary. The company is looking at bringing in joint-venture partners for these projects so it can better focus on the Rovina licence.

Investors have clearly loved Carpathian’s good news story, driving shares to $1.50 at presstime, up almost 300% since October and more than 1,000% since early 2006. With 123.6 million shares outstanding, the company’s market capitalization now stands at $185 million.

Carpathian is financially healthy. At the end of the first quarter, the company had $15 million in the kitty and no debt, having raised $15 million in 2006 and another $12 million in March 2007.