Dolly Varden hopes to find the next Eskay Creek

The management team at Vancouver-based Dolly Varden Silver (DV-V) had been keeping its eye on an intriguing piece of mining history in northwestern B.C.’s Stewart complex for quite some time. Both chairman John King Burns and vice-president of exploration Paul McGuigan were familiar with the historic silver-rich Dolly Varden mining camp north of Alice Arm, but it wasn’t until 2011 that they were able to swing a deal and acquire a 94 sq. km regional land package.

The company paid $2.5 million for a 100% interest in what it suspected could be a prolific volcanogenic massive sulphide (VMS) trend that includes two past-producing undergound mines and two historic deposits with existing underground development. The Dolly Varden and Torbrit mines had seen production through the mid-1900s, while the North Star and Wolf deposits carry non-National Instrumet 43-101 compliant resources.

“You can see some really intriguing potential from some of the historic drill holes under the resource blocks. Dolly Varden, North Star and Torbrit were originally thought to be classic vein deposits,” president and CEO Ron Nichols comments during an interview. He points out that VMS models were not established until the late 1970s. “Then, the theory was that these things were part of a single volcanic unit known as an exhalite. Now, when we looked at it in more detail, it seems to be more complicated than that. There is definitely exhalite-type material, but there is probably also some replacement of near-surface pyroclastics.”

Nichols spent 20 years with Cominco, and most recently served as a senior vice-president at Aurcana (AUN-V), where he coordinated feasibility work on the Shafter silver mine in Presidio County, Texas. Shafter is a similar historic mine reactivation based on 2.1 million measured and indicated tonnes grading 241 grams silver per tonne for 25 million contained oz. silver.

Nichols explains that he is hoping to follow a similar model at Dolly Varden, which involves establishing an economic resource at around 50 million oz. silver.

“Then we know we have strong mining potential for a 1,500-tonne-per-day operation. That is our safety net. We think that’s quite achievable, and it gives us a baseline value where whatever happens with the greater property, it is not going to sink the company,” he says.

And Dolly Varden is off to a good start with its historic resources. The Dolly Varden mine holds 42,600 tonnes at 754 grams silver for 1 million contained oz. silver; North Star carries 128,400 tonnes of 401 grams silver for 1.6 million contained oz. silver; and Torbrit holds 786,500 tonnes at 312 grams silver for 7.9 million oz. silver.

“The two things we’ll concentrate on the most will be Dolly Varden, due to its high grade, and Torbrit, due to its size. It is important to note that Wolf is different, as it is a classic epithermal vein that clearly crosscuts the stratigraphy.” Nichols points out over a regional map, explaining that the Wolf deposit offers a major mining scenario down the road. “Torbrit is the one where I think we can really expand the ounces due to that volume, and Dolly Varden is key because of that grade. It looks like a deposit that may well be the best place to start mining because of how quickly you could recoup your costs.”

In early September, Dolly Varden announced a $3.2-million investment from U.S.-based producer Hecla Mining (HL-N). The deal gave Hecla a 19.9% interest in Dolly Varden, as well as the right to nominate one person to the company’s technical committee. Nichols says Hecla has been supportive in the junior’s fundraising efforts, and he hopes it will result in enough money to pursue a drill campaign in 2013.

Dolly Varden refers to its historic silver camp as a “safety net,” but it’s the remainder of its land package that offers exploration upside. The company is eyeing its Red Point target, which it hopes can be a similar deposit to Barrick Gold’s (ABX-T, ABX-N) nearby Eskay Creek gold-silver mine. Barrick’s profit-gushing operation was closed in 2008, after having produced 3.6 million oz. gold and 180 million oz. silver over its life.

“Red Point has all the same alteration minerals and trace elements as Eskay Creek, and they are all anomalous — all the sort of breccia textures and things you see at Eskay, except over a much larger area,” Nichols says. “So the implication is that the feeder zone at Dolly Varden is feeding a much larger system. It’s a long and linear alteration system, and I think there is potential for other VMS deposits.”

Dolly Varden had hoped to complete around 2,500 metres of drilling this season, but due to the timing of its deal with Hecla, the company hampered by the onset of winter at the site. Dolly Varden ended up with six holes over 1,700 metres, which focused on structural drilling at the historic Dolly Varden mine. Nichols explains that since the company had some extra time and money owing to the weather delays, it focused on underground scout work at Turbrit.

“We actually got a lot more done there than we thought we would . . . to the point where if we raise the money we’re attempting to, we can fix up the road and get underground on Torbrit for drilling in the [first half]. We can get under there a lot earlier than the surface targets,” he says.

The company is hoping to raise between $10 million and $15 million for next year’s exploration campaign. The company reported $2.4 million in cash to begin November.

Dolly Varden has 100 million shares outstanding and traded within a 52-week range of 15¢ and 38¢.

Shares closed at 23.5¢ at press time, giving the company an $18-million market capitalization.