EXPLORATION 1997 — Bre-X and Arequipa set the pace — Canadian companies explore their way around the world

Canadian companies can be found exploring and developing mineral projects in the grasslands of Africa, the jungles of Indonesia, the mountains of Chile, and the Barren Lands of northern Siberia. Typically, high-risk, early-stage work is carried out by junior companies, while the majors lie in wait to acquire the fruits of their labors.

Consider Arequipa Resources, a Vancouver-based junior headed by Catherine McLeod-Seltzer and geologist David Lowell, and Barrick Gold (ABX-T), one of the world’s largest gold producers.

Arequipa spent four years in Peru, acquiring and exploring a 180,000-ha land package that was prospective for both gold and copper. Lowell, who already had several discoveries in Chile under his belt, simply followed that country’s rich geology north into Peru, where the competition for properties was less fierce.

His strategy paid off in May 1995 when the discovery hole at the Pierina property returned more than 88 metres grading 6.5 grams gold per tonne. Less than two months later, after Arequipa had drilled only nine holes, Barrick recognized the potential of the discovery and launched a $1-billion takeover bid for the company.

The Arequipa-Barrick scenario is not unique. A short while later, across the world in Indonesia, Barrick and another major, Placer Dome (PDG-T), became locked in a fierce battle for control of the multi-million-ounce Busang gold project of Bre-X Minerals (BXM-T). Bre-X, however, managed to hold on to a 45% stake in Busang by taking on Freeport-McMoRan Copper and Gold (FCX-N) as a 15% operating partner. Indonesian interests will hold the remainder.

The exploration successes of Bre-X and Arequipa have since spurred other Canadian juniors into searching for the next Busang or Pierina. With more and more mining companies elbowing their way into the game, however, the prospect of acquiring good ground in underexplored regions has become increasingly tough.

“The obvious, easy targets have been taken off the shelf,” says geologist Roman Shklanka, chairman of Sutton Resources (STT-V), a junior that was among the first to explore in Tanzania. “Companies will have to work a lot harder to find the next tier of [geologically prospective] properties.” Sutton’s portfolio, which includes the Bulyanhulu gold project where a US$20-million underground program is under way, was acquired in the late 1980s when Tanzania began seeking foreign investment to revive its moribund mineral sector.

“We thought it was a country doing all the right things,” Shklanka says. “And we’ve not been disappointed. Today, everyone in the mining business is looking there.”

While Sutton’s initial interest in Tanzania was triggered by several nickel projects (including its Kabanga and Kagera properties, where work is ongoing), results from Bulyanhulu were impressive. It wasn’t long before the deposit was being compared with the Hemlo gold deposits of Ontario. At last report, the deposit was estimated to host 10.5 million tonnes grading 14.92 grams gold, or 5 million contained ounces.

A feasibility study is examining a 1,500-tonne-per-day underground operation that could produce 225,000 oz. gold annually at a cash cost of US$125 per oz.

(net of byproduct credits).

As might be expected, the project has drawn the attention of majors. But Sutton is committed to placing Bulyanhulu into production on its own. “We’re building up the engineering talent, and we think we have the confidence of the investment community to finance the project,” says Shklanka.

He adds that the government of Tanzania has been supportive and has contributed to the removal of the artisanal miners who flocked to the Bulyanhulu site. The local, small-scale miners were polluting the environment through their use of mercury to recover gold, and there were other problems related to lawlessness and unsafe working conditions.

“I think it shows [the government’s] resolve to building a modern mining industry,” Shklanka says of the relocation. “There is no question some people have lost out in the short term, but, over the long term, locals will benefit [from the mine]. We are employing as many as we can, and we are helping out with local schools and roads in an effort to build up good will.” Artisanal workings

Canadian companies have found that artisanal miners often provide clues to the location of gold deposits in Africa, and elsewhere. Vancouver-based juniors Nevsun Resources (NSU-T) and Oliver Gold (OGO-V) have used this technique to their advantage at their projects in West Africa.

Nevsun’s work at the Kubi concession in Ghana and the Tabakoto concession in Mali has already resulted in preliminary resource estimates of more than 1 million oz. gold for each project. Oliver’s Segala project in Mali has a drill-indicated resource of 11 million tonnes grading 3 grams gold, or about 1 million contained ounces. The company aims to increase that figure to 3 million contained ounces this year. Oliver is also active in Zimbabwe, where it has acquired a historic gold mine and the area surrounding it.

Another junior exploring in Africa is Etruscan Enterprises (EET-V), which has accumulated a land position in Niger, a poor nation that has been relatively unexplored.

Etruscan announced late last year that Placer Dome agreed to pay US$50 million for a 51% interest in a portion of its Taiwa concession. Placer’s interest there is the Samira deposit, which hosts 27.8 million tonnes averaging 2.02 grams gold. The area, according to Etruscan, has the potential to become an important mineral district, and the company plans to continue exploring there as well as at various other properties in Niger.

Joint Ventures

Exploration is not the only means by which Canadian juniors have increased their presence in Africa. Some have acquired projects outright or have formed joint ventures with state-owned mining companies.

Early this year, amid fierce competition, Tenke Mining (TNK-V) acquired rights to the Tenke Fungurume copper-cobalt project in Zaire’s famous copper belt, one of the largest, undeveloped deposits of its type in the world.

Although an expensive acquisition (the company must spend US$250 million and bring the project into production in order to earn a 55% interest from state-owned Gecamines), stratabound deposits there have huge reserves and resources — 220 million tonnes of 4.42% copper and 0.33% cobalt using a 1% copper-equivalent cutoff — and the potential to host 1 billion tonnes.

Tenke is conducting a feasibility study of an oxide operation (the deposits also host sulphide and mixed resources) capable of producing at least 80,000 tonnes per year of cathode copper through solvent extraction-electrowinning.

Capital costs are estimated at US$350 million.

The project will not be without its challenges, as Zaire is a poor country in political disarray. But Lukas Lundin, Tenke’s president, believes the political situation is changing for the better. “[We] hope to play a significant role in the country’s emergence as a major player in the world mining industry,” he states.

Lundin and his associates are not shy about taking on large projects. Several years ago, they acquired the huge Bajo de la Alumbrera copper-gold deposit in Argentina, which was later sold to a group of majors that included Rio Algom (ROM-T).

South America

If Africa is one of the last frontiers for Canadian companies, South America was one of the first. Indeed, Chile’s mining industry has matured into a home away from home for major companies.

According to Clive Johnson, president of Bema Gold (BGO-T), that familiarity did not exist a decade ago, when his company opted to explore in Chile after experiencing difficulty building mines in North America.

The junior acquired Refugio, a known gold project that grew through exploration to the point where reserves would sustain an annual production rate of 233,000 oz. gold. “Had I known the project would end up being this big, I might have thought twice about taking it on,” says Johnson.

Bema had some difficulty bringing the project on-stream because, at the time, Chilean projects did not enjoy the favorable rating they do today. Bema later enlisted the aid of Amax Gold (AXG-T) in the development of the open-pit, heap-leach mine, which finally poured its first gold in early 1996.

At about the same time, Bema and affiliated junior Arizona Star Resource (AZS-V) made a new discovery while exploring the nearby Aldebaran property.

While deep-drilling below Cerro Casale, a known oxide gold deposit, the partners intersected a large, low-grade, gold-copper sulphide porphyry deposit that is still growing.

Growth through exploration is a goal confined not only to juniors. Barrick, for example, is rapidly adding ounces to its reserves at El Indio, in Chile, which the company acquired in a 1995 takeover of Lac Minerals. Last year, 8.1 million oz. were added to the Pascua deposit, bringing total reserves there to 10 million oz. In addition, a resource of 6.7 million oz. was identified.

Earlier this year, Rio Algom, using innovative exploration techniques, made a substantial grassroots discovery at a Chilean property. The company’s Spence deposit is estimated to host 188 million tonnes grading 1% copper, with minor silver and molybdenum values.

Central America

Greenstone Resources (GRE-T) has become the largest gold producer in Central America, thanks to success in exploration and an ability to spot projects with exceptional potential. The company, which has been active in Latin America for more than a decade, is shooting for annual production of 200,000 oz. by the end of the year from its Santa Rosa mine in Panama, the Bonanza and Cerro Mojon mines in Nicaragua, and the new San Andres mine in Honduras.

In Nicaragua and Honduras, Greenstone’s exploration expenditures for 1997 will total $18.5 million.

“We believe that with the planned 1997 exploration activities, Greenstone will exceed its 10-million-oz., reserve objective for year-end,” states Chairman Hugh Synder, adding that the work will also generate targets for future growth. “As the dominant gold company in Central America, Greenstone has been able to assemble, at very low costs, four major concession areas, three of which have multi-million-ounce gold exploration targets in a small geographic area.”

Mexico

In neighboring Mexico, numerous Canadian companies are reviving the country’s historic mining districts. One example is Eldorado (ELD-T), which used production from the relatively small La Colorado gold mine in Sonora state to finance bigger and better projects in Brazil and elsewhere.

Teck (TEK-T) also has taken an interest in several of Mexico’s historic mining districts, where it is exploring for gold and base metal deposits.

In Guerrero state, Farallon Resources (FAR-V) has breathed new life into an old mining camp through exploration work at its Campo Morado concessions.

This work is focused on a series of volcanogenic massive sulphide deposits and occurrences, including the Reforma deposit, where reserves are estimated at 2.7 million tonnes of 4.8 grams gold and 247 grams silver, plus 4% lead-zinc. Several other Canadian companies are also active in the region.

Former U.S.S.R.

In the former Soviet Union, Canadian companies have taken on a variety of mineral projects as well as the challenges that accompany them.

Saskatchewan-based Cameco (CCO-T) acquired a gold project in Kyrgyzstan while examining uranium projects there during the early 1990s. The company became a sizable gold producer when the joint-venture project, called Kumtor, recently poured its first gold. Proven and probable diluted reserves amenable to open-pit mining are estimated to be 80.5 million tonnes averaging 3.58 grams gold, equivalent to 9.3 million contained ounces.

However, the construction of a large gold mine at a high-altitude property with little infrastructure has had the effect of inflating capital costs there to US$450 million — almost US$100 million more than budgeted. But 33.3%-owner Cameco says project economics remain robust. The mine is expected to produce 500,000 oz. gold annually at a production cost of less than US$200 per oz.

Bernard Michel, Cameco’s president, says cultural differences also posed quandries that took time and patience to overcome. “Negotiations can be difficult because, in their [the Kyrgyzstanis’] culture, there are only glorious winners and humiliated losers,” he explains. “It took time for them to understand the concept that both sides could win.”

Despite these challenges (and others, related to security of tenure and political and economic instability), Canadian companies continue to investigate mining opportunities in the former Soviet Union. An area of particular interest is the southern, Asiatic portion of Russia and its former republics, which host numerous large, bulk-tonnage gold deposits.

Other jurisdictions

* China and Mongolia — The favorable geology of southern Russia has been traced into northern China, where Canadian companies are acquiring ground now that exploration projects have been opened up to foreign investment.

Those companies exploring China include Asia Minerals (AMP-A), Minco Mining & Metals (MMM-V) and China Clipper (CXX-A), as well as newcomer Zen International (ZQP-V), a junior company headed by Catherine McLeod-Seltzer and David Lowell of Arequipa fame.

Not far away, in Mongolia’s Gobi Desert, several companies are reported to be conducting reconnaissance exploration aimed at identifying Carlin-type gold deposits.

* Yemen — A similar exploration effort, which employs geochemistry as the primary tool, is being conducted in Yemen, which borders Saudi Arabia. The program is operated by Canadian Mountain Minerals (CYM-A), which is headed by Charles Fipke, co-discoverer of the NWT Diamond project, owned by Dia Met Minerals and BHP Diamonds in the Northwest Territories.

* S.E. Asia — In the wake of the Busang gold discovery, Southeast Asia has become a beehive of activity, with Indonesia and the Philippines attracting most of the attention.

No one has yet matched the success of Bre-X Minerals, though numerous Canadian juniors continue to look. Toronto-based International Pursuit (IPJ-T) has assembled one of the largest land packages in Kalimantan, the province in which Busang is situated. The company has eight field crews testing gold prospects identified by prospecting, airborne geophysics and satellite imagery. Yamana Resources (YRI-T), with the financial help of partner Barrick Gold, has also acquired a 2.7-million-ha land package in Kalimantan.

* Europe — Overlooked as a mining destination until recently, Europe is providing Canadian companies with plenty of prospects. Donald McKinnon, the prospector who played a key role in discovering Ontario’s Hemlo gold camp, has turned his attention to historic mining regions in Norway through his junior company Hendricks Minerals (HNDX-C). In neighboring Sweden, Vancouver-based South Atlantic Resources (SCQ-V) has formed an alliance with mining giant Boliden to explore three mining districts prospective for gold, silver and base metals. The partners intend to expand that exploration venture to Norway, Finland and northwestern Russia.

TVX Gold (TVX-T), which has interests in established gold mines in Canada and Latin America, is one of the Canadian companies most active in Europe. In addition to operating the Kassandra polymetallic mine in Greece, the company is advancing the Kasperske Hory gold project in the Czech Republic.

About the only continent where Canadians can not be found is Antarctica, where mineral exploration is prohibited. If that were to change, however, Canadians would probably head there, too, as the continent has an old craton believed to be prospective for diamonds.