GlobeStar sees opportunity in DR

SITE VISIT

Santo Domingo, Dominican Republic — When Bill Fisher, chief executive of GlobeStar Mining (GMI-T), first arrived on the tropical shores of the Dominican Republic, the weather may have been sunny, but the economic outlook for the country was anything but.

“There were no mines in operation,” Fisher remembers. “We got in right in the bleak period.”

And by bleak, Fisher isn’t just referring to the mining sector. The whole Dominican economy was spiralling down on the back of the bankruptcy of its three biggest banks, and inflation that was rising to almost 30% just as the GDP was coming down 2%.

As for the mining sector, while the country is home to two of the Americas’ larger projects, both were standing idle.

Falconbridge (now xstrata [XSRAF-O, XTA-L]) had suspended operations at its Falcondo nickel complex due to depressed nickel prices, and Barrick Gold’s (ABX-T, ABX-N) Pueblo Viejo gold project had been inactive for two years and was little more than an environmental mess the government was looking to auction off.

But through it all, Fisher, a geologist with some 25 years of experience, saw opportunity.

“Our philosophy was to select a high-grade deposit that would get us into the mining business,” he says. “So we selected a small, high-grade open pit that would get us into that space.”

That Fisher happened to find a copper deposit when the price of the red metal was around 65 a lb., and that it was located within a failing economy, just gave GlobeStar more leverage.

The company paid Falconbridge US$850,000 plus a 2% net smelter return for the Cerro de Maimon property — a project which is slated to start production in the third quarter of 2008 and turn out 177 million lbs. copper, 84,000 oz. gold, 2.8 million oz. silver, and nearly 90 million lbs. zinc in total.

But the shrewd business move didn’t just coincide with a coming rise in commodity prices; the Dominican economy was also reviving itself.

The return of President Leonel Fernandez in 2004 (he also served between 1996 and 2000) brought tighter monetary policies and a new economic program widely credited with turning things around. By 2006, economic growth had reached a torrid 10.7%.

The mining sector rebounded as well.

“From the bleak days of 2002, things are flying now,” Fisher says. “Falcondo is very profitable, our project is under construction and Barrick’s Pueblo Viejo looks like it will go into production. All is glory in the house of Denmark.”

While Barrick’s latest announcements regarding drill results from Pueblo Viejo are encouraging — it announced an increase in reserves to 18.1 million oz. — company spokesperson Vince Borg says a production decision is yet to be made, and doesn’t need to be made until next February.

Still, if Pueblo Viejo does come on line as many expect it will, along with Cerro de Maimon, the mining sector’s contribution to the country’s gross domestic product would go up to roughly 6% from 2%.

Cerro de Maimon

It’s just 70 km from the capital of Santo Domingo to Cerro de Maimon — a distance that can be covered in an hour over a paved road. But by helicopter, one gets a better feel for the Cordillera Central mountain range, which runs north from the capital towards the project.

The range represents the highest mountain chain in the Caribbean and was formed by the tectonic activity associated with the island’s position on the Caribbean plate along a heavily faulted corridor.

Cerro de Maimon is sandwiched in the heart of these mountains between Falcondo’s nickel complex and Pueblo Viejo, both of which lie within 10 km of the project.

A revised mine plan was completed for the project in 2005 — one that Fisher says is simpler and cheaper.

“The original engineers made a Rolls Royce, really,” he quips. “And now we’re building a Ford.”

In contrast to the original plan, GlobeStar will now get its 1,300-tonne-per-day sulphide circuit working first to start production of copper concentrates. Roughly four months later it will start its 500-tonne-per-day oxide circuit for producing gold and silver dor bars from the oxidized cap of the deposit. GlobeStar estimates recoveries of 90.8% for gold and 87.1% silver.

Sulphide units will be processed using standard flotation to produce a single concentrate for export to smelters worldwide. Estimates for copper recoveries are at 90%, with zinc at 85% and gold and silver as byproducts.

The sulphide and oxide circuits will operate in parallel for roughly three years at a design capacity of 1,800 tonnes per day until oxide reserves are exhausted. The sulphide circuit will continue to process reserves for over 6.3 years.

Cash costs are estimated at US74 per lb. copper, with precious metal credits taking that down to US48 per lb. The plant will cost US$46.5 million to build.

Ore will be mined via an open pit from a deposit with a proven and probable reserve of 3.3 million tonnes, grading 2.87% copper, 1.35% zinc, 40.91 grams silver per tonne and 1.28 grams gold.

The roughly 575,000 tonnes in the smaller oxide zone is heavier in precious metals — 64.66 grams silver and 2.56 grams gold — while the base metal grades fall off to 0.2% for copper and just 0.02% zinc.

But the situation is reversed in the 2.8-million-tonne sulphide zone, where copper grades increase to 3.43% copper, and 1.35% zinc, while silver drops to 40.91 grams and gold to 1.28 grams.

Those numbers could change, as recent drilling of 23 holes totalling 2,580 metres was highlighted by a 21.82-metre interval grading 5.41% copper, 0.57% zinc, 34.28 grams silver and 1.19 grams gold and a 6.19-metre intersection of 3.05% copper, 1.96% zinc, 84.8 grams silver and 1.7 grams gold.

While the returns are encouraging, Fisher says the main purpose of the drill program wasn’t to add to or convert resources but to characterize the overburden, and as part of the project’s environmental management plan.

But he isn’t counting out a restatement of resources that could be issued in early April.

“It was a housekeeping program if you like, but hopefully it will increase resources,” he says.

The geology

The deposit is a volcanic-hosted exhalative massive sulphide body topped by a gold- and silver-bearing oxide cap that outcrops at surface. Plunging southeast at 25, the mineralization is 200 metres wide, 1,000 metres long, and 40 metres thick near surface, narrowing to 5 metres downplunge with an average thickness of 12 metres.

There are three types of mineralization: a gold- and silver-rich oxide cap, a supergene-enriched sulphide zone — where unaltered massive sulphide has been preferentially enriched in copper — and the unaltered massive sulphide deeper and below weathering effects, where the copper to zinc ratio approaches 1:1.

It is the largest known of several massive sulphide occurrences hosted by the 50-km-long Maimon volcanic belt.

As many juniors in the developing world continue to learn, good economics aren’t the only thing that can keep a project afloat.

“A number of juniors have gotten into trouble because they don’t pay attention to community relations straight away,” Fisher says. “They just put their heads down and they sort of think, ‘well we’ll sell it to Barrick and it’ll be their problem.'”

In contrast, Fisher says GlobeStar emphasized community relations from day one.

“We kept on it all the time, we always kept the locals informed, we worked with the priest because people look to the church, and we knew that if we did that, we’d be able to build a mine one day.”

That early attention to community relations paid off during the environmental permitting process. One of the conditions of the permitting was community approval for the proposed project, which received a resounding endorsement with 87% of those taking part voting in favour.

“It’s a mining district and they get it,” Fisher says. “Because they understand mining, it’s not a matter of fear.”

A
s a mining district, the area also offers an experienced labour pool; the closure of Pueblo Viejo in 2000 put roughly 800 locals out of work.

With Cerro de Maimon scheduled to come on-line next year, and a decision still pending on Pueblo Viejo, GlobeStar should have first pick of a trained workforce.

The nickel play

While its progress towards production at Cerro de Maimon is impressive, it’s a mistake to think the company is only about copper.

The new discovery of nickel-bearing laterites just 1 km from Falcondo’s permit means there’s the potential for generating cash flow before the crushers at Cerro de Maimon start running. GlobeStar can earn some cash if it can sell the laterite to Falcondo, which could have it trucked the short 8.5 km to its smelter.

The latest results from GlobeStar’s Loma Mala nickel project were highlighted by intersections of 13 metres grading 2.01% nickel and 11 metres grading 1.94% nickel, with a 1-metre interval grading 4.78% nickel — the highest nickel assay GlobeStar has reported to date.

Those high grades found at the surface could prove appealing to Falcondo, as its higher-grade ore was exhausted back in the 1970s.

Serafin Gomes, head of mine operations at Falcondo, says the facility requires the “fresh” ore near the surface as it offers a better chemical ratio, which ensures the stable operation of the smelter furnaces.

“But we’re getting down lower all the time,” Gomes says.

Ernest Mast, the president and general manager of Falcondo is open to the possibility of securing near-surface laterite from GlobeStar.

“We have reserves for fifteen years here, and combined with some other nearby areas we’re saying there is another twenty years total, plus (GlobeStar) has stuff as well,” Mast says. “We’ll have to talk to them sometime.”

To make the need for such talks more pressing, GlobeStar is re-allocating its diamond-drill rig to the nickel prospects in early March. The rig had been busy at Cerro de Maimon, but once it begins on the nickel laterite it will keep turning until the budgeted US$1.2 million is burned through. Fisher estimates that will be after 100 holes, each to a depth of 20 metres, are drilled.

GlobeStar controls roughly 44 km of the nickel-laterite belt that stretches across the top of a series of peridotite ridges along the eastern flank of the Cordillera Central range. The higher nickel grades are produced by the tropical climate weathering the peridotites.

After Loma Mala, the Cumpie Hill concession is the next most promising of the company’s nickel projects. Drill results released in August of last year were highlighted by a 25.9-metre interval grading 1.6% nickel and 13.2 metres averaging 1.4% nickel.

Cumpie Hill is adjacent to Falcondo, and the results came from 25 diamond-drill holes, totalling 436 metres — 13 of which hit mineralization.

Such positive early results, and nickel’s unprecedented high prices — it recently broke through US$20 per lb. — has Fisher enthusiastic.

He calculates that, at US$18 per lb., ore grading 2% nickel is worth US$800 per tonne, and at 1%, US$400 a tonne.

“It’s like having forty-gram gold with no stripping, no blasting. It breaks apart in your hands, you just dig it out and put it in a truck.”

Exploration

Dona Amanda is one of three exploration sites within GlobeStar’s Bayaguana concession. The site stands between the Cerro Kiosko concession to the east and Dona Loretta to the west.

All the projects lie within the Los Ranchos formation — a series of rolling green hills that runs off the southeastern section of the Cordillera Central range.

The formation — which hosts Pueblo Viejo — is composed of high sulphidation fluid systems carrying principally gold and copper.

The geology is described as sulphidic silicification centred on dacite domes extending locally into the dacitic tuffs. Argillic alteration is confined to pyroclastic blankets surrounding the dacite domes. Prophylitic alteration is zoned around the argillized and silicified dacitic core and is largely confined to basalts.

Standing atop Dona Amanda, Fisher points west across a green valley and towards the visible peak of Dona Loretta on the other side.

“All that land in between these two may host continued mineralization,” he says. “We have lots of data on the area, but it’s in patches. The airborne will let us look at things more holistically.”

GlobeStar has Fugro flying an airborne geophysical survey over the area. The survey — which will also cover the Cerro Maimon range — began in December and is expected to be complete by mid-March.

If the results are promising, GlobeStar will go ahead with its 7,500-metre drill project, which is already in the budget.

As the only site with a measured and indicated resource, Cerro Kiosko is the most developed site. It hosts an estimated resource of 570,000 tonnes grading 1.01% copper, 1.93 grams gold per tonne and 4.2 grams silver.

Dona Amanda hosts an inferred resource of 128 million tonnes grading 0.31% copper, 0.19 gram gold and 1.43 grams silver, while the inferred resource at Dona Loretta is 8.2 million tonnes grading 0.5% copper.

“We want to monetize Bayaguana as quickly as we can,” Fisher says of the future of the concessions. “We see it as our second mine.”

GlobeStar shares hit a rolling 52-week high of $1.75 on Feb. 9 with 77 million shares outstanding.

As for its hedge book, while contracts are yet to be announced, Fisher says gold, silver and 15% of copper production will be hedged at Cerro de Maimon.

The company has roughly $23 million in the kitty and is debt free.