A special warrant financing will enable
The financing was oversold in a matter of hours, and, thanks to overwhelming investor interest, the company was subsequently able to raise the offer to $7.3 million.
The issue was sold largely to institutional investors in the U.S. and Canada at $4.25 per special warrant, but, in addition, four insiders took down $1.6 million, or 28% of the financing, at the slightly higher price of $4.45. Haywood Securities acted as lead underwriter.
Each special warrant is exercisable, without further payment, into a unit consisting of one share and half a warrant. One whole warrant entitles owner to buy an additional share at $5 for one year. Pacific Rim currently has 21.7 million shares outstanding, or 27.5 million fully diluted.
“Clearly, even during this time of distressed financial conditions for mineral exploration, the market was there for Pacific Rim,” says President Catherine McLeod-Seltzer. “Not only do we have an outstanding exploration target; we have been transparent and thorough in our frequent disclosure of the outstanding results that we have received at Luicho.”
The Luicho project centres on 10 sq. km of optioned ground in a semi-arid part of the department of Ayacucho, near the town of Pomacocha. Perched atop steep and rugged terrain at an elevation of 2,700 metres, the property is accessible by a 6 1/2 hour drive, over gravel roads, from the Pan American Highway.
Previous exploration work was limited to a series of shallow exploration tunnels constructed in the 1950s by a French group, and to colonial-age Spanish workings.
The Vancouver-based junior is building a 7-km access road to the site, and various setbacks in this program have caused drilling to be delayed by about two months. Drilling is now expected to begin in early July.
Pacific Rim has made an initial payment of US$200,000 and can earn a 100% interest in Luicho by paying an additional US$400,000 in the first year, US$1 million in the second year and US$24.2 million in the third. The vendor, a private Peruvian holding company, retains a sliding-scale royalty of 2.5-3.5% on the first 1 million oz. produced and 3.5% on production thereafter. Pacific Rim added to its holdings by staking an additional 60 sq. km in the immediate area.
Luicho is a low-sulphidation, epithermal gold prospect. The main target area is related to a complex series of converging strike-slip faults that have created a broad zone of intense fracturing, which controls the gold mineralization.
However, structurally controlled does not mean structurally confined, according to Thomas Shrake, Pacific Rim’s chief executive officer. “The faults are actually fault zones, not narrow fault planes,” he says. “It is the fracturing that has created the plumbing system which controls the mineralization at Luicho.”
In other words, fracture density controls grade.
The three dominant fault directions are north-south, northeast and north-northwest. The “structural corridor” extends over a length of 1,850 metres and averages a width of 250 metres. The corridor is a boomerang shape that follows the north-southerly striking Luicho fault along its southern half and bends to the northeast in the northerly half. The Luicho fault bounds the western side of the corridor’s southern half.
Consistent grades
Using hammer-and-chisel methods, Pacific Rim has collected 7,602 two-metre continuous chip and channel samples averaging 1.58 grams gold per tonne. Of these, 4,934 were taken in the structural corridor and average 2.24 grams gold. About two-thirds of the samples from the structural corridor exceed a cutoff grade of 0.31 gram and average 3.34 grams gold and 21 grams silver. Only six of the total samples taken to date were found to contain no gold.
Based on the structural intensity of the rock, or the degree of fracturing, the structural corridor has been sub-divided into three zones: northeast, central and south. In the northeast area, 1,234 samples average 1.33 grams gold; in the central area, 2,907 samples average 2.92 grams; and in the south area, 793 samples average 1.15 grams.
Sampling results show that the distribution of gold mineralization mimics the fault pattern and that there are high-grade areas. A zone of fracturing in a central fault block 500 metres long averages a grade in excess of 6 grams gold.
“We can see continuity of mineralization in individual fault blocks, and we feel confident in our ability to predict where the grade is and why,” says Shrake, who credits chief geologist David Ernst with unraveling the Luicho puzzle.
In the northeast zone, there is limited exposure of the more fractured fault blocks; hence the lower-grade. Several old dumps in the area, which are inaccessible as a result of caving and alluvial cover, suggest the potential for some grade in the covered areas.
Also, the structural corridor does not necessarily form the boundary of the mineralization. All of the mineralization documented is on the eastern side of the north-southerly Luicho structure, though Pacific Rim expects the northeasterly cross-cutting structures to pass through the Luicho fault and structurally prepare the blocks on the western side. This entire fault block is covered by shale, which has hindered surface-sampling efforts, though crews have located exposed sandstone, with some grade, west of Luicho fault.
“We suspect the area of mineralization is going to expand once we drill through the shale,” says Shrake.
‘Scabs’
The gold mineralization is hosted in a stratigraphic sequence of sandstones and siltstones of the Cretaceous-aged Hualhuani formation. The stratigraphy in the main target area consists of local “scabs” of eroded, non-mineralized shale underlain by an upper 100-metre-thick quartz sandstone unit, which hosts most of the exposed mineralization. A lower, 3-metre-thick shale unit separates the upper sandstone from a 300-metre-thick middle sandstone unit consisting of alternating, thinly bedded shales and sandstones. A lower sandstone unit is similar to the middle section but has a higher carbon content.
The upper shale unit is believed to have acted as an impermeable cap to the gold-bearing hydrothermal fluids that deposited the gold in the underlying sandstone. “We see some ponding of gold mineralization between the upper shale, as well as at the shale that marks the contact between the upper sandstone and the middle sandstone unit,” explains Shrake. At the top of the upper sandstone, a variable, 10-metre-thick sequence of black, carbonaceous sandstone consistently carries higher grades. Down section, in the middle unit, there are multiple shale horizons that could create further potential for ponding of higher-grade mineralization.
The upper sandstone unit tends to be less fractured than the units below, so Shrake again sees good potential for better grades in the middle sections.
The surface-sampling pattern has been controlled completely by outcrop and access. “We have sampled every outcrop that is accessible by foot and are working on accessing every thing that is accessible by rope,” Shrake says. The technical climbers arrived months ago and their findings have bolstered Pacific Rim’s confidence in the mineralization’s vertical continuity. Correlation between lateral and vertical sampling is said to be excellent within individual fault blocks. Highlights of the most recent vertical cliff sampling results in the central and south zones are: 19.58 grams gold over 5 metres vertically; 8.74 grams over 6 metres; 8.2 grams over 11 metres; and 5.18 grams over 13 metres.
Pacific Rim has also sampled many of the old underground tunnels, providing a sub-surface sampling medium to compare with the surface sampling. The tunnels, which range from 5 to 30 metres in length, were probably driven in search of higher-grade gold mineralization. Sixteen tunnels in total have yielded an average grade of 7.35 grams gold over a combined length of 258 metres. More recently, two additional tunnels returned 16.66 grams gold across 34 metres and 14.79 grams across 13 metres.
Analyst James Mustard of Haywood Securities, who continues to recommend Pacific Rim as a speculative buy with a short-term target price of $7.50, had previously cautioned that the sampling data are likely skewed, given that the sampling pattern is largely dependent on access to outcrops. However, after touring the property, Mustard altered his view.
“While sampling from the underground workings has removed some of the risk, we did note that a few of the workings were either on structures or within the contact zone of the upper sandstone (black manto), contributing to some degree of bias in the sample data,” Mustard wrote in a recent report. “However, the overwhelming sample population, including the data from the cliff sampling, will tend to more closely bracket a true grade based on a macro scale.”
Within the structural corridor, Pacific Rim has been able to sample down 100 metres into the stratigraphy. Outside the corridor, several samples were collected in the main Luicho fault, north of where the structural corridor bends to the northeast. A sinuous, 322-metre-long string of 235 samples in this northern area averaged 1.1 grams gold across a 50-metre width. This mineralization occurs in the middle unit, some 200 metres into the stratigraphy. “We think that gives us a good idea of what depth potential there is,” Shrake said.
Preliminary petrographic work indicates that gold only occurs in late-stage fractures and never becomes introduced with the early-stage quartz. “This is why the metallurgy is so good,” says Shrake. “These same fractures that are mineralized are still partly open, so when you initially crush the rock, its easy to access the metal to the cyanide solutions.”
Initial bottle-roll recoveries for the non-carbon-bearing material of between 1 and 2 grams gold averaged 76% at a crush size of minus 2 inches and 89% at minus half an inch. Adds Shrake: “The mineralization is amenable to heap leaching, and excessive crushing is likely not going to be required.” However, bottle-roll tests on the higher-grade carbonaceous mineralization showed much lower recoveries, ranging from 19% to 61%.
Pacific Rim is continuing with column tests and intends to conduct a preliminary run-of-mine test leach as soon as the right materials can be obtained.
The company has already prepared to drill the initial 12,000 metres of the budgeted 20,000-metre drilling program. All holes will be angled 60 to the east in order to cut across all major fault trends to a maximum depth of 300 metres. The drill fences will be spaced at 200 metres in the central zone and widened to 300 metres at each end. Within the fence, the holes will be spaced 100 metres apart.
After the first results have been received, a core rig will be brought in to twin the reverse-circulation holes and validate the results, as well as deepen the holes if the mineralization is still open at depth. Drill results will be released in batches.
AK Drilling is mobilizing two reverse-circulation rigs to the property. Shrake expects the first rig to be on-site in early July, with the second rig following a couple of weeks later. The company has signed a surface rights option agreement with the Pomacocha community, providing complete and total land access for the upcoming drilling program and the option to buy the lands for US$1.2 million by April 3, 2001.
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