NO HEADLINE (March 12, 1990)

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About to enter production is the newest of Canada’s northern mines, the ambitious Colomac gold project of ABM Gold (AMEX), which is 50% owned by Northgate Exploration (TSE). The mine is located 137 miles north of Yellowknife, N.W.T.

Colomac at full production will treat 10,000 tons of ore per day and turn out 200,000 oz gold per year. Current reserves (proven and probable) stand at 28.1 million tons grading 0.056 oz gold per ton.

The mine was built, at a capital cost of $156 million, two years after former owner Neptune Resources announced its go-ahead decision. The non-availability of electrical power to operate the mill and other equipment posed a major problem, which ABM solved by installing six 2.8-megawatt diesel generators. It is estimated the fuelling requirements will account for about one- quarter of the project’s operating cost.

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As a result of the past year’s intense exploration program on the Eskay Creek property jointly owned by Calpine Resources (VSE) and Stikine Resources (VSE), a clearer picture of the deposit’s size and shape is forming. The Eskay Creek property, located 50 miles north of Stewart, B.C., rose to fame in late 1988 when the joint venture drilled discovery hole 88-06 which intersected 96.5 ft. grading 0.752 oz. gold per ton.

Dubbed the 21 zone, subsequent drilling through the winter and following summer produced some spectacular holes including the now historic hole 89-109 which intersected 682.2 ft. grading 0.875 oz. gold and 0.97 oz. silver per ton.

Hole 109 set off a flurry of speculation as to the potential size of the deposit. Published reports from brokerage firms placing the potential in excess of 10 million oz. of gold-equivalent reserves were not uncommon.

Calpine’s share price reached a high of $9.75 from a low of $1 while Stikine followed suit, rising from the $5-level to a high of $59.50 per share.

Subsequent step-out drilling from hole 109 indicated that the large width of that hole was localized and did not continue to any great extent in either direction. As a result, speculation cooled and Calpine pulled back to the $5-level with Stikine following, dropping to the $38-range.

As further drilling results filtered in, the shape of the deposit became clearer.

The property has been divided into two connected zones, the 21A and the 21B, trending north-northeast. The 21A zone refers to the area previously termed the South zone while the 21B zone includes the areas formerly known as the Central and North zones.

Mineralization on both 21-zones is stratabound, occurring along a rhyolite-andesite contact.

The 21A zone is about 1300 ft. in strike length and extends to a depth of approximately 600 ft. Faulted-off to the south and bounded on the north by a band of low-grade mineralization, the zone could be described as somewhat wedge-shaped. It is thickest at the surface, getting narrower with depth as it dips to the west.

The 21B zone appears to be a continuous sheet of mineralization dipping at about 30 degrees, open to depth, and extending for a length of about 1,600 ft.

At this point on the strike length of the 21B zone, the mineralization continues, but is no longer bound by the contact between the rhyolite and the andesite. It begins to occur in relatively unpredictable bands located in both the hangingwall and the footwall for a further 1,600 of strike length extending to the property boundary.

Prime Resources Group (VSE), which is the largest Calpine shareholder and manages the property, recently released a reserve figure on the property compiled by consultants Roscoe Postle Associates.

The calculation puts probable geological reserves in the 21B zone at 1.07 million tons grading 1.66 oz. gold and 43.3 oz. silver per ton, plus 2.1% lead and 5.2% zinc.

Chet Idziszek, senior vice-president of exploration for Prime, noted that the reserve was predominantly made up of mineralization in the more continuous southern section of the 21B zone. Drilled on about 160-ft. centres, this area was assumed to be continuous between sections for the purpose of the reserve estimate.

The area to the north, which contains hole 89-109, was not assumed to be continuous in estimating the reserve, using areas of influence for each cross section of less than 160 ft. Idziszek noted that an area of influence of about 30 ft. was used for the cross section containing hole 89-109. This lessens the chance that the hole incorrectly skews the reserve figure.

In calculating a reserve figure a cut-off grade of 0.25 oz. per ton was used as well as a minimum width of 6.5 ft. Roscoe Postle noted that gold grades were generally uncut while all tonnage estimates used a specific gravity of 2.76.

Idziszek indicated that the specific gravity estimate was extremely conservative and could, because of the massive nature of the ore, approach a factor of 4.0 which would have a significant impact on the tonnage of the deposit.

The reserve estimate also left out a section of the 21B zone about 100-160 ft. wide which is the subject of a claim dispute.

The nature of a future mine on the site, be it underground or open pit, is by no means set in stone. Roscoe is also compiling reserve figures using lower cut-off grades of 0.10 oz. gold per ton and 0.01 oz. gold per ton. This will give a ball park indication of the type of mining most profitable for the deposit.

Although the current figure indicates a gold-equivalent reserve of about 3.0 million oz., some analyst contend that by mining the deposit by open pit, the reserve could approach a gold equivalent of 7.0 million oz.

Doug Hurst, mining analyst at McDermid St. Lawrence, disagrees and expects the deposit will be mined by underground methods with the possibility of mining some pods of mineralization from surface.

With a 1990 budget of $15 million, Prime will be concentrating on in-fill drilling and metallurgical testing in the immediate future. The company expects to have the 21 zone drilled-off on 80 ft. centres by mid-summer. At this point the project will likely be handed over to engineers from Corona Corp. (TSE). Corona has been contracted for the pre-feasibility work.

Prime can then concentrate on other areas on the property to the south of the 21 zone which are seen to have high potential but, because of the relative priority of drilling- off the 21 zone, have been left alone.

Although development of the property is proceeding rapidly, Idziszek does not foresee the construction of a mill on the property beginning until the spring of 1992.

With gross ore values of close to $1,000 per ton at current metal prices, investors took news of the reserve figures in stride leaving Calpine unchanged at the $5-level.

Investors are awaiting shareholder meetings which will determine the future of Calpine. Prime, which owns about 50% of the issued shares of Calpine, is proposing a merger which would essentially swallow-up Calpine. Shareholders, offered one share of Prime Group plus half of a one-year warrant exercisable at $5.25, will vote on the proposal on April 2, 1990.

The merger requires a 75% majority vote and, if successful, would result in a total of about 40 million Prime shares outstanding. A minority of Calpine shareholders have been very vocal in their displeasure of the proposal.

With approximately 20 million shares of Calpine currently outstanding, shareholder leverage to the Eskay Creek property would be cut in half if the merger is approved.

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The decision to sink an underground exploration shaft at the Grevet zinc- copper-silver project 140 km north of here is likely to be the next step taken by partners VSM Exploration (ME) and Serem Quebec. Serem, a French-controlled mining company, has been exploring the Grevet property in partnership with VSM since late 1988.

In just over a year, the partners have been successful in outlining preliminary reserves of at least 6.2 million tonnes grading 8.65% zinc, 0.48% copper and 33.9 grams silver per tonne in three parallel sulphide lenses. Those reserves occur in vertically dipping sulphide horizons, about 4.4 metres wide, to a depth of 600 metres below surface.

The property, about 40 km from the town of Quevillon, is just one of nearly 50 northwestern Quebec properties in which VSM has the right to earn a 50% interest from SOQUEM.

The Montreal-based junior is earning its interest from Serem by spending a total of $8 million on exploration before June 30. Subject to minimum funding requirements for certain claim groups in the joint venture, VSM will hold at least a 30% interest in the Serem group of properties once it has spent $3 million on exploration.

To date, just under $3 million has been spent on the Grevet zinc project, including nearly 40,000 metres of surface diamond drilling.

Serem’s Val d’Or manager Jean Girard told The Northern Miner that the joint venture’s discovery of a major new zinc deposit on the Grevet claims has gone largely unnoticed by many.

It has been overshadowed by other big base metal discoveries in Quebec, he said, especially the Aur- Louvem deposit found by deep drillling in Louvicourt Twp. last year.

Girard, who has been keen on the potential of the Grevet Twp. property since the early 1980s, said the Grevet massive sulphide zones now represent the largest base metal deposit uncovered to date in the Quevillon area.

But it has not attracted the attention it probably deserves, he added. That’s partly because of the bearish mood for base metals currently prevailing, and a flurry of new discoveries made elsewhere.

While he conceded that recent declines in the price of zinc have not increased the appeal of the Grevet project in the eyes of some investors, he felt underground exploration could significantly add to the existing reserves on the project.

“We think the Grevet discovery could represent the beginning of a new base metal mining camp in this area,” he said. “There is still tremendous exploration potential for other sulphide deposits in the relatively unexplored greenstone belt near Quevillon.”

Major company backing for VSM is being provided by Placer Dome (TSE), which has acquired nearly 55% of the share capital of VSM and is the junior’s largest shareholder.

A prefeasibility study for the Grevet property, being prepared in Quebec by Kilborn and Associates, could recommend the sinking of an exploration shaft to further test the continuity and grades zinc deposit on several underground levels, according to Girard.

When The Northern Miner visited the site recently, a deep drilling program, comprising at least three holes, was being planned to probe the deposit at depths of up to 1,000 metres below surface. The deepest drill hole to date has intersected mineralization at 700 metres below surface in the III horizon.

Geologically, the majority of the known reserves at Grevet occur in two zinc-rich sulphide lenses known as the III and IV horizons. The ellipse-shaped zinc bodies have been stretched and elongated by a major structural feature called the Cameron deformation zone, explained Girard.

According to another Serem geologist working at Grevet, the Cameron deformation zone, which strikes roughly east-west across the area, was only recognized recently. It was detected by regional structural studies within the last few years, he said. The deformation zone varies in width from 400 metres to 2 km. Pillow lava structures, found by surface stripping in the Grevet zone last summer, show horizontal elongation up to several metres.

Grevet’s largest sulphide lense — known as the III horizon — hosts about 3.4 million tons of massive sulphides grading 8.7% zinc. That horizon has an average thickness of about 4.4 metres, while the smaller and parallel IV horizon contains about 2.2 million tons grading 8.4% zinc over an average thickness of about 4.4 metres.

Those two vertically dipping horizons are separated by an average distance of about 75 metres. Striking at roughly 120 degrees , both sulphide zones have an easterly plunge of 15-30 degrees .

The III horizon is still open down-plunge to the east, and the current drilling program will include a stepout hole to test an area 500 metres east of previously intersected mineralization. That hole will be drilled to the 800-metre horizon, while another stepout hole will probe 200 metres further east at the 1,000-metre horizon.

Core from the III horizon examined by The Northern Miner contained banded massive sphalerite and pyrite with a low content of pyrrhotite, less than about 5% overall.

Some of the higher-grade zinc intervals, intersected in previous drilling, included values as high as 20.9% zinc over 2.03 metres, and up to 28.8% zinc over 4.8 metres. The mineralized horizons can vary considerably in thickness due to shearing, boudinage and alteration in the Cameron deformation zone.

A big advantage for the project is its location, close to infrastructure and with easy road access from the nearby town of Quevillon. A large hydro-electric power line crosses the property and rail lines are nearby.

With an underground program likely to cost as much as $10 million, VSM is preparing a major $6.5 million public financing to continue exploration work on the Grevet property. Depending on the results of underground work and the price of zinc, production would likely be at least two or three years away.

There are nearly 12 million shares of VSM currently issued and outstanding with a float (shares in circulation) of about 2.7 million. Placer Dome, the company’s major shareholder, owns about seven million shares at present.

VSM is one of five juniors, including Nova-Cogeco Resources (TSE), MSV Resources (ME) and Cache Explorations (ME), which are managed by the private Montreal-based firm of Corpomin Management. That company is owned and directed by mining engineers Pierre Boudreault and Mario Caron. The company’s joint venture partner at Grevet, Serem Quebec, is a 100% owned subsidiary of BRGM of France.

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Few would say that good fortune has been with Pioneer Metals (TSE) during the past few years. Its stock price certainly reflects the company’s misfortune, trading at the 30 cents-level following a steady decline from a price in excess of $15 per share back in 1988. Pioneer’s trouble began in early 1989 with the closing of the Puffy Lake gold mine in north central Manitoba. Although operating cost at the 1,000-tons-per-day operation were as projected, the grade of material reporting to the mill was too low to be profitable.

Pioneer plans to dewater the lower levels of the mine in early spring, indicating that several parties are interested in evaluating the potential of reopening the mine.

The company also encountered difficulties bringing the 40% owned Premier gold property into production. The joint venture with Westmin Mines (TSE), the operators and 50.1% owners, has been running at a loss since production began in June, 1989.

Westmin reports that Pioneer owes it in excess of $11 million due to operating losses, capital expenditures, interest charges and management fees. As a result, Westmin has claimed a lien on Pioneer’s share of production. The response of the Chase Manhattan Bank of Canada, owed more than $23 million collateralized by Pioneer Metal’s interest in the Premier property, is yet to be seen.

Westmin attributes the operating losses to date to production problems relating to equipment troubles, and to a greater extent, on grade control problems. Bruce McKnight, vice-president of business development, noted that the company is working on a mining optimization plan which should increase mining grades and bring monthly gold production up to target levels of 6,000 oz. per month.

Pioneer expects to reach an agreement with Westmin once the optimization plan is completed.

Further to the company’s problems is an alleged default on a $12-million convertible debenture owned by Pegasus Gold (TSE). Pegasus has issued a non-monetary default notice which claims that Pioneer broke certain covenants of the debenture.

The convertible debenture is secured by Pioneer’s U.S. assets which include a 50% interest in the Stibnite, a seasonal heap leach operation, and the Bonito gold project in New Mexico.

Pioneer indicates that it has received an offer from a major mining company to be a joint venture partner of the Bonito project and is continuing to negotiate with third parties to facilitate their purchase of Pegasus’s debt and equity interests in Pioneer.

The company noted the purchase of Pegasus’s holdings would end the present default litigation.

As of Sept. 30, Pioneer had a working capital deficit of more than $12 million and long-term debt of more than $35 million including a $23 million gold loan.