Noranda baffled by vanishing Karpa Spring gold find

What had at first appeared to be a significant new gold discovery in the Karpa Spring region of Western Australia has turned out to be a disappointment for joint venture partners Noranda (TSE) and Perth- based Perilya Mines. The great expectations for the new find have been dashed following the release of some disappointing follow-up drill results.

Recent diamond drilling on the property has yielded only negligible gold values and has led to speculation that the previously reported high-grade results were contaminated.

Last month, Noranda paid A$6.15 million to acquire an initial 30% toehold stake in the discovery on the basis of some tantalizing preliminary results from 12 reverse circulation holes.

The Toronto-based company was attracted to the unproven find by intersections which reportedly ran as high as 22.4 grams gold per tonne over 38 metres (T.N.M., July 23).

But follow-up results from two recently completed diamond drill holes and four reverse circulation holes have failed to reproduce the earlier spectacular intersections.

The maximum value in follow-up holes was only 0.016 grams gold per tonne with other results grading less than 0.005 grams per tonne.

In a letter to the Australian Stock Exchange, dated Aug. 2, Perilya said the previous assay reports from Karpa Spring had “created a misleading impression as to the property’s potential.”

On the basis of drilling completed to date, Perilya concluded that “it is unlikely a gold mineralizing system exists within the area drilled.”

A halt to trading in the company’s shares was then requested to allow time to clarify the earlier assay reports. Perilya’s shares had briefly traded as high as 47 cents on the play before dropping back down to the 6 cents level.

Meanwhile, the local police and fraud squad have been called in to investigate the situation. Investigations are under way to determine the reason for discrepancies between the previous and recent drill results.

In Toronto, a spokesman for Noranda said the company is “looking at the possibility of fraud,” and he added the project is “currently in a state of flux.”

The spokesman confirmed that Perilya has already contacted the police in Perth who are now involved in the investigation.

Clarence Logan, director of international exploration for Noranda, flew to Western Australia from Toronto last week and was unavailable for comment.

Perilya said its proposed acquisition of the Karpa Spring property from Noranda Exploration Pty, a unit of Noranda, has been deferred pending the outcome of investigations. Noranda originally purchased a 30% interest in the property by payment of $6.15 million to the vendors of the claims on behalf of an Australian syndicate. The latter group holds a 70% interest in the property.

Drilling is continuing on the Karpa Spring property with one diamond drill rig and a second reverse circulation drill rig.