Noranda quick to buy into Australian discovery

A new and potentially large gold discovery at Karpa Spring in Western Australia has attracted the attention of resource giant Noranda (TSE) which has moved quickly to secure a stake in the project from Australian gold explorer Perilya Mines. Noranda Minerals, a unit of Noranda, has agreed to purchase a 50% equity interest in Perth-based Perilya and an option to buy a further 20% interest for A$16.2 million (A$1=93 cents). If fully exercised, the option would wind up costing Noranda a total of almost $15 million in cash.

Perilya owns 50% of the Karpa Spring prospect where 11 of 19 reverse circulation holes have intersected high-grade gold mineralization at shallow depths over a 1-km strike length.

The other 50% interest in the property is held by a syndicate owned by three Australian mining entrepreneurs, Mike Novotny, Bill Galbraith and Geoff Stokes.

The best hole, drilled vertically in shallow-dipping strata, cut a 38-m (125 ft.) intersection which averaged 22.44 grams gold per tonne (0.65 oz. gold per ton).

Situated about 350 km northeast of Perth, the Karpa Spring discovery is 10 km away from the Mt. Gibson gold mine owned by Forsayth and Reynolds Australia Mines.

The best results from a recent reverse circulation drill program at the Karpa Spring prospect are as follows:

0204,0203,0203,0300,0108,0000 Hole Width Gold Grade (m) (ft) (g/t) (oz/t) RCH 2 33 108 14.68 0.43 RCH 3 24 79 10.08 0.30 RCH 6 38 125 22.44 0.65 RCH 7 15 49 28.06 0.82 RCH 11 19 62 20.64 0.60 30 98 13.95 0.41 RCH 12 31 101 11.98 0.35

The above assays have been cut to 30 grams per tonne and come from vertical drill holes spaced about 200 metres apart along a distance of roughly one kilometre. The deepest hole tested a maximum depth of 75 metres below surface.

Although the geological setting of the mineralization is poorly understood, it is believed to be hosted by highly altered and oxidized volcanic rocks in an Archean greenstone terrain, according to a Noranda spokesman.

The area in which drilling has been conducted so far is entirely soil covered.

According to Clarence Logan, director of international exploration for Noranda, the new discovery is still at an early stage, but the widespread distribution of high-grade gold has offered considerable encouragement to the company, he said.

“The geological environment is not unlike Canada’s Abitibi greenstone belt,” said Logan, “but at Karpa Spring there’s no outcrop and the area is totally sand-covered and very arid.”

He said there has been a problem with coarse visible gold from the drill holes which causes a nugget effect during assaying. “Reverse circulation drilling is not ideal for this type of situation,” he said, adding that “some caution must be read into the initial assay results until diamond drilling can confirm the grades.”

Warren Batt, director of exploration for Perilya, said that although the Karpa Spring project is still at an early stage of evaluation it has the potential “to host a substantial gold mineralized system.”

Perilya was originally formed in 1987 to raise money for gold exploration in Australia, but the company was hit by the stock market crash in October, 1987. The firm was later rescued by Noranda which provided financial backing for ongoing exploration.

Logan, who recently returned from Australia, said Noranda had provided seed money to keep Perilya’s exploration team going after the crash of ’87.

“They (Perilya) would basically shake the bushes for us and served essentially as our arms and legs in the exploration field.”

That relationship, forged nearly three years ago between the companies, has finally paid off in the form of a significant new gold discovery. “The joint venture association worked so well that we extended it on an annual basis,” said Logan.

As part of the deal between the companies, Noranda will take up 53.8 million Perilya shares at A11 cents each, credited as fully paid to A25 cents. This constitutes about 50% of Perilya’s capital and provides the company with funds of A$5.92 million.

Perilya will also issue to Noranda 583,000 preference shares at A$12 per share, payable in full on allotment, raising another A$7 million. In addition, Noranda will be issued 273,000 preference shares at an issue price of A$12 payable at A1 cents on allotment with the balance due when called by the company according to its cash needs. When fully paid, these shares will provide a further A$3.27 million.

Up until the mid-1980s, Noranda operated exploration programs in Australia through its subsidiary Noranda Pacific, which was sold in 1987 along with a 25-year exploration database.

Perilya managing director Tim Clifton said the recent deal will give his company the assurance of financial and technical support from the Noranda group for what could become “a potentially large mining operation.”

Exploration is continuing this month with the addition of diamond drill rigs to further test and confirm grades in the main zone. Reverse circulation rigs will drill around the discovery to outline the surface extent of the deposit which remains open in all directions. Perilya is acting as operator during the current phase of exploration.

The new discovery comes at a time when many of Australia’s low- cost surface mines are being depleted and exploration is shifting to deeper deposits. Furthermore, a 39% gold tax, scheduled for Jan. 1, 1991, has also reduced the level of gold exploration and shortened the lives of several mines where high- grade ore is being processed before the tax comes into effect.

Australia is the third largest gold producer in the Free World and last year produced nearly 197 tonnes of the yellow metal compared with 158 tonnes of gold mined in Canada in 1989.