With shares trading at about $35,
The Vancouver-based exploration company has a market capitalization of roughly $700 million, and a following of investors, including some who are likely attracted by speculation that Boka is potentially a multi-million-ounce, bulk-minable deposit.
Whether such optimism is warranted remains to be seen, as Boka is an early-stage project that does not yet have any resources in the inferred category, let alone proven reserves. Geological and technical information is also scant, which is not surprising given that Boka is a recent discovery in a relatively remote region that does not yet have any delineated gold deposits. Yet these facts have not stopped some newsletter writers, and even some mining analysts, from musing that Boka has the potential to one day join the ranks of the world’s top gold producers. Others are more circumspect, if not skeptical. Even Southwestern President John Paterson cautions that the company’s current share price reflects renewed interest in gold, as well as recent progress at other exploration properties, notably the Liam gold project being examined by partner
As for Boka, Paterson says there’s no doubt it’s a big system with geological similarities to black-shale-hosted gold deposits in Central Asia’s Tien Shan metallogenic belt, which rank among the largest in the world. The best known of these are Kumtor (17+ million oz.) in Kyrgyzstan, the undeveloped Sukhoi Log (42+ million oz.) deposit in Siberian Russia, and the mighty Muruntau mine (170 million oz.) in Uzbekistan.
Boka is not in the prolific Tien Shan belt but rather in southern China’s Yunnan province, which borders Myanmar (formerly Burma), Laos and Vietnam. Southwestern took on the project in September 2002, when it signed a letter-agreement with the China Yunnan Province Nuclear Industry Team 209 to explore what was then a newly discovered area of high-grade mineralization.
Under the terms of the agreement, the company can earn 90% of 190.8 sq. km. of mining and exploration permits (some under application) from the Chinese agency by spending US$4 million over four years. Southwestern must also pay US$1.7 million in cash and shares in the fourth year.
When Southwestern took on the project, its Chinese partner had already set up a small mining operation and a vat-leaching facility, which was producing about 150 kg gold per year. Numerous adits were driven into the mountainside, where several zones of gold mineralization outcrop along the western edge of a plateau, at an elevation of 1,600-1,850 metres.
The initial discovery was made by stream-sediment sampling and soil geochemistry in 1999. At the time, the region was not considered particularly prospective for gold and, as yet, there are no properties held by third parties containing known gold mineralization. But concessions adjacent to the southwestern boundary of Boka do host one of the largest copper camps in China. Mines have operated there since the 1960s, exploiting dolomite-hosted, stratabound copper sulphide deposits.
After the initial gold discovery, the Chinese focused most of their efforts on the Boka 1 zone, now one of 11 known gold zones in the project area.
Before taking on the project, Southwestern carried out a 2-month due diligence program on both a local and a regional scale. This work included regional stream-sediment sampling and chip sampling, including chip sampling on several tunnels.
An 800-sq-km area was explored, resulting in the discovery of two gold zones. Meanwhile, the company’s Chinese partners were carrying out underground mining along a roughly 600-metre section of the 1,200-metre-long Boka 1 gold zone. The average grade reported was in the range of 5-10 grams gold per tonne.
Southwestern’s initial sampling program in the tunnels at Boka returned erratic grades, ranging from 0.02 gram gold per tonne up to 66.2 grams. Similarly, chip sampling of outcrop between the tunnels returned grades ranging from 0.05 to 21.3 grams. In some cases, duplicate samples failed to replicate the high-grade results, suggesting the presence of nugget effect.
By late 2001, Southwestern had started the first phase of a 2,000-metre-long drilling program. At the same time, the company reported spectacular sampling results from one tunnel — namely 34.5 metres grading 75.2 grams gold. A subsequent press release noted that screen fire assays from check panel sampling in the same tunnel had confirmed these bonanza grades (described as being associated with hydraulic breccias) and that previous assays done by aqua regia (a mixture of nitric and hydrochloric acids) “may, in general, be too low.”
The first results of the drilling program were released in early May, beginning with hole 2A. The company cited recovery problems with the first two holes; however, a subsequent technical report noted that Hole 1 had returned 77.45 metres (starting at 39 metres) grading 2.9 grams gold per tonne. Hole 2A returned a 10.45-metre interval of 3.21 grams gold (more results came later), while hole 3 returned 85.3 metres of 1.29 grams gold starting at 40 metres.
Hole 4 returned an average weighted grade of 3.22 grams gold over 81.4 metres (from 167.1 to 248.5 metres), which included 27.1 metres of 5.92 grams gold and 10.6 metres of 9.06 grams gold. Hole 5 returned 11.8 metres of 3.74 grams gold (from 83.7 to 95.5 metres).
In late July, Southwestern reported that metallurgical tests carried out by SGS Lakefield Research on sulphide-rich gold mineralization indicated that 98.3% of the gold in massive-sulphide mineralization was recoverable by milling and conventional cyanide leaching.
The tests were carried out on four 200-kg mini-bulk samples from the adits — two milled to 80% less than 200 mesh, and the others milled to 90% less than 200 mesh. All samples were then treated using conventional bottle-roll leach testing at either a 48- or a 72-hour leach time. One of the samples (massive sulphides) returned 44.4% of the gold from a gravity circuit.
Also in July, results from holes 2A and 6 were released. The former returned 2.14 grams gold over 55.1 metres (starting at 229.8 metres), while the latter returned 5.21 grams gold over 90.85 metres starting at 347.35 metres.
A few weeks later, results from two more holes were released. Hole 7 returned 3.1 grams gold over 88.65 metres (starting at 257.6 metres) in quartz-carbonate stockwork. Hole 9B returned 2.1 grams over 9.35 metres and 1.8 grams over 38.2 metres starting at depths of more than 200 metres.
Subsequent drill results include the following: hole 8 — 6.1 grams gold over 63.7 metres starting at 170.8 metres and including 18.5 grams over 18.6 metres; hole 10 — 2.7 grams over 72.75 metres starting at 92.15 metres; hole 13 — 2.8 grams over 41.7 metres; hole 14 — 3.2 grams over 21.55 metres; hole 15 — 2.4 grams over 107.3 metres; hole 16 — 3.1 grams over 89.2 metres.
Hole 11 was abandoned due to drilling difficulties.
The initial drill program was widely spaced (150 metres to as much as 900 metres apart) and tested the extent of the Boka mineralized system over a 3-km strike length. The drill logs published in the technical report show that the gold grade in the stratabound horizon is highly variable, with higher- and lower-grade sections, and in some places, barren zones.
Southwestern’s technical report states that work to date “indicates that gold is widely distributed within this horizon to produce an overall background level of 0.5-1 gram gold, within which there are higher grade zones.”
Results from drill holes to date indicate gold values of economic interest over stratigraphic thicknesses generally in the order of 50-100 metres, though the reports points out that “structural complexities may cause variations in the thicknesses of the better-grade interval.” As well, there are discrete zones of better-grade gold mineralization within the mineralized horizon, as well as “nugget effect,” which could introduce considerable variability between duplicate samples and adjacent samples.
Several newsletter writers and mining analysts toured the Boka project in early 2003 but returned with differing views as to Boka’s geological potential.
One analyst described it “a geological curiosity that warrants exploration, but not a lofty valuation” (shares were then trading at $7), while another seemed almost giddy about Boka’s potential, viewing it as “potentially a very large mine with possibly 10 to 20 million ounces of gold.”
Critics and cheerleaders agreed, however, that Boka is an intriguing major discovery that warrants advanced-stage exploration and development programs.
Toward that end, an attempt is under way to drill off the Boka 1 gold zone at 50-metre spacings. This US$6.8-million, 20,000-metre drill program is expected to be completed by year-end, and will be followed by the first resource calculation.
Early this year, Southwestern paid its partner US$1.7 million to stop small-scale mining at the Boka 1 gold zone so that the surface and underground delineation drill program could begin. Paterson says this payment also allows the company to accelerate its earning 90% of the project.
The geological data provided by ongoing drilling will determine if Boka fits the model of black-shale-hosted deposits as found in the Tien Shan metallogenic belt. Paterson appears confident it does: “We’re seeing similarities to Sukhoi Log in Russia.”
An independent technical report last year does not compare the deposit to any known producing mine in China (or elsewhere), and states that “the understanding of the geology of the deposit is at a very early stage.” But in summary, the following features were noted:
— The property lies on the eastern edge of a major north-south rift (the Panxi Rift) developed during Devonian to Permian time.
— Boka mineralization is considered to be the product of a large mineralizing system with host lithologies being Middle Proterozoic-age carbonaceous shales/slates and minor siltstones, sandstones, mudstones and carbonate units.
— The region has been subjected to at least four periods of tectonic activity.
— Gold mineralization appears to have been deposited under ductile-to-brittle conditions in thrusts and associated structures, preferentially situtated in the carbonaceous shales/slates.
— Regional metamorphism is considered to be due to diagenesis, and the alteration associated with the mineralization consists of a sequence of processes involving de-carbonatization and the addition of potassium, silica and phosphorous. There may be a syenite body at depth that could have been a source of metals and/or a “heat engine” for the mineralizing process.
The report concludes that work on the property “indicates that the mineralizing system was very robust, and that Boka has the potential to host a large, world-class gold deposit or deposits.”
While the Boka region may well have some similarities to certain deposits in the Tien Shan belt (black-shale host rocks, rifting, and so on), it is a mega-leap to suggest that these similarities translate into a mega-mine. The Tien Shan belt has a broad range of deposit types, large and small. Even Muruntau and Sukhoi Log differ from each other, owing to the broad range of variables that contribute to ore deposition. Muruntau, for example, is anomalous in tungsten, which occurs as sheelite. This deposit was discovered in the 1950s by a huge gold-arsenic anomaly. Gold mineralization is associated with pyrite and arsenopyrite, which comprise very small amount of ore.
Sukhoi Log (Dry Gulch) is a disseminated pyritic deposit where gold mineralization is associated with minor base and platinum group metals, and low levels of arsenic.
At this stage, with Boka being more mystery than history, it seems obvious that more studies need to be done to ascertain appropriate geological models.
This year’s work program at Boka is mostly directed toward drilling the Boka 1 gold zone on 50-metre spacings. Broad-spaced (200 metres) drilling of an extensive soil anomaly is also planned. This anomaly has been traced for 5 km south of Boka.
The first three holes released this year returned the following results:
— 2.9 grams over 46.4 metres starting at 194.3 metres;
— 3.4 grams over 12.9 metres staring at 72.5 metres;
— 2.9 grams over 51.3 metres starting at 129.4 metres.
These results are described as “consistent” with the previous 16 holes, which were drilled over a 3-km strike length to test outcropping zones and a strong gold-in-soil anomaly. The company notes that recent soil geochemical surveys over other parts of the land package have defined several other prominent gold-in-soil anomalies. Trenching program is currently testing these anomalies in preparation for drilling.
Once a deposit is defined, feasibility studies (if warranted) will determine the appropriate mining and milling methods, and address social and environmental issues. While some analysts have speculated that Boka will readily lend itself to open-pit mining at low stripping ratios, the company has made no such projections. Paterson says a portion of Boka 1 should be amenable to open-pit mining, while other areas will not, in part because a layer of barren overburden overlies much of the shallow-dipping zone.
The Chinese have mined Boka 1 by underground methods for several years, using timbering for ground support. A modern underground mining operation would likely require more advanced methods (shotcreting, for example) of ground support. But first, a sizable resource must be proven up before mining methods, stripping ratios, and mining and milling costs can be properly estimated.
With results from only 19 widely spaced holes reported to date, it is not yet known if post-mineralization folding and faulting and other structural complexities (combined with the erratic and variable nature of the gold mineralization) will make resource delineation a challenging proposition. Only time and work will tell.
Meanwhile in Peru, Southwestern is exploring several projects, the most advanced being Liam (gold-silver) in the country’s southern region.
Southwestern is operating the Liam regional program while partner Newmont is exploring the 35-sq.-km core area.
Last fall, Newmont entered into a letter agreement to earn a half-interest in the project by spending US$5 million over three years. The major also secured rights to increase its stake to 70% by first producing a feasibility study and then funding the project to commercial production.
As part of the deal, Newmont bought 450,000 shares of Southwestern at $15 per share, a bargain relative to the junior’s current share price.
In southern Peru, Southwestern is exploring the region north of the Tintaya copper-gold mine. The work has so far resulted in the discovery of a new porphyry copper belt, prompting the company to acquire concessions covering 500 sq. km.
Copper mineralization occurs in heavily stockworked, quartz-feldspar porphyry and breccia pipes. Visible copper oxide mineralization in porphyries was observed over an area comprising 800 by 500 metres. Chip samples returned copper values ranging from 0.3% to 7.8% over sample widths of 2 metres and 1.5 metres, respectively.
Plans call for trenching, stream-sediment sampling, and airborne geophysics.
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