St. Elias’ Gralheira results fuel investor uncertainty

Vancouver — Results from St. Elias Mines’ (SLI-V) latest drilling on the Jales-Gralheira gold project, in the Tras-O-Montes region of northern Portugal, has confused and disappointed weary investors.

An 11-hole, 4,000-metre drill program focused on expanding the depth potential of gold mineralization, and confirming a number of Titan 24 geophysical anomalies, met with success on both objectives.

Drilling intersected vein-hosted gold mineralization in most holes, generally in the 380-480 metres below surface range, with one hole cutting mineralization at a depth of 511 metres. However, the mineralized intervals were generally narrow (averaging 0.3-to-0.7 metre in width) and grades ranged from about 1-to-17 grams gold per tonne, with most averaging toward the lower-end at 2-3 grams gold. A number of the mineralized intercepts also returned significant silver and lead-zinc values.

The incidence of multiple mineralized vein intercepts at depth, in all but one hole, significantly expands the size potential of the mesothermal vein system. However, the apparent challenge is to develop larger, economically mineable blocks of higher-grade gold mineralized material in the sub-parallel vein system.

The company maintains its opinion that drilling does not always provide a representative sample of actual mineralization in the Gralheira vein system. St. Elias geological consultant John Brophy elaborated, “The tenor of assays obtained from core in the deep-drilling program is consistent with earlier results from shallow drilling. It has been demonstrated, based on underground bulk sampling from the 350-metre-long adit situated in the central portion of the property, that the grades and widths of mineralized intercepts derived from drill holes understate the grade and tonnage potential of the mineralized zone. If bulk sampling of the mineralization at these depths was to be undertaken, it could reasonably be expected that the tenor of the deep-seated mineralization encountered in the recent drill program could increase accordingly.”

Previous drilling by the company principally targeted near surface gold mineralization (to a depth of 200 metres) along 2 km of strike at Gralheira. A Titan 24 geophysical survey, conducted in late-2004, indicated a potential mineralized depth extent upwards of 1,200 metres, providing the impetus to drill deeper.

The property covers almost 17 sq. km and hosts the past-producing Jales mine, as well as the Gralheira gold deposit, located about 700 metres north. Jales, which ceased operations in 1992, produced about 830,000 oz. gold from material grading 12.9 grams gold.

Gold occurs within an extensively mineralized, 3-km long shear zone with a number of sub-parallel veinlets and veins ranging from 0.5-1.5 metres in width. Both deposits were historically mined by the Romans: Jales to a depth of over 600 metres, and Gralheira produced from depths approaching 200 metres and along a strike length of 2 km.

Previous exploration included an extensive drill campaign by Rio Tinto (RTP-N) and a French-government mining agency, from 1985 to 1990, comprised of 50 holes. Additionally, over 350 metres of underground development was completed exposing the vein system along its length.

A Cogema 1997 pre-evaluation study on Gralheira, reviewed an historical (non-NI43-101 compliant) 200,000 oz. gold resource, along with metallurgical testing on bulk samples showing gold recoveries of more than 90% using flotation.

St. Elias is earning a 51% interest in the project from Kernow Resources and Developments (KRD-V) for cash payments of $50,000, exploration expenditures of $1.5 million and by issuing 500,000 shares over three years. The company can earn an additional 24% for further cash payments of $100,000, incurring additional exploration expenditures of $2.5 million and issuing a further one million shares.

Following the release of the deep-drill results, shares of both St. Elias and Kernow both dropped precipitously, shedding more than 50% of their value over a couple of trading days. A subsequent clarification release by St. Elias, reviewing the assay procedure for the samples and the incurred delays, seemed to calm fleeing shareholders, with both stocks recovering significantly. Shares of St. Elias recovered to 61, after dropping to a low of 36 apiece following the assay results, and Kernow shares bounced back to 24, following a drop to 16.