The old Leprechaun offers up challenges to Marathon

Marathon Gold (MOZ-T) and Mountain Lake Resources (MOA-V) had to fight through some heritage issues at the Leprechaun deposit in Newfoundland, but its latest resource update outlines a resilient deposit.

Leprechaun is part of the Valentine Lake property and while Marathon is the operator, the project is held as a 50/50 joint venture between the two companies.

The resource estimate boosted measured and indicated resources by 53% to 6.4 million tonnes grading 2.05 grams gold for 424,000 oz. while inferred resources were up 7% to 5.7 million tonnes grading 1.65 grams gold for 305,000 oz of gold.

The increase in ounces would have been significantly more, however, if the company didn’t have to report a decrease in average grade. The previous estimate had measured and indicated resources averaging 2.62 grams gold and inferred resources averaging 2.01 grams gold per tonne.

That drop in grade is directly attributable to the heritage issues mentioned earlier.

Phillip Walford, Marathon’s president and chief executive, says inconsistencies in the historic results were likely the result of the previous operators trying to outline a high-grade underground deposit. In contrast, Marathon is outlining a project that it believes will initially be mined as an open pit.

“We don’t know what happened exactly,” Waldorf says. “We took the other half of the core that was left and did our own sampling and when you added up all the metal there was less metal.”

He says the difference in assay results were quite consistent which points to the possibility that previous operators took only the best looking core and sent it for sampling. The fact that there is a fair amount of visible gold in the deposit also argues for such a thesis.

But Walford doesn’t anticipate ever knowing with 100% certainty what happened, as the project had a 30 year history before Marathon arrived, with many different people passing through its exploration hut.

“We don’t know who they were,” he says of whoever was responsible for reporting higher gold content in the core than what Marathon has found.

The historic holes were largely drilled by BP back in the 1980s and Richmont Mines (RIC-T) when it was the operator at the project from 2003 until 2009. Mountain Lake had been partnered with Richmont and acquired a 100% stake in the project in 2009 by paying Richmont 2.5 million shares, $3 million in cash and by agreeing to spend $1 million on exploration.

And issues with the historic work weren’t just limited to unreliable assay results. There were also surveying errors which became obvious when new holes were drilled near historic ones.

But it was the lower metal grades that were the chief concern. In all, the company had to remove 22 historic drill holes from the database — holes that otherwise could have gone into proving up a heftier resource.

The decline in overall grade can also be attributed to a more conservative top cut in the main zone of 30 grams per tonne compared to the 76 grams per tonne which was used in the 2011 estimate.

To make up for shoddy work done by the historic operators, Marathon began replacing the old drill holes in late 2011 and has a 40,000 meter drilling program outlined for 2012.

Walford says the challenges haven’t dented the company’s bullishness on the project and it still plans to push ahead with the program. To date it has completed roughly 13,000 metres of the 40,000 metres planned.

“The increase in ounces and tonnage in the resource update came in spite of taking those holes out,” he says. “So we’re pretty enthusiastic. I think you’ll see over the next while that we’re back on track and focusing on high grade.”

Walford also said that the company is currently drilling beyond the old resources, and results on the new zones are pending.

In Toronto on March 29 Marathon shares were off 2% or 2¢ to 77¢ on 57,000 shares traded while Mountain Lake shares were up 9% or 3¢ to 35¢ on 45,000 shares traded.