Viceroy to drill Argentine gold discovery

A grassroots gold discovery in Argentina is generating speculative interest in Viceroy Resource (VOY-T) as the junior prepares to begin a minimum 2,000-metre drill program.

Through its wholly owned subsidiary, Minas Argentinas (MASA), Viceroy has the right to earn a 60% interest in the Gualcamayo property from Mincorp Exploraciones by spending US$5 million on exploration over five years.

Mincorp is a joint venture between Minorco (MNRCY-Q), an associate company of South African mining house Anglo American, and Argentine conglomerate Perez Companc.

The property lies 200 km north of the city of San Juan in the northwestern province of the same name, and is accessible by paved and dirt roads. The terrain is rugged, with elevations in the project area ranging from 1,600 to 2,500 metres.

Between 1983 and 1988, Mincorp spent US$6.5 million exploring for skarn-related gold-copper mineralization. That work, which included surface drilling and underground development, outlined three prospective areas of skarn mineralization: Amelia Innes, Magdelana and General Belgrano. At the Amelia Innes prospect, adits on three levels defined an underground resource of 436,062 tonnes grading 9.3 grams gold per tonne, equivalent to 130,350 contained ounces, based on a cutoff grade of 3 grams.

The Gualcamayo property is underlain by early Paleozoic carbonate and clastic sediments of the Trapiche and Las Vacas formations. During Miocene subduction-related deformation, the sediments were intruded by a dacite porphyry and subsequently thrusted above Tertiary redbeds. The intrusion into the dolomite produced skarn system alteration that is evident throughout much of the project area.

MASA optioned the property from Mincorp in the spring of 1997. MASA was itself originally a joint venture between former Viceroy subsidiary Oro Belle Resources and IMA Exploration (IMR-V) (formerly IMA Resource).

Working on the premise that proximal gold skarns are frequently accompanied by distal skarn, or a more subtle sediment-hosted style of gold mineralization, MASA conducted reconnaissance geological mapping and sampling, and collected silt samples at 200-metre intervals along drainages.

Three areas with sediment-replacement style gold mineralization were discovered distal to the skarn alteration zones, including the Quebrada del Diablo (Devil’s Canyon) zone, where a brecciated limestone unit in a limonitic and hematitic matrix was found exposed in the steep walls of a narrow canyon. There, surface sampling at the base of the canyon yielded an average grade of 1.7 grams gold, based on 86 samples taken from accessible sites along a 600-metre section. The samples were a combination of channel, panel and grabs. Follow-up sampling by Viceroy has since confirmed these early results.

The Quebrada de Diablo (QdD) zone is in the southeastern part of the property, about 300 metres southeast of the General Belgrano adit. The structure has a sharply defined “L” shape formed by the intersection of northeast and northwest trending structures, which cut variably marblized limestone.

Additional mapping and sampling in the area around the canyon identified similar breccia material in a tabular zone greater than 50 metres thick at the base of a cliff. This zone was traced over a distance of 750 metres along the cliff to the east. Initial sampling results from the area averaged a grade of 1.6 grams, with individual samples along an 80-metre section of breccia ranging from 1.8 to 5.1 grams.

In May, Viceroy consolidated its interest in MASA by acquiring all the outstanding shares of Oro Belle on the basis of one Viceroy share for every eight Oro Belle shares. In a separate transaction, Viceroy purchased IMA’s half interest in MASA for 2.2 million Viceroy shares, while forgiving a $1-million debt owed by IMA to MASA. IMA retains a 2% net smelter return on its former interest.

Viceroy has since carried out a limited mapping and sampling program on the QdD zone and surrounding area, confirming the presence of widespread gold mineralization associated with brecciated limestone. A new target has been identified 600 metres east of the QdD zone, where 11 samples collected within a 150-by-150-metre area range from 0.25 to 21.13 grams, for an average of 4 grams. Sampling continued to yield anomalous values of up to 2.54 grams for a minimum of 300 metres farther east of this area. Some of the anomalous sample sites fall outside of the Mincorp joint venture on ground held 100% by MASA.

The joint-venture area totals 914 ha. MASA holds a 100% interest in an additional 50,651 ha of surrounding ground.

Viceroy reports that multi-element geochemical analysis of a limited number of QdD samples indicates a typical epithermal signature with anomalous gold, arsenic, antimony, mercury and bismuth. Silver and copper values are low.

Limited thin-section work indicates the presence of fine gold in the 5-micron range, associated in part with oxidized pyrite in the limestone and marble breccias.

Viceroy intends to begin drilling on the QdD zone by month’s end using a small portable Winkie rig. Once helicopter support can be arranged, a large rig capable of drilling deep holes will be used.

Once Viceroy has earned its interest in Gualcamayo, Mincorp retains a one-time right either to acquire back a 9% interest in the property for US$2 million and a bonus of US$2 per oz., or to sell its entire interest to MASA for US$4 million and US$5 per oz. Alternatively, Mincorp could sell its interest, less a 5% net profits interest, for US$3 million plus a bonus of US$4 per oz.

In each case, per-ounce payments would be based on the number of ounces in a measured and indicated resource in excess of 200,000 oz.

Viceroy is a mid-tier gold producer, owning a 100% interest in the Brewery Creek mine in the Yukon and a 75% stake in the Castle Mountain gold mine in California. The company’s share of production in 1997 totalled 158,348 oz.

at an average cash cost of US$244 per oz.,

For the first half of 1998, Viceroy produced 60,721 oz. at an average cash cost of US$276 per oz., 4,000 oz. more than for the same period in 1997. The Brewery Creek mine produced 25,270 oz. at a cash cost of US$224 per oz., while the Castle Mountain mine cranked out 47,268 oz. at a cash cost of US$313 per oz.

During the 6-month period, Viceroy generated a cash flow of $5.5 million (or 11 cents per share) from operations, versus $6.9 million (14 cents per share) for the period in 1997. The company lost $200,000 (nil per share) on sales of $34.9 million for the first half of 1998, compared with a profit of $1.1 million (2 cents per share) on $31.6 million in sales for the same period a year ago. The company maintains a strong hedging position and has sold forward 100% of its projected gold production for 1998 and 1999 at US$400 per oz.

The company has engaged Canaccord Capital to arrange a best-efforts, flow-through private placement at a subscription price of $2.86 per flow-through share, for gross proceeds of $1-1.5 million. Canaccord will receive a 5% commission.

The proceeds are intended to fund continuing exploration on the company’s Canadian properties.