VMS Ventures looking to repeat Reed success

Manitoba’s Flin Flon greenstone belt has been yielding high-grade copper and zinc from its volcanogenic massive sulphide orebodies for almost 85 years, and VMS Ventures (VMS-V) thinks there’s a lot more mineralization to be found.

The company has assembled a sizeable land package in the Flin Flon area, second only to Hudbay Minerals (HBM-T, HBM-N) itself, with the intention of finding the belt’s hidden deposits.

“Much of that belt is covered by a limestone or dolomite cover,” says VMS CEO Rick Mark by phone. “It was our contention that most of the discoveries that have been made over the past eighty years have been made north of that cover where the rocks stick out. But the VMS belt continues below the dolomite cover, and there’s lots of opportunity if we can see through the cover.”

The company spent $3 million in 2006 and 2007 flying 17,000 link-km of VTEM over its property to see below that cover. Its second drill hole following up on the survey hit an 11-metre intercept grading 11.19% copper. The hit led to the Reed copper deposit, which VMS Ventures has joint ventured with Hudbay in a 30–70 split.

Project operator Hudbay released a prefeasibility study in April that outlines probable reserves of 2.2 million tonnes at 3.83% copper, 0.48 gram gold per tonne, 6.02 grams silver per tonne and 0.59% zinc. The mine should produce roughly 17,000 tonnes of copper in concentrate per year over a five-year mine life.

Based on US$2.95 per lb. copper, the Reed project has a net present value of $57.4 million with an 8% discount rate, and an internal rate of return of 34.7%. All of the financials dropped slightly compared with a scoping study released in November, despite that earlier study being based on US$2.78 per lb. copper, owing in part to fewer tonnes milled.

VMS Ventures is carried through to production on the project, which Hudbay plans to achieve by September 2013. Once it pays off its share of the capital expenditure with mine production, VMS could stand to come in with a nice windfall. 

But the original vendor of the project, W. Bruce Dunlop, has other ideas. He recently filed a statement of claim seeking to switch the 30% participating interest in the project for a 2% net smelter return royalty. VMS says the current arrangement is much better for shareholders and it will defend against the claim.

With the Reed project moving ahead and out of its hands, VMS is trying to repeat the success of the Reed discovery elsewhere on the covered part of the belt. The company has struck four separate JVs with Hudbay on nearby properties and is trying to explore its wholly owned land holdings in the area.

The past few months have been tough though, as mild winter weather made drilling on the frozen lake and swamps difficult. Hudbay had been trying to drill below the Reed deposit to check its depth extension, but drillers abandoned the hole designed to hit the 500- to 800-metre interval  after the lake ice broke up early. A second hole into the projected zone at 1 km down hit no significant sulphides.

Hudbay’s exploration on the Reed North joint venture also proved challenging, with two holes abandoned, and only one of the four holes hitting significant mineralization. That hole was number 31, returning 1 metre grading 12.63% zinc, 0.76% copper, 1.44 grams gold and 5.45 grams silver from 561 metres downhole. The companies have yet to find significant lenses at Reed North.

With Hudbay putting up the money to explore Reed, VMS plans to drill its own projects this year, including Cowan River, Morton Lake, Puella Bay and McClarty.

VMS Ventures dropped 6¢, or 20%, to close at 25¢ on the latest drilling news, but rebounded the next day to 29¢. The company has a 52-week share price range of 24¢ to 68¢ and has 129 million shares outstanding. VMS had $11 million in the treasury in March, and holds a 45% interest in North American Nickel (NAN-V).