Zen kills Zijinshan joint venture in China

Following a year of due diligence and about $1 million worth of expenditures, Zen International Resources (ZQP-V) is walking away from what was once its centrepiece in southeastern China.

The company has given its main Chinese partner, the Fujian Bureau of Geology and Mineral Resources, notice to terminate the Zijinshan gold-copper joint venture in Fujian province on the grounds that the bureau has not fulfilled its obligations.

Zen director Catherine McLeod-Seltzer says the unfulfilled obligations were not financial but, rather, pertain to the bureau’s failure to provide Zen with free access to the property. She says that while her company was allowed some access, Zen’s local partners were allowed to mine the deposit and did not vacate the property as previously agreed.

She adds that Zen’s decision was influenced by disappointing results from its technical review of the deposit.

“We were hoping for an upgrade in the tenor of the deposit, but the assays came back at the same average grade or below. So what you’ve got is one very large gold-copper deposit with a grade that, at current metal prices, is too low to justify putting in more money. We’d rather spend our money on some of the higher-grade deposits.”

An estimate, calculated for Zen a year ago, pegged the open-pit resource at 141 million tonnes grading 0.75 gram gold per tonne (equivalent to 3.4 million ounces contained gold) plus a deeper 356 million tonnes of copper mineralization grading 0.49% copper (1.7 million tonnes of contained copper). The estimate made use of assays from roughly half of the 92,000 metres drilled by the Chinese, plus check assays performed by Zen.

In addition to the check assays, Zen assayed the balance of the core. And while an updated resource estimate has not yet been made, it will be calculated from Zen’s data.

Zen had obtained a business licence for the Zijinshan joint-venture company and had the option of earning a minimum 60% interest in the project by completing a bankable feasibility study costing US$12 million. There were, in addition, 11 prospects within the 60-sq.-km exploration licence held by the joint venture.

Zen says it remains committed to mineral exploration in China, where it has three less-advanced major gold projects: Lingnan, Qianhe and Luoding. The company says these projects are progressing and that it expects to obtain required governmental approvals this year.

Despite the setback at Zijinshan, McLeod-Seltzer is optimistic about mining ventures in the country.

“China has large, good-grade deposits of practically every kind of mineral, and it is advancing as a country. In particular, amendments to their mining laws allowing ‘one-stop shopping’ for approvals of acquisitions or joint ventures will be very positive for companies doing business there.

Bureaucracy and taxation are still challenges, but the size of the deposits warrants us to continue working in China — it’s worth the risk.” Prior to the company’s annual meeting last month, several changes were made to Zen’s board of directors and officers: John Brogan replaced McLeod-Seltzer as chairman, though the latter is continuing to serve as an independent director; and Neil Hillhouse was appointed director, replacing Bruce McLeod, who resigned from the board. Lee Mun-Kit remains president and a director, with the board being rounded out by Peter Apps, and Geoff Louden and David Lowell are maintaining their roles as special advisers to the board.

For the 15 months ended Dec. 31, 1997, Zen posted net losses of US$836,806 (or 3 cents per share), compared with net losses of US$957,062 (4 cents per share) for the 25 months ended Sept. 30, 1996. As of Dec. 31, 1997, Zen had more than US$4 million in cash.