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DAILY NEWS Dec 5, 2012 9:04 PM - 0 comments

Dolly Varden hopes to find the next Eskay Creek

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VANCOUVER — The management team at Vancouver-based Dolly Varden Silver (DV-V) had been keeping its eye on an intriguing piece of mining history in northwestern British Columbia’s Stewart complex for quite some time. Both Chairman John King Burns and vice-president exploration Paul McGuigan were familiar with the historic silver-rich Dolly Varden mining camp north of Alice Arm, but it wasn’t until 2011 that they were able to swing a deal and acquire a regional land package.

The company paid $2.5 million for a 100% interest in what it suspected could be a prolific volcanogenic massive sulphide (VMS) trend that includes two past-producing undergound mines and two historic deposits with existing underground development. The Dolly Varden and Torbrit mines had seen production through the mid-1900s, while the North Star and Wolf deposits carry non-compliant resources.

“You can see some really intriguing potential from some of the historic drill holes under the resource blocks. Dolly Varden, North Star and Torbrit were originally thought to be classic vein deposits,” comments president and CEO Ron Nichols during an interview. He points out that VMS models were not established until the late 1970s. “Then the theory was that these things were part of a single volcanic unit known as an exhalite. Now when we looked at it in more details it seems to be more complicated than that. There is definitely exhalite-type material, but there is probably also some replacement of near-surface pyroclastics.”

Nichols spent 20 years with Cominco, and most recently served as a senior-vice president at Aurcana (AUN-V), where he coordinated feasibility work on the Shafter silver mine in Presidio County, Texas. Shafter is a similar historic mine reactivation based on 2.1 million measured-and-indicated tonnes grading 241 grams silver per tonne for 25 million oz. contained silver.

Nichols explains that he is hoping to follow a similar model at Dolly Varden, which involves establishing an economic resource at the 45 million to 50 million oz. of silver threshold.

“Then we know we have very strong mining potential for a 1,500-tonne-per-day operation. That is our safety net. We think that's quite achievable and it gives us a baseline value where whatever happens with the greater property it is not going to sink the company,” he concludes.

And Dolly Varden is off to a solid start with its historic resources. The Dolly Varden mine holds 42,600 tonnes averaging 754 grams silver for 1 million contained oz.; North Star carries 128,400 tonnes of 401 grams silver for 1.6 million contained oz.; and Torbrit holds 786,500 tonnes grading 312 grams silver for 7.9 million contained oz.

“The two things we'll concentrate on the most will be Dolly Varden, due to its high grade, and Torbrit due to its size. It is important to note that Wolf is different as it is a classic epithermal vein that clearly cross cuts the stratigraphy.” Nichols points out over a regional map, explaining that the Wolf deposit offers a strong mining scenario down the road. “Torbrit is the one where I think we can really expand the ounces due to that volume, and then Dolly Varden is key because of that grade. It looks like a deposit that may well be the best place to start mining because of how quickly you could recoup your costs.”

In early September, Dolly Varden announced a $3.2-million strategic investment from U.S.-based producer Hecla Mining (HL-N). The deal gave Hecla a 19.9% interesting in Dolly Varden, as well as the right to nominate one person to the company's technical committee. Nichols explains that the larger company has been extremely supportive in fundraising efforts, and he hopes it will result in enough capital to pursue an aggressive drill campaign in 2013.

Dolly Varden refers to its historic silver camp as a “safety net”, but it is the early-stage potential on the remainder of its land package that offers exciting exploration upside. The company is eyeing its Red Point target, which it hopes can be a similar deposit to Barrick Gold's (ABX-T, ABX-N) nearby Eskay Creek gold-silver mine. Barrick’s operation was closed in 2008 and produced 3.6 million oz. of gold and 180 million oz. of gold over its life.

“Our Red Point target has all the same alteration minerals and trace elements as Eskay Creek, and they are all anomalous. All the sort of breccia textures and things you see at Eskay except it is over a much larger area,” Nichols explains. “So the implication is that the feeder zone at Dolly Varden is feeding a much larger system. It's a very long and linear alteration system, and I think there is potential for other VMS deposits.”

Dolly Varden had hoped to complete around 2,500 metres worth of drilling this season, but due to the timing of its deal with Hecla the company was limited by winter conditions at site. Dolly Varden ended up with six holes over roughly 1,700 metres, which were focused on structural drilling at the historic Dolly Varden mine. Nichols explains that since the company had some extra time and money due to the weather delays it focused on underground scout work at Turbrit.

“We actually got a lot more done there than we thought we would ... to the point where if we raise the money we're attempting to, we can fix up the road and get underground on Torbrit for drilling in the spring. We can get under there a lot earlier than the surface targets,” he concludes, explaining the company is hoping to raise between $10 million and $15 million for next year’s exploration campaign.

Dolly Varden maintains 100 million shares outstanding and has traded within a 52-week range of 15¢ and 38¢. The company reported $2.4 million in cash to begin November, and closed at 23.5¢ at time of writing with an $18 million market capitalization.

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