Cazador in option deal in northern Manitoba

An option agreement to acquire a 50% interest in the Keystone Gold project in the Lynn Lake area of northern Manitoba from DCC Equities was recently signed by Cazador Explorations (VSE).

Cazador can earn the interest by spending a total of $10 million on exploration and development in the project area which includes the 1,500-tonne-per-day Lynn carbon-in-pulp milling facility and MacLellan mine built in 1985, the Fox mine and mill, as well as 31 mineral properties. The deal is subject to Cazador completing the acquisition of a 49% interest in the Burnt Timber property from Trans America Industries (VSE), the expenditure of a minimum of $400,000 on drilling, and a related feasibility study for the development of the Burnt Timber by the end of 1992. John Chapman, president of Cazador, said he already has a verbal agreement for the acquisition of Trans America’s interest and he expects to announce details shortly. He added that there is a clause in Cazador’s agreement which gives DCC the right to buy back the option before the Burnt Timber feasibility study is complete for Cazador’s costs plus 15%.

The remaining 51% of the BT property is held as part of the Keystone package. Based on previous drilling on the Burnt Timber property, open-pit minable reserves are estimated at about 930,000 tonnes grading 3.3 grams gold per tonne with a strip ratio of about 1.7-to-1.

The deposit is hosted in a brecciated and silicified zone in the hangingwall of the Johnson shear and has been tested over a strike length of about 425 metres, a depth of about 300 metres, and widths of up to 28 metres. The deposit is open on strike and to depth with additional potential for parallel zones in the hangingwall.

A further preliminary reserve totalling about 700,000 tonnes of potentially heap-leachable material grading 1.3 grams gold is located in the hangingwall above the breccia zone.

Column leach tests are now under way on two composite samples at Kappes, Cassiday & Associates in Nevada.

Cazador’s 1992 evaluation program will include infill drilling to bring the Burnt Timber reserves into a proven category from probable status as well as complete related engineering work for a feasibility study.

About 15 km to the southeast of the Lynn mill, the proposed open pit operation would provide the primary source of feed for the mill. Additional ore for the Lynn mill may be sourced from the project’s MacLellan mine.

The MacLellan underground mine was commissioned in 1985 by Sherrgold at a cost of $25 million, only to close in 1989 as a result of continued operating losses. Minable reserves at closure of the operation were 765,000 tonnes grading 6.4 grams gold.

Chapman said the failure of the MacLellan was primarily the result of high interest charges stemming from about $22 million in debt and an onerous 7% net smelter return royalty on the property.

The mine also suffered from high mining dilution resulting from poorly applied bulk mining methods. Chapman said future underground mining at the property will likely be done through narrow mining width techniques such as shrinkage stoping.

Cazador and DCC see excellent potential for open pit mining the MacLellan crown pillar which is estimated to contain about 240,000 tonnes grading 3 grams gold.

Chapman said the previous operators had already done the majority of the required stripping to begin mining the pillar but stopped when the operations interfered with underground operations.

Preliminary plans call for the crown pillar material to be blended with Burnt Timber ore during the initial production stages to be followed up with mining the underground reserves.

With a preliminary projection for underground production at about 750 tonnes per day (about half the previous rate), the companies believe more selective underground mining methods could be used thereby limiting mining dilution. Chapman said much of the development required to mine the reserves is complete and the project could be up and running as soon as February, 1993, although he said mid-1993 is a more likely target. Preliminary estimates put startup costs in the $7-10 million range.

Chapman does not believe Cazador will have any trouble raising the required startup capital for the project, noting that major equipment manufacturers are now more willing to enter lease-to-purchase deals. He said this would cover the lion’s share of the capital cost with the remainder raised through some combination of debt and equity.

Other potential sources of ore in the Lynn Lake area and under Keystone control include the Dot Lake deposit containing about 705,000 tonnes grading 3.4 grams gold, the Burnt Timber North zone containing about 125,000 tonnes grading 9.4 grams gold, the T1A deposit with about 900,000 tonnes grading 3.1 grams gold and the Bonanza deposit with an estimated 650,000 tonnes grading 2.4 grams gold.

Cazador said the Farley Lake gold deposit also represents a potential source of ore with its estimated 2.2 million tonnes grading 3.4 grams gold. Within this reserve, consultants Roscoe Postle estimated an open pit minable figure of about 1.2 million tonnes grading 4.1 grams gold at a strip ratio of about 2-to-1.

Farley Lake is owned by Manitoba Mineral Resources with Golden Band Resources (VSE) holding the right to earn a 44.83% interest in the property from Mingold Resources.

Golden Band recently completed a $300,000, 18-hole initial phase of drilling on the property to test for additional shallow reserves. The most encouraging two holes returned 12.7 grams gold over 1.1 metres and 5.1 grams gold over 6.2 metres respectively.

Manitoba Mineral Resources has committed to spend an additional $370,000 on a second phase of drilling prior to May, 1993, in order to maintain their interest.

The second phase will principally test for deeper mineralization although the company may drill a few holes in the vicinity of Golden Band’s better holes. Other companies active in northern Manitoba include Granges (TSE) and Hudson Bay Mining and Smelting (TSE).

Granges expects to spend the lion’s share of its $5-million 1992 exploration budget in the Flin Flon greenstone belt.

The company already owns a 29% interest in the Trout Lake polymetallic mine near Flin Flon with Hudson Bay Mining and Smelting and Manitoba Mineral Resources holding the remaining 44% and 27% interests respectively. The mine produced about 26.5 million lb. copper, 86.2 million lb. zinc, 34,016 oz. gold and 348,749 oz. silver last year.

Exploration at the mine met with considerable success in 1991 when additional mineralized zones where identified below the current reserves. The companies recently completed a hangingwall crosscut to allow better drill-access to the deeper zones. Drilling to further define the mineralization is continuing, although no assays results have been released. John Rogers, vice-president of operations at Granges, said the company is still reviewing exploration results from programs on its ground in the Flin Flon area and has identified a couple of targets for drilling this winter.