Goldsource falls on stepout results

VANCOUVER — After gaining 6,000% in two months, Goldsource Mines (GXS-V, GXSFF-O) just got its first reality check. The company’s share price plummeted on news that the first two exploration holes drilled since the company hit thick Saskatchewan coal seams in April did not return similar results.

Goldsource lost 53% or $6.75 to close at $6 on almost 1.9 million shares traded.

In July, Goldsource started a seven-hole program at its Border property that will see the discovery holes twinned and five exploration holes drilled. Since coal deposits are geologically simple, the program should be enough to calculate a resource estimate.

Holes 3 and 6 twinned the discovery holes and essentially replicated the results: 27 metres of coal with minor partings in hole 3 and 34 metres of coal with minor partings in hole 6, 1.6 km east-southeast. But news from the first stepouts is not great.

Hole 1 was collared 1.3 km southwest of hole 6, linking holes 3, 6 and 1 in a right angle. At 41 metres depth, the drill hit 7.5 metres of carbonaceous mudstone, coal, and sand partings at the base of the overburden. Below the short intercept, the core returned mudstones and limestones similar to those that underlie the discovery hole’s coal intercepts.

The intercept in hole 1 came 50 metres higher than did the coal seams in the discovery holes, suggesting an undulating paleosurface. Goldsource also points out that distinct differences in the overburden suggest an earlier glacial event may have removed a majority of the coal in this specific elevated location.

The next hole drilled was hole 4, collared a full 2.5 km south of hole 1 (almost 4 km south of the initial coal hit). Hole 4 intersected 8.3 metres of carbonaceous mudstone, coal seams, and sand partings from 28 metres depth, at the base of the overburden. Like previous holes, hole 1 hit mudstones below the coal intercept. The drill then encountered mechanical problems and is temporarily out of service.

Once the drill is fixed and hole 4 completed, Goldsource plans to move the rig to hole 2, which will be collared 2.5 km northwest of the initial discovery hole.

In a news release, president Scott Drever said the company was not surprised by the irregular results.

“Our assumptions were based on the possibility of a main coal basin with more than one sub-basin,” he said. “The results. . . so far suggest that these assumptions appear correct and we may be on the eastern margins of one of the sub-basins that contain the discovery holes.”

Though the drills did not hit thick coal seams, Drever said the results are still important to help establish the orientation of the sub-basins. Moreover, he emphasized that the project is still at a very early stage, with only three and a half holes in an immense area. And further exploration is still being hampered by the constraints imposed by drill permitting and physical access. The area — described in the spring as a “large, damp swamp” — has just recently begun to dry up enough to allow drilling.

In April, Goldsource hit more than 25 metres of coal at the same depth in two drill holes separated by more than 1.5 km. News of the hits boosted the diamond-seeking junior’s share price to over $4, from the 30-level.

Goldsource had the coal analyzed, and most of the samples came back ranked as high-volatile bituminous C and sub-bituminous A, with an average calorific value of 21,000 kilojoules per kg. The rank is important because it marks Goldsource’s discovery as the first occurrence of a significant bituminous coal seam in the province. Bituminous coal can be used for heating, whereas low-grade lignite coal can only be used as fuel for steam-electric power generation. Saskatchewan is already home to three lignite mines, which produce 70% of the province’s electricity.

After news of the coal’s ranking, Goldsource’s meteoric rise began in earnest; from early May to late June, the junior’s stock shot up to $18 per share. The company used the time to raise more than $18 million in a brokered private placement, issuing 1.5 million shares at $11.75 apiece and also received 176 coal permits covering a vast swath of land.