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Express 2007-05
September 14, 2007
Magmatic Sulphides rejuvenate fading VMS play at McFauld's Lake
Synopsis: On Monday September 10, 2007 Noront Resources Ltd (NOT-V: $3.94) released initial results for its 100% optioned/owned Double Eagle project in the McFauld's Lake area of Ontario's James Bay Lowlands that signal a potentially major new magmatic segregation style nickel-copper discovery. Partial assays for a 67 metre mineralized interval yielded 36 metres of 1.84% nickel and 1.53% copper hosted by a peridotitic unit within an Archean granodiorite and covered by a thin veneer of Ordovician limestones. The target was an electromagnetic anomaly with an inferred strike length of 500 metres located on a couple small claims optioned 100% on nominal terms in May 2007 from a pair of private companies called Condor Diamond Corp and Greenstone Exploration Company Ltd.
Noront has completed a 5 hole drill program required by the joint venture agreement to keep these claims in good standing. Hole 2 was drilled at 65 degrees from the same location (Hole 1 was 45 degrees) and has intersected 72.9 metres of similar mineralization that includes a 1.93 metre interval of massive pyrrhotite and chalcopyrite. The gradation of massive to disseminated sulphides leads Noront management to believe that the unit, interpreted as a magmatic segregation style system, has been turned over. Hole 3 drilled 100 meters to the northeast missed the zone and is believed to have undercut it, and Hole 4 drilled 100 metres to the southwest also missed and is believed to have overcut the zone. Hole 5 was drilled vertically 50 metres northeast of Holes 1 and 2 at the magnetic peak and encountered mineralization from 6 m to 143.4 m including massive chalcopyrite (copper), pyrrhotite and pentlandite (nickel) from 47.4 m to 112.6 m. Noront states that Hole 5 was drilled down dip.
At this stage the geometry of the nickel-copper discovery is not yet known, but the expectation that Hole 2 and Hole 5 will deliver better grades than the discovery hole has boosted Noront's stock price from the $0.39 level prior to the August 28 trading halt during which a visual description of the discovery hole was reported to a high of $4.05 on September 13 with a strong close at $3.94. Based on 123.8 million shares fully diluted and a 100% net interest this translates into a whopping $488 million implied project value for Noront's Double Eagle project. Noront's sharp move on Thursday has prompted other juniors with holdings in this area to start rising as speculators digest the implications that a new magmatic style nickel-copper district is emerging.
The focus since 2002 when De Beers first encountered polymetallic mineralization while drilling what it thought were kimberlite targets has been the exploration for volcanogenic massive sulphide deposits containing copper, zinc, lead, gold and silver. Partners KWG Resources Inc (KWG-V: $0.10) and Spider Resources Inc (SPQ-V: $0.07) have intersected short intervals of high grade copper-zinc mineralization on their McFauld's Lake project, but despite spending over $9 million have yet to deliver a resource calculation. Enthusiasm for the VMS potential of the Sachigo Greenstone Belt hidden beneath this swamp and limestone covered region has involved a merry-go-round of juniors that has delivered more frustration than joy. Although Spider and KWG encountered high grade chromium with low platinum and palladium values over short intervals last year on a property 4 km to the east of the new discovery optioned from Freewest Resources Canada Inc (FWR-V: $0.34), exploration has continued to focus on the VMS potential with EM anomalies the preferred drill target. The nickel-copper discovery is thus of an entirely accidental nature and pretty much sets back the exploration clock to the beginning for the McFauld's Lake region. In other words, all the existing properties straddling the 120 km long 10-20 km wide boomerang shaped "favorable" McFauld's Lake geology can be considered untested for this type of deposit which is intrusion related and likely younger than the seabed hydrothermal systems that produced the copper-zinc lenses. In fact, until more is understood about Noront's peridotite hosted nickel-copper discovery it is plausible to speculate that similar deposits may exist within a much broader region than already staked. No doubt a staking rush is already underway. A further factor boosting McFauld's Lake prospect as a candidate for a "Great Canadian Area Play" is that most of the juniors with ground in the area have bloated capitalizations that offer plenty of liquidity for new speculators, and given the wide audience already buried in stocks like Noront, Spider and Freewest, excitement will propagate fast and furiously.
On the negative side, the brief but convoluted ownership history will surely spawn its share of lawsuits. The discovery is also less than 20 km from the Attawapiskat River which is part of a 400 km long provincial park that will attract its share of environmental activists. The location is also very remote, with the nearest air base at Pickle Lake 325 km to the southwest or Nakima 295 km to the south. There is no power, all-season road or railhead within hundreds of kilometres. But the biggest problem may turn out to be the aboriginal communities who occupy this god-forsaken part of the world consisting of swamp and insects.
Chuck Fipke and his Metalex Ventures have already discovered that mineral title means nothing here if the local aboriginal communities are not consulted and persuaded to become part of the exploration and mine development process. The community at Marten Falls has apparently retained a law firm called Olthuis Kleer Townshend whose Kate Kempton has a passion for troubling the waters and has helped make life miserable for a junior called Platinex Inc (PTX-V: $0.36) that would like to develop the platinum-palladium Big Trout Creek deposit in western Ontario. On the other hand De Beers has shown that it is possible to work with native groups to develop the Victor diamond mine in their backyard at a cost of $1 billion.
As the McFauld's Lake IPV Chart above demonstrates, Noront's Double Eagle project has achieved a $488 million valuation on the basis of one partially assayed drill hole and a couple closely spaced holes that have yielded good visuals. We do not yet have evidence that this discovery will achieve world-class proportions in the style of Voisey's Bay which Inco bought for $4 billion. But it will be some time before we have enough drill holes to estimate the appropriate dream target, so we can expect the market to be very volatile during the next few weeks. But in terms of the rational speculation model Noront offers poor speculative value at the current price. Because there was nothing geologically special about the target Noront drilled, but the existence of this style of mineralization is special news for this region, the other juniors in the McFauld's Lake region are worth looking at.
In an effort to give KBFO members a framework to help them participate in the McFauld's Lake area play I have posted a McFauld's Lake Theme Report on Kaiser Bottom-Fish Online. A Theme Report starts of with an overview (not yet written), followed by a daily market activity list of companies that match the theme, then an IPV Chart featuring the main projects, followed by a Spec Value Hunter table featuring all the projects that fit the theme criteria (in this case being part of the McFauld's Lake area play), followed by snapshots of each company that includes basic facts and details for all the projects that meet the theme. A KBFO Theme Report is digitally assembled from our database every day, so that every inputting change made during the day will show up by evening when the web site is updated. A KBFO Theme Report is intended as an information resource for KBFO members; it does not contain opinions about whether or not a stock is a good buy.
The map above is a cropped scan from the March 2004 McFauld's Lake map produced by Glen Jones, who no doubt is working hard to get an updated version out. I have scavenged maps from various sources in an effort to give my readers some sense of who owns what where. The orange claims in the Glen Jones map represent what Noront has called the 8,528 ha Double Eagle project for the past four years. A Wally Brooks/Vance White company called Hawk Precious Minerals Inc had it under option in 2004, and then Harry Hodge's Probe Mines Inc (PRB-V: $0.61) had it under option until early 2007. The discovery is on one of the small green claims that touch the tip of the blue claims owned by Peter Smith's Fancamp Exploration Inc (FNC-V: $0.87). Fancamp's stock price doubled on Thursday after management put out a news release declaring that the statement in its quarterly financials to the effect that these claims had expired and been written off were just plain wrong. No doubt major Fancamp shareholder Pat Sheridan Sr had something to do with making sure that this property whose edge is a mere 200 metres from the Noront discovery is still in good standing. The map below shows claims now owned by Probe Mines which are just to the north and west of Noront's discovery. Probe also owns claims to the northeast.
Although Noront has not explicitly stated that the discovery is on the Condor/Greenstone optioned claims, and its web site is devoid of current information other than core photos, Freewest's Mac Watson shows us on the mag map presented earlier where the discovery is and how it relates to the claims he has optioned 65% to KWG and Spider, and the ones that Noront had until very recently under option but which Freewest now claims to hold 100%. Kirk McKinnon's Macdonald Mines Exploration Ltd (BMK-V: $0.215) owns the MacNugget and and BigMac claims at either end of the boomerang. The most strategic claims in terms of size and location outside Noront's Double Eagle is the 13,500 ha property package shared 50:50 by Spider and KWG, who in turn have optioned 55% to UC Resources Ltd (UC-V: $0.40). Over $9 million has been spent on this land package in pursuit of VMS targets with some spectacular grades but not the continuity and size so far to make a mine. If Noront demonstrates that the McFauld's Lake area is host to major magmatic style nickel-copper deposits, UC will no doubt get the green light to test less obvious VMS targets, and might in the process hit the bigger lenses theory says should be in this cluster.
Conclusion: While Noront already sports a $488 million IPV, Probe's nearby 100% owned McFauld's Lake West claims have an IPV of only $19 million, and Fancamp's 100% owned claims have an IPV of just $24 million. Freewest's 100% owned ground is a little pricier at an IPV of $59 million, but Freewest does have a number of other projects. UC's IPV jumps to $73 million because it nets only 55%, but that still leaves lots of upside if the Noront discovery does have regional implications. MacDonald Mines' IPV of $21 million is also low. Because KWG and Spider net only 27.5% each on the ground optioned to UC, their IPV respectively is a pricier $108 million and $96 million. Noront is too expensive given how little we know about this discovery, but if results do start to demonstrate a world-class scale and drive Noront higher, a Great Canadian Area Play will kick in and the other juniors will make bigger percentage catchup moves. Be careful, however, of the risk that aboriginal communities will jump on a budding area play as a vehicle to air their grievances.
*JK does not own any of the securities mentioned herein
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