Two of our recommended gold streaming royalty companies are strong buys as a result of recent stock ...
A New Junior Gold Worth a Look
07/15/2011 9:41 am EST
Gold demand remains unperturbed by global market fluctuations, and that means this small player could have a very big future, notes Laurence Roulston of Resource Opportunities.
Lion One (Toronto: LIO) has an exceptional gold-exploration project in the midst of a region that hosts several large deposits.
A resource estimate which outlines 650,000 ounces of gold is no more than a starting point for the potential of this project…A similar geological setting nearby hosts 11 million ounces of gold.
Lion One has a highly experienced geological and management team. With $23 million in cash, the company is in a strong position to quickly realize the potential of its project.
Lion One’s Tuvatu project is located on the island of Nadi, the main island of Fiji. That island nation in the South Pacific is not generally recognized as a gold producer.
However, Vatukoula—just 50 kilometers away, on the same island—has been producing gold for 70 years, with production to date in excess of 7 million ounces. The present resource exceeds 4 million ounces, and there is still considerable exploration potential.
Fiji sits on the tectonic plate boundary marking the interface between the Pacific plate and the Indo-Austral plate. That important structural feature hosts at least ten multimillion-ounce gold deposits. Included among those are the 50 million-ounce Lihir deposit and the 20 million-ounce Porgera deposit (both of those figures are the sum of past production and current resources).
In the 1990s, the operator of the Vatukoula mine explored Tuvatu (the Lion One project), initially as a potential satellite deposit. That exploration effort was directed toward high-grade gold deposits. The company completed 80,000 meters of drilling and 1.6 kilometers of underground development from 1997 to 2000.
Lion One used the results of that earlier work as a basis for a resource estimate. Those figures showed an indicated resource of 172,000 ounces at a grade of 7.05 grams per metric ton, plus 480,000 ounces of inferred resource grading 5.7 grams per ton.
A feasibility study in 2000 showed the economic viability of developing a standalone mining and processing facility. That study was based on gold’s price at the time—$300 an ounce.
Operating problems and the low gold price at that time saw the Vatukoula mine shut down. As a result, Tuvatu was never developed. Lion One acquired the project last year, and then took the company public to raise funds to further advance the project.
The previous exploration efforts at Tuvatu were directed to finding high-grade gold deposits. As a result, three-quarters of the drill core—60,000 meters—was never analyzed. At that time, they only looked at the areas that carried visible indications of high-grade gold.
Even in those intervals that were examined, they only assayed for gold. The deposit contains significant values of silver and base metals, which were ignored in that earlier work.
Geologically, Tuvatu and Vatukoula feature epithermal veins that are related to underlying porphyry systems. Vatukoula is a very young geological system. In fact, one of the operating challenges facing the previous operator of that mine was the inflow of high-temperature water in the lower parts of the mine.
The high geothermal gradient has not been seen at Tuvatu, but otherwise the systems are very similar. Importantly, the Tuvatu geological system is about the same size as Vatukoula.
Exploration at Tuvatu was focused on one area, identified from shallow surface drilling. Once the underground workings were developed, the exploration effort was restricted to outlining ore blocks that were within reach of the workings, and could be accessed early in the mine plan.
A number of high-grade drill intersections were not followed up. The most notable was a spectacular 3.7-meter section that carried 284 grams of gold per ton (that’s ten ounces per ton).
Several other highly prospective targets outside of the resource area were identified, but never evaluated by drilling. The present drilling program is intended to expand the present resource, as well as to test other targets.
Recent work has shown a very important new element to the project. In addition to the vein-related, high-grade gold values, there is substantial gold in the rock outside the veins.
Trenching has suggested the potential for large areas of material with grades suitable for surface mining. That bulk tonnage potential will be an important element in the coming work program.
In summary, the company has already outlined 650,000 ounces of gold, with scope to greatly expand on that resource within areas of known mineralization based on previous work. There are also numerous targets that offer the promise for further vein-type deposits.
In addition, there is enormous upside in the potential for large-scale, lower grade material. In fact, the project has the potential to match the nearby 11 million-ounce Vatukoula deposit.
With a resource already in hand, big exploration potential, strong management, and lots of cash, this company will be one of the early movers as investor sentiment warms toward junior gold companies.
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