HEY BRAD, HOW IS THIS FOR MATERIAL FACTS. (FOR THE SECOND TIME TODAY)
P.S. No offense intended folks.
The Northern Miner Vol. 83 No. 5 March 31, 1997
Freeport drilling returns "insignificant values"
by Vivian Danielson and James Whyte
Due diligence in mining is not a young man's game.
With so much at stake, it is a safe bet that Freeport McMoRan Copper & Gold
(FCX-N) sent out a seasoned, senior
technical team experienced in geology, mining and metallurgy to carry out its due
diligence review of the Busang gold project in
Kalimantan, Indonesia.
Taking nothing at face value, the team has been on site for less than a month carrying
out work of a much more detailed nature
than what is normally expected of mining analysts.
Recent exploration work at Busang has been carried out by Bre-X Minerals
(BXM-T), a Canadian junior which rose to fame
and fortune after reporting the discovery of a gold deposit that would rank as one of
the largest found in the world this decade.
While Busang has been described as a "geologist's dream" and a "metallurgist's dream,"
it has since robbed many of a good
night's sleep.
The mining industry and financial markets were already on edge, spooked by the
recent apparent suicide of Bre-X's chief
geologist, Michael de Guzman, while en route to the property, as well as by Indonesian
press reports suggesting the due
diligence review was producing results inconsistent with those previously reported from
Busang.
Those reports proved to be true and, on March 26, 1997 -- a day that will go down in
mining history -- both Freeport and
Bre-X announced that analyses from seven core holes, completed to confirm
previously drilled holes within the Busang II
(Southeast zone) area, "indicate insignificant amounts of gold." But the bad news did
not end there. The companies also
reported that an independent consultant, Strathcona Mineral Services, had concluded
"that there appears to be a strong
possibility that the potential gold resources have been overstated, because of invalid
samples and assaying of those samples."
Last week, Bre-X retained Strathcona to review, audit and comment on its technical
programs and the review by Freeport.
The firm has recommended to Bre-X that an audit be conducted of the drilling and
sampling programs done by both Bre-X and
Freeport. This audit will include drilling of more holes and take about a month.
Clearly, Bre-X is expected to deliver on its promise that current resources contain
about 70 million oz. gold in 889 million
tonnes averaging 2.48 grams gold per tonne. Of this total, calculated by Kilborn SNC
Lavalin, 35.15 million oz. are contained in 432 million tonnes averaging 2.53 grams in
the measured and indicated category. Bre-X, too, has raised the expectation
threshold to its highest level by projecting that Busang has potential for 200 million oz.,
though this statement is somewhat
meaningless without an accompanying comment on whether or not these ounces are
economically extractable.
Busang has always had its skeptics, including those who believe that nature rarely
delivers her riches so easily and so quickly as
she appears to have done at the Southeast zone. This must be particularly puzzling for
the numerous companies that drilled the
Central zone at Busang over the past decade, only to lose interest when they found
spotty mineralization. Another common
complaint about Bre-X is that its technical information, including cross-sections through
the deposits, has been relatively skimpy
and lacking in detail. The geology and deposit type are not well-understood, and
descriptions of Busang's mineralogy have
been confusing and sometimes contradictory. As well, much of the resource identified
to date has not been proved up, in the
strictest sense of the word, by close-spaced drilling. As one observer said, "Why keep
looking for more when you already
have enough to build a mine?"
What is due diligence? While due diligence reviews can vary from project to project,
the first step usually is to acquire from the
owner all of the basic data available concerning the property -- drill logs, sampling
procedures, assay records, plans, sections, reserve and resource estimates,
metallurgical work, geophysical and geochemical information, and so on.
The quality and organization of the data will also be taken into account, along with the
credentials and "thinking" of the previous
staff. Bre-X's on-site team, which had consisted of de Guzman, geologists Cesar
Puspos and Jonathan Nassey, and site
manager/metallurgist Jerome Alo, had remained intact since the start of work several
years ago.
Freeport no doubt has already reviewed results generated to date by Bre-X's
exploration team, as well as reports prepared by
Kilborn SNC Lavalin using drill results provided to it by Bre-X. It probably has
already asked if any records of importance
were destroyed during the fire at the Busang camp last year.
A due diligence team typically gathers all data on the geology of the deposit (rock
types, weathering, structures, faults and
folds, pre- and post-ore deposition), the mineralogy of the deposit (sulphides, oxides,
deleterious minerals or elements), the
form, size and distribution of gold values in the deposit, the nature of the surrounding
rocks and associated structures. And it
will be prepared to look for areas of weakness, flaws or omissions in the data
presented.
Busang's general geology may be compared with that of other known deposits in the
region, most likely the nearby Kelian gold
mine, operated by Freeport's major shareholder, RTZ-CRA. Busang has been
described by Bre-X Vice-president John
Felderhof as "Kelian plus," though he says it has variations that made it "one of a kind
in the world." Kelian consists of two
high-grade orebodies, East and West Prampus, which lie within a low-grade area (less
than 1 gram gold) of about 1 sq. km.
The mineralization consists of a cap of free-milling oxide ore underlain by refractory
sulphide mineralization that is not
cyanide-extractable. The mine produces about 400,000 oz. gold annually in a
conventional cyanide with carbon-in-leach plant.
About 40% to 45% of the free gold at Kelian is recovered in a Knelson concentrator
before entering the leaching circuit.
Cyanide leach It is likely that much of the ongoing due diligence review at Busang will
focus on the sample preparation and
assaying procedures used during the past several years to test drill core from the
property. The lab used by Bre-X, IndoAssays
in Balikpapan, will come under some scrutiny, though this is not expected to be an
issue of concern as the lab has a solid
reputation and is used by many major companies, including Freeport itself.
In March 1996, at its annual meeting, Bre-X announced it was not using the traditional
fire-assay method to test core samples
from the property, saying it had a "problem with reproducibility of assays." While this
raised a few eyebrows at the time, the
cyanide leach Bre-X turned to is a legitimate method for assaying deposits where free
gold occurs or where gold is not
homogenous, giving rise to the well-known "nugget effect." In cyanide leach, a larger
portion of the sample (750 grams,
compared with 30 to 50 grams in fire assay) is pulverized and treated with a cyanide
solution to extract almost all of the free
gold. Because such a large sample is assayed, the samples are more likely to represent
the true grade than either single fire
assays or even metallics assays; in effect, having a grade figure from a sample that is 15
times the size is like having the average
grade from 15 replicate fire-assay analyses.
Freeport can also be expected to review Bre-X's on-site sample preparation
procedures, which involves cutting off the core in
2-metre sections and crushing 90% of the core, leaving 10% as "skeleton core." The
crushed portion, weighing about 13 kg,
would then be divided down to provide a 750-gram sample for analysis.
Why a skeleton core was retained is not clear. Most mining companies saw or
blade-split their core down the middle, retaining
a parallel core half for geological examination and analytical cross-checking. Splitting a
2-metre length of the Busang core
would still yield a 7-kg sample -- more than enough for multiple 750-gram analytical
portions -- and leave the door open to
re-log drill cores and repeat assays in the future.
In a recent report on Busang by an investment firm, the question was asked, "Why did
Bre-X not split the core?" The response
was that the gold was "90% free, loose and powder-like" and that "the more you split
up and cut the core, the more gold that
falls off like flour before it is sampled."
This comment is somewhat consistent with the early descriptions of Busang's
mineralogy, which were provided in a paper
prepared by Felderhof, de Guzman and their geological team. "Gold occurs mainly in
native form," the paper states, "with minor
electrum occluded in sphalerite-marmatite and submicroscopic particles in
arsenopyrite-pyrite associated to both silica-base
metals and carbonates-pyritic sulphides assemblages". Both styles of occurrence imply
very fine gold grains, probably 70
microns and smaller.
But in turn, this also implies that smaller samples would still give an adequately
reproducible analysis.
During a site visit to Busang last summer, The Northern Miner was informed that
Busang contained both fine-grained
(submicroscopic) and coarse gold, though it did not appear to be coarse enough to be
visible in either core or surface
exposures. Nor were specimens of this type available for observation.
The issue is a puzzling one, in that analysts say cyanide leaching was used in order to
obtain larger samples because of the "high
amount of loose, coarse gold that can vary dramatically every inch along the core."
One analyst pointed out that "sample error
is by far the greatest risk in the assaying of Bre-X's assay results, and pilot plant-type
determinations will be eventually needed on large quantities of ore." While on site, The
Miner also read a report from a metallurgical firm that stated that large, bulk
samples in the order of 500 tonnes would be required in order to determine
representative grades, at least partly because the
gold was so coarse. Bre-X itself has stated that, because of the coarse and free-nature
of the gold, a gravity circuit would be
effective for recovering much of the gold (mining analysts have stated this number could
be in the range of 83% to 95%).
Gold grains A thorough due diligence review will not shy away from examining the
possibility that samples were contaminated
on site or that samples were somehow rendered "invalid" (in Freeport's words) at the
sample preparation stage.
This task is particularly necessary if grades are found to vary dramatically between
twinned holes and previously drilled holes,
or between skeleton core from previously drilled holes and their corresponding
crushed samples and pulps. If the grades do
vary, the due diligence team may examine the grain size of the gold in the uncrushed
skeleton core on site (or in mineralization
found in newly drilled holes) and compare it with the nature of the gold mineralization
found in the crushed samples and pulps.
If, for example, the fresh core has little or no coarse gold and returns low or trace gold
values, while the crushed material has
coarse grains of gold and higher grades, a problem of this type will have been
identified.
Results to date from Freeport's technical work have clearly contradicted some of
Bre-X's previously announced results, thereby raising doubts that will linger until the
technical review is complete.
Back to Northern Miner March 31, 1997 Issue
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