GeoFin Geological Report:
October 99
INVESTMENT COMMENT
An unique significantly undervalued investment opportunity has been discovered that offers investors, a situation to take advantage of a “triple event” – a new discovery, the resurgence of base and precious metal demand (price) and the revitalisation of the junior resource market.
STARFIELD RESOURCES (SRU – ASE)
Starfield Resources is currently exploring the Ferguson Lake Nickel-Copper Prospect in Nunavut Territory, Canada with an impressive success ratio of discovery of economic intercepts and grades of mineralization. With the current malaise in the junior resource market, this potential “World Class” Nickel Copper Cobalt – PGE prospect is being overlooked as a strong investment opportunity.
Introduction
Starfield acquired the property in 1999, after it had been held by INCO (N - TSE) since they discovered it in the early 1950's. INCO had completed extensive exploration and development work, including over 37,000 metres of drilling and processing a 10-ton bulk sample. Although the discovery of the Thompson Mine in the mid 1950's diverted their focus to northern Manitoba, the property was taken to lease by INCO and that lease was renewed until 1992.
The Ferguson Lake Nickel-Copper Prospect is hosted in a metamorphosed mafic to ultramafic amphibolite (hornblendite) sill (or volcanic) unit that has characteristics of an ultramafic layered intrusive. The hornblendite unit has been traced by surface sampling, drilling and geophysics for at least 18 kilometres and is between 50 and 200 metres thick. Mineralization occurs as massive sulphides in lenses within the hornblendite unit and as stringers and veinlets in the brecciated part of that unit. The main sulphide mineral is pyrrhotite while the economic minerals are chalcopyrite (copper), pentlandite (nickel), moncheite (platinum and palladium) and gersdorffite (cobalt). Ore microscope work indicates that the sulphides are independent grains, which suggests no metallurgical separation problems.
Since acquiring the property, Starfield has embarked on an aggressive exploration and development program that has included drilling, geological mapping, geophysical surveying and, most importantly, acquisition of the “non-public” INCO data of that company's 1950's drilling and development work. The success of this initial program is not being fully reflected in the market, which is looking for Voisey Bay type assay results, which occurred there, after at least two exploration “campaigns.”
Starfield acquired the INCO data after the completion of the 1999 summer drill program. The airborne geophysics was completed too late in the field season to be followed up by ground surveying. Preliminary analysis of this data suggests two significant additions to the economic potential of the property. Firstly, additional “geologic resources” zones have been added to the published resources in two areas increasing the inventory to over 10 million tonnes. Secondly, the magnetic signature of the hornblendite unit has revealed some interesting “structural” features which suggest an “unnoticed” parallel or “keel” fold zone and areas of dilation which would “thicken” the sulphide horizon. As well, the magnetic signature of this host unit, which has been traced for 18 kilometres, has shown a direct 1:1 correlation of magnetic high to significant (economic) sulphide mineralization in “limited” drill and surface stepout exploration to date.
From the drilling that Starfield has completed to date as well as showing the magnetics:sulphide correlation mentioned above, it has revealed that the mineralized zone used as a base for INCO's resource calculation is increasing in thickness with depth and indicates an increase of grade with depth. The characteristics of the sulphide zone fit the model of remobilization of the sulphides from a deeper concentration of metallic sources. Despite the perception (vis a vis Voisey Bay) of lower grade, the value of the 10 million tonne plus indicated resource of copper nickel cobalt palladium and platinum is over Cdn$ 120 per tonne with some higher grade areas of concentration. This value excludes any contribution from the 1-2 pounds of cobalt per tonne reported in the assays (Cobalt LME Oct 99 US $15 per pound).
World Class Deposit?
The significant amount of sulphides discovered to date, associated with the 18 kilometre long Ferguson Lake Copper-Nickel bearing Hornblendite unit, shows that the mineralizing system that has introduced the economic metals has the capacity to develop a world class deposit. The most direct comparison comes from the northern Manitoba Thompson Deposit, which is associated with a mineralized belt 40 kilometres long and has a direct “anomalous” 6 kilometre long surface trace. At Thompson, the stratabound deposits are all associated with mafic-Ultramafic “sills” and major sedimentary sulphide concentrations. This type association is also found at Sudbury and Voisey Bay.
These world class deposits have a very clear magnetic signature reflecting the universal presence of pyrrhotite and the magnetic ultramafic units. They are all associated with major “deep seated” structural features that fit the well-developed mafic intrusive copper-nickel deposit model. That model postulates that these major structures allow the nickel rich mantle (the molten portion of the earth's core below the continental masses) to be tapped by subsidiary “cracks” bringing nickel rich mafic to ultramafic “magma” to the surface. To develop a deposit significant sulphide bearing units (that is sedimentary sulphide rich units – usually sulphide iron formations) have to be encountered to “capture” the nickel in the “magma” and form a nickel copper cobalt platinum palladium sulphide “World Class” deposit.
Starfield's Ferguson Lake Prospects has all of these features for a “world class” model (see table 1). The 18 kilometre surface trace of mineralization and tonnage developed to date suggests more to come.
Table I
Deposit Nickel Carrying Source Deep Structure Sulphide Provider Size & Grade Surface Trace
Sudbury Nickel Irruptive Grenville Front/Meteor
impact magmatic?/ Sudbury area sediments large and excellent rim of Sudbury Basin (170 km)
Thompson Ultra mafic sills Churchill Superior boundary/Owl River Shear Sulphide facies Iron Formation 50 –100 million Tn
at initial 3% Combined 40 km belt at Thompson Mine 6 km
Voisey Bay Gabbro Archean Plate Boundary magmatic ? areal sediments + 50 million Tn +50 km belt
main deposit ?
Ferguson Lake Prospect Hornblendite Sill (meta -morphosed Ultamafic) Tyrol Shear Sulphide Iron Formation ? lots of sulphides ? To date 9 km in a 18 km belt length – all open
Investment and Economic Feasibility
From an exploration and investment point of view the following observations can be made.
1. With the success of magnetics to mineralization to date (100%) there remain many untested magnetic targets along the host unit that will be carrying economic mineralization.
2. The +10 millions tonnes (over Cdn$ 1 billion in value) is a great start!
3. Metallurgy and mineralogy look excellent.
4. Width of economic resource will allow low cost mining methods.
5. Database from most reliable of sources (INCO).
6. Multi-element deposit improves economics of development (not single commodity dependent).
7. Outlook for economic minerals of the resource are all extremely positive (see below “Junior Resource Market Comment”).
Company Profile
The company management is lead by President Glen Indra with proven ability in financing and developing a junior resource company. Both Mr. Indra and Glen MacDonald (Director – Exploration) have been associated with mineral exploration and development for over 30 years with major companies as well as numerous successful junior resource issues.
The expertise of the board to attract financing and reputable consultants has been demonstrated and will ensure that the Ferguson Lake Prospect is fully developed as a mineral resource.
Finances
Currently the company has a fully diluted share issue of 19.1 million shares and with a potential cash position of over $500,000. The fully diluted shares include the future issuance of escrow shares to complete the property purchase. The company is set to commence the next phase of exploration on the Ferguson Lake property in February 2000, with a $3 million 25,000 metres exploration and development drilling program, which will be funded in part by Flow through shares.
The success of this program on expanding the current resource base will have a dramatic effect on the company's capitalization and per share value as outlined in Table II
Table II
Shares Outstanding Financing
Current Cdn$ Mining Cost Current Financing Production
Value /tonne per tonne Next phase $300,000,000 COMMENTS
$122.65 $75.00 19,100,000 22,671,429 28,339,286 Estimated O/S at
Deposit Size Gross Value Net value Gross value per share Net Value/sh end of production financing
10,000,000 $1,226,545,271 $476,545,271 $24.95 $21.02 $6.23
25,000,000 $3,066,363,178 $1,191,363,178 $62.38 $52.55 $31.45 Initial Thompson Reserves
50,000,000 $6,132,726,356 $2,382,726,356 $124.75 $105.10 $73.49 Total Mined at Thompson
100,000,000 $12,265,452,712 $4,765,452,712 $249.50 $210.20 $157.57 Voisey Bay Reserves
Conclusion
Starfield Resources Ltd. represents an excellent “millennium opportune” investment for three outstanding reasons: 1. Its excellent prospects to develop an economic mineral deposit; 2. Its exposure to base/precious metal resurgence; and finally, 3. As a leader in the revitalised junior resource market.
1. As obvious from Table II the current resource as delineated by drilling done by INCO with confirmation by Starfield's drilling has a significant net value per share that is not being recognised in today's market. From that net value, it becomes apparent why INCO kept this property for over 40 years! Logistics and infrastructure costs will be high due to the location but offsetting that is the experience gained from operating the Lupin Mine in the north, the impact of a world class mine on the New Territory – Nunavut attracting federal government support and the proximity to tide water (Churchill-Thompson mine example) to the project. It should be noted that the value in Table II reflects a 200% increase in the stock outstanding and a production financing charge of $0.3 billion against the current value (LME prices Oct 99).
2. Current prices for base and precious metals are showing an upward swing after many years of depressed markets, reflecting the negative sentiment towards gold and by association the whole junior resource sector. The metal commodities in Starfield's resource will all be significantly impacted with increased demand by the rebounding Asian market for both base and precious metals leading to higher prices.
3. As investors return to the junior resource market, Starfield Resources will standout as an excellent value at any price under Cdn $2 as a core speculative position. Over the next 2 – 4 years, as the company continues to explore and develop the Ferguson Lake Copper Nickel PGE prospect and as capital returns to the resource market, trading positions between the $2- $4 level should be added to that core position. With the potential of this project to rapidly establish a World Class “resource inventory,” caution is advised for trading – don't be caught short!
Junior Resource Market Comment
A comment is warranted that can have a significant positive impact on Starfield Resources and other current junior resource companies.
The past few years of exceptionally poor resource financing markets has seen a catastrophic drop in exploration and development programs. During this time producing mines have slashed costs and tried to increase revenues (higher-grade mining) to survive and keep producing. The severity of this “recession” has not only curtailed new resources being brought into advance development stages and being discovered but the expertise to bring these new resources “online” has been lost (Geologists/miners/financiers faced with the worse period in over 20 years have changed to other professions).
Therefore even as the financing climate improves in response to increased demand and prices, shortages will develop in base and precious metals inventories, as the usual lag between discovery, exploration and development will be further retarded by the lack of expertise factor, for possibly 10 years. Starfield Resources will be on the leading edge of this “re-supply” of metal to the producing market as the Ferguson Lake “Resource” is confirmed and developed.
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