A second chance for Donner's Voisey play
Major General Resources Ltd MGJ
Shares issued 42,099,328 Sep 13 close $0.08
Fri 14 Sept 2001 Street Wire
See Donner Minerals Ltd (DML) Street Wire
by Will Purcell
The flagging South Voisey Bay exploration play now seems to have new life
as the result of an option deal that will allow Falconbridge Ltd. to earn a
50-per-cent stake in the 62,450-hectare project by spending a total of
$23-million over a five-year period, and it must spend at least $2-million
in each of the five years to keep its option in good standing. The new
source of cash will should revive speculative interest in the play, which
had been a darling of investors for a time in the latter half of the 1990s.
Unfortunately, results ultimately did not match expectations, and the share
prices of the main players took a tumble as a result.
The market did not seem to know what to make of last week's deal, as share
prices first went one way, then the other. Donner Minerals Ltd. is the key
player at South Voisey Bay, with interests ranging between 50 per cent and
76.69 per cent over most of the ground that is contained in three separate
blocks of claims in the area. Donner shares had last traded at 15 cents
prior to a halt in trading pending the news, and an intraday day high of 20
cents on Monday seemed to suggest that investors were happy with the
arrangement. Since then, the stock has given back nearly all of its gains
however.
The trading pattern was similar for shareholders of Major General Resources
Ltd. The stock rallied after the halt to close at 11 cents, up three cents
on the day, but all of that was lost on Monday, when the stock again closed
at eight cents. Major General owns a 48-per-cent share of one of the three
blocks included in the deal with Falconbridge, and Northern Abitibi Mining
Corporation has a 47.6-per-cent share in a third block. Donner holds the
remaining interests in both properties.
The share prices today are a far cry from those recorded just a few years
ago, at the height of the Voisey hype. As late as the spring of 1998,
Donner shares traded as high as $3.00, on the strength of a string of news
from the South Voisey Bay play. Indeed, Donner gave speculators a string of
wild rides through the latter portion of 1997 and the first half of 1998.
The stock hit a high of $4.30 in early November of 1997, thanks to some
decent assays from South Voisey Bay, but just over a month later, a share
could be had for just 75 cents.
That slump was a short one, as within another week a Donner share soared to
$2.70. Through all of that there was little in the way of hard news, and at
least some of the trading activity was attributed to Internet rumours that
massive sulphides had been encountered. Additional assays were subsequently
released, but it was not the glorious news hoped for by investors, and just
six days later, it took just 81 cents to buy a Donner share. That was far
from the end of it, as the spring of 1998 brought more enthusiasm. The new
year did not bring much more in the way of good news however, and by
August, a Donner share could be had for a mere 35 cents.
Interest in Labrador base metal plays began with the rich nickel find made
by stock-promoter Robert Friedland's Diamond Field Resources late in 1994.
The find sparked a market frenzy and the area play rapidly expanded to
cover most of Labrador and much of Eastern Canada. The South Voisey Bay
area subject to the Falconbridge deal is actually located about 90
kilometres to the south of the Diamond Fields Resources discovery.
Donner began acquiring property in the area in the spring and summer of
1995, and at the time, the hype surrounding Voisey Bay was such that
speculation alone carried Donner shares to a high of $4, although work had
not actually begun on the Donner ground. When work finally did start later
that summer, it was limited to geological mapping, airborne geophysical
surveys and stream sediment sampling.
That work continued into the following year. Donner mounted a drilling
program later in 1996, and 39 shallow holes were completed. Most of those
holes encountered a mafic intrusion that contained minor sulphide
mineralization. The assays showed just modest values of nickel and copper,
but it was a start, and it kept Donner's shares hovering well above the $1
mark through much of the year.
It was also enough to catch the eye of Teck Corporation, which struck a
deal with Donner in the summer of 1996. Under the terms of the agreement,
Teck could earn a 50-per-cent share of Donner's ground at South Voisey Bay,
in exchange for its footing the bills for a feasibility study and the
purchase of $1.7-million worth of Donner shares.
Teck continues to have an interest in the play to this day. The company can
earn a 50-per-cent share of Donner's interest by paying Donner's share of
the cost of a feasibility study, and arranging for financing for Donner's
share of the project -- should there actually be a mine found on the
property.
Donner launched its most aggressive exploration program at South Voisey Bay
in 1997. Drill targets were selected over the main areas of exposed gabbro
that had been identified on the properties. Most of the areas drilled
returned mineralization to some extent, but three holes completed on ground
that Donner shared with Northern Abitibi Mining, and those three holes had
greater success, hitting massive sulphides.
Assays from DDH 97-67 indicated that narrow bands across a four-metre zone
had an average nickel grade of about 1.8 per cent, with copper values of
about 1.3 per cent. Far more spectacular results were obtained in hole DDH
97-75, where a 1.1-metre zone returned a nickel content of 11.75 per cent
and a copper content of 9.7 per cent. The third hole showed a far thicker
zone of mineralization. A 16-metre zone returned an average nickel grade of
1.16 per cent and an average copper grade of 0.77 per cent, as well as a
cobalt content of 0.20 per cent.
With assays approaching an economic grade over an appreciable width, the
South Voisey Bay play caught its second wind. As fall began, Donner shares
were trading for less than 50 cents, but the assays carried the stock to
its high of $4.30 within a month, as more than 18 million shares traded in
just a five-day period in late October, 1997.
Donner had been spending a considerable amount of cash on its exploration
programs. The company spent nearly $3-million in 1996 and well over
$4-million the following year, and with the encouraging assays in hand the
company spent over $5-million in 1998, hoping to improve on the numbers.
Donner and its partners drilled 39 new holes and re-examined five others.
As well, a considerable amount of geophysical work was performed on the
properties. Several holes were drilled in the vicinity of DDH 97-96, but
the work revealed that the massive sulphide zone thinned substantially
within just 50 metres of the intersection, a result that was also suggested
by a borehole pulse electromagnetic survey.
Nevertheless, there were a few bits of encouragement from the 1998 program.
Drill hole DDH 98-131, which was drilled about 600 metres to the northeast,
hit a 20-centimetre zone with a nickel grade of 4.5 per cent, along with a
copper content of 2.6 per cent. The hole also contained a 30-centimetre
zone which had a nickel grade of 3.4 per cent.
Plans seemed to be scaled back a bit for 1999, when Donner and its partners
approved a $2.75-million exploration program for the South Voisey Bay
claims and a further $850,000 for the Northern Abitibi ground. The work was
to consist of more geophysics and additional diamond drilling. Meanwhile,
several of the partners were beginning to lose interest in the play, as
they elected not to contribute their share of the proposed budget, citing
the poor market condition as the culprit.
In the end it did not matter much. Just a week later, the Innu Nation
successfully brought the planned exploration to a halt. Donner blamed the
native group for the loss of a year, calling a number of proposed
agreements that had been prepared by the Innu Nation, "onerous." Meanwhile,
the Innu Nation said that Donner was using the native group as a
"scapegoat," noting that most of the company's partners had failed to ante
up their share of the costs.
As a result, 1999 was a write-off. The following year, Donner itself seemed
to be losing interest in the play. Major General was the only company that
had sufficient motivation and the wherewithal to mount an exploration
program. The persistent little soldier managed to poke two deep holes into
a gabbro on the Sarah Lake property, but nothing much of interest was
found.
Meanwhile, things got even worse for Donner. As 1999 drew to a close, the
British Columbia Securities Commission moved against Donner's chief
executive officer and chief financial officer, David Patterson. The BCSC
accused the Howe Street promoter of a number of securities offenses,
including insider trading.
The matter dragged on through most of 2000, but in October, Mr. Patterson
settled by agreeing to a $50,000 payment to the BCSC. In making the
settlement, Mr. Patterson admitted that he did not file insider trading
reports for trades he made through a British Virgin Islands company. Those
trades apparently involved four companies that he served as an officer or
director -- including Donner. The Donner trades were made in late 1996 and
early 1997, during the market frenzy generated by the promising assays.
As part of the settlement, Mr. Patterson was banned from the market for 15
months, and forced to resign his positions as an officer or director with
all publicly traded companies. Mr. Patterson resigned his positions with
Donner during the summer of 2000.
As interest in the South Voisey Bay play waned, the stock prices of the
partners hit the skids. The mothballed play and the action against Mr.
Patterson were especially hard on Donner, and as 2000 drew to a close, a
share could be had for just six cents. Northern Abitibi shares hit rock
bottom at just two cents, a far cry from the $2.60 price commanded by the
stock in the fall of 1997. Major General shares also slumped, hitting a low
of seven cents, down more than 90 per cent from its 1997 high of 85 cents.
Donner's interest seemed to return earlier this year. The company led
efforts to amalgamate many of the South Voisey Bay properties into one
company, and Donner also staked many new claims on behalf of the new
company, in which it holds a 76.69-per-cent share. That work brought about
a minor recovery in Donner shares, which climbed back to the 15-cent mark
this spring.
With Falconbridge now involved, settling matters with the Innu Nation are
likely to become a top priority. Donner now claims that the company and
Falconbridge are close to a deal with the native group on a number of
environmental and archaeological issues, as well as Innu business and
employment opportunities at South Voisey Bay.
Falconbridge has preliminary plans to complete gravity and deep-seeking
electromagnetic surveys on the property, as well as more geological mapping
and relogging the existing drill core. The winter will be spent reviewing
the data, presumably leading to a major drill program starting next spring.
All of that is slated to begin next month. In the interim, Falconbridge has
apparently commenced archaeological work, as part of the proposed deal with
the Innu Nation.
Speculators seemed less than impressed with Falconbridge placing
archaeology ahead of drilling, as they resumed trading in a pessimistic
mood after the two-day market halt caused by the terrorist attack in the
United States. Donner dropped two cents Thursday, to close at 16 cents,
while Major General remained unchanged at eight cents on the day. Shares of
Northern Abitibi, the company that owned a chunk of the property that
generated most of the interest in the first place, were last traded on
Monday, also at eight cents. Despite the continued pessimism, South Voisey
Bay does seem destined to get a second chance to prove itself as a mineral
play.
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