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Vol. 15, No. 17 Week of April 25, 2010
Providing coverage of Alaska and Northwest Canada's mineral industry

Mining News: Gold demand could shake world markets

China shifts from largest producer to largest buyer of precious metal as growing middle class and bullion reserves drive trend

Curt Freeman

For Mining News

As Alaska’s mining industry moves into the frenetic summer exploration and development season, the rest of the world is being buffeted by wild financial and commodity “mood swings” that are affecting the metals markets. The big markets shake the little markets and the little markets shake Alaska. Perfect example: the World Gold Council recently reported that China’s growing middle class is expected to double its demand for gold for jewelry and investment purposes over the next decade.

However, China’s current position as the world’s largest gold producer is expected to change since most of its mines are small, short-life, labor-intensive operations. In fact, in 2009 China’s gold production grew to 314 metric tons of gold, while jewelry and investment demand grew to 423 metric tons of gold, creating a significant shortfall in gold supply that was made up with purchases from nondomestic sources.

To make matters worse, the Chinese central bank gold bullion reserve, at 1,054 metric tons, is just 1.6 percent of its total liquid reserves, and there is pressure to increase its bullion holdings, primarily by converting its huge U.S. dollar holding into gold. That means demand for gold from outside of current production. Long story short – more gold demand, less gold production leads to only one thing. And most of the other metals are in the same boat – long on demand, short on supply.

Western Alaska

Teck Resources Ltd. announced first-quarter results from its Red Dog Mine. In the first quarter, the mine produced 132,900 metric tons of zinc in concentrate. Zinc ore grade decreased to 18.9 percent while mill recoveries remained steady at 81.2 percent. The mine also produced 35,000 metric tons of lead in concentrate. Lead ore grade increased to 6.3 percent, while mill recoveries decreased to 64.2 percent. The mine posted a US$94 million operating profit for the quarter, more than tripling the US$29 million profit in the same period a year ago. The increased operating income was attributed to higher zinc and lead prices, offset by lower zinc grades. The mine paid US$20 million in royalty payments to partner NANA Inc. and the State of Alaska during the first quarter. The company said the Aqqaluk deposit permit remains unsettled, and the company will see a curtailing of mine operations by October 2010 if the permit issues are not resolved.

Zazu Metals Corp. announced completion of a preliminary assessment study on its Lik South deposit. The study considered both indicated and inferred mineral resources in the Lik South deposit amenable to open pit mining. The life of mine open pit production plan includes the production of 16 million metric tons grading 8.08 percent zinc, 2.57 percent lead and 47.9 g/t silver. The preproduction capital cost estimate was $352 million including 22 percent contingency for a 5,500 tpd mine and mill with an eight-year mine life. The estimated life-of-mine operating costs were $75 per metric ton. Based on metal prices of $1 per pound for zinc, 80 cents/lb for lead and $16/oz for silver, the operation demonstrated a pretax Internal Rate of Return of 9 percent.

TintinaGold Resources Inc. announced 2010 plans for the Kugruk project near Candle. Plans call for camp mobilization in early May followed by a 4,000 meter core drilling program beginning in June. The property consists of a 15-kilometer belt of a strong magnetic anomaly along the eastern margin of the Kugruk pluton, a large granodiorite body intruding Paleozoic schists and marbles. A thick layer of loess (windblown silt) covers most of this magnetic belt; however, locally the higher terrain shows anomalously high copper in soils. A few historic drill holes from the Kugruk magnetic belt show strong concentrations of magnetite with associated chalcopyrite and pyrite. Further east, a halo of silver-lead-zinc prospects and further outboard gold prospects ring the intrusive system beyond its magnetic border, suggesting the project hosts a large area of intrusive-related system which has received little exploration. The planned 4,000-meter drilling program at Kugruk will initially test for economic grades of copper mineralization along the magnetic belt. Three specific targets have coincident high magnetic/low resistivity responses along with copper in soils and strong Induced Polarization chargeability anomalies. Additional baseline geophysical and geochemical programs are planned to identify other target areas beneath the thick loess cover.

TintinaGold Resources Inc. also announced plans to fly airborne geophysical surveys over its Colorado Creek gold project north of McGrath and its Omlak lead-zinc-silver project on the Seward Peninsula.

Alaska newcomer Cedar Mountain Exploration Inc. announced acquisition of the Kelly Creek gold project on the Seward Peninsula. Under terms of the option agreement with Alaska-based Greatland Exploration, Cedar Mountain can earn its interest by paying aggregate lease payments of $1 million and incurring US$2.15 million in work commitments over six years. Cedar Mountain has the option to purchase 100 percent of the project at any time within those six years for US$1.5 million, with all lease payments paid prior to exercise of the option being deducted from the purchase price. Greatland will retain a production royalty equal to 5 percent of the net smelter returns. Cedar Mountain also will make annual advance royalty payments of US$100,000 upon exercise of the option, US$100,000 on the first anniversary of the exercise of the option, and US$200,000 on or before each subsequent anniversary of the exercise of the option. Kelly Creek is believed to be a sediment-hosted gold deposit with numerous open-ended, multi-element, coincident gold, arsenic and antimony soil anomalies that have been tested with limited drilling. Gold mineralization at Kelly Creek is hosted in a metamorphosed Devonian-Silurian carbonate-shale platform-shelf sequence and is associated with the intersection of specific stratigraphic horizons and secondary fault splays. This prospective stratigraphy is exposed along a 15-kilometer by 5-kilometer corridor bounded by regional faults. The gold mineralization at Kelly Creek was discovered by Anaconda Copper Mining Co. as part of a regional stream sampling project focused on tin exploration in the early 1980s. Following up a positive gold stream sediment anomaly with a small, but encouraging soil survey, Anaconda drilled two holes into the target horizon returning results of 1.07 grams of gold per metric ton over 23.5 meters and 0.83 grams of gold per metric ton over 32 meters. Welcome to Alaska Cedar Mountain Exploration Inc.

Fire River Gold Corp. announced new gold results from previously unreleased drilling at its Nixon Fork gold project near McGrath. Significant results include 3.5 ozs/t gold over 14 feet in hole N08U023, 1.6 ozs/t gold over 3.3 feet in hole N08U025, 1.8 ozs/t gold over 1.3 feet in hole N08U026, 1.7 ozs/t gold over 3.6 feet in hole N08U032, 1.8 ozs/t gold over 13.7 feet in hole N08U028, 1.5 ozs/t gold over 8.8 feet in hole N08U031, 0.79 ozs/t gold over 30.2 feet in hole N07U024 and 0.76 ozs/t gold over 10.8 feet in hole N07U022. In the years 2007 to 2008, the former operator drilled 9,400 meters in 110 holes, the results of which have never been previously disclosed to the public. These holes are being resampled as part of the company’s re-valuation of the project. The new assay results are in reasonable agreement with previously sampled core, although grade variations are present due to the coarse nature of the gold at Nixon Fork. Results are pending for 84 additional underground holes and seven additional surface holes.

Liberty Star Uranium & Metals Corp. announced it has identified 12 targets for further exploration at its Big Chunk copper-gold project near Iliamna. An airborne ZTEM geophysical survey covering 1,256 line kilometers (315.2 square kilometers) was completed and partial data from that survey has returned signatures typical of a porphyry copper-gold system. Additional results from the geophysical survey are pending.

Interior Alaska

Teryl Resources Corp. and joint venture partner Kinross Gold Corp. completed a 12.8- mile ground magnetometer/gradiometer survey on its Gil deposit in March and began a 16,000-foot drilling program in April. The goal of its 2010 exploration program is to further delineate the strike extension of the mineralized zones, and to infill between step-out holes in order to gain a better understanding of continuity. The drilling program consists of 11,000 feet of reverse circulation drilling and 5,000 feet of core drilling. In addition, fieldwork involving mapping, soil and rock sampling and mobile metal ion geochemical sampling will be performed.

Freegold Ventures Limited and Western Standard Metals Ltd. announced plans to defer their previously announced merger. The companies will concentrate on building value for their shareholders by focusing on the exploration and development work programs on their respective and joint projects for the upcoming field season. Both companies will continue amalgamation discussions in order to consolidate their projects.

International Tower Hill Mines Ltd. announced additional drilling results from its 20,000-meter 2010 winter drilling campaign at its Livengood gold project. Significant results include hole MK-RC-0310, which returned 33.53 meters at 0.92 g/t gold, hole MK-RC-0315 which returned 82.29 meters at 0.78 g/t gold and an additional 25.91 meters at 2.00 g/t gold, hole MK-RC-0316, which returned 13.72 meters at 1.58 g/t gold, hole MK-RC-0317, which returned 35.05 meters at 0.91 g/t gold, hole MK-RC-0322, which returned 57.91 meters at 1.20 g/t gold, hole MK-RC-0323, which returned 62.48 meters at 1.03 g/t gold and hole MK-10-47, which returned 36.98 meters at 1.30 g/t gold. These holes continue to fill in the gap between the Sunshine zone and Core zone. The winter drill program has now moved into the Southwest zone and will be followed up with a 40,000 meter summer 2010 drilling program set to begin in June.

Alaska newcomer First Star Resources announced that it had acquired options on International Tower Hill Mines Ltd.’s LMS gold project in the Goodpaster District. Under the terms of the agreement, First Star has the ability to earn an initial 55 percent interest, and a second option to earn a further 45 percent for a total 100 percent interest. To earn the 55 percent interest First Star will pay $280,000 and expend $3.5 million on exploration. To acquire a 100 percent ownership, First Star will fund the project through to an advanced exploration stage by spending an additional $3 million prior to December 31, 2015, or by producing, filing and having accepted inferred resources of 2 million ounces of gold using a 0.3 gram per metric ton cutoff grade, whichever costs less. A net smelter return royalty of 3 percent or 4 percent on gold or silver and 1 percent on all other products will be payable to Tower Hill. The royalty can be reduced by 1 percent by paying Tower Hill $3 million. The gold mineralization in the LMS claim block occurs with strongly silicified and brecciated zones that are associated with a low-angle shear zone within, and marginal to schist units. The outcrop exposure of this zone has produced samples up to 6.2 g/t gold and the zone has been defined through drilling to a down-plunge depth of 500 meters. Published resources at LMS stand at 167,000 ounces of gold at an average grade of 0.89 g/t gold using a cutoff grade of 0.3 g/t gold. The company intends to conduct a drilling program at LMS during 2010. Welcome to Alaska First Star Resources!

First Star Resources also announced that it has acquired options on International Tower Hill Mines Ltd.’s West Pogo gold project in the Goodpaster District. Under the terms of the agreement, First Star has the ability to earn an initial 55 percent interest, and a second option to earn a further 45 percent for a total 100 percent interest. To earn the 55 percent interest First Star will pay US$250,000 and spend US$2.8 million on exploration. To acquire a 100 percent ownership, First Star will fund the project through to the advanced exploration stage by spending another US$2 million prior to Dec. 31, 2015, or by producing, filing and having accepted inferred resources of 1 million ounces of gold, using a 0.3 g/t cutoff grade, whichever costs less. A net smelter return royalty of 3 percent or 4 percent on gold or silver and 1 percent on all other products will be payable to Tower Hill. The royalty can be reduced by 1 percent by paying Tower Hill US$3 million. The gold mineralization discovered to date at West Pogo is related to high-temperature quartz veins like those at the nearby Pogo gold mine with similar trace-element values (up to 11 g/t gold with high bismuth and tellurium values). Dominant structures on the property are east-west shear zones related to northwest and northeast trending fault zones. The company intends to conduct a drilling program at West Pogo during 2010.

Alaska Range

Grayd Resource Corp. has entered into an agreement with the Hunter Dickinson Group to form a joint venture on its 100 percent-owned Delta base and precious metals volcanogenic massive sulfide project located in the eastern Alaska Range. Under the terms of agreement, Grayd has acquired a 40 percent interest in the venture by contributing all claims it holds. HD will hold a 60 percent interest in the venture by reimbursing Grayd for reasonable costs related to the December 2009 claim-staking, and by funding exploration and development expenditures on the project totaling in aggregate at least US$1 million on or before Jan. 1, 2012, and an additional amount of at least US$2 million, on or before Jan. 1, 2013. Upon completion of its initial contribution, HD shall have the option to increase its ownership interest in the venture to 80 percent by funding additional expenditures of US$4 million on or before Jan. 1, 2014, and HD shall have an additional option to increase its ownership interest to 100 percent by providing to Grayd either two million shares or shares with a market value of US$4 million in any publicly listed company. Exploration work on the project dates back to 1976 and has resulted in the discovery of some 40 mineral showings. Three stratigraphic horizons favorable for the occurrence of massive sulfide mineralization have been recognized and sulfide mineralization has been traced for at least 3.2 kilometers, or about 2 miles, of strike length in a semicontinuous horizon. Delta hosts mineral zones with estimated inferred mineral resources totaling 15.4Mt grading 0.6 percent copper, 1.7 percent lead, 3.8 percent zinc, 62 g/t silver and 1.7 g/t gold. Historic work on the property includes geological mapping, geophysical and geochemical surveying and approximately 27,000 meters of core drilling. HD has initiated a compilation and reinterpretation of the extensive historic database and archived core specimens as a first step in the development of new deposit models and targets.

Pure Nickel Inc. announced that ITOCHU Corp. will proceed with exercising its option to vest its interest in the MAN project in the Paxson area. ITOCHU has agreed to an acceleration of expenditures over the next three years. The partners have agreed to a US$7.5 million budget for 2010, which represents an almost 90 percent increase over the original US$4 million budget. ITOCHU also has agreed to spend US$8.0 million in 2011 and US$8.0 million in 2012.

Full Metal Minerals Ltd. announced that it has entered into an agreement with Kennecott Exploration Co. on the Grizzly-Butte copper-gold porphyry in the Talkeetna Mountains. Under terms of the agreement, Full Metal can earn a 100 percent interest in the project by paying US$20,000 in cash and incurring US$5.0 million in exploration expenditures over six years (US$180,000 firm first year). Full Metal will pay Kennecott a one-time cash payment of US$10 million upon completion of a feasibility study. Upon commencement of commercial production, Full Metal will pay a 2 percent net smelter return royalty. Before effecting a sale or assignment of rights and interests to the property, Full Metal will give Kennecott notice of price and terms, and a 90 day period to acquire such rights and interests at 90 percent of the price and terms stated in the notice. Historical exploration of the area included programs by Cities Service and Bear Creek Mining in the 1970s. Previous work included geologic mapping, soil sampling, and an airborne magnetic geophysical survey. Previous operators completed wide-spaced soil grid with 300-meter line spacing covering a portion of the intrusive complex and extending west over thin surficial cover. Collectively, there are a total of 313 samples, of which 28 percent returned greater than, or equal to, 70 parts per billion gold and 23 percent returned greater than, or equal to, 280 parts per million copper. Gold anomalies in soil tend to form a broad northeast-southwest- oriented zone 1,680 meters in length and 300 to 750 meters wide around the western outcropping extent of the intrusive complex. Values within this zone average 104 ppb gold and range up to 1,600 ppb gold. The anomaly is open to the southwest and west, demanding additional sampling. Copper in soil anomalies are more closely associated with the central portion of the intrusive complex and extend to the south across the Grizzly Fault into sediments. This anomaly measures 1,850 meters by 500 meters and averages 350 ppm copper ranging up to 1350 ppm copper, forming a crescent-shaped body. The anomaly is completely open to the east. Spotty anomalous molybdenum with a peak of 20 ppm molybdenum in soils is noted and cluster within both copper and gold anomalous zones. Several strong copper and gold in rock anomalies occur in greenstones more than 1,700 meters away from the anomalous soil zones. A total of 91 samples were collected in the pat with values ranging from trace to 1.79 percent copper. Gold values range from trace to a high of 2,660 ppb. Local anomalous molybdenum occurs with some of the copper and gold, ranging up to 1,680 ppm molybdenum. Full Metal Minerals will commence an aggressive exploration program in mid-June 2010, including a resistivity-induced polarization geophysical survey as well as additional soil and rock sampling and geological mapping. A five-hole diamond drilling program will directly follow the geophysical survey, targeting coincident chargeability/surface soil-rock copper-gold/magnetic and other porphyry style anomalies.

Northern Alaska

Goldrich Mining Co. announced that it has secured US$1,756,442 in financing, of which approximately US$1.3 million will be used to acquire equipment to begin commercial production at its Chandalar gold project and the balance will be used for exploration and general purposes. The company also has committed to a 20,000-foot diamond-core drill program on the project. The drill program will evaluate the degree of mineralization occurring in a stratabound structure estimated to be about 5 miles long by 1,800 feet wide by 300 to 400 feet thick. Historic hard-rock mining has occurred on some of the high-grade veins at various locations along this trend and seven placer deposits have been mined in streams draining the trend. The drill program will consist of some 40 holes averaging 500 feet deep with the deepest hole being about 750 feet deep. Drilling is planned to begin in June. The company expects to complete more than half of the drill program this year with the balance to be completed in the summer of 2011.

Southeast Alaska

In a move that I believe is unique in the history of Alaska, the State House of Representatives unanimously passed House Resolution Number 16, a resolution supporting and encouraging rare earth element mining and production at Ucore Uranium Inc.’s Bokan-Dotson Ridge rare earth element project on Prince of Wales Island. The state resolution also urged Congress to support the similar rare-earth-element-friendly federal House Resolution 4866, which had been introduced in the U.S. House of Representatives a few days back. This bill, the so-called RESTART Act, was introduced by Rep. Mike Coffman, R-Colo. The RESTART Act proposes support for the development of a rare earth element supply chain within the U.S. Hard to imagine but there it is – overt support for the mining industry at both the state and federal level!

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