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 Thu Sep 22, 2016
SVH Tracker: Serengeti's Kwanika IP target intact and more prospective
    Publisher: Kaiser Research Online
    Author: Copyright 2016 John A. Kaiser

 
Serengeti Resources Inc (SIR-V: $0.21)
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SVH Tracker - September 22, 2016: Serengeti's Kwanika IP target intact and more prospective

Serengeti Resources Inc was halted Thursday morning on September 22, 2016 to release results for the 3 hole drill program completed on the Kwanika gold-copper project in central British Columbia farmed out to Daewoo, a subsidiary of the Korean company Posco. The market, which in the past week had somewhat inexplicably driven the stock to a high of $0.33 (Serengeti was recently recommended a Good Relative Spec Value Buy at $0.0145 - see SVH Tracker: Aug 10, 2016), just as inexplicably drove the stock down $0.105 on 4,106,400 shares to close it at $0.21. The sell-off can probably be blamed on the fact that hole #178 drilled into the deep IP target did not deliver ore grade intervals, hole #177, the second best ever drilled at Kwanika, was drilled through established mineralization and included a very high grade interval that encourages fears about grade smearing, hole #179 which was stopped in mineralization yielded a tenth of the grades being bandied about by pumpers in the stock forums, drilling will not resume until next year, and Daewoo has not officially announced that it will commit to spending $7 million over the next three years to vest for 35%. All these "reasons" to sell the stock are misguided but are helpful in that they have provided Spec Value Hunters with an opportunity to buy Serengeti at only a modest markup from the mid August $0.145 recommendation price, but with several key questions positively answered.

Hole #178 was drilled 500 metres north of the Central Zone to test an IP chargeability anomaly called the Northwest Deep target (depicted above in the north-south longitudinal section looking east) which 3D inversion modeling had revealed. The diagram below is a 3D modeled version of the IP anomaly looking from the northeast to the southwest. I have annotated Serengeti's graphic to isolate the IP anomaly associated with the Central Zone, the shallow IP anomaly north of the Central drilled in 2008 with mediocre results, and the deeper NW IP anomaly that extends from the base of the Central Zone but which has not yet been intersected.

The east-west drill section below for hole #178 looks north. Two shallower holes, #123 drilled westwards, and #99 drilled eastwards, were drilled in 2008 to test a shallow IP target that shows up as the "tongue" above the NW Deep IP anomaly in the longitudinal section above. It is labeled as a "pyritic shell" to reflect the fact that the sulphides in hole #123 hosted by andesite cover rocks lacked copper and gold values, while hole #99 intersected low copper values in monzonitic intrusive rocked believed to be related to the Central Zone. Hole #178 encountered altered andesite that ran 0.06% copper and 0.11 g.t gold over 245.3 metres before crossing a fault into younger unmineralized monzonite which prompted Serengeti to stop the hole. What these diagrams show is that hole #178 missed the NW IP anomaly depicted as the blob with the "possible mineralized intrusive" question mark. The anomalous values of #178 are very important because they are not the target host rock and are very likely peripheral to a mineralized intrusion. This is the sort of vectoring hole David Moore was looking for, though with hindsight he admits it would have been preferable to drill a vertical hole right through the heart of the IP anomaly. From a speculative standpoint the deep NW IP anomaly remains untested, but now it comes with evidence that the fluids which generated the sulphides represented by the anomaly included copper and gold. Serengeti will return next year with 2-3 deep holes to properly test this target. Reason #1 for the sell-off, namely that the IP anomaly is a dud, is wrong. The potential for a new discovery within the existing system remains intact.

Hole #177 predictably yielded a good intersection because it was drilled through the heart of the Central Zone: 438 m of 0.71% copper and 0.83 g/t gold including a higher grade interval of 233.55 m of 1.18% copper and 1.3 g/t gold. The intersection included a short 3.6 metre interval grading 19.04% copper and 6.52 g/t gold. At $1,340/oz gold and $2.15/lb copper this 3.6 m interval has a rock value of $1,184 per tonne compared to $69 per tonne for the full intersection. It occurs at the base of the "supergene" zone of secondary sulphides consisting of chalcocite before it transitions to the "hypogene" zone of primary sulphides consisting of bornite. Supergene enrichment is caused by weathering whereby metals get leached out of the primary zone and redeposited at the water table level. The Central Zone is mainly an underground mineable deposit because the ore near the surface has been depleted. Hole #177 was drilled perpendicular to all but one of the holes that delineated the Central Zone. It is the second best hole drilled at Kwanika, but it arguably is the best hole because hole #62, drilled in early 2008 with an interval of 610 m of 0.74% copper and 0.78 g/t gold, was drilled parallel to the supergene-hypogene transition zone. Hole #62 was equivalent to a down-dip hole whereas hole #177 gives a "true width". The very high grade at the base of the supergene zone causes one to wonder if grade smearing has made hole #177 look better than it really is. The way to remove the influence of the high grade interval is to multiply the length of the main intersection by the grade, do the same for the smaller high grade interval, subtract the latter from the former, and then divide the result by the main intersection minus the short interval. That gets you what the rock outside the high grade spike grades. The simplest way to do this is to use the Drill Hole Interval Calculator developed by Brent Cook and Corebox.net which yields a "residual grade" of 0.6% copper and 0.783 g/t gold over 434.8 metres. The adjusted copper grade is only 15% lower and the gold grade 6% lower for a rock value of $62 per tonne. Grade smearing is not a valid complaint for hole #177, whose real importance is that its orientation may give a better presentation of the Central Zone's copper and gold content for the purposes of calculating an ore reserve. Daewoo already believes that the model used to estimate the Central Zone resource has underestimated the metal content. Reason #2 for the sell-off, namely that hole #177 taught Serengeti nothing new and benefited from a grade spike, is incorrect.

Hole #179 was drilled to the north of the Central Zone to intersect its down plunge extension. It yielded 234.8 metres of 0.17% copper and 0.15 g/t gold from a depth of 521 m onwards. These grades are too low for underground mining but the hole bottomed in mineralization with increasing grade; the last 58.7 m was 0.2% copper and 0.29 g/t gold. The hole was stopped because the driller ran out of drill rods and the drill program's budget had been hit. The mineralization is deeper and offset from that intersected by earlier holes. Clearly the grade needs to improve; Serengeti left the casing in the hole so that it can be deepened next year. Supposedly rumors surfaced at the Beaver Creek - Sept 13-14, 2016 conference in Colorado that hole #179 was running 2%-4% copper over a substantial width. Beaver Creek is a "speed dating" venue where Serengeti was not even present. In its August 25, 2016 news release announcing completion of the summer drill program, Serengeti did not offer any visual descriptions with regard to any of the holes. At the time I asked Moore why the perfunctory news release, and his answer was that visual descriptions are only justified when they have material implications. Obviously a 3.6 m interval of native copper is not material within a zone already characterized as an underground block caving target. But a long interval of new rock that grades 2%-4% copper would have displayed very good visuals that would have been obvious to drill crew. Such visuals did not exist and so there was no reason to expect anything special. A further caution was that the rumors about a hot hole surfaced several weeks after the core was shipped for assaying. When rumors surface under strange circumstances and are circulated within limited audiences they are usually fabrications. Reason #3 for the sell off is not applicable because the market in general had no such exaggerated expectations.

Reason #4 for the sell-off, namely that Serengeti will not resume drilling until next year is not a valid explanation because everybody knew this was the last drill program for 2016. There is more news flow before the end up 2016, such as a revised resource estimate for the Central Zone that applies a new modeling approach, and results from field work on the 100% owned Jewel prospect where a skarn target dismissed as "too small" by the Koreans will likely be drilled next year. Reason #5, namely that Daewoo will not commit to spending $7 million on Kwanika over the next two years is a possibility, but only a plausible concern if you think the results are a huge disappointment for the Koreans. Obviously they were a disappointment for some misguided investors, probably recent purchasers hoping for a quick flip, but in my view they are very positive. It would have been nice to confirm the NW Deep target as a major discovery with the first deep hole, but exploration drilling simply does not lend itself to sniper kill shots. Daewoo would not have spent over a year on due diligence and $1.2 million premised on hopes that a single hole on a geochemically blind geophysical target will deliver a major new discovery next to an existing deposit. Barring any geopolitical or economic catastrophes I am confident Daewoo will elect well before the March 6, 2016 deadline that it is proceeding with its 35% earn-in. Serengeti Resources Inc is confirmed as a Good Realtive Spec Value Buy at $0.21.

 
 

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