Home / Works Archive / Trackers
Trackers
| | Thu Aug 14, 1997
Tracker 1997-19: Canalaska - Labrador deep drilling & reacquisition of Kilometre 88 concession
Publisher: Kaiser Research Online
Author: Copyright 1997 John A Kaiser
|
| | Kaiser Bottom-Fish Tracker 1997-018
August 13, 1997
Intl Canalaska Resources Ltd (ICA-V: $0.85)
Tel: (800) 667-1870
Labrador deep drilling & reacquisition of Kilometre 88 concession
When I recommended in the July-August issue that bottom-fishers sell Canalaska into the September rally, Harry Barr, like the CEO's of other bottom-fish that received a similar honour, got a bit cranky. What he and the others didn't understand was that I was indirectly predicting that Canalaska was likely to be trading at higher prices in September. And because I didn't think there were many bottom-fish likely to lurch off the bottom before next year, these CEO's felt I was picking on them. Of course, once they understand what I am really saying, their crankiness subsides, though they still think my obsession with selling stocks when they go up is misguided. This Tracker has been prepared as a review to update my readers on what is happening with Canalaska and where I think the stock is headed. Canalaska presently has 16.2 million shares issued, and 20.7 million fully diluted (assuming completion of the best efforts provate placement of 1.7 million flow-thru units at $0.70 being brokered by Geordie Trusler's Delta Securities). Not counting the private placement proceeds, Canalaska has working capital of about $2 million after deducting the amounts budgetted for VBE-1 & 2. The junior's monthly overhead burn rate is about $50,000. The junior also has a portfolio of free trading stock positions in unrelated juniors that it acquired through farmouts. This portfolio, which includes 465,000 Rock Resources, 100,000 Columbia-Yukon, 60,000 Intl All-North, 50,000 Cartaway, 100,000 Condor and 200,000 Intl Taurus, is worth about $350,000 if my figures are correct. Canalaska also owns 2.3 million shares in a related company Intl Freegold (ITF-V) which it is not free to unload unless it finds a buyer. Over the years Canalaska has assembled a portfolio of properties scattered around the world through a strategy of chasing into hot new areas. Canalaska's speed at arriving on the scene before the rest of the pack has helped Harry Barr keep the company alive by farming out the prospects to latecomers, but this ambulance chasing strategy has also attracted the stigma of second rate projects. No doubt the company's employment of John Royall as VP of exploration will help in future ambulance chases, but my main complaint about Canalaska is that it does not generate original projects. The stock is widely held, with much of it still owned by Newfoundland residents. Institutions own about 1 million shares while management still owns about 2 million shares. It is the sort of stock you would love to see make a major discovery. At this stage I have little optimism about the junior's projects in Indonesia, Mexico, and Alaska. The recent reacquisition of the El Pauji concession in Venezuela should help attract attention this fall if Crystallex and Placer Dome set off a big fireworks display over Las Cristinas, but management has to do some convincing that prior exploration has not downgraded the property's potential. For now Canalaska is a bet on the deep nickel-copper potential of the VBE-1 claim that adjoins Inco's Voisey's Bay block in Labrador. By October it could be plain and obvious that VBE-1 is a bust. But should the junior and its partner get some massive sulphide sniffs between now and then, a market starved for a story that it can understand is poised to plunge into Canalaska and Columbia-Yukon. Even if VBE-1 produces good results, drilling is not likely to carry on through the winter season. The stock will slump before year end, and bottom-fishers must take advantage of a September rally to sell Canalaska positions unless there are extraordinary developments.
VBE-1: deep drilling for nickel-copper massive sulphides
I talked to Canalaska's exploration VP, John Royall, on August 7 and obtained the following update on exploration programs under way on the 4,400 acre VBE-1 and 2,600 acre VBE-2 projects in Labrador. The VBE-1 claim is the focus of a $3.3 million drill program funded equally by Canalaska, Columbia-Yukon Resources Ltd (CYR-C: $0.47) and Falconbridge. Canalaska and Columbia-Yukon, who each own 50% of VBE-1, struck a deal with Falconbridge on April 14 whereby Falconbridge will contribute its technical expertise and one-third the cost of the $3.3 million 1997 program that includes 13,500 metres of drilling for at least nine holes. In exchange Falconbridge has the right to option 51% of the VBE-1 property by December 15, 1997. To earn 25% Falconbridge must spend $22 million by Dec 31, 2000. If Falconbridge decides to take the option, it is committed to spending at least $3.3 million by Dec 31/98 before dropping out. The second and third year spending requirements of $6.7 million and $12 million are not hard numbers because they are subject to revision based on technical reviews. Falconbridge can request by March 1998 a reduced budget for that year, though the difference has to be made up in the third year. After vesting for 25% Falconbridge can boost its stake to 51% by producing a bankable feasibility by Dec 15, 2003. It must indicate its intent to do so by April 30, 2001. Falconbridge would be responsible for all intervening costs. It can then increase its interest to 60% by arranging 100% of production financing within six months of vesting for 51%. Falconbridge would receive 80% of net profits until payback, after which the split would be 60% Falconbridge and 40% Canalaska/Columbia-Yukon. (The "net profits" term has disturbing implications because the language normally used in these pre-payback splits is "cash flow", the operating profit before the deduction of non-cash expenses like depreciation. If the agreement really does mean that Falconbridge calculates its payback recovery by tabulating 80% of an amount arrived at after deducting depreciation, ICA and CYR could be stuck collecting the smaller 20% share for a very long time while Falconbridge gets to keep not only the 80% share of net profits, but also the cash deducted in the name of non-cash items like depreciation. In the event of a major discovery, the value of the 40% stake of ICA and CYR would be worth a fair bit less than if "cash flow" was the basis for payback calculations. I have asked management about this ambiguity and its negative implications, so we should soon get a clarification.)
On the one hand the deal can be criticized because it gives Falconbridge an option on 60% of the property while only making it fund one-third of a high risk exploration program that has been designed to kill much of the property's potential. If all nine holes show that the property is underlain to a depth of 1,500 metres by nothing more interesting than the unprospective leuco-norites so far encountered, Falconbridge will probably not take up the option and the project will be dead in terms of further work in the near term. Should one of the nine holes cut a solid interval of massive sulphide nickel-copper-cobalt mineralization similar to that of the Voisey's Bay Ovoid and Eastern Deeps deposits, Falconbridge would immediately take charge and take the property to production if continuing results justify doing so. In that case Canalaska and Columbia-Yukon would probably amalgamate and either present themselves as a takeover target for Falconbridge, or as an investment play on this deposit's future cash flow. Neither of these outcomes will cause the Falconbridge deal to be remembered as a brilliant negotiating accomplishment by Harry Barr and Doug Mason. But if this summer's work program produces interesting sniffs of mineralization and the right sort of geology (ie troctolites), neither of which make further financing a piece of cake for the juniors, the odds are that Falconbridge will take up the option and spend the next $3.3 million in 1998. The market likes to think of Voisey's Bay in terms of the 32 million tonne Ovoid deposit, a fabulously uniform orebody Diamond Fields delineated within six months. Eastern Deeps, however, is a much more complex deposit whose economic significance would have been much more slowly recognized and accepted in the absence of the nearby and near surface Ovoid deposit. Similar Eastern Deeps style mineralization on the VBE-1 claim would excite both the market and Falconbridge because Newfoundland and Inco are already committed to creating the infrastructure needed for the development of the Voisey's Bay deposit. That development is being held up by unresolved native land claims issues, but it is unlikely these problems will still be outstanding by the time Falconbridge had delineated a nickel-copper deposit on VBE-1. The Falconbridge deal is brilliant if seen from this third perspective that suggests results will initially be ambiguous and expensive to follow up. Couldn't the juniors have forced Falconbridge to spend more up front? The reality of the situation was that Canalaska and Columbia-Yukon needed the technical expertise of a motivated company like Falconbridge more than it needed the money.
Where does the VBE-1 program presently stand? Last year the juniors drilled hole 96-1 in the northwest corner of the property to a depth of 871 metres before losing the hole when a section of the drill stem broke off. Last year's UTEM geophysical survey, which had a penetration potential of only 400 metres, revealed no interesting anomalies on the property. Hole 96-1 was drilled in the vicinity of minor outcropping pendlandite mineralization in the hopes that it was related to a deeper massive sulphide source. When I talked to John Royall this hole had been re-entered and was at 1,200 metres still in the same leuco-norite rocks. Hole 97-2, drilled to the northwest of hole 96-1, was at 800 metres and in similar uninspiring rock. Hole 97-1 is located in the southwest corner of the property and was at 1,200 metres last week. It was back into leuco-norites after cutting a 100 metre chunk of granitic rock. My impression is that these three holes are destined to become disappointments unless something unusual shows up in the final stretch. When the holes are completed, a downhole geophysical probe will be lowered into each hole, and should indicate any anomalies within a 250 metre radius that require followup drilling. These three holes were apparently spotted without the help of magneto-telluric surveys completed earlier this summer. These surveys can apparently detect anomalies to a depth of 1,000 metres, and have been used extensively by Inco for its Eastern Deeps exploration. Falconbridge and the juniors have now studied the interpretation of the survey and concluded that the best target is an anomaly at an 800-1,000 metre depth close to the Inco border within a central sequence of anorthosite-norite rocks. The property is cut into three such east-west trending bands separated by unprospective younger granitic rock. Inco has traced Eastern Deeps to within 8 km of the VBE-1 border. In its second quarterly report Inco revealed that it had intersected nickel-copper mineralization several kilometres beyond the established limits of Eastern Deeps, but grades were not economically significant. Inco did not indicate the depth of this mineralization, nor what type of rock hosted it. Before anybody jumps to the conclusion that Eastern Deeps peters out as it approaches the VBE-1 border and that this means the VBE-1 play is a bust, keep in mind that the model for VBE-1 is not so much an extension of Eastern Deeps, but more so a mirror image where any mineralization to the east is distinct from Inco's orebodies, but related to the geological process that created the Voisey's Bay Ovoid and Eastern Deeps. Until the joint venture has drilled all its holes to 1,500 metres, and assessed the geology in its third dimension, VBE-1 continues to have potential for a pleasant surprise. But until the JV reports intersecting troctolite, which is key to the Voisey's Bay deposit, one shouldn't get carried away with optimism. The next three holes will be underway within a few weeks, and should be at interesting depths by early September.
VBE-2: checking the gold potential of graphitic gneisses
Canalaska and Columbia-Yukon are 50:50 partners on the VBE-2 claim, which adjoins to the south of the Inco block, 10 km south of the Voisey's Bay deposit. The area has a gold geochemical anomaly, which prospecting last year tracked down to a north-south trending stratigraphic unit of graphitic gneiss where surface showings yielded gold values as high as 18.9 g/t. The zone is recognizable as a grass covered, debris filled gully that runs for several kilometres. A brief geophysical survey conducted late last year revealed an open ended 300 metre anomaly associated with the gully. Fine-grained gold is associated with arsenopyrite and pyrrhotite, and appears to increase in grade along with the degree of sulphides. Royall thinks that the unit is an altered iron formation zone. The question ICA and CYR hope to answer with their 6-8 hole drill program is whether the gold values are merely a geological curiousity of no economic significance, or if they represent a mineralized gold system. The feedback on the first hole is that widths and grades are low, but we have to wait for complete results in a couple of weeks before drawing negative conclusions. This region of Labrador has not been explored for its gold potential, though it is interesting to note that the Ovoid has a precious metals content which Ed Mercaldo described in a 1995 conference call as representing 10% of the rock's value. There has not been much talk about the precious metals content of the Voisey's Bay deposits, and it is not clear whether Mercaldo was referring to gold or platinum group metals. Precious metals never entered the economic equation because their recovery represented a separate problem. But if you assume Mercaldo was talking about gold, the numbers at the time implied a grade as high as 0.1 opt gold. The gold was probably scavenged from the Tasiuyak gneisses digested by the magmatic intrusives, and the question Royall now wants to pursue is whether the gold is concentrated anywhere within graphitic units of the sort he has on VBE-2. Encouragement on this front would prompt a fresh look at the many EM anomalies that got the Labrador juniors excited in 1995, only to be dismissed when ground followup revealed them to be caused by gneiss-hosted graphite. It's a long shot, but it represents one of the few hopes at this stage that any juniors will still be exploring Labrador in 1998.
Alaska: Rainbow Hill
Harry Barr's company building strategy has been a combination of aggressive stock promotion and ambulance chasing. During the early nineties he set sail for Alaska where Robert Friedland's Fairbanks Gold was developing the Fort Knox gold deposit. Canalaska still owns the Rainbow Hill project (380,000 tons 0.23 opt gold) about which it occasionally makes a peep. The junior also has an indirect stake in Alaska through its 2.3 million share position in a related company called Intl Freegold Mineral Developments (ITF-V, 24M fully diluted). Freegold owns 93% of the Golden Summit project, which hosts a low grade drill inferred resource of about 1.2 million ounces. In May/97 Freegold struck a deal with Barrick that allows Barrick to fund exploration through a series of warrants with staged expiries and escalating exercise prices. Barrick can acquire 7.3 million shares by exercising warrants at $0.70-$2.50 by March 1, 2000. If Barrick exercises all the warrants, it will have the right to earn a 51% interest by making a production decision by Apr 30, 2002, and another 19% by taking Golden Summit into production. Freegold must spend 95% of the $10 million from Barrick on the Golden Summit project. Freegold also has an option to earn 60% of the Almaden project in Idaho from Ican Minerals. Watts Griffis McOuat is conducting a feasibility study on the resource of 39,855,000 tons of 0.022 opt gold. At current gold prices both the Golden Summit and Almaden deposits are not likely to fly far, but if gold ever develops an uptrend, Freegold's market should come to life again.
Venezuela: El Pauji
In 1994 Barr steered Canalaska into Venezuela's Kilometre 88 district, where Placer Dome had made a multi-million ounce gold discovery called Las Cristinas, and the Friedland/Mersch team had cobbled together a multi-million dollar spec play called Vengold. Canalaska acquired a stake in the 1,850 ha El Pauji concession adjoining Las Cristinas, and entered into a deal with Terry Alexander's Delgratia Mining Corp. The deal dissolved into a legal mess, and the El Pauji concession was forgotten until August 13, 1997 when Canalaska announced it had regained a 51% in the Venezuelan company that owns the concession. I am not privy to the details, but apparently Delgratia lost interest in El Pauji when Chuck Ager introduced the NASDAQ junior to the Nevada gold play near Las Vegas that has since been exposed as a massive fraud. Delgratia has become somewhat distracted by more pressing legal issues than title to El Pauji, with the result that title has returned to Canalaska. The legal dispute between Crystallex and Placer Dome over ownership of Las Cristinas has turned into cause celebre for market players, and a supposedly definitive court decision is expected in mid-September. One of the sub-texts accompanying the Las Cristinas controversy is that the gold reserve may be double what Placer Dome has so far disclosed. Should Crystallex prevail next month, and a case can be made that the outcome is not the result of who paid the biggest bribe to the right Venezuelans, interest in the Kilometre 88 district could re-ignite. The El Pauji concession has seen only limited surface work that turned up anomalous gold values. Canalaska appears to be responsible for 100% of exploration costs, but does have a right of first refusal on the disposition of the carried partner's 49% interest.
Panama: Ipeti
During 1994 Harry Barr also took note of the Petaquilla copper-gold deposit in Panama which the MinAmerica group had helped Adrian develop. Canalaska acquired three concessions in Panama that had potential for similar copper-gold porphyry systems. Subsequent exploration revealed that a porphyry system was indeed present on the Ipeti concession, which Intl Taurus Resources (ITS-V) optioned in December 1996. Taurus can earn 50% of Canalaska's Panamanian concessions by spending US $3 million over four years, another 10% by spending a further US $1 million, and a total of 75% by arranging production financing. Taurus carried out a 9 hole drill program earlier this year that yielded subeconomic gold and copper grades interpreted to represent the margins. Results from a followup drill program are expected soon, but judging by the way the Taurus market has tanked, they do not include any barnburner intersections. Majors are apparently interested in the project, but because the Taurus option is in good standing until March 1998, Canalaska and Taurus will have to work out some sort of deal if a farmout to a major is going to happen.
Labrador
Canalaska's big break happened in 1995 when Harry Barr spotted the latest emerging Friedland play and rushed into Labrador, picking up a few strategically located claims on the eastern and southern side of the main Diamond Fields block. Doug Mason, who is a clodhopper compared to Harry Barr when it comes to ambulance chasing, optioned these claims from Canalaska through a shell called Columbia-Yukon. But Barr made one mistake, which was to grant another junior the right to boost its equity stake in the claims from 50% to 70% by taking the project into production. Given the high stakes elephant hunt potential of Labrador, this arrangement made Columbia-Yukon the more attractive play for speculators, who figured that if Columbia-Yukon could find another Voisey's Bay deposit, the majors would engage in a bidding war to take over Columbia-Yukon and control the new discovery. Wrapping up Canalaska's 30% carried interest was something the successful bidder for Columbia-Yukon could worry about much later. Only when Canalaska and Columbia-Yukon renegotiated their deal in late 1996 to turn it into a straight 50:50 partnership did it make sense to favour Canalaska in terms of the Labrador potential. Nevertheless, Canalaska managed to complete a private placement of 5.2 million special warrants at $1 in mid 1995 during the height of the Labrador area play. Canalaska's Labrador potential now boils down to the outcome of this season's drill programs on the VBE-1 and VBE-2 claims. Columbia-Yukon has 20.1 million shares issued and 29.7 million fully diluted.
Indonesia: lost cause
When the Busang discovery of Bre-X turned Indonesia into the preferred destination for Canadian juniors in early 1996, and the Indonesians opened up Kalimantan for seventh generation COW applications, Barr could not resist chasing overseas and acquiring Indonesian concessions. Canalaska managed to farm out exploration to another junior and even get its seriousness deposits back from the government. The Indonesian play is pretty well dead. More recently Harry Barr discovered that Francisco Gold had made a multi-million ounce discovery at El Sauzal in Mexico, and promptly optioned two claim groups in early April 1997, the 10,000 ha Feliz group located 40 km north of El Sauzal, and the 20,000 ha Colores group located much further to the southeast. Canalaska is trying to farm out these prospects. What will Canalaska do if Labrador, Panama, Mexico, Alaska and Indonesia all turn into duds? Barr is already craning his ear in the direction of West Africa, where an associate, Michael Philpott, has had considerable success raising money for Intl Ballatar Exploration. If the discovery sirens start to wail in West Africa, count on Canlaska to set sail for the Dark Continent. |
| |
| | You can return to the Top of this page
|
|
