Categories: Base Metals / Precious Metals
Topics: General Base Metals / General Precious Metals

The Ring of Fire McFaulds Lake area play - Draining a swamp

Feb. 17, 2009

Discoveries part II: draining a swamp

The other emerging mineral province in the Canadian Craton of Ontario happens to lie in a godforsaken swamp 260 kilometers north of the nearest all weather road in the James Bay Lowlands.  Companies have blanket staked an arc shaped area designated by promoters as the "Ring of Fire” which measures roughly 100 kilometers by 150 kilometers.  This is mostly virgin exploration ground with virtually no outcropping basement rock; it is being explored primarily through the use of geophysical tools followed up by drilling.  Early drill results and geological interpretations suggest we could be witnessing the discovery of a world-class nickel-chrome-platinum group elements (PGE) district.  It may however take a very, very long time before any significant mine development occurs. 

I bring this topic up as part II of last week's discussion of recent discoveries.  This, the McFaulds Lake area play, will be around for as long as companies are exploring for metals in Canada.  It is a relatively uncommon geologic environment and potentially very significant.  Although for reasons mentioned below none of the companies in this play are being included in the EI portfolio, the area is worth monitoring and may be of interest to the gamblers in the audience.

Geologically speaking, the Ring of Fire is mostly a volcanic terrain with mantle derived ultramafic intrusive complexes emplaced at the base of the volcanic pile.  It may be comparable to the layered Bushveld Igneous Complex (BIC) in South Africa, albeit on a smaller scale.  The BIC is a massive saucer shaped body that underlies an area of roughly 66,000 km².  It outcrops as two shallow dipping, and one moderate dipping, sequences of layered igneous units that are each over 100 kilometers in length.  Simply put, the layering is the result of minerals very slowly crystallizing and "raining” down through this massive magma chamber.  The minerals accumulate (cumulate textures) across the floor of the chamber forming extensive and often rhythmic units or layers.

The BIC hosts nearly 90% of the world's PGE resources, accounts for about 72% of the global platinum production, and 34% of the global palladium production.  It also accounts for nearly 45% of global ferrochrome production.  Reserves are only limited by production costs and power constraints: resources are essentially limitless.  You can read more here: link.

The other major source of PGEs plus nickel is the world-class Norilsk deposit in Siberia.  In a broad sense it is an ultramafic feeder system beneath a layered igneous complex.  Some locally unique attributes are responsible for the size and high grade of its mineral deposits.  Norilsk supplies the world with about 20% of its nickel, 40% of its platinum and over 60% of its palladium.  In 2006, reserves stood at 5.1 million tonnes of nickel, 8.7 million tonnes of copper, 63 million ounces of palladium and 16.5 million ounces of platinum: sufficient for 50 years of production. 

The ferrochrome market is similarly supplied by a few major players and mineral districts.  Approximately 45% comes from South Africa, 17% from Kazakhstan and 19% from India.  According to the USGS, world resources total 12 billion tonnes of direct-shipping grade chromitite ore.  Direct-shipping grade ore is greater than 38% Cr2O3 (chromite mineral) and a chrome to iron (CR/Fe) ratio of greater than 1.8.  The International Chromium Development Association estimated that some 19 million tonnes of marketable chromitite ore were produced in 2006 and that the market was in oversupply.  Through mid-2008 chromite demand and prices increased, however the commodities crash of late last year means demand has probably fallen nearly fifty percent.  Indicative of the price and demand collapse, Xstrata's Merafe ferrochrome plant in South Africa is operating at 20% of capacity.  London listed Ferro Metals has also reduced production while other producers work through inventories.

You begin to see the problems an emerging new nickel-chrome-PGE province will face.  The new province would immediately have to compete on an economic basis with already developed mining districts hosting virtually unlimited resources.  In addition to the mine development costs including roads and power, the project would have to consider the trade off costs between a new smelter in Canada vs. shipping the ore to one of the operating smelters owned by someone else.  For major mining companies or investors to finance what is likely to be billions of dollars in exploration and development costs they will need to see very high returns to offset draining this swamp in the middle of nowhere.

The fact that the two major nickel-chrome-PGE districts can conceivably ramp up production to meet increased demand puts them in ultimate control of the metal prices.  The advantage offered by the McFaulds Lake area is that it could provide a third and politically stable supply of nickel-chrome-PGE.  The go-ahead factor will be the discovery of a world-class high-grade deposit that puts the economic evaluation over the top and threatens the existing nickel-chrome-PGE market.

Here is where the exploration play now stands 

The Ring of Fire igneous complex has been overturned and the magmatic layering sits on end.  The geologic setting is a classic model for the formation of layered chromitite deposits, disseminated nickel-PGE mineralization and high-grade nickel-copper-PGE cumulate feeder dikes: all of which have been found.  The favorable horizon extends for over 100 kilometers and has been drill tested over a very small fraction of its length.  Exploration is wide open and the chances of an exciting discovery coming out of this are good.  Notice I left out any reference to economics.

Over 30 companies have staked ground since Noront's high-grade nickel-PGE discovery in 2007.  Aside from Noront Resources, the most important companies in the play are Freewest Resources, Probe Mines, Fancamp Exploration, KWG Resources and Spider Resources (link to property map).  Since only two companies have the financial muscle to complete any meaningful exploration this year, we will focus on them: Noront and Freewest.

Some of you may recall that Paul van Eeden and I were quite skeptical and negative about Noront (NOT.TSX-V) back when the first few drill holes took the stock to over C$7.00.  The skepticism was due to the management's (with the help of some in the brokerage community) excessive and unfounded promotional claims and the complete lack of intelligible technical data.  Since then Noront has brought in new management and is providing useful and complete information, all of it posted on their website.  The original Eagle One discovery now hosts about 450,000 tonnes of very high-grade nickel-PGM ore within a lower grade 2.4 million tonne disseminated halo (Fig. 1 below). 

 
(Fig. 1- Eagle One cross-section and mineral resource domains)

Subsequent property-wide drilling is returning encouraging results and supports the thesis that there is considerable exploration potential along the belt.  At Eagle Two, located two kilometers southwest of Eagle One, NOT intersected 5 meter widths of up to 2.24% nickel with associated PGE's.  At the AT12 target they drilled 123 meters of disseminated mineralization grading 0.56% nickel, 0.29% copper, and 1.06 grams per tonne PGE.

More significant for the time being, they have also discovered a chromite bearing horizon that extends for at least one kilometer between the Blackbird One and Two targets.  Drill results show good thicknesses of chromitite: up to 47 meters averaging around 40% Cr2O3.  This one-kilometer trend is part of a much longer geophysical anomaly within which chromitite has been discovered intermittently along a length of six kilometers by Noront and Freewest. 

Freewest Resources (FWR.TSX-V) has a number of property positions adjacent to the Noront ground, some owned 100% and some joint ventured out to KWG and Spider Resources.  Freewest has successfully drilled chromitite mineralization at the Black Thor property in two areas roughly two kilometers apart (see Fig. 2 below).  The chromitite horizon, outlined in white, is best displayed by the underlying gravity contours.  These contours suggest the high-grade chromite mineralization could occur as discrete pods or lenses within a larger disseminated magmatic unit.

(Fig. 2- Freewest residual gravity, VTEM anomalies and drill plan)

To the northwest and deeper in the igneous stratigraphic section FWR has intersected blebby nickel-copper-PGE mineralization in what they describe as magmatic breccias.  The deeper red and magenta colors on the map represent conductive bodies.  The conductivity could be the result of massive nickel-copper-iron feeder systems and produce some high-grade intersections over the year.

Turning to the stocks

Noront has 154 million shares outstanding, a market cap of C$147 million and ~C$42 million in working capital.  They are budgeting approximately C$19 million for exploration in 2009.  FWR.TSX-V has about 198 million shares outstanding, a market cap of ~C$47 million and working capital of about C$11 million.  They are budgeting in the order of C$8 million for 2009.  Clearly share structure is not a priority for either company.

Both companies have early stage discoveries and very strong geophysical targets to drill test over the year.  With these two companies alone putting nearly C$30 million into the ground, plus scattered expenditures by other companies in the Ring of Fire, we are likely to see a lot of news.  I believe the odds are good that someone in the play will pull some very impressive drill results that could excite the market.  If so, I would bear in mind that it will take a truly significant high-grade deposit to drain this swamp and compete in the global market.

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