Sunday 20th April 2014

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Where The High Grade Is

Confederation Is Finding Huge Gold Numbers at Red Lake

By Kevin Michael Grace

UPDATE (June 20): Confederation Minerals released further gold assays from Newman Todd June 20. They include 18.25 grams per tonne over 5 metres (including 32.43 g/t over 2.7 metres and 103 g/t over 0.7 metres) and 1.35 g/t over 15.8 metres. In response to this, analyst Fraser Mackenzie announced it was maintaining its “strong buy” recommendation, with a 18-month target price of $2.

Confederation Minerals was a shell four years ago when Larry Dick took over as President and CEO. “It was a chance to do my own thing,” he says. An encouraging statement for shareholders, given that the geologist’s thing has been to make major discoveries.

In South America, Dick was instrumental in the discovery of the Can Can gold deposit and the Collahuasi copper deposit. In BC, he found the Golden Bear gold deposit. Now he’s exploring Ontario’s Red Lake Mining District, “the highest-grade gold producing district in the world.”

Red Lake, just outside Kenora, has produced 25 million gold ounces. Its famous mines include Cochenour-Willans, McKenzie and the Campbell-Red Lake Mine. The last, Dick points out, “gave rise to Goldcorp. That mine has been in production for 75 years with an average grade of half an ounce per ton, and they’re now still mining 6,000 feet below surface.” It produced 703,000 ounces in 2010.

Confederation Is Finding Huge Gold Numbers at Red Lake

Other companies operating at Red Lake include Hy Lake Gold, Premier Gold Mines, Gold Canyon Resources, Murgor Resources, Claude Resources and Grandview Gold.

Confederation’s Red Lake property is called Newman Todd, and is being optioned up to 70% from Redstar Gold. Confederation is committed to $5 million in expenditures over three years and then a preliminary economic assessment after that.

Dick describes the property: “It’s a structural deformation zone. These rocks have been invaded by a quartz carbonate alteration. This is the same signature you get at the major producing mines in the district and in the Canadian north as a whole. Red Star drilled 27 holes over the last 10 years, and not one hole in this alteration zone failed to hit gold mineralization, with values up to 40 and 50 grams per tonne.”

Newman Todd continues to demonstrate what Dick calls “huge numbers.” Assays reported in April included 15.48 g/t over 3.5 metres and 17.94 g/t over 3 metres, including 75.8 g/t over 0.5 metres. Assays reported in March included 18.87 g/t over 7 metres, 42.84 g/t over 3 metres, 122 g/t over 1 metre and 22.49 g/t over 3 metres.

With regard to the short widths of the assays, Dick explains, “These aren’t the one-gram wonders that make open-pit deposits in other parts of the world. They’re high-grade gold accumulations in narrow quartz veins which cut this alteration. One, two, three metres is very typical of the width of mineralization you get within them. With all of these mines the widths of the veins tend to increase with depth, particularly the Campbell Red Lake deposit. It’s important to remember that these deposits have been in production for 75 to 100 years, and they’re very immune to the fluctuations of the gold price. In other words, if gold fell $300 an ounce, it would make not a lot of difference to the production of these mines.”

These aren’t the one-gram wonders that make open-pit deposits in other parts of the world. They’re high-grade gold accumulations in narrow quartz veins – Larry Dick

The assays have encouraged Confederation to expand its land position at Red Lake. Last week it bought 50% of a package of claims adjoining Newman Todd (the other 50% is owned by Rubicon Minerals). And next week the company begins a $3-million, 12,000-metre drilling program. Dick reports: “It’s designed to prove continuity in both the lateral and vertical dimensions of the four areas that we’ve drilled along this 2.2-kilometre strength line of alteration. Also, the second drill will be stepping out 100 metres to look for additional zones. It’s interesting that the last two holes we drilled last year were at the very northern extremity of the property, and these had various hits of over 7 and 11 grams of gold.”

Dick anticipates an initial resource calculation by 2012. By 2013, he says, “The property will have been thoroughly drilled from the surface, with a spiral ramp, probably going down to 200 metres depth and a tunnel at the bottom of the ramp traversing the entire Newman Todd zone for a couple of kilometres. It will be a very advanced stage exploration program.”

Confederation has $12 million in cash and a market cap of $22 million. Shares reached a high of $1.40 in April but have since fallen to $0.79. The junior mining sector as a whole had a dismal spring, and Dick partially attributes the share price decline to this. He adds, “The other part is that we did a $3-million financing in December. The shares came out of escrow, and people realized a tremendous gain, having bought them at 28 cents. I can’t blame them.”

An April 28 report by the analyst firm Fraser Mackenzie gives Confederation a strong buy rating with a target price of $2. According to the report, “We estimate that [Newman Todd] can demonstrate the potential to host 1.7 million ounces over the next 18 to 24 months.” Dick concludes, “Once we start coming out with news, I think that the effects of that report will kick in and will have a very positive effect.”

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