Western Pinnacle takes stock in Russian potential — Advances Kyuchus gold project to feasibility stage

Unlike other Western mining companies active in Russia these days, Western Pinnacle Mining (WPN-V) is the only one with its head office and executives based in this city, a situation it sees as a distinct advantage.

“The others manage their projects from afar and don’t have the close relationships that we have in Moscow,” says Glenn Whiddon, Western Pinnacle president. “They come and stay at the Metropol hotel, spend a lot of money and fly out, leaving it to their lawyers to complete the deal at the end of the day.”

The company, which also maintains a Vancouver office, is an offshoot of the successful merchant banking firm Pinnacle Associates, which has been based in Moscow since 1993 and is controlled by Whiddon, an Australian. As well as being involved in Russian banking, property transactions and stockbroking, Pinnacle Associates provides corporate and financial advice to such Russian entities as diamond giant Almazy Rossii-Sakha of the Sakha Republic.

Some 25 people, including five expatriate Westerners, work at Pinnacle Associates’ office in Moscow, with more stationed at a branch office in Yakutsk.

Western Pinnacle already has a history in Russia. In the early 1990s, the company, then known as Star Valley Resources, performed an oil-well enhancement program in Russia’s Komi Republic, only to sell its stake in the project in 1993 for gross proceeds of US$3.6 million. Most of those funds sat in the treasury until last year, when the company bought into its first gold project in Russia. Known as Kyuchus, the project is intended as the first step towards achieving a Russian gold resource of 10 million oz. within the next two years.

“Our objective is to build strategic alliances in Yakutia, Magadan, Khabarovsk, Chita and other gold regions of the Far East,” Whiddon says.

“Once we do that, we’ll have a franchise that is hard for anyone to duplicate. If a major then wants to participate in the region, it can either run and catch up, which could take years, or come to us and say `Why don’t we do something together?'”

Western Pinnacle is currently in the midst of acquiring, for US$3.5 million, a half interest in the gold assets of Magadan-based Geometall, which include a 27.8% interest in Amax Gold’s (AU-N) Kubaka gold mine, north of Magadan.

Western Pinnacle will also spend up to US$4 million to explore Geometall’s Chai Yuria deposit, as well as other targets in the Magadan and Chukotka regions.

“There are great opportunities in Russia, but you have to be methodical and procedural,” says Whiddon. “Things can be done here, despite the complexities and the size of the country.” He is satisfied that mining policies in the country are being reformed, though the rebuilding is occurring “in a Russian fashion, which sometimes takes a bit longer than you’d like.” The Kyuchus project is in the Sakha Republic (also known as Yakutia) at a remote site near 70 north latitude, some 1,000 km north of the capital city, Yakutsk, and 200 km south of the Arctic Ocean. The deposit lies 5 km northwest of the confluence of the Kyuchus and Yana Rivers. Only the latter is navigable, and sea access to the ports of Nishkeyansk and Tiksi is possible for just three months each year.

The nearest significant settlement is the port town of Ust Kuyga, situated 40 km downstream on the Yana. Other nearby settlements that could serve as sources of workers and equipment include the gold-Mining town of Kular, the tin-Mining town of Deputatsky, and Batagai, the regional centre.

The 25-year exploration and mining licence at Kyuchus is owned by the closed-stock company Gold of Kyuchus, in which Western Pinnacle holds a 50% interest with the state-owned gold mining company Sakhazoloto holding the remainder. On the Gold of Kyuchus board, Whiddon is chairman, and Western Pinnacle retains the casting vote.

.SShear zone

The joint venture is one of three that were established in the Sakha Republic in 1996, the other foreign companies being Denver-based Echo Bay Mines (ECO-T) and Dublin-based Celtic Resources (COH-V).

Geologically, the Kyuchus deposit is described as a shear-zone-hosted, low-Temperature epithermal gold deposit of Cretaceous age. The host rocks are siltstones and claystones which have been metamorphosed to a greenschist facies.

Mineralization consists of disseminated arsenopyrite and pyrite with minor stibnite, galena, sphalerite and cinnabar. The gold is finely dispersed and associated with the sulphides, which are concentrated along the margins of several sub-parallel quartz and quartz-Carbonate veins.

The 3.5-km-long, near-Vertical deposit, which remains open along strike and at depth, lies roughly perpendicular to the edge of a 40-Metre-high natural escarpment, which parallels the minor Kyuchus River.

On site is a core storage facility, as well as office space, workshops and some living accommodations. As the permafrost in this area extends to a depth of 250 metres, future buildings will be built on piled foundations.

The deposit, discovered in 1971, presents little mystery to the current team of investigators. It has already been subjected to 42,000 cubic metres of surface trenching, 122,000 metres of core drilling and 5,700 metres of near-surface and underground exploration and development. Excavations include an inclined shaft that reaches a depth of 120 metres and an adit driven into the base of the escarpment.

Based on a prefeasibility study prepared by Vancouver’s H.A. Simons, resources at Kyuchus stand at 15 million tonnes grading 8.82 grams gold per tonne, equivalent to 4.2 million contained ounces of gold using a cutoff grade of 5 grams.

.SOpen-pit potential

Of that resource, the open-pit potential is estimated at 4.7 million tonnes grading 7.16 grams gold with a stripping ratio of 15.8-To-1. Plans call for a pit that will be 2 km long, 250 metres wide and 140 metres deep.

Total recoverable underground resources to a depth of 100 metres beneath the open-pit resource are estimated at 3.8 million tonnes grading 7.8 grams gold.

Underground mining, which is expected to begin roughly five years into production, will make use of either cut-and-fill or long-hole stoping methods.

As the Kyuchus ore is refractory (containing a complex mixture of carbonaceous material, antimony, arsenic and mercury), the company is awaiting full metallurgical testwork to determine which methods should be used to recover the gold. Most likely, a flotation process will be employed, followed by either roasting or pressure-oxidation.

Using flotation techniques, initial testwork has produced overall recoveries of between 90% and 91%, without any optimization.

At a yearly production level of 1.25 million tonnes, the US$189-Million project is forecast to yield between 230,000 oz. and 297,000 oz. gold annually during the first 10 years of production.

As part of an ongoing full-feasibility program, due by the end of next year, drilling is under way so as to provide material for metallurgical testwork, amass geotechnical data and verify Russian data.

In May 1997, the Australian Mutual Provident Society invested $6.7 million in Western Pinnacle, raising its interest in the firm to more than 20%. The deal consisted of the private placement of 8.4 million units at 80 cents each, with each unit consisting of one share and one non-Transferable share-purchase warrant. Two share purchase warrants entitle the holder to acquire a share of Western Pinnacle at $1.25 for a 1-year period and at $1.38 for a subsequent 1-year period.