Juniors blaze path to Middle Kingdom

Vancouver — Ten years ago, investing in China’s mineral industry was a risky, laborious and often frustrating proposition for foreign companies. That’s not the case today, thanks to an economic boom that has fueled price increases for most metals and spurred the central government to seek foreign capital and expertise to modernize and expand the all-important sector.

In early 2003, in the midst of a nation-wide growth spurt that drove up demand and prices for most commodities, China’s leading geological authorities warned the government of an impending “mineral crisis.” The warning came in a report by Chinese Geological Sciences, which predicted that in the next 30 years, demand for certain natural resources could exceed production by as much as 2-5 times and threaten economic growth in the process. The report warned that almost all of China’s mineral resources are in short supply, except for coal, and that the degree to which the company depends on imports could even be dangerous to national security.

At about the same time, the Information Office of the State Council issued a white paper on mineral resources, citing the need to draw on foreign capital and technology to expand the mineral sector. By this point, numerous foreign companies had responded to government efforts to streamline approval procedures and reform legislation to provide them with more tangible rights and benefits. By May 2003, foreign investment in the mineral sector had exceeded US$8 billion, with half or more allocated for exploration projects.

China’s growth rate soared into the double-digits in 2004, driving commodity prices even higher. Concerned that the economy was over-heated and unsustainable, the government imposed new guidelines for bank-loans, designed in part to slacken the demand for metals. The tenth 5-year plan for the mining industry emphasized increased productivity and other worthwhile initiatives, but there was no escaping the conclusion that China’s demand for minerals seriously outnumbered its known deposits. Once again, the government voiced the need to invite foreign companies to help in the search for new resources.

As always, North American and Australian juniors were the most eager to answer the call. Although various deposit types are being sought, precious metals appear to be the favoured target. The race for China’s gold even prompted the head of one major gold company to ponder whether the best ground may have already been secured by pioneering juniors.

Many of the companies are still at the generative stage, including Toronto-based Aurogin Resources (AUQ-V), which recently raised $3 million for a nation-wide search of properties and joint-venture opportunities.

President John Paterson notes that China has a huge inventory of projects available for option. “We are targeting the ones that are now ready for drill-testing,” he states.

Similarly, Vancouver-based Atac Resources (ATC-V) has formed a joint venture with the exploration arm of a Chinese geological agency to explore the eastern half of Heilongjiang, the largest province in northwestern China. The region contains a belt of Mesozoic granitic intrusions associated with gold prospects resembling those in the Tintina gold belt of Alaska and the Yukon.

Other juniors are focusing on historic mining areas, such as the Qinling Golden Triangle, a prime hunting ground for gold deposits similar to those found in Nevada.

Carlin-type deposits

China’s potential for “Carlin-style” gold deposits has long been known, but the first companies to seek rights to develop them found the investment climate daunting at best. Subsequent reforms to mining laws addressed some of those concerns, as Chinese companies realized they needed Western expertise and technology to capitalize on the economic potential of these deposit types, which typically are refractory or metallurgically complex.

The two key regions luring companies in search of Carlin-type deposits are portions of northern China straddling the famous Tien Shan metallogenic belt, and the Qinling Golden Triangle of central China, which encompasses portions of Gansu, Shaanx and Sichuan provinces.

One pioneering junior with ground in both regions is Minco Mining & Metals (MMM-T). While base metals were the initial draw to China, Minco is now focused on the Yangshan project, situated in the central part of the Qinling gold belt. This region has a mining history that dates back more than 3,000 years, but more recent exploration by Chinese agencies outlined numerous Carlin-type deposits that collectively contain gold resources of more than 16 million oz.

Minco’s land package was previously explored by a Chinese geological agency that outlined resources estimated at 16.1 million tonnes at 5.64 grams gold per tonne, or 2.9 million contained ounces. This estimate was based on 8,000 metres of drilling, plus samples collected from adits and trenching.

Through a subsidiary company, Minco can acquire a 40% equity interest in Yangshan Gold Mining, which in turn can acquire a 100% interest in the Yangshan project. Anba is the main deposit outlined in the Yangshan project area to date. It is viewed as a structural Carlin-style deposit with 23 identified veins. The existing resource is based on only seven of these veins. Preliminary metallurgical tests suggest the deposit is refractory yet amenable to flotation for concentrate, or oxidation process with cyanide leach.

Toronto-based Silk Road Resources (SIL-V) is also exploring a large package of properties in China’s Gansu province for their potential to host Carlin-style deposits. These programs are being managed by Chris Sennitt, vice-president of exploration, through a joint venture with a wholly owned subsidiary of the Gansu Bureau of Geology Mineral Exploration & Development (BGMED).

Silk Road has a 70% interest in the joint venture and must spend at least US$5 million exploring the properties over the next three years. BGMED has a 30% carried interest that changes into a participating interest once a bankable feasibility study is carried out on any prospect.

Yunnan province

Although various deposit types are being sought in southern China’s Yunnan province (border ing Laos, Myanmar and Vietnam), most of the attention is focused on the Boka gold project of Southwestern Resources (SWG-T).

The Vancouver-based junior is drilling the Boka 1 zone at 50-metre spacings in order to provide data for the first resource calculation.

Southwestern can earn a 90% interest in the project from a Chinese partner by spending US$4 million over four years and paying US$1.4 million in cash and shares in the fourth year. Some high-grade, even spectacular, results have been obtained from sampling of underground tunnels and from drill intersections. But the bulk of the drill results suggest that gold grades in the stratabound zone are highly variable, and that the zone has structural complexities that could make resource delineation a challenge.

Also active in the province is Toronto-based Sparton Resources (SRI-V). Through an 80%-owned Chinese joint-venture company, Sparton has received approvals to drill the Luxi gold project. At least 2,000 metres are planned, to test geophysical and geochemical targets near existing gold mining operations.

Through an agreement with Yunnan Geology & Mineral Resources, Orsa Ventures (ORN-V) has secured rights to acquire a copper/nickel/ platinum-group-elements project 150 km northwest of the capital city of Kunming.

The agreement also allows the company to form a foreign-owned enterprise, based in Yunnan, that can conduct business nationwide in the mineral exploration and mining sectors. Orsa’s Yuan Ma project lies along the southern extension of the north-south-trending Panxi Rift, a major regional structure, and is reported to have “marked similarities” to Russia’s Noril’sk district.

A soil geochemical mapping program, managed by Yunnan Geology & Mineral Resources, has identified numerous copper-nickel-PGE intrusives in the district, as well as mineral occurrences, some of which are being worked by local miners.

Orsa also has rights to earn 100% of three blocks of ground adjoining Southwestern’s Boka gold discovery.

Vancouver-based Mundoro Mining (MUN-T) is attracting attention for its ongoing exploration efforts at the Maoling gold project in northeastern China.

The junior holds a 79% interest in the project through a Sino-Foreign co-operative joint venture with an arm of the provincial government.

Work to date has outlined three outcropping deposits that collectively host indicated resources of 25.9 million tonnes at 1.3 grams gold, plus inferred resources of 117 million tonnes at 1.2 grams. Metallurgical testwork and drilling to upgrade resources are under way. The company also launched a consultation program with local communities that have expressed concerns about potential environmental impacts of the project. Mundoro says it “welcomes the opportunity to showcase its best-practices approach to environmental protection and sustainability.”

Though best known for its projects in Mongolia, Jinshan Gold Mines (JIN-V) has advanced the JBS platinum/palladium project to the scoping-study stage.

Through a subsidiary, SKN Resources (srl-v) has rights to earn a 70% interest in the Ying silver-gold project situated about 200 km south of the capital city of Zhenzhou.

The road-accessible property has two main areas, the SGX silver and YDG silver-gold projects. The SGX project hosts an indicated resource of 630,100 tonnes grading 412.66 grams silver, 6.57% lead, 3.18% zinc, plus an inferred resource of 6.9 million tonnes at 237.3 grams silver, 4.84% lead and 3.11% zinc.

YDG has an indicated resource of 11,713 tonnes of 209.2 grams silver, 10 grams gold and 0.5% lead, plus an inferred resource of 2.3 million tonnes at 234 grams silver, 1.95 grams gold, 2% lead and 1.46% zinc.

Both project areas also offer numerous exploration targets.

Vancouver-based Dynasty Gold (DYG-V) ranks as one of the most active exploration companies in this province, though the junior also holds ground in the Xinjiang Autonomous Region and Gansu province.

Dynasty recently entered into an agreement to acquire up to an 80% interest in the Red Valley gold project, 380 km northwest of the capital city of Xining.

The project covers a known gold producer in the Hongchaun mining area. The gold identified to date is structurally controlled and associated with areas of intense alteration. Dynasty intends to explore the altered zone in hopes of identifying targets that would be amenable to open-pit mining.

Dynasty’s Wildhorse gold project, in Gansu province, covers four mineralized belts and a known gold producer. Geochemical sampling, mapping and trenching are planned for this property, followed by drilling of the more promising targets.

Gold is also the target of interest in the Xinjiang Autonomous Region, specifically a bulk-tonnage resource that was previously drilled by Chinese agencies.

Another junior, Afcan Mining (AFK-V), is active in the province at its TJS project, which hosts an inferred resource of 3.3 million tonnes averaging 6 grams gold. The junior can earn an 85% interest by paying US$5.6 million to an Australian-based company.

Inter-Citic Minerals (ICI-V) inked a deal with the Qinghai Geological Survey to earn an 83% interest in the Dachang gold project by spending US$5.2 million over four years. A US$1.6-million payment must be made to the Chinese agency once a mining licence is issued. The land package hosts a deposit with an inferred resource of 5.7 million tonnes grading 7 grams (see separate story on page B1).