Blue Pearl eyes Davidson connector (May 01, 2006)

Underground drilling on the Lower zone at the Davidson molybdenum project, 10 km west of Smithers, B.C., continues to return encouraging results for Blue Pearl Mining (BLE-T, BLEFF-O).

The latest batch of three holes is highlighted by hole no. 174, which cut 54.9 metres running 0.31% MoS2, including 27.4 metres of 0.48% MoS2 and 12.2 metres at 0.8%.

Hole no. 173 yielded a 3-metre section grading 0.77% MoS2, while the best interval from hole no. 171 grades 0.2% over 24.4 metres. The three holes are around 40 metres and 100 metres apart.

In late February, a pair of holes on the Lower zone encountered 39.6 metres running 0.47% MoS2 and 36.6 metres of 0.24%.

The first hole of the program in early February yielded 48.8 metres grading 0.46%. The intersection is believed to represent the zone’s true thickness. The hole is around 30 metres southwest of hole no. 143, sunk by Climax Molybdenum in 1972. That hole yielded 0.37% MoS2 over 36.5 metres. A second hole by Climax surrendered 0.46% MoS2 over 49 metres.

The latest holes are among 14 that test the Lower zone; results are pending for the remaining four holes. The company’s underground drill is now gearing up for a geotechnical hole ahead of driving of a second, lower adit; underground drilling will resume thereafter. A second rig is infill drilling on the high-grade portion of the Main deposit.

Climax Molybdenum discovered the Lower deposit in 1972. It sits under Hudson Bay Mountain, around 300 metres below the Main deposit. The Lower zone mineralization is not included in the project’s National Instrument 43-101-compliant measured and indicated resource, which totals 75.3 million tonnes grading 0.295% MoS2. The estimate is based on 58,000 metres worth of drilling and 2,600 metres of underground development. It also employs a cutoff grade of 0.2% MoS2.

Engineering consultant Hatch is studying the feasibility of mining the high-grade portion of the deposit with an eye toward shipping it for processing at Endako Mines’ molybdenum mine, around 200 km away.

A recently inked deal between the two companies calls for Blue Pearl to fund and build a 2,000-tonne-per-day molybdenum milling circuit at the mine. Endako would be paid to operate the circuit.

Processing would focus on a 6.7-million-tonne portion of the deposit grading 0.6% MoS2 (0.39% molybdenum metal), based on a cutoff grade of 0.44% MoS2. Blue Pearl would be responsible for the roasting and marketing of the resulting concentrate.

The ore would be conveyed 3 km from the portal to an existing Canadian National Railway station. Blue Pearl estimates that the cost of transporting concentrate to the Endako mill by rail is US$5.30 per tonne.

In all, the company believes startup is possible by the second quarter of 2007, with a total capital cost of US$20 million.

At a molybdenum price of US$15 per lb., Davidson is expected to generate annual revenue of US$72 million; at US$35 per lb., the figure soars to US$170 million. Costs are pegged at US$5-6 per lb.

So far this year, molybdenum prices have traded between US$22 per lb. and US$25 per lb. The average price for 2005 was US$32.75.

Blue Pearl expects to finalize a deal with Endako by the end of May, at which time it would fork over US$5 million, half of which can take the form of shares. Endako will also receive a sliding-scale fee based on the market price of molybdenum, ranging from US80 to US$2 per lb., subject to a minimum monthly fee.

Endako Mines is a joint venture between Thompson Creek Mining and Sojitz Moly Resources.

Blue Pearl is currently working off of some $3.1 million raised via a recent private placement of nearly 1.1 million flow-through shares at $2.85 apiece. Canaccord Adams and Orion Securities were issued 75,950 like-priced compensation options good for shares until April 5, 2008.

Following the news, Blue Pearl shares were 18 or 6% higher at $3.16 in afternoon trading in Toronto.