Beijing, China — With 15 exploration licences and two mining permits in China,
China has become the world’s largest consumer of platinum, and accounts for almost one-third of the total supply of that metal.
“There are some big opportunities in China,” Dr. Rui Feng, president of Pacific Minerals, told the The Northern Miner during a recent swing through the company’s properties there. “The Chinese mining industry used to be financed by the government. It is one of the few countries in which the government has systematically surveyed all the land. There are 1:200,000-scale geochemical and geophysical maps and in many places 1:20,000-scale geological maps, so there are a lot of excellent prospects that are just sitting there waiting to be developed.”
Feng, who was educated in China but came to Canada to earn his doctorate in geochemistry at the University of Saskatchewan, said Pacific Minerals is helping dispel the view that China is a risky place to do business.
“China has changed significantly over the past few years. Companies that decide to do business here have to make up their mind to stay for the long term; they can’t just come for a quick stock play.”
Mining costs in China are significantly lower than in Canada. Average underground costs, including management fees, work out to about 60 Yuan (US$7.25) per tonne. In addition, skilled labour costs are a fraction of what they are in North America.
Pacific Minerals has two flagship properties in the country: the JBS platinum-palladium-nickel-copper property in the south-central province of Yunnan, and the 217 Gold project in Inner Mongolia. The company can earn a 70% interest in JBS by spending $4 million on exploration over the next five years and $10 million at the end of that period. It stands to earn a 96.5% interest in the 217 Gold project by paying US$750,000 over three years.
The junior is in the midst of a 2,500-metre drill program within the PD-1339 adit of the JBS deposit. The program is designed to assess the continuity and grade of two mineralized zones exposed in the adit. Within the floor and roof of the adit, two electric drills are cutting a series of short, 20-to-60-metre holes spaced at 20-metre intervals. The first phase of drilling will test a 500-metre section of high-grade mineralization previously defined by the Chinese. The second phase will continue to verify the previous resource estimate, as well as work toward expanding mineralization within the high-grade zone.
“Our short-term goal is to joint-venture our projects with a senior company in order to gain market credibility,” said Feng. “Once we have done that, there are a lot of projects ready to be acquired.”
Toward that end, Pacific Minerals recently announced that
In return Pacific Minerals has granted Ivanhoe the right to participate in the development of 217 Gold and JBS, and given it the right of first refusal to participate in all new mineral projects discovered by Pacific Minerals in China. In each case, Ivanhoe retains the right to gain a majority interest by advancing the project to production. Pacific is also required to appoint two representatives of Ivanhoe to its board of directors.
According to the deal, once US$1 million of the placement has been spent on the 217 Gold property, Ivanhoe will have a first option to acquire a 60% interest in the property by completing a feasibility study. Pacific Minerals’ holding, once exercised, will be converted to a 36.5% carried interest. Ivanhoe will be able to increase its stake to 76.5% by arranging financing to take the property into production. As a result of this option, Pacific Mineral’s interest will be reduced to a 20% carried interest, which will be subject to Ivanhoe’s right to recover its capital and carrying costs from production revenue.
At the JBS property, once US$1 million has been spent on the property, Ivanhoe will have an option to acquire half of Pacific Minerals’ 70% interest by completing a feasibility study. Ivanhoe can increase its interest to 50% by financing the property into production.
Right of first refusal
In addition, Pacific Minerals has agreed that for 10 years, Ivanhoe will have the right of first refusal to joint-venture any other property interest Pacific Minerals acquires (excluding properties in Anhui province). Ivanhoe and Pacific Minerals have agreed to contribute US$500,000 each towards new property interests from a Chinese partner. Once the initial US$1 million is spent, Ivanhoe will have the option to acquire 60% of Pacific’s interest in the property by completing a feasibility study. On completion of the feasibility study, Ivanhoe will have the option to acquire a further 20% of Pacific’s interest in the property by arranging the funding necessary to take the project to production.
With deregulation of its mining industry and official entry into the World Trade organization late last year, combined with a rapidly growing free-market economy, China is poised to become the world’s second-largest importer of metals after the U.S. In addition, the country recently established the Shanghai Gold Exchange and gold producers no longer must sell their gold to the government.
In the first half of 2000, foreign investment in China totalled US$19.8 billion. In 2001, the Chinese economy grew 7.5% with an inflation rate of only 1%, and numerous multinational corporations continue to be established in the country.
Among the top foreign companies doing business in the country are Shanghai Volkswagen, which reported sales of USS$3.2 billion in 1998, and Motorola Electronics, which reported US$2.4 billion for the same year.
Numerous majors have flocked to the country:
Until relatively recently, China’s mining industry was dependent on government subsidies. However, beginning in 1997, the country’s mining laws were rewritten in such a way as to emulate Canadian and Australian procedures. Mineral title and rights are now guaranteed by the Mineral Resources Law.
One popular method for foreign mining companies to acquire exploration permits is to set up a joint-venture company with a Chinese partner that already holds prospective ground. Another option is for a foreign firm to register as a foreign-funded Chinese company and then apply for permits through the Ministry of Land and Resources (MLR).
Annual holding costs for exploration permits start at US$12 per sq. km for the first three years. Starting in the fourth year, US$12 will be added per square kilometre per year to a maximum of US$60 per sq. km per year. The annual minimum exploration expenditure required is US$241 per sq. km during the first year, US$604 during the second, and US$1,208 thereafter. If the expenditure for any given year exceeds the minimum, the surplus may be applied to the following year.
For the first two years, joint-venture cor
porate income tax is 0% from accumulative profit; it then jumps to 15%. There is no value-added tax for precious metals, though there is a 13% VAT for base metals. Precious metal royalties are 4% and base metal royalties, 2%, though both are negotiable.
Exploration rights can be transferred through mergers or splits, joint ventures, or through the sale of assets.
As a result of government restructuring, the provincial geological bureaus no longer receive exploration funding. In order to facilitate the transition to a non-government funded mining industry, these “state agencies” were allowed to acquire government projects and establish joint ventures with foreign companies. They are also allowed to raise capital through the newly formed Shanghai Gold Exchange. One such corporation is the Yunnan Bureau of Geology, which holds the remaining 30% joint-venture interest in the JBS platinum-palladium project.
JBS
The JBS property is about 200 km east of the city of Kunming, which has a population of about 2 million. The property is accessible by a 45-km gravel road with links to a paved highway. The deposit sits at an elevation of 1,200-2,100 metres in moderately rugged terrain. The climate is semi-tropical, with a rainy season that lasts from May through to September. Power and rail lines are 45 km to the north.
The deposit was discovered by the Chinese government in 1970, since which time more than US$7 million has been spent on exploration.
Based on 65,000 metres of diamond drilling, the government estimated an underground resource of 33 million tonnes grading 0.42 gram platinum and 1.1 grams palladium, plus 0.14% copper, 0.15% nickel and 0.013% cobalt, based on a combined cutoff grade of 0.5 gram platinum-palladium per tonne.
Pacific Minerals had an independent technical audit performed on the Chinese resource estimates. Results indicated an estimate of 20.8 million tonnes grading 0.61 gram platinum, 0.94 gram palladium, 0.1 gram gold, 0.155% copper, 0.27% nickel and 0.017% cobalt.
Also, the Chinese estimated an inferred resource of 9.4 million tonnes grading 0.9 gram platinum, 1.77 grams palladium, 0.2% copper, 0.21% nickel and 0.017% cobalt. This resource is entirely within the North Ore zone, which consists of two lenses of mineralization vertically separated by 25-150 metres with a combined thickness of 10-25 metres. The lenses are surrounded by an extensive low-grade halo of mineralization measuring 25-45 metres in thickness.
The upper lens contains a resource of about 5.15 million tonnes grading 0.55 gram platinum, 1.51 grams palladium, 0.25% copper, 0.2% nickel and 0.013% cobalt, based on a cutoff grade of 1 gram platinum-palladium. The resource in the lower lens is pegged at 4.28 million tonnes grading 1.32 grams platinum, 2.08 grams palladium, 0.14% copper, 0.22% nickel and 0.013% cobalt, based on the same cutoff.
These resource estimates do not include the South ore zone, which is essentially the other half of the JBS deposit, on the south side of the Lishi River. Of the 40 widely spaced holes drilled into this zone, 24 intersected platinum-group-metal mineralization. However, no resource was calculated, owing to the wide-spaced nature of the drilling. Also, numerous geochemical and geophysical anomalies exist along strike, and these have yet to be drill-tested.
Previous work
The Chinese government drilled 110 diamond drill holes into the North Ore zone of the JBS deposit and 40 on the South Ore zone. Both zones have a combined strike length of 3.4 km, with a variable width that ranges from 200 to 600 metres. The eastern limb of the deposit remains open downdip, whereas the western extension appears to be faulted off.
The Chinese also completed 3,270 metres of underground tunnelling in four adits in the North Ore zone. Only 60% of these adits were analyzed for platinum and palladium, and only 10% were analyzed for nickel, copper and cobalt. Last year, the junior collected 1,245 one-metre channel samples from adit PD-1339. Highlights include:
o 9 metres averaging 3.31 grams platinum per tonne;
o 22 metres of 3.03 grams platinum, 4.8 grams palladium, 0.4 gram gold, 0.35% copper, 0.33% nickel and 0.017% cobalt; and
o 12 metres of 3.14 grams platinum, 4.54 grams palladium, 0.55 gram gold, 0.32% copper, 0.33% nickel and 0.016% cobalt.
As a result, Pacific Minerals was able to report a 4.9% increase in the overall platinum and palladium grades, compared with the Chinese data.
The Chinese performed two metallurgical tests on bulk samples weighing 50 and 200 tonnes. Continuous flotation tests conducted on the 200-tonne sample indicated a 78% recovery for platinum group metals, 65% for nickel, and 87% for copper. A due diligence audit by Hatch & Associates reported that recoveries could improve by 5-7% with finer grinding in conjunction with a Knelson Concentrator to recover coarse platinum group metals.
The JBS deposit is hosted in Permian-aged mafic and ultramafic sills, which are intruded within Devonian-aged limestone and dolomite. These sediments are overlain by unconformable sandstones, limestones and siltstones. The sediments form a tight, northwest-trending antiform which plunges to the northwest at minus 10-20. The central portion of the antiform has been deeply eroded by the Lishi River. As a result, a series of mafic and ultramafic sills, concordant with bedding, has been exposed in this area. Thin-section analysis indicates that the sill is differentiated into a central gabbro-norite, which is enveloped by ultramafic peridotite. Pacific Minerals estimates that about 1 km of the mineralized zone has been lost to erosion.
The deposit is outlined by a broad regional magnetic anomaly, which measures 22 km long and up to 10 km wide. Geochemical soil surveys have defined four groups of chromium-cobalt-nickel anomalies.
Potential for expansion
Geochemical and magnetic surveys have defined four groups of anomalies around the JBS deposit. These are dubbed A, B, C and D. Pacific Minerals believes Anomaly A represents a coincident magnetic and nickel soil anomaly measuring 2 km long and that it represents the northern extension of a high-grade drill intersection that cut 12.5 metres grading 3.9 grams combined platinum and palladium.
This hole was drilled along strike 1 km northwest of the northern boundary of the resource estimate on the North Ore zone.
Anomaly B, situated along the eastern section of the North Ore zone, represents a group of weak nickel soil and magnetic anomalies, which may reflect the downdip extension of mineralization. Anomaly C is defined by a strong magnetic anomaly which measures 3 by 1.5 km and which is just southeast of the Southern Ore zone. There is no corresponding nickel anomaly.
Anomaly D, 2 km southeast of the Southern Ore zone represents the largest nickel anomaly on the property, measuring 6 by 4 km, and is associated with a 2-by-1 km magnetic anomaly. Pacific Minerals believes that there is excellent potential to expand the deposit since the magnetic signature of the known deposit is identical to the anomalies on strike. To date, only one third of the mineralized horizon has been drill-tested.
217 Gold
The 36-sq.-km 217 Gold project lies 650 km northwest of Beijing and is accessible by paved and gravel roads. The project has an ample supply of electricity and access to a rail line to the east. Nearby, about 160 km to the north in Mongolia, is the Turquoise Hill copper-gold project of Ivanhoe Mines.
The 217 project is in the prolific Tien Shan gold belt, which has produced more than 70 million oz. gold from seven major deposits. The largest of these, Muruntau, has produced in excess of 40 million oz.
Gold mineralization at 217 is hosted by Proterozoic-aged, carbonaceous slates, which have been highly deformed and intruded by a series of granitic plutons. The mineralized zone has been traced along strike for 4.8 km and ranges in width from 40 to 150 metres. The deposit remains open to the west as well as to depth. More than 65 trenches were cut across the zone, totalling 2,600 metres. In addition, the previous operator sunk 10 holes (2,800 metres
) across its length to confirm mineralization. All of the holes intersected gold mineralization. The best assayed 1.28 grams gold per tonne over 273 metres from the surface.
There is evidence of significant artisanal mining activity: small pits and trenches dot the prospect. There was even an illegal, small-scale heap-leach operation running at one time.
The upper 40-50 metres of the mineralized zone are strongly oxidized and amenable to cyanide leaching. Preliminary metallurgical tests indicate that gold recoveries are about 80% for the oxide portion and 70-75% for the sulphide.
“Our next step will be to cover the property with magnetics and electromagnetics,” said Gary Artmont, one of Pacific Minerals’ directors. “There is a consistent sulphide association with the gold mineralization — between 3% and 5% pyrite and pyrrhotite.”
Pacific Minerals believes that there is good potential for the delineation of a multi-million-ounce gold deposit amenable to open-pit mining and heap leaching.
The junior has $1 million in working capital and 26 million shares fully diluted.
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