PNG’s Whittington looks to repeat Farallon success

Having dealt himself out of a job earlier this year, Dick Whittington now has his eyes firmly set on developing an advanced-stage underground gold project in Papua New Guinea.

The mining engineer served as the former president and CEO of Farallon Mining from late 2004 until around January 2011, when he helped land a $409-million all-cash agreement that saw zinc giant Nyrstar take over the company and its producing G9 polymetallic mine, part of the wider Campo Morado complex in Mexico. 

Whittington led Farallon while it brought the G9 zinc-copper-silver-gold deposit from discovery to production in less than four years, though exploration by the company at Campo Morado had been more or less ongoing since 1996, alongside persistent legal problems concerning title to the property.

In the end, Farallon sold for 80¢ per share nearly a year and a half after reaching commercial production at G9. Though the price was a far cry from the stock’s feverish 1996 peak of $20.25, the deal still represented a 30% premium to its 20-day trading average at the time of the takeover bid, and a big improvement from its late 2008 low of 10¢. 

Whittington joined Gregory Clarkes’ Vancouver-based PNG Gold (PGK-V) as president and CEO this June, and has so far helped it raise $38.3 million in a private placement at 75¢ a share. The money will be used to help quickly advance PNG’s main Imwauna gold project located on
the eastern coast of Papua New Guinea, covering 68 sq. km of Normanby Island. 

The company is now working on ramping up exploration in Imwauna, which includes increasing the amount of diamond drills to five from two in order to complete a 30,000-metre drill program as quickly as possible. PNG hopes to release its first National Instrument 43-101-compliant resource estimate and prefeasibility study for the project by the second quarter of 2012, at which time it also plans to make a production decision. 

Whittington helped explain the fast pace of development in a recent telephone interview with The Northern Miner from his office in Vancouver. As he tells it, previous operators at Imwauna have already drilled off a sizeable deposit and have provided a lot of the information needed to proceed with a construction decision.

“We do not have a resource,” Whittington admits, “but we have drilling information, we have a lot of data, we have a lot of trenches, a lot of veins exposed on the surface, and we are in the process of putting together the framework for a new gold mining company in Papua New Guinea. 

“This is every bit as similar to Farallon in terms of having most of the key components to fast-track a project, and it has a couple of advantages over the circumstances surrounding Farallon and the G9 deposit. For one, [Imwauna’s] location being only 4 km from the coast obviously is logistically a lot easier than being 700 km from the coast and dealing in the Sierra Madre Mountains of Mexico.

“We don’t have any estimates of cost yet, but it’s going to be similar to G9 in size and scope, in fact maybe a little bit smaller than G9. One way or another, we’re going to be in the sort of $100-million to $150-million range. We’re certainly not going to be in the $500-million range.” 

New Guinea Gold (NGG-V) spent nearly 15 years exploring Imwauna before vending it to a private company partly controlled by Vancouverite Gregory Clarkes, now PNG’s chairman, in 2010. The private company then merged with International Silver Ridge Resources in June to create PNG. In all, PNG and its predecessors acquired Imwauna and another nearby gold prospect for $950,000, 15.6 million shares and a commitment to spend at least $8 million on exploration and development over the next three years. They also lent New Guinea Gold $3 million, which was recently paid back through the issuance of 26.8 million units of NGG. 

According to a 2008 technical report, the epithermal gold deposit hosts several narrow, steeply dipping quartz veins often associated with high-grade gold, with disseminated gold mineralization also contained in recent-Pleistocene volcanics. Extensive surface trenching and 137 drill holes previously delineated an inferred resource of 1.8 million tonnes grading 12.2 grams gold per tonne and 20.0 grams silver for 706,000 gold oz. and 1.16 million silver oz. This estimate is considered historic and non-NI 43-101-compliant for PNG, until the company does some of its own exploration work to prove up the resource. 

Although the widths of the quartz veins range from a few millimetres to over 10 metres, the main vein averages in the order of 1 metre, with relatively high gold grades and extensive visible gold. Drilling has defined gold mineralization over a strike length of 1,500 to 1,600 metres, though this remains open both to the north and south, and at depth. The drilled depth extent of the mineralization varies from 50 to 200 metres below surface.

“We’ve got an aggressive program,” Whittington says, “but given the location and the ease of access to the vein system, and based on what we did at G9, it’s definitely doable, in fact it’s more doable. Step one is to drill significantly under the project, test out the vein system and put together an NI 43-101 resource which we’re targeting for May of next year.

“At the same time as drilling, we are going underground to prepare ourselves for an underground mine should one be warranted. But also, because of the topography, we’re able to access the vein system remarkably easily and so we’re going to take advantage of that. The distance to the vein from the mine portal locations we’ve selected is 45 metres and 80 metres respectively, and obviously, compared to G9 where I had a 1.6-km decline at minus 8%, this is a whole new world. Clearly it will be a lot easier, a lot cheaper and a lot quicker to access the deposit itself.” 

Whittington expects the company to provide the first update on its ongoing drill campaign by this year’s fourth quarter.

At presstime, shares of thinly traded PNG Gold closed at 83¢. The newly formed company nevertheless has 134 million shares outstanding, which increases to 143.3 million shares fully diluted should options to buy 6.3 million shares and warrants to buy 3.06 million shares be exercised.

According to insider trading reports filed on SEDI, president Whittington owns no shares but was granted options to buy 2 million shares at 50¢ for five years, while chairman Clarkes controls 5.37 million shares and options to buy 1.5 million shares on the same terms.