The company can earn a 60% interest in the project from Mincorp Exploraciones by spending a total of US$5 million on exploration. Once this is achieved, Mincorp will have the one-time right to re-acquire a 9% interest, raising its stake to 49%, or sell its 40% interest to Viceroy and retain a 5% net profits interest. To date, Viceroy’s expenditures total about US$4.5 million.
The company believes the project has potential for hosting a bulk-minable target that is conducive to heap leaching. The property lies 200 km north of the city of San Juan in the rugged foothills of the Andes Mountains. The joint venture area constitutes 2,630 ha. Viceroy also controls an additional 45,000 ha in the Guandacol property, which surrounds the Gualcamayo project.
Surface sampling has identified anomalous gold over a 2.5-km strike length. The first two rounds of drilling totalled 4,000 metres (consisting of 14 core holes and nine reverse-circulation holes) and confirmed a widespread system of low-grade epithermal gold mineralization related to fractured and brecciated limestones and marbles. The main Quebrada del Diablo zone is a structural target that has been traced for at least 1,000 metres along strike, 200 metres downdip and a vertical extent of 300 metres.
Viceroy recently completed a third phase of widely spaced, helicopter-supported, infill core drilling along the 1,000 metres of strike. Some of the better results are as follows:
- 45 metres grading 1.07 grams gold, plus 49 metres of 1.5 grams, in hole 24;
- 34 metres of 1.84 grams in hole 25;
- 68 metres of 1.16 grams (including 34 metres of 1.86 grams) in hole 28;
- 24 metres of 1.67 grams in hole 29;
- 30 metres of 0.98 gram in hole 30;
- 106 metres of 0.68 gram in hole 31;
- 48.5 metres of 1.88 grams in hole 32;
- 42 metres of 1.99 grams (including 12 metres of 3.13 grams) in hole 33;
- 32.5 metres of 0.76 gram in hole 35;
- 92 metres of 0.73 gram (including 42 metres of 1.1 grams) in hole 36;
- 36 metres of 1.4 grams in hole 37;
- 110 metres of 0.44 gram in hole 40; and
- 37.4 metres of 1.14 grams in hole 42.
Of particular significance is hole 27, which was one of the first holes that Viceroy was able to drill right across one of the structures, a low-angle brecciated thrust zone adjacent to the steeper Quebrada del Diablo structure. This hole cut 152 metres of 1.6 grams. The true thickness is thought to be in the order of 80 metres plus.
“We think they are reasonable results,” says Linda Thorstad, vice-president of corporate relations. “We’re getting a lot of gram-plus material over reasonable thicknesses.”
The holes have been drilled in many different directions, and Chairman Ronald Netolitzky acknowledges this is unusual. “The direction of the drill holes relate partly to structural controls that we’re trying to catch in the early stages of this program, but to a large degree, are related to the terrain and the topography we have to deal with.”
Additional metallurgical tests, including 24-hour bottle-roll tests, were conducted on 140 reverse-circulation chip samples, returning an average gold recovery of 84.6% for oxidized material. A series of 96-hour bottle-roll tests on coarser-size 1-inch oxidized fractions showed recoveries of 85.6%. Viceroy says the tests to date confirm that the oxide material is amenable to heap-leach cyanidation processing, with potential for fairly coarse crush size. “It means we can work with a lower-grade target,” says Thorstad.
Oxide mineralization is found to extend down to 300 metres below surface, particularly in brecciated limestones and marbles. Oxidation is less developed within the intrusives and intrusive breccia, with primary sulphides and realgar (arsenic sulphide) visible in a number of holes. Viceroy finds that the gold mineralization has a definite relationship to the intensity of brecciation and fracturing, with a possible association between higher grades and proximity to intrusive breccias.
Concerns that gold-bearing fines are being lost during core drilling prompted Viceroy to twin a number of the holes with reverse-circulation (RC) drilling. The company suspects gold-bearing fines are being washed from the matrix and oxidized fractures of the breccia during the core drilling process.
Results from a second round of twinning suggest that gold values are generally understated by diamond drilling. The degree of fracturing and oxidation of the mineralized intervals appears to be an influencing factor.
Viceroy is extending the road from the floor of the main canyon up on to the actual mountainsides to provide access for further RC drilling.
In related news, Viceroy realized a net gain of US$23 million after closing out its hedge position. The company had sold forward 145,000 oz. gold at US$400 per oz. in 1999, 50,000 oz. at US$380 per oz. in 2000, and 50,000 oz. at US$400 per oz. for 2001-2003. The company repurchased its existing hedge position at market value.
“We thought it was a good business decision going forward because we’re able to realize a certain amount of revenue in the short term,” says Thorstad. “In the longer term, we have a pretty good handle on our operating costs.” Thorstad expects cash costs will be under US$200 per oz., including capital, by 2000.
Viceroy has established floor protection on the price of gold by purchasing put options for 320,000 oz. at an average price of US$250 per oz.
Viceroy is forecast to produce 143,000 oz. at a cash operating cost of US$240 per oz. in 1999.
Coinciding with this transaction, the company will be retiring about US$7 million of debt associated with the Brewery Creek gold mine in the Yukon.
“It certainly enhances the balance sheet from an acquisition perspective,” says Thorstad.
At the end of the first quarter of 1999, Viceroy had $49.3 million in working capital, including $28 million in cash.
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