Goldsource finally falls

Vancouver – After gaining 6,000% in two months, Goldsource Mines (GXS-V) just got its first reality check. The company’s share price plummeted after news that the first two exploration holes drilled since the company hit thick Saskatchewan coal seams in April did not return similar results.

Goldsource lost 53% or $6.75 to close at $6 on almost 1.9 million shares traded on July 21st.

In April the diamond-seeking junior hit more than 25 metres of coal at the same depth in two drill holes separated by more than 1.5 km. News of the hits boosted the junior’s share price to over $4, from the 30-level.

Then Goldsource had the coal analyzed. Most of the samples came back ranked as high volatile bituminous C and sub-bituminous A, with an average calorific value of 21,000 kilojoules per kilogram. The rank is important because it marks Goldsource’s discovery as the first occurrence of a significant bituminous coal seam in the province. Bituminous coal can be used for heating, whereas low-grade lignite coal can only be used as fuel for steam-electric power generation. Saskatchewan is already home to three lignite mines, which produce 70% of the province’s electricity.

After news of the coal’s ranking, Goldsource’s meteoric rise began in earnest. From early May to late June the junior shot up to $18. The company used the time to raise over $18 million in a brokered private placement, issuing 1.5 million shares at $11.75 a piece. The company also received 176 coal permits covering a vast swath of land.

But even though the company was still permitted to drill seven more holes in the area Goldsource geologists were left twiddling their thumbs and investors were left wondering if the drama was real, all because of a swamp. The discovery holes were drilled in the winter, when the ground was frozen. By the time the coal discoveries were announced spring had arrived and the ground had melted, leaving the area of interest a “large, damp swamp,” according to president Scott Drever. Further drilling had to wait until the ground dried out.

Now the ground has dried, in places, and in mid-July Goldsource started a drill turning. The seven-hole program will see the discovery holes twinned and five exploration holes drilled. Since coal deposits are geologically simple, the program should be enough to calculate a resource estimate.

Holes 3 and 6 twinned the discovery holes and essentially replicated the results: 27 metres of coal with minor partings in hole 3 and 34 metres of coal with minor partings in hole 6, 1.6 km east-southeast. But news from the first step-outs is not great.

Hole 1 was collared 1.3 km southwest of hole 6, linking holes 3, 6 and 1 in a right angle. At 41 metres depth the drill hit 7.5 metres of carbonaceous mudstone, coal, and sand partings at the base of the overburden. Below the short intercept the core returned mudstones and limestones similar to those that underlie the discovery hole’s coal intercepts.

The intercept in hole 1 came 50 metres higher than did the coal seams in the discovery holes, suggesting an undulating paleo-surface. Goldsource also points out that there distinct differences in the overburden suggest an earlier glacial event may have removed a majority of the coal in this specific elevated location.

The next hole drilled was hole 4, collared a full 2.5 km south of hole 1 (therefore almost 4 km south of the initial coal hit). Hole 4 intersected 8.3 metres of carbonaceous mudstone, coal seams, and sand partings from 28 metres depth, at the base of the overburden. Like in previous holes, below the coal intercept hole 1 hit mudstones. The drill then encountered mechanical problems and is temporarily out of service.

Once the drill is fixed and hole 4 completed Goldsource plans to move the rig to hole 2, which will be collared 2.5 km northwest of the initial discovery hole.

In a news release Drever said they were not surprised by the irregular results. “Our assumptions were based on the possibility of a main coal basin with more than one sub-basin,” he said. “The resultsso far suggest that these assumptions appear correct and we may be on the eastern margins of one of the sub-basins that contain the discovery holes.”

He continued to say that though the drills did not hit thick coal seams the results are still important to help establish the orientation of the sub-basins. Moreover he emphasized that the project is still at a very early stage, with only three and a half holes in an immense area. And further exploration is still being hampered by physical access and the constraints imposed by drill permitting.