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Aug 2015 - Done it Again?

Have the ex-Avoca Team Done it Again ?

Many people can recall the Avoca gold company that started as a $7m minnow and evolved under Rohan Williams' leadership into the extremely successful Alacer with at one stage a market cap exceeding $2.6bn. ERA's last report on Alacer was in July 2011 (available on www.eagleres.com.au) at a share price of A$8.75 (or US$9.45) being over 30 times higher or in market cap times, over 80 times higher than ERA's first report on Avoca in April 2005 (also available on the website) at a share price of 26c and market cap of $33m.

Already Dacian (DCN.ax) led by Rohan Williams and comprised of management personnel that are mostly ex-Avoca, has seen its share price increase by almost 30% to 52.5c (having traded up to 55c on Friday 7 August) in the first week since ERA's first report was published on 30 July 2015 at 40.5c (with a market cap of $39m). So, have the ex-Avoca team done it again ?

To recap Avoca started from re-interpreting the mineralisation at Higginsville and discovered Trident. Some holes had been drilled by Gold Fields north of the old Poseidon South pit and interpreted as a series of flat lying lodes. Rohan reputedly examined the drill core at the Kambalda core yard, held it at 60 degrees and commented to a friend (present at the time) that the lode intersections clearly dipped steeply west. A view illustrated in the northern back wall of the open-cut and by the historical underground mining by Resolute.

What had happened  was that Resolute (RSG) had mined the Poseidon South pit at Higginsville (about 115km south of Kalgoorlie) since its discovery by Samantha Gold (Resolute took over Samantha) using geochem in 1988.  Resolute was in the process of closing down its Higginsville operation when it discovered a quartz vein containing visible gold on the western side of northern wall (near the floor of the open-cut). So it cut a portal and drove in on the footwall, adjacent to the lode. RSG noticed that the lode went across the development face from top right to bottom left. So, they cut another level and found again visible gold in a quartz lode that dipped steeply west across the development face.

Some flats were mined, but the Higginsville plant had been decommissioned and the ore was being trucked to Chalice, which was also in closure mode because Resolute decided to close its Australian gold operations and re-start in Africa with Golden Pride in Tanzania etc. The Higginsville underground mine produced for almost 2 years mostly at an average grade of ~7.5g/t with a peak of 51g/t in January 1998, and closed in November 1998 at a time of low gold prices despite clearly being profitable. The mineralisation had been interpreted as plunging north up to its apparent truncation at depth from a westerly dipping structure.

So in 2004, Rohan Williams' Avoca bought Higginsville from Gold Fields and with his team of Avoca geologists, turned the drilling rigs (that had been drilling west) through 180 degrees and drilled east and discovered Trident by successful re-interpretation of the geology. And when Rohan walked down the ramp into the old Poseidon open-cut (which had shallow water in its northern end), he turned over a rock and observed it glittering with lacey visible gold as shown in the Figure.  That rock had clearly fallen from a truck taking ore to Chalice as Higginsville was closing, and no one had noticed.

In April 2005, Avoca reported an Eastern lode with an intersection of 7m @ 72g/t and possibly another vein in the hangingwall of the Eastern Zone with 1m @ 162g/t, plus infill in Western Zone of 60m @ 7.6g/t. And because Avoca's market cap was only ~$33m, it initially attracted little attention in the market. Avoca's 26c share price had actually even fallen from a high of almost 46c within the previous 12 months. One year later in July 2006, Avoca's share price was 77c (up almost 3 times) and its market cap was $126m (up almost 4 times).

Avoca also discovered that the northern truncation underground at Higginsville was in fact a "roll and repeat" (resembling a northerly plunging line of low grade thick and high grade thin sausages).

Rohan Williams' new venture, Dacian Gold Ltd listed in November 2012 based on its wholly owned Mt Morgans Project, which is located ~35km SW of Laverton or ~750km NE of Perth. The Mt Morgans project consists of two complexes, being the BIFs at Westralia, located at Westralia and the syenites at Jupiter (about ~17km ESE of Westralia). Dacian has so far made four new discoveries, 3 at Westralia (two of which have been in the past year) and 1 at Jupiter, all based on re-interpretation.

In June 1896, Harry Lilley pegged leases on the main banded iron (BIF) ridge and started the Lily of the Valley mine (Dan Baldwin an ex-Avoca geologist found an almost mint condition 1896 penny on a rubbish dump at Mt Morgans shown in the Figure. The 1896 penny shows Queen Victoria in detail with all her regalia).

Back in 1896, the leases were soon purchased by a syndicate led by a Welsh miner, A.E Morgans who established the Westralia Mt Morgans Gold Mines Company. By 1901 (according to a newspaper article dated 24 April 1901), the Mt Morgans Gold Mine was being hailed as one of the richest in WA with the Main Lode 6m to 18m wide @ 57g/t at the 100ft Level. At the 200ft Level, the Main Lode was up to 9m wide @ 70g/t, of which 1.8m averaged ~390g/t (11oz/t) at the northern end of a 180m long strike drive.

However, despite production averaging ~1.7oz/t to 1.8oz/t in 1899 and 1900, and ~1oz/t to 1903 (for ~200koz), 1903 was the peak year and production collapsed soon after, with the area closing in 1913, as most of its mineworkers went to the Great War of World War I. The reasons given were that the 4 principal lodes had broken up (on strike) and their continuation could not be found, also that the orebody "flattened" at depth from steeply dipping/almost vertical to ~55 degrees and lower.

The boom town of Mt Morgans (that had been built using the town of Mt Margaret) with its railway station was itself gradually razed leaving a municipal building office (now adjacent to DCN's site office), the railway platforms, and a block building near the Westralia open-cut that was probably used as an explosives magazine. Interestingly there is a high grade (~20g/t to 30g/t)  pyrite banded BIF specimen from the underground that was in the municipal office "relic museum" and shown at Diggers, as shown in the Figure.

Minor annual production occurred through to 1958 and then basically very little/private until 1988, when open-cut mining of the Westralia pit over the old mining areas was started by Whim Creek/Austwhim, which was then taken over by Dominion Mining Ltd in 1989.

Dominion mined the BIF units in the Westralia pit and followed them underground. Dominion also mined the syenites at Jupiter.

Jupiter was discovered by Alkane in 1984/5 and included in Ron Manners' Croesus (CRS) Mining's 1996 IPO. Guido Staltari's Austmin farmed into it and achieved a 51% interest by 1992, but following a scoping study decided that it needed a gold price of over A$600/oz for viability due to the high pre-strip over the main Joanne pit. Jupiter's design consisted of a deep Joanne pit and shallow Jenny pit (the pit names came from Guido's and Ron's respective wives' names).

So Austmin sold their stake in the JV to Dominion. with mining starting in SQ94. The plan was to truck and treat the higher grade component ore through Mt Morgan's CIL plant, with the low grade ~0.8g/t ore going to a dump leach adjacent to the Jupiter pit. The costs for the dump leach were very low, often at <$200/oz because the CIL ore carried all the mining costs, and as low grade, it was classified as "waste". Mining of Joanne and Jenny kept to a set schedule, ending in October 1996, with the higher grade ore stockpiled, and then trucked & treated at the Mt Morgans plant over a period of time up to mine closure in 1998.

In November 1995, Jupiter was taken over by Plutonic, and the mining plan of Jupiter did not change regardless of intersections being made deeper at Jenny (the Jenny pit is only ~50m deep), such as 6m @ 5.5g/t from 86m & 15m @ 3g/t from 166m in SQ93, and intersections elsewhere such as Heffernans and Ganymede. Both Jupiter and Heffernans were noted as having old workings where old timers had chased veins around the sides of the respective hills, and there appeared to be relatively few old shafts.

Jupiter was found, modelled and mined before the nearby Granny Smith JV's (now owned by Gold Fields) Wallaby mine and style of mineralisation was discovered in late 1997 or early 1998. I/ERA only saw the first visual model of Wallaby in a July 1999 site visit presentation there.

I was puzzled in that Joanne went to a depth of ~140m with Jenny (almost attached and adjacent to Jenny) ~ 90 or 100m shallower than Joanne, and both Joanne and Jenny (since renamed Doublejay by Dacian) apparently finished with ore in their floors. I asked a delegate at Diggers 2015 what happened there/why did they stop in ore,  and they replied that they were only mined according to the "mill schedule". They finished according to their designed depths and the gear moved on to another pit.

The high grade N/S striking Cornwall Shear Zone (CSZ) can be seen in the Joanne pit where the red-coloured syenite has been altered white (as also shown in a rock in the Figure that was on the ramp into the Joanne open-cut). Although the CSZ was not identified properly by the previous mine geos as they had it dipping NE, and hence drilled due south (whereas it dips east as interpreted correctly by the exploration geos).

Historic exploration of the syenites appears to have focused on their patterns to determine the dip of the mineralised lodes, whereas the syenites are only a part of the package (for more detail, see ERA's Dacian report on www.eagleres.com.au or on Dacian's website : www.daciangold.com.au). Which may also account for why there is ore under the floor and in the north wall of Morgans North's BIF pits with drillhole intersections in the period from 1990 to 1994 such as 8m @ 7.4g/t, 4m @ 13.7g/t and 3m @ 22.3g/t etc.

However, back in 1996, Dominion had built up an investment stake in Eagle Mining. Eagle Mining were the original discoverers of the southern part of Jundee (now owned by NST, Northern Star) with plenty  of visible gold, especially >200m below surface, some core samples that I saw in presentations, resembled drilling through a 1cm thick solid gold bar.

In November 1996, Plutonic (PLU.ax) acquired Dominion's Eagle Mining stake, but Dominion tossed in Mt Morgans and Labouchere as part of the deal. Plutonic didn't want Mt Morgans, it was far away from its exciting growing operations of Plutonic, Darlot etc - so they started to close Mt Morgans.

At that time the Westralia underground was experiencing difficulties with unsupported stopes (the old timers had backfilled), and a "flattening zone" perceived to have truncated the mine at depth to the north. In 1998, PLU was taken over by Homestake (HSG), with the dump leach at Jupiter producing minor amounts in line with expectations.

The Westralia underground operation closed in May 1998 (having produced twice its expectations over a period of 3 years - it was only expected to last for 18 months). In November 1998 (coincidentally the same month that the Higginsville underground mine closed) with a falling gold price of A$460/oz, the Mt Morgans mine closed. The mine clearly closed because it had been decided. It was making money ($8m to $10m profit for CY1998, or ~$0.8m to $1m profit per month), underground grades were 4.6g/t, monthly cash costs in 1998 ranged from $183/oz to $551/oz (averaging $385/oz, the $551/oz high was due to write-offs).

Mt Morgans passed hands with Barrick taking over HSG in 2001 as exploration focused on the syenites as the Wallaby orebody continued its rapid growth record from 2.3moz within 3 months by Dec 1998 to 4.4moz by Dec 1999, and to 7.1moz by June 2001. Mt Morgans was then sold to Placer Dome in 2003 and again taken over by Barrick in 2006 when Barrick took over Placer Dome.

Range River then bought the Mt Morgans tenement package (that included Jupiter) from Barrick in 2009 and focused on the open-cut satellites of Craic (near the previously called Sons of Gowrie), Ramornie Nth, Sarah and dewatering Transvaal (into Westralia) to recommence underground production, toll treating at the Granny Smith plant.

It appears that Range River (RNG) were put off the BIFs by a schematic (Barrick ?) that showed the Westralia orebody apparently truncated/cut at depth from two directions (east and west) with ~500m deep targets under the "cuts/truncations" and hence they focused on the basalt-hosted satellites around Westralia, especially Plutonic's last discovery (Craic) and ignored the easy BIF & syenite pickings.

However, Range River clearly failed to read the historical records in which Plutonic stated in its quarterly of June 1997 that although there were encouraging intersections over a ~200m style of mineralisation at Craic, the "grades were irregular".

Costs blew out with the open-cut and Craic underground, combined with restarting the Transvaal underground, reaching cash costs of A$1842/oz in MQ2011 and $3176/oz in JQ2011, such that despite cash injections and further borrowings, RNG went into administration having produced ~24.5koz in ~1.5 years to June 2011. DCN's geos have looked inside the Craic open-cut and remarked the grades could be in any one of about 4 structures in the southern wall, but it is not obvious.

Dacian noticed the shallow Millionaires pit beyond the southern end of the Westralia pit contains the hangingwall BIF that the main Westralia pit went down on, and drilled and discovered a resource of 326koz @ 7.6g/t directly under the Millionaires pit. The southern end of the Westralia pit had included most of the original old Millionaires mine. DCN then extended that resource northwards into a total resource of 610koz @ 5.9g/t in December 2013, and it had increased further into its Westralia resource of 850koz @ 5.8g/t (being ~4.6mt using a 3g/t cut-off grade) as at February 2015.

However, that shallow Millionaires pit also shows that it passed through the BIF sequence to beyond the ultramafic in the Westralia footwall and into a deeper footwall BIF on a porphyry footwall - which it focused on in the pit inferring that it was higher grade than the main hangingwall BIF lode. But clearly nothing further was done.

I asked a delegate at Diggers 2015 what had happened at Millionaires and he stated that the Millionaires pit was mined by the miners who needed some mill feed, Geology was not involved. I asked astounded "are you telling me that Geology never looked inside that pit ?". To which came the unbelievable reply, "it was nothing to do with Geology, it was a Mining screw-up"  - which says it all !

Clearly the geologists did not know that there was potentially a decent grade footwall BIF beyond the ultramafic footwall along the western side of the Westralia pit and it has remained undiscovered until Dacian took control and Rohan and the ex-Avoca geologists re-interpreted. And there could in fact be other footwall BIFs based on what can be seen on surface.

Also, the underground mining at Westralia followed the main lode and retreated on it, blissfully unaware of what was in the footwall. Historical drilling, even Dacian drilling (by an ex-Mt Morgans geo) west into the easterly dipping lodes stopped once the thick ultramafic had been intersected, "there's nothing after the ultramafic" used to be the term applied at Mt Morgans. In fact Dacian's ~850koz Millionaires resource is based on the hangingwall lodes, any footwall lode beyond the ultramafic in the Millionaires position currently remains untested.

Observing that there appears to be folding at Mt Morgans in almost all directions, as can be seen in historic underground pictures, comments that the drives on the lodes "went all over the place", folding visible between Westralia and Mt Morgans North's pits, and those historic underground "ballrooms of grade" that disappeared on strike (possibly inside the plunging apex of a fold), etc. There are also historical record comments of the mineralisation becoming flatter at depth.

So Dacian drilled north beyond the "flattening zone of No-ore" that is clearly marked on some sections and which truncates the underground workings and most historical drilling going northwards. And as expected, made their second discovery that "the flattening zone" is in fact a "roll and repeat", like Avoca encountered with Trident plunging north at Higginsville, or even more recently in the Frog's Leg mine (when I visited it with Alacer, now owned by Evolution), and can be seen in other mines.

Possibly more importantly, the northern end of the Westralia pit historically had more consistent, higher grade gold lode mineralisation (being based on the original Mt Morgans mine). Further drilling has increased the Westralia resource by 650koz to 9.2mt @ 5.1g/t for 1.5moz in August 2015, being continuous mineralisation over a strike length of 2.8km.

However, as part of the drilling programme, Dacian drilled through to the footwall BIF beyond the ultramafic and noticing in the drill core that the BIF appears to be fairly consistent with sulphides on a footwall porphyry, and hence announced its 3rd discovery in August 2015, being a footwall BIF with a "maiden" resource of 1.1mt @ 9g/t for 318koz.

Whether this footwall BIF extends the whole length of the ~1km long Westralia pit and connects to the footwall BIF in the shallow Millionaires pit is at this stage unknown, but potentially it could occur.                       

Dacian have so far made a Wallaby-resembling syenite discovery at Heffernans (which lies ~1km south of Jupiter) with a resource of 709koz (9.3mt @ 1.8g/t of high grade (532koz at a 0.9g/tCOG for the CIL) and 11mt @ 0.5g/t (for 177koz for heap leach above 0.3g/t) as reported in May 2015. And recognising that the style of mineralisation appears to be linked to Jupiter, reported a new resource in August 2015 of 1.1moz over a ~1.6km strike length. Further drilling at Jupiter is expected.

It should be noted that DCN's Jupiter complex is not Wallaby. The ~1.8km deep stacked lode Wallaby in which each shallowly dipping/almost horizontal lode can contain ~1moz (the deep lodes are currently ~10m thick, averaging ~15g/t), is hosted in a mafic conglomerate with a large alteration signature, whereas Heffernans and Jupiter are hosted in a basalt with narrower alteration signatures.

Dacian has numerous syenite drill targets, but some of them have had to wait for the salt lakes (in which many of them lie) to dry out, such as Ganymede, SW and adjacent to Heffernans.   In the coming half year to December 2015 Dacian expects to scissor hole Callisto to 800m deep and drill Cameron Well to 200m deep. Callisto has a classic circular donut signature (the same as Wallaby) of a less magnetic centre surrounded by high mag and then haloed by low mag, and it lies in the Mt Margaret "sedimentary" basin sequence, although not in a mafic conglomerate. While Cameron Well appears to be centred within a circular mag feature, and historically misunderstood/misinterpreted.

Interestingly Gold Field's up-dip target for its Wallaby lodes appears to lie in the same SW position as Ganymede for Heffernans (except that Wallaby's appears to unfortunately lie under its ~14-year old waste dump). Also that Gold Field's new N/S striking mega lake target as shown in its Diggers 2015 presentation appears to be directly in line of strike of the Cornwall Shear Zone emanating south of Dacian's Jupiter complex.

Dacian and its mostly ex-Avoca team led by Rohan Williams, appears to have made a great start in potentially creating the next Avoca (Mark 2) from re-interpreting Westralia and Jupiter. Although there is speculation that Mt Morgans has the potential to become significantly larger than Higginsville.

As a delegate at the recent Diggers August 2015 Conference in Kalgoorlie remarked, "discoveries are not all luck, but it does help to have a little bit".  With market speculation of potentially initially ~3moz on the BIFs at its Westralia complex and ~2moz on the syenites at its Jupiter complex, it is going to be interesting to see what Dacian can discover in the coming year up to Diggers August 2016.

Disclosure and Disclaimer : This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, (an independent research company) who is a Financial Services Representative with Taylor Collison Ltd.

Figure:

w-aug-paydirt-15

  • Written by: Keith Goode
  • Saturday, 01 August 2015

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