Whether expected to be mined on the sea floor as they form by Nautilus Minerals (NUS [TSX/AIM]) off the coast of PNG, or Neptune Minerals (NPM [AIM]) off North Island NZ, or in situ by Oxiana’s (OXR’s) Golden Grove/Scuddles in WA, Zinifex’s (ZFX’s) Rosebery in TAS, Jabiru’s (JML’s) Jaguar/Tectonic Bore in WA, Cons Broken Hills’ (CBH’s) Sulphur Springs in WA, or Jabiru at Benambra in VIC, suddenly they appear to be everywhere.

VMS orebodies form on the sea bed as shown in Figure 1 through the interaction of sea-water mixing with magma emanating from the chokers or smoking chimneys that build up on the sea floor. Typically high grade copper drops out first followed by relatively high grade zinc at lower temperatures, creating the mineral stacks that Nautilus has displayed in their booths at a number of conferences. The mineralisation then spreads out under the clayey surface as sub-sea floor replacement.

And here the geological formation theories begin to digress, because the VMS orebodies appear to consist of multiple lodes, often occurring in clusters. (Note the following comments are based on observation, not necessarily geological theory). In Jabiru’s Jaguar, the belief is that subsequent cover by lava flows, injection of sills, uplift, deformation and erosion resulted in the current Jaguar multiple lode orebody.

However, examination of some of the lodes (56020N), shows higher zinc/low copper values nearer to the original upper surface crossing over within the lode to higher copper/lower zinc values lower down, for each individual parallel lode, which could infer multiple phase injections producing a variable stacked lode style of formation.

Grade distributions are also not uniform, commonly starting from the copper feeder-pipe and then spreading out possibly due to undulations in the sea floor or other replacement factors / later enhancements. The lodes are typically polymetallic and looking at the range of values of Cu, Pb, Zn, Au, Ag etc can be daunting when trying to establish a general rule of thumb as to their possible worth.

If the gold (Au) and lead (Pb) values are low (say ~1g/t for Au, and ~1%Pb) then the easiest way is to ignore them because in the resulting copper and zinc concentrates, negligible credit value is received for them. So, since copper often trades at twice the zinc grade, an approximation of equivalent zinc (or Zneq [the letters eq after the mineral avoid confusion with thinking that it is the actual pure mineral]) can be determined from (Zn% + 2xCu% + g/tAg/100), because 100g/t of silver currently approximates 1%Zn. It is acknowledged that this equivalent zinc (Zneq) is a rough approximation, it is not exact and it makes some allowance for recovery into cons.

It appears that ideally Zneq should be >8%, hence aside from recovery issues, Pb values ~1% are often ignored as on a Zneq basis they can be halved (0.5 x Pb%). Similarly, approximating gold as 50x silver, 1g/tAu approximately equals 50g/t Ag, or 0.5%Zneq, (0.5 x g/tAu). So, if required, the full Zneq formula becomes Zn% + 2xCu% + g/tAg/100 + 0.5xPb% + 0.5xAug/t. So an orebody like Golden Grove/Scuddles of 7.6%Zn, 1.8%Cu & 103g/tAg becomes 7.6% + 3.6% + 1% = 12.2%Zneq (if you prefer Cu equivalent then simply halve the Zneq).

Please note regarding equivalents that base metals cannot be converted into gold equivalent - it does not work, due to the comparable recoveries and costs involved to attain a usable product.

VMS’ appear to have certain characteristics, such as size, with Golden Grove/Scuddles being an estimated ~40mt @ 7.6%Zn, 1.8%Cu, 103g/tAg (& 0.9%Pb, 0.8g/tAu) based on past production and current resources, and Rosebery ~33mt (since revised up to ~38mt) @ 14.5%Zn, 0.6%Cu, 145g/t Ag (& 4.4%Pb, 2.2g/tAu). Incidentally, using the above, Rosebery becomes 14.5% + 1.2% + 1.5% + 2.2% + 1.1% = 20.5%Zneq.

Even the well-known Mt Morgans in QLD was sizeable, ~52mt @ 5.9g/tAu, 0.72%Cu, 0.1%Zn, 6g/tAg (& <0.1%Pb). The gold values were mainly due to a pyrite-rich oxide gossanous cap over the orebody that comprised the hill that was mined to recover 2.5moz of gold from 1882 to 1902 at an average grade of 24g/t. The mine went underground initially on 1%Cu in 1906, and closed in 1925 when the miners set fire to the underground workings over a pay dispute (after burning out, it flooded), and the deeper massive ore extensions were never mined. Mt Morgans is usually described as a VMS variation, having been affected by a porphyry intrusion.

At the latest Paydirt Gold Conference in Perth (May 2007), Oxiana showed a slide of Golden Grove/Scuddles with expected depth extensions (the 5mt upgrade at Rosebery has apparently also been attributed to be mainly due to depth extensions). OXR also commented that they were trying to fill in the 4km gap between Golden Grove and Scuddles (which are also offset by a major fault), especially of the lodes on separate planes crossing the fault zone region.

Consequently, it will be interesting to see just how large Jabiru’s Jaguar/Tectonic Bore 4km apart orebodies develop into given that they are relatively very shallowly drilled and currently only total ~3mt @ 12.1%Zn, 3.5%Cu and 149g/tAg (which due to the high copper content has a higher Zneq than Rosebery, being 12.1% + 7.0% + 1.5% = 20.6%Zneq).

Recently we noticed 3 juniors reporting lead-zinc-silver intersections (all on the same day), and at the Paydirt Gold Conference, Monarch (MON) referred to “vms sniffs” on strike in their tenements on either side of OXR’s Golden Grove/Scuddles. Apparently MON’s sniffs were discovered in an earlier general commissioned survey/study in 2004 conducted by RSG in the Yalgoo, but never followed up.

With the increased demand from China depleting world stocks, and resulting in the price of zinc significantly increasing, Xstrata in a recent presentation (22 May 2007) showed that high growth demand for zinc could occur for at least the next 10 years based on taking even a low annual growth rate in China for per capita usage.

That results in a possible surplus from 2008 to 2010, assuming that all 9 new mines start production when expected by 2008 and add ~0.9mt of new production, and the rate of consumption demand slows to 3.7%pa for 2007 to 2017 (compared to 4.2%pa from 1994 to 2006). Even at that rate of 3.7%pa growth, an additional 5.6mt of production would be required by 2017 (if it stays at 4.2%pa, then an additional 7.9mt would be required). Current supply/demand being about 12mtpa.

The inference is for zinc prices to remain relatively strong and the world-wide search for VMS-style orebodies to be stepped up. Hence fueling VMS as the new “buzz-word”.

Disclosure and Disclaimer : This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, (ERA, an independent research company) who is an Authorised Representative with Taylor Collison Ltd, and with his associates, may hold interests in some of the stocks mentioned in this article. The opinions expressed in this article should not be taken as investment advice, but are based on observations by the author. The author does not warrant the accuracy or completeness of any information and is not liable for any loss or damage suffered through any reliance on its contents.

Figure 1. Schematic of the Formation of VMS Orebodies