Orebody or Anomaly? Stikine Gold's quest for glory...

By: Bill McWilliam | Wed, Apr 27, 2005
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Stikine Gold's (website) drill hole SD-2 is 276 metres above what could be another Sullivan Mine, a $20 billion dollar silver-rich base metal bonanza.

A Brief History

This story begins way back in 1872 with the discovery of the Sullivan deposit near Kimberly in south east British Columbia. The Sullivan was one of the world's great ore deposits. It was mined for over 100 years and produced metal worth $20 billion. For the greater part of its productive life the mine was owned by Cominco, one of the predecessor company's of the modern mining giant Teck Cominco.

It took several years of exploration and mining for the deposit to reveal its true size and geometry. The area received a lot of work by Cominco and others, which was focused on explaining the deposit's origin. Significant exploration was also conducted by Cominco and others in the attempt to find another Sullivan. The area was always recognized as prospective for additional discoveries, due to the fact that these types of mineral deposits tend to occur in clusters along a controlling structure such as a fault system. Other similar, but smaller deposits (the theory being they were eroded away after millions of years of being exposed at surface unlike the Sullivan and Sullivan Deeps target) were discovered in the area and two were also mined for their base metals and silver. Until 2002, Cominco was the main proponent of this work and over the years amassed a large amount of data and drilled several holes, some of which were deep holes.

The stratigraphy (layers of rock deposited over time), which is revealed by drilling in the search for another Sullivan provides a remarkable database that displays a precise record of the sedimentary sequence complete with certain marker layers. The basin that hosts the Sullivan is a very large feature and eroded rocks were deposited over millions of years over a large area around and above the Sullivan Mine. Geological data from related deposits and other drill holes from the area were added and over time a coherent geological picture was developed that described the location and setting of the area's deposits, specifically the location of the Sullivan, in geologic time. It is this knowledge and the information in this historic database that is guiding the present drilling.

The architect of much of the database and area knowledge is Paul Ransom, a 30-plus-year Cominco veteran geologist. Paul was instrumental in developing the database and the model for finding the next Sullivan. Paul had recently retired but Stikine wisely engaged Paul as a consultant and he is currently, again, in charge of running the project.

The Process of Mineral Discovery

Generally, geologists love creating models; they pine over puzzles and the conundrums that Mother earth presents. The Sullivan area, with its phenomenally rich and valuable deposit, was no different. It is man's nature to search for minerals of value and many geologists who compiled and worked with the data believe that another Sullivan eventually will be found. In the 1920s Cominco drilled several shallow holes in the area in the attempt to find mineralization closer to surface but none was found on Cominco controlled claims. The development of the mine proceeded and a large-scale underground operation was created. A smelter and hydro-electric system were built at nearby Trail BC, and a railway was constructed that connected the mine concentrator to the smelter. Over the years an integrated mining and smelting company was built that was a global power. The Sullivan was the largest mine and metal producer of its type for many years.

This was a great mine but its production peaked in the 1940s and began a gradual decline in both production levels and the grade of ore mined.

The geological evidence based on exploration in the area suggested that the area had the potential to host another monster base metal mine like the Sullivan. Other deposits were located by other companies and some were mined. Upon further study, a geological model evolved that explained the setting of the area and inferred that the separate deposits were probably related to a common structural setting. Due to local faulting some of the deposits were uplifted and also laterally offset by faulting. In the case of the uplifted blocks, the majority of the originally emplaced mineralization was eroded away. However, detailed geological mapping yielded important structural information and the model predicted that mineralization may exist in a down faulted block north of the Sullivan Mine.

Deeper Holes in Modern Times

In the 1970s, Cominco once again began the search for another Sullivan and in 1971-2 drilled a 2,673 metre (8,770 foot) hole 3,500 metres northwest of the centre of the Sullivan deposit. This was the first deep hole in the area and was one of the deepest core holes ever drilled on a base metal mining project in Canada. By 1985, Cominco had drilled four other holes, two of which were deep holes but none encountered mineralization. The information from logging the core of the deep drilling, however, added important information to the database. It was recognized that distinctive marker units existed in drill holes over significant lateral distances. These marker units provided a unique tool to accurately forecast the "depth to location" of the Sullivan horizon from any point in the overlying rocks.

Geophysics Detects a Large Anomaly

In 1988, Cominco started core hole 6464, which was drilled to a depth of 2,648 metres (8,688 feet) just north of the Kimberly fault. This hole intersected all the geological layers and markers and importantly, for the first time, evidence of mineralization in the area where another Sullivan may occur stratigraphically. The mineralized interval was only a 30 cm intersection of relatively low-grade material and not economically important. In the 1990s, Cominco decided to drill core hole 6465 another deep hole about 1,200 metres to the northeast of 6464. In 1996, core hole 6465 reached total depth of 2,608 metres without encountering mineralization. This clearly was a set back for Cominco. In a final effort, Cominco employed a geophysical technology that is capable of detecting the presence of mineralization in areas lateral to the rocks penetrated by the drill hole. This down-hole "UTEM" survey identified a strong off-hole conductor, which extends over a 3,000 metre by 3,000 metre area, located 150 metres east of the hole at a depth of 2,500 metres. The drill hole also encountered a higher than average geothermal gradient, which may be further evidence of the presence of a sulphide deposit.

Cominco Exits the Sullivan Search

Cominco, however, was a different company in the late 1990s as it was no longer as interested in Sullivan style exploration and underground mines were generally less attractive than the large-scale open pit prospects it owned, such as the Red Dog lead-zinc deposit in Alaska and the Antamina lead-zinc-copper open pit prospect in Peru. The Company's focus had changed and it decided not to conduct any further work towards discovering the next Sullivan. Paul Ransom was still a champion of the next Sullivan deposit but he retired from Cominco as it changed focus to large-scale open pit prospects. At that point he never dreamed he would get another chance to fulfill the "Sullivan dream".

Stikine Gold's Management gets a Bright Idea

The Sullivan exploration story, however, continued in 2003 when the entrepreneurial management of Stikine Gold, said "somebody has to drill that hole". They began discussions with Teck Cominco and acquired an option to earn a 50% interest in the Sullivan Properties. The management of Stikine Gold has considerable and diverse experience. In the mineral exploration business, this means hands-on experience usually with conceptual projects that start with bright hopes that typically dim as exploration advances. This is part of the exploration process and the way the rocks teach wisdom along with the spirit of survival. From this process, however, come stronger management groups with better judgment.

Stikine's management has had its share of experiences from which it has gained much wisdom and the respect of the exploration community, of which Teck Cominco is an important member. It is unlikely that Teck Cominco would have entered this joint venture if it did not believe Stikine had the ability to execute a very difficult exploration program and raise the funds to execute as well. And, I'm sure Teck Cominco would like Stikine to succeed and find another Sullivan. There are risks, however, as the cost one 2,600 metre drill hole could easily exceed C$1 million, and that is if everything goes well. There are many bad things that can happen and costs can easily go off the chart and sink a small company like Stikine. So far, management has done an excellent job of controlling the many variables and dealing with the unknowns that are certain to occur in a project of this magnitude. But the main risk lies with the geological model.

Where is It?

The Sullivan ore is comprised of metals, such as silver, lead, zinc and copper, which occur in nature as minerals that are comprised of high-levels of iron. These minerals are called "sulphide" and they have certain important properties, which, when measured by technologies like geophysics, normally reveal their presence. For example, sulphide mineralization is generally more electrically conductive than barren rock and it is usually more heat conductive as well. The rock temperature at various depths is recorded and is an important part of the database. The geophysical survey conducted in the last Cominco drill hole also yielded important information as it suggested the presence of a broad anomaly that represents a 3,000 metre by 3,000 metre zone of high-conductivity that exists to the northeast of drill hole 6565. The temperature gradient in this drill hole also profiled potential mineralization.

The Search for Sullivan Deeps

In the 1980s and early 1990s, Cominco geologists deduced from the geological data that a new Sullivan target existed north of the Sullivan Mine. The interpretation of the data suggested that the target was either a faulted portion of the Sullivan Mine or a separate undiscovered deposit. Due to the fault system the target was deep, some 2,400 metres (about 7,875 feet) below surface and the only way to test it was to drill a core hole from surface. Drill holes from surface longer than 1,000 metres are uncommon and holes of 2,000 metres or more are both rare and expensive. The geophysics conducted downhole in Cominco hole 6565 further defined the target for the first Stikine drill hole named SD-1.

Stikine Collars SD-1

In April of 2004, Stikine's management had raised sufficient funding to start its first deep hole named SD-1, which was planned to go to a depth of 2,500 metres. Due to some complex faulting and folding the hole passed through the target horizon without encountering mineralization. Because of the geological model and the existence of the marker units that predict the depth of Sullivan mineralization, it was decided to continue drilling deeper. This was a nervous but correct decision.

Drilling continued because the rock units at target depth were known to occur above the Sullivan horizon. It was decided to continue the hole until it encountered rocks that were known to be below the Sullivan target horizon, mineralization or not. The decision based on the model paid off and on October 1, 2004 Stikine Gold announced that drill hole SD-1 on the Sullivan Deeps project intersected massive sulphide mineralization at a depth of 2,736 metres.

The intersection of discrete massive sulphide bands in SD-1 was a huge achievement. It was a relatively narrow interval of only 7.65 metres and was interpreted to represent the margin of a massive sulphide body in the area that was detected by downhole geophysics. This was a major success but only the anomaly was confirmed as the grade and width of the mineralized interval were not sufficient to be classified as "ore grade" and not economic.

Stikine Gold Collars SD-2

In January 2005, another deep hole SD-2 was collared 1,300 metres east of SD-1 in an area believed to be close to the centre of the mineralized zone. This new target is expected to be at 2,440 metres. Over the past four months the drill hole has encountered all the important markers in the correct sequence and is currently drilling ahead at 2,164 metres. This puts it 276 metres above the expected depth of the Sullivan Deeps target. Target depth is expected to be reached sometime in the next week or so, failing any mechanical or logistical problems.

Bonanza Payoff

Trading volume on the TSX Venture exchange has been cut in half recently and many of the hot stories in uranium and molybdenum exploration have been similarly shaved. The market for Stikine Gold (SKY-TSXV) has been reasonably liquid in a rather poor speculative market, which probably means there is a very large audience watching this drill hole and is buying on any weakness. The target depth is likely within days of being reached and some speculation should occur in anticipation of success.

Should a significant interval of sulphide mineralization be encountered (significant being 20 metres or more) in SD-2 near the target horizon, the market cap of SKY will appreciate rapidly. Sulphide mineralization is "visible" in that it is a different colour and has a different texture than the host rocks. Under these circumstances the trading in the shares may be halted pending receipt of news of the intersection. Assay results, which will take about 5 to 10 days after the core is split, logged and delivered to an assay lab in Vancouver. From there it is a matter of what the assay reveals. If it is "ore grade", the stock will open at a market cap multiple much higher than the current level. It is difficult to say what the market will consider as "ore grade" but some combination of metal the totals over US$100 per tonne will probably get favourable attention. For example, a 20 metre interval of 4% zinc, 3% lead and 3 ounces of silver per tonne or some combination of metal that achieves the US$100 per tonne threshold should spark a huge upside move and big follow-on interest in SKY.


We are within days of knowing if Stikine's experienced management team is correct in its assessment of the Sullivan Deeps geological puzzle. The downside for an inconclusive result may initially be significant. Based on all the evidence, however, I believe that this is a very good bet as the upside provided by a discovery will be immense.

I am a member of Stikine's advisory committee and I have an option to acquire Stikine shares. I bring this story to your attention because I believe that the exploration component of the mineral business is the most exciting but it does not get the exposure or respect that it deserves. The Sullivan Deeps project is an awesome challenge. Should it succeed it will be time for champagne at the drill collar. Should it fail it will be time for Stikine's management to identify another challenge and get on with it.


Author: Bill McWilliam

Bill McWilliam

Bill has been involved in virtually all aspects of the investment business as a pension fund manager, broker, analyst and underwriter for the past 30 years. He has also founded, co-founded and financed successful start-ups in the technology and mineral exploration sectors.

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