Serengeti Resources is a junior mining company focused on the Kwanika Project, but it has 10 other properties in prospective areas of British Columbia. In this second part of an interview with Mr. David Moore, President & CEO, we discuss two of these projects that are drill-ready. Watch for news flow regarding these targets following the announcement that the company has received $7M from POSCO Daewoo as part of an agreement on the Kwanika Project.
Please note, I was not compensated to prepare and disseminate this material. This document contains forward-looking statements.
Serengeti Resources has 84.2M shares outstanding with 99.6M shares fully diluted after completing a recent financing. The market cap is approximately $16M with $1.2M cash and no debt. The company is listed as $SIR.V on the TSX-Venture. See more on the company’s website: https://www.serengetiresources.com/
Peter: Thank you so much for walking me through the Kwanika project, Dave. Let’s talk about some of the other things the company has been working on.
David: You’re welcome, Peter. I would be pleased to do so.
David: To start off, please let me explain a bit of the significance of these porphyry copper-gold deposits in the province. If we look at slide 14, then you can start to see a bridge between what we're doing at Kwanika and what else may be happening on our own exploration properties. These are two examples of copper-gold deposits, one of which is an existing mine and the other is a potential mine.
David: The New Afton is a good example of what we are looking for. Approximately 30 million tonnes were mined from an open-pit over several years on a native copper zone. However, they let the mineral rights lapse and it was acquired by another party. Then, a very significant resource was drilled-off at depth below the previous open pit and it is now a very successful underground copper-gold mine operated by New Gold.
David: That story reflects the potential of a lot of these systems in BC. Particularly the alkaline copper-gold systems, which must have significant grade to justify the underground mining. If you have sufficient grades, then you can go after the highest-grade areas specifically and that is exactly what New Gold's done. That same issue is at play with Seabridge at the KSM Project, which has potential to become a very large underground mine.
Peter: Thanks, Dave. I have heard a few things about the KSM Project, but I have never seen this cross section before with the outline of mountain and the proposed pit.
David: Yes, that picture does have a bit of a story behind it. As you know, that proposed pit shows what they believed to be the best mine plan at the time. We discussed how we have re-evaluated our own mine plans for Kwanika several times and it is quite normal for these projects to get rethought several times. In this section of the KSM Project, you can see people thought of this as an open pit on top of the mountain. It was only with deep exploration that they identified some really exceptional grades at very significant depths, which remain open to expansion. After those results, the focus at KSM shifted underground. And the same can be said of the Kemess mine operation and the project that Aurico Metals is advancing. I think the future of a lot of these operations is underground.
Peter: Great, it’s always interesting to hear about these major developments in the history of the mining industry in BC. And a totally random question here for you – is anyone using “wedge holes” off a single deep hole?
David: Yes, that approach is being used in some places such as at Deep Kerr. When you are drilling a hole that is over one kilometer long, even 1,300 meters, you want to use it as much as possible. You can drill a pilot hole and then drill what are called “daughter holes” off that initial hole. That is a more cost-effective way to drill these systems at depth.
David: We see the potential for this kind of copper-gold deposit at Kwanika based on our extensive exploration work there, but we also see potential for this on some of our other properties. In that way, this geological model serves as a bridge from Kwanika to our exploration properties.
David: Looking at this map on slide 15, you can see our property distribution. We have properties in a fairly concentrated area and there are a few located around major projects. For example, you can see that our UDS Property marked as #9 in the map is located nearby Kemess, which is being redeveloped by Aurico Metals. For another, you can see our Milligan West property marked as #4 located nearby the Mt. Milligan mine of Centerra Gold. I will tell you about these two properties today, which are located in the northern end of the Quesnel Trough.
David: We are mainly focused on this part of the Quesnel Trough, but do have one project in the Sitkine Terraine that is quite interesting. We can save that for another day. Today, I would like to touch on two of our best exploration bets here: UDS and Milligan West.
Peter: And that is just 2 of 11 properties. OK!
David: I picked these two properties because they are both at the drill stage and are the most advanced. We've done a lot of work to get these to the point where they are ready for drilling and we are very excited about them. This early-stage drilling activity is when you can create real value in the exploration business.
Peter: And if I can briefly ask about the regional geology here – is there anything interesting happening where the two terranes come together up there?
David: There is certainly some debate amongst geologists on that, Peter. One of the questions seems to be whether the Kemess Mine area is within the northern end of the Quesnel Trough or the eastern side of the Sitkine arch. There has been plenty of geological debate as they are slightly different geological terranes, but are clearly related.
Peter: And this is not billion-year old rock, is it?
David: No, the mineral deposits in this area are broadly speaking between 180-205 million years old. Not very old by geological standards. They're all located in volcanic island arcs that basically crashed into the North American plate around that time.
Peter: OK. Thank you. So, these are not orogenic deposits.
David: No, these are island arcs that formed offshore from North America.
Peter: Are the SedEx deposits, then?
David: No, they are intrusive volcanic igneous host copper-gold deposits.
Peter: OK, thanks again. I am still trying to wrap my head some of the basic model types, so I appreciate you indulging me.
David: Sure, Peter. I am happy to explain some of the geology for the projects and why we want to drill-test these two properties.
David: We like to speak to the “Power of Discovery” as we have seen it first-hand with our discovery at Kwanika. You can see in Slide 16 how our market cap increased significantly at that time and we were able to raise a significant amount of capital. We had a tremendous run in our share price following our initial discovery at Kwanika and that enabled us to do a $20 million overnight bought-deal financing following the huge share price appreciation from our discovery drill holes.
David: That said, we are also adamant about the importance of “Capital Preservation”. The capital preservation part is reflected in our minimal share dilution in the 9 years following that large financing after the discovery. You can see that our share count was relatively flat over that period. It was critically important that we were careful with our use of funds and were able to make significant progress advancing the project without raising substantial amounts of capital at lower levels than at the time of discovery.
Peter: This is the first time I’ve heard mention of an overnight bought-deal financing, what is that?
David: Well, it is a regular bought-deal financing where the investment bank agrees to buy all shares that cannot be placed and does so on a quick 24-hour timeline.
Peter: And you were able to raise $20 million with that in 2007?
David: Yes, and that $20 million funded the drill-out of Kwanika. You can see that we had a market cap in excess of $50 million back when there were only a few drill holes in the property. That is the value of exploration. You can see the largest run in valuation when you make an initial discovery. This experience with the rewards of the discovery cycle is the reason why we want to drill our two best targets – UDS and Milligan West.
David: The first project I want to tell you about is the UDS Property near the Kemess operation. Slide 19 shows an image from Google Earth, which is a very useful tool. We've annotated it a bit to show the location of our property, which lies about 7 kilometers northeast of this prior open pit operation at Kemess South.
David: Note that the Kemess underground project, which Aurico has advanced to the feasibility stage, has a very significant exploration program going next door with Kemess East. They're drilling here at a hidden system that tops out at 800 meters below surface. It lies between 800 and 1600 meters below surface. We've developed a target on our property on the UDS property which comes right to the surface.
David: Our exploration at UDS is targeting a new deposit in this area with extensive mineralization. There are two known deposits on trend, Kemess Underground and Kemess East, and our UDS property represents a third potential deposit.
David: UDS stands for “Up, Down, and Sideways” and that's my conception of what's happened here structurally. There are a lot of big faults here and I think the geology has been shifted around on those faults with lateral movement and then, probably, vertical movement. That's where the up, down, and sideways comes from.
Peter: Great, thank you Dave. I wonder if there is any connection between the deposit that tops out at 800 meters and your UDS target?
David: Well, these copper-gold deposits are hosted in igneous intrusives and volcanic rocks. At the deeper part of this deposit, which is Kemess East, there are approximately 800 meters of covered rock. These rocks have come in above the intrusives and postdate the formation of these copper-gold deposits. Then, all the rocks can get shifted up or down along these large geological structures. The favorable geology can be dropped down, or can be brought closer to the surface. We think that the geology at Kemess East and Kemess Underground may potentially cross the northern end of our block and the target we’ve identified in the structure may well represent the left lateral offset of the geology that hosted the Kemess South.
Peter: Really? That’s interesting. Even though they UDS is several kilometers away from Kemess South?
David: It is about a 7-kilometer potential offset, but that is reasonable. Offsets can become much larger than that. There is a 450-kilometer offset recognized on the Tintina fault elsewhere in the Cordillera, for instance. It is not out of the realm of reasonable geological hypothesis, but it is just an idea at this point.
David: Regardless of that idea about the offset, we have a terrific target at UDS. We think this possible geological connection to Kemess South has favorable host rocks, based on the geophysics shown on slide 20.
David: We used IP geophysics to map the sulfide systems that are associated with the copper-gold mineralization. The map on slide 20 shows a view looking north with three wide-spaced IP cross sections draped over the surface.
Peter: OK. There is a lot of information in that diagram. Let’s start unpacking it.
David: The map actually shows the southern property boundary along the front of the map and we ran one line of IP right along the property boundary there. We were aware of some potentially interesting signatures there from prior work done by Northgate, who were the previous owners of the Kemess property back in 2007. They left an open target on the northernmost line of their property boundary at the time, which showed a deep feature that was fairly weak.
David: Those results were filed publicly in the assessment filing system and when we saw them we thought they were very interesting. An open geophysical signature within 7 kilometers of a mining operation with the right kinds of rocks? Yes, please.
David: We picked the ground up and did some geological reconnaissance in 2014 that suggested this was a permissive area. Late last summer, we did this wide-spaced IP survey shown on slide 20. Again, there were three deep-penetrating lines that were widely spaced and they identified a terrifically strong IP chargeability anomaly.
David: IP stands for Induced Polarization and it basically maps out the sulfide system. These three lines that we ran provided a lot of insight. We referred to the first line along the property boundary as the valley line. Then, the mid-valley line was located in parallel about 600 meters north of the boundary. At that point, the anomaly started to come much closer to surface. It was actually within about 150 meters of surface on that second line.
David: And then the third line runs diagonally across the other two. This extends to the northern-most point and includes an area where the anomaly actually daylights or comes right to surface. It is a strong geophysical signature that looks like a significant sulfide system.
David: All of this was a very exciting result because it suggested the mineralization has the kind of dimensions we're looking for. It extends for about 1.5 kilometers north-south. And it appears to be 900 meters across based on the northern line. It has the size and intensity of just the kind of signature from a IP chargeability anomaly that we are looking for.
David: That area where it comes closest to surface is particularly interesting, of course, and there has been prior work done there as far back as the late 1980s. We've compiled all of that historical work and the previous soil geochemistry analyses show a strong copper anomaly in soils, talus, and fine rock where this sulfide system we have now mapped daylights.
David: We can also see that we have the right kind of rocks there, which are called Takla volcanic. These are the immediate hanging wall rocks to the copper-gold deposits and we can see those rocks exposed at surface, which have anomalous copper. We are working on proving up a sulfide system here at UDS. We have the right rocks, a good structure in the right neighborhood just 7 kilometers from a mining operation, and now we've got a geophysical signature. It's a great target.
Peter: Wow, thank you Dave. That is a compelling case with the geophysics and everything else. And what a name, the UDS Project – up, down, and sideways. I can see where the “sideways” comes in with the fault offset we discussed earlier. I also can imagine a bit of the “up” with the geophysical anomaly extending to surface. Where does the “down” part come in?
David: There are all kinds of faults in this area and some move things up while others throws down. This anomaly at UDS is actually split or down-dropped by one of these faults. It’s, roughly, a north-south fault that down-drops the eastern half of the signature below some barren rocks at lie surface. The chargeability anomaly is at the surface on the west side, but is down-dropped beneath barren covered rocks on the eastern side of this fault block, which we can see at surface. Based on what has happened at the eastern side of the fault black, this is a hidden target.
David: Our plan here is to come in and drill three holes initially. We would have to be really lucky to drill one great hole first, but what we're looking for here is a validation of the exploration targeting method. Can we identify the start of a copper-gold mineralized system? It’s a great target in a great area. This is one of the two targets that we would like to drill this summer in what remains of the field season.
Peter: I see the three holes marked on the diagram there. How deep are we talking about drilling these different holes?
David: We would like to plan for three initial holes that are each approximately 400 meters deep and see what we turn up with that drilling.
Peter: The shape of that anomaly looks interesting. Anything else you can tell us about it here?
David: For one thing, it remains open. The anomaly appears to be clearly open to the north. We would plan to extend that geophysical signature further north within our ground. What we should do before we spend much more money doing additional geophysics is an initial drill program to act as a proof of concept for our results so far.
Peter: And you would get that from the drill core.
David: Yes. We would be able to test for the presence of sulfide system alteration and copper-gold mineralization.
Peter: And you mentioned that some soil sampling has been done in the area before.
David: Yes, we have gathered the data from that and, together with prior work here, all of the soil data shows a strong copper anomaly on the west side and a gold anomaly on the eastern side of the fault along the down-drop block.
David: We even found that seven holes had been drilled by Inco Gold looking for gold-silver veins along this structure. However, the holes were very shallow and do not provide us with a lot of information. After combining our data with all the previous historical data, we believe it is an even more compelling drill target.
Peter: The topographically seems to be favourable for you here, with the area that daylights on the side of that hill.
David: Yes, it is actually exposed right at the tree line. Just before you drop down into the valley, you get a small exposure coming out of talus of the favorable rocks.
Peter: And I imagine that it helps logistically, as well. You're not trying to scramble on the side of a mountain there.
David: That's right. We will need a drill pad, but this will be a helicopter-supported program from the nearby operation at Kemess. That is 7 kilometers away, which is less than a five-minute helicopter flight.
Peter: This is another old mine site, is there a road access?
David: There’s road access. There’s an air strip. There's a power line. This is a brownfield site that Aurico was redeveloping for Kemess Underground and Kemess East. If we develop a near-surface copper-gold system here on UDS, then this is going to be a valuable piece of ground.
David: The good news is that Milligan West is a similar story. We have looked throughout the Quesnel Trough for opportunities and this one appeared to the south of UDS.
David: Our Milligan West project is located adjacent to the Mt. Milligan mine, which was sold by Thompson Creek Metals to Centerra Gold last year. It is a very large mine with $1.7-1.8 billion of investment. It is a 60,000 tonne per day open pit operation, which has been in production for 2-3 years now. We see potential for the big block of ground that we have to west of the Milligan Mine to be another sulfide system across a large fault offset.
David: We took the same approach at Milligan West as UDS. Late last year, we put in a deep-penetrating IP geophysical line about 300 meters inside our property boundary and have picked up a very large sulfide signature. To us, it looks like the kind of signature we would expect from a large copper-gold system. The aerial view on slide 17 shows where the IP is and where the mine operation is nearby. Our IP target is 4 kilometers to the west of the Milligan operation.
Peter: OK. And how big is this property?
David: We’ve got a big property here. It is about 15,000 hectares at Milligan west property, but our focus is what we call the Heidi Lake target area. The Heidi Lake lies between us and the Milligan operations.
Peter: How did you acquire this land package?
David: We've had this ground since 2007-2008 and acquired it in a couple of stages. We have a partner on this property, Fjordland Exploration, and merged our land position here with them. They had a piece of ground to the east and we had a bigger block to the west under a joint venture. We combined the property position and now have a great target just 4 kilometers west of the mine.
Peter: And I see that there is a road going down the middle of the package, too.
David: Yes, that is the road to Fort St. James. It is called the North Road for obvious reasons. It's very well-located with easy access.
David: On slide 18, you can see an IP cross section. If you look closely, then you can see that there is a dotted line that shows the “Approximate Previous IP Penetration”. That was the only known geophysics from prior work done in 2004-2005 by a prior operator who had done a shallow-penetrating IP survey and drilled two very short holes. You can see the holes marked on the diagram as they are less deep than the dotted line! We have dramatically changed the understanding of the target with the use of deep-penetrating geophysics.
David: The northern hole, DDH-05-09, actually picked up some of the right kind of rocks with similar age as Mt. Milligan. In this instance, they were around 188-million years old. The rocks were from a dike, but had some alteration and even some gold mineralization on the margins of those dikes.
David: We said, “We've got the right rocks. We got a bit a sniff of gold. We’re 4 kilometers away from the operation. You've got a previously-defined sulfide system. What's the bigger picture here?” And that is when we did a deep-penetrating IP survey. The results were frankly stunning for us.
David: We're seeing down to depths of 4-500 meters within this 4 kilometer long transect that we've surveyed. We've identified a very intense IP chargeability anomaly that is associated with resistive rocks. We looked for that because IP chargeability by itself can map pyritic sediments, but these may not be mineralized. If they're associated with resistive rocks then that suggests intrusive-hosted mineralization, which is exactly what we're looking for.
David: There is the right kind of geophysical signature here. It's got size, evidence of the right rocks, and a sniff of gold mineralization from that prior shallow hole. Just a great target.
David: Our proposal here is to start with a fence of three 400-meter holes and begin to map the system out. We have to test a variety of geophysical targets because there isn't one diagnostic signature; you commonly have to test the heart of an IP chargeability, the margin of the chargeability, and different magnetic signatures to determine where the best mineralization is located. In some sense, you want to cast a wide net, initially.
Peter: Great, thank you Dave. I am looking at your proposed hole #1 shown here and I am intrigued by the differences between the chargeability and resistivity there.
David: Well, it gets a bit complicated because this geophysics is mapping sulfides, not the copper-gold itself. You don't always want to test one type of signature in these covered terranes because we're mapping sulfides. If we only tested the highest of the IP chargeability, then you might always just find pyrite. You want to test the high, the flank, and the edges to check for different mineralization within different signatures.
Peter: This is early days and you are still calibrating the methodology in some sense. So, what should people be looking for you if you were to report results from these holes? It seems like it is about more than simply finding good grades.
David: With an initial 3-hole program, we would be lucky to encounter ore-grade mineralization. We certainly hope for that, but what will constitute success here is to map significant presence of sulfides in the right kind of alteration and we're going to want to see some evidence of a copper-gold system.
Peter: Has there been any soil sampling done around at Milligan West?
David: There has been some soil chemistry done here and it found elevated levels of copper, molybdenum, and gold but all of that can get moved around quite a lot around here. There’s a lot of the glacial till here, so the signatures have been moved around. Also, you have a very significant copper-gold system located 4 kilometers to the east and that could potentially affect the soil sampling results.
Peter: And all of that is just at Heidi Lake, which is one of three target areas you’ve marked at Milligan West.
David: Yes, that is just one target. I, myself, have always been intrigued by a structural target out in the western part of the area that we are currently exploring. There are a lot of merits to being right on trend with this east-west oriented geophysical signature, particularly since we think there has been an offset fault towards the property boundary.
Peter: Really? What a great connection back to UDS. And what a nice pair of properties. Lots of great similarities and big blue sky potential there.
David: Thanks, Peter. And with both target at such early stages, you can see how these could provide another great example of the power of discovery for Serengeti Resources.
Peter: That’s right, Dave. It is rare to have one major discovery like you did at Kwanika, but the potential to have several successes really puts you into a unique position. Thank you for telling me about all of this, Dave. I think I have some homework to do!
David: You’re welcome, Peter. Goodbye.
This interview was recorded on July 11, 2017.
