Friday, December 3, 2010

Investing in Gold Exploration Stories

Investing in Gold Exploration Stories
December 3, 2010
By:  Marco G.


Do you remember the Aurelian Resources discovery of the Fruta del Norte epithermal Gold deposit in the Ecuadorian Andes in 2006?  The hidden under overburden, gold discovery in the South American jungle, of 13 million ounces of Gold was the most exciting Gold discovery story for the last decade.  The stock price of Aurelian Resources soared from $.60 cents to over $40 dollars over the course of half a year of spectacular drilling results.  Aurelian was eventually merged together with Kinross Gold Corporation (KGC) in 2008 for value of $1.2 Billion USD.  The author has a particular interest in this type of epithermal precious metal deposits.

Secret to Finding

What is the secret behind a company finding this type of spectacular Gold deposit?  Well, Dirk Masuch, a Nevada Gold Investor postulates that it is result of methodical exploration tactics.  He says the signs were all there on the company website, detailing their progress in unravelling the geological story.  The first step was selecting the prospect area and sampling the streams for indicators of gold bearing minerals.  Once something was found, then more detailed sampling followed to try and narrow down the source upstream.  The rock types and mineral traces are analyzed.  The presence of Gold indicator minerals of arsenic and mercury in the local rocks is very important.  Also the discovery and recognition of the local geological fault structures becomes critical as the controls for possible precious mineral deposits.  Then remote sensing technologies are applied to try and understand the underlying geology.  Finally after coordinating all the results and selection of targets, drilling is initiated.  All this information was available to prospective investors in the Aurelian company website.

Epithermal Gold Geology

There is a key word mentioned in the first paragraph of this article, "epithermal".  To this author's understanding, epithermal refers to shallow (less than 1km depth) deposits formed from low temperature, 50-300 degrees centigrade reaction of hydrothermal fluids and ground water under moderate pressure.   Dr. Peter Megaw, writing for Mag Silver (MVG) about their Juanicipio high grade Silver vein gives a great definition of epithermal:
“Epithermal” literally means “shallow heat”, and is applied to hydrothermal systems emplaced at shallow depths (<1 km) in the earth’s crust. “Low Sulfidation” refers to a style of epithermal system developed in a geothermal or hot springs environment versus “High Sulfidation” epithermal systems which develop in the volcanic hydrothermal
environment. There can be significant overlap between these two end-members.

So epithermal is good, meaning a shallow and easily accessible and mineable mineral deposit.
Now what are characteristics of epithermal precious metals deposits?  White and Hedenquist in 1995, wrote a scholarly article about this subject from which this following distinguishing factors chart is adapted:

Epithermal Form of Deposits
Low Sulfidation (Adularia- sericite)
High Sulfidation (Acid Sulfate)
Open-space veins dominant
Veins subordinate, locally dominant
Disseminated ore mostly minor
Disseminated ore dominant
Replacement ore minor
Replacement ore common
Stockwork ore common
Stockwork ore minor

The chart above gives the main characteristics as that the Low Sulfidation type forms mainly as veins whereas the High Sulfidation type forms mainly as a disseminated type of deposit.  This is because the High Sulfidation type is formed from acidic fluids that eat the host country rock and deposit the metals within, whereas in the Low Sulfidation type, the hydrothermal fluids upon encountering local ground water, then boils and the metals precipitate out in the faults.  The author's main interest is in the Low Sulfidation types, as the vein deposits signify higher concentrations and higher grades for the precious metals.
Following is a graphical depiction of the funnel shape of a classic epithermal vein model.
Note the red colored core vein where the high grade precious metals will be deposited.  Following is the author's interpretation of the Low Sulfidation Epithermal Gold Model at work:
1.  The metals bearing hydrothermal fluids come from deeper in the crust and comes to the surface through faults and fissures in the host rock.  This is a low pressure, lower temperature system.
2.   The hydrothermal fluids encounter the local ground water at location 5 in the diagram and boils furiously, releasing some of the metals.  The resulting steam carries traces of arsenic and mercury to the surface.  The rapid boiling deposits the minerals on the fault hollows and eventually seals off the opening.
3.   The pressure and temperature builds up again, and eventually breaks through the blockage and the previous cycle of boiling and precipitating and depositing the minerals works through again.
4.  The above cycles in 2 & 3 happen repeatedly and the pressure may seek other directions for the flow dependent upon the faults and fissures in the geology.  The amounts and grades of the gold and silver deposited is dependent upon the numbers of cyclic events that happened.
5.  It is also important to note that multiples of these types of deposits may have formed at differing locations of the fault at the same time in Geologic history.  Therefore, if one deposit is found, more may be nearby, if the fault structure can be traced there.
6.   This process of metal depositing and heat and steam being released alters the surrounding rock structure.  The structure tends to look similar to an upright funnel.  The alteration zone of rocks is colored green in the above diagram.  One residue of the alteration by the fluids and heat action and found near the surface of this geologic funnel is the mineral kaolinite, which is a type of clay.
Understanding the above mineralization process helps the investor interpret the potential of particular mining prospects. 

Possible Suspects for Investing

A recent press release November 9, 2010, by Great Basin Gold (GBG, TSX:GBG) details a bonanza grade, epithermal type find at their Hollister Nevada Mine.  The author takes a closer look at the information released in this previous article.  The remarkable high grades found were up to 2600 ounces of Gold per ton.  The average grade of the muck, which is the broken production ore, is an unbelievable 22 ounces of Gold per ton.  Inexplicably, the market reaction to this press release information was rather muted.  The author suspects that the geology is rather difficult to understand and interpret.  Better informed investors may stand to profit.
Almaden Resources (AAU, TSX:AMM) on August 9, 2010 headlines their news release thusly "Almaden intersects 302.41 meters of 1.01 g/t Au and 48 g/t Ag (1.7 g/t AUEQ) and 1.67 meters of 60.66 g/t Au and 2112g/t Ag (93.2 g/t AUEQ) in the Ixtaca Zone, a NEW DISCOVERY in Mexico".   They reported drilling blind through overburden and hitting the top of an epithermal gold system.  The market reaction was swift, with the share price soaring from under a dollar to over $4 dollars today, a four times multiple.  To date Almaden has reported upon six holes and is continuing drilling.  The author believes that the market still does not fully understand the potential of Almaden's Ixtaca project.  The geologic terms are rather oblique.  Almaden is looking for the higher grades at depth and for the possible source of the mineralization.
A sibling company of Almaden, Tarsis Resources (TARSF, TSX:TCC) reported November 17, 2010 that  "Tarsis Prepares to Drill Gold Targets at Erika, Mexico".  Ericka is a low sulfidation epithermal project.  As worded in their press release:
The Erika project, located in Guerrero State, Mexico, features hydrothermal alteration, including
silicification, argillic alteration, and dolomitization interpreted to be representative of steam heated
alteration. Replacement silicification typical of a paleo water table environment representing the
top or old surface of the once active hydrothermal system is also present. The property also
includes several areas of intense clay-sulphate alteration, all of which are indicative of a low sulphidation
epithermal system.

Now, after perusing this article, you the investor may have an inkling of the potential of this project.

Disclosure: The author is long Great Basin Gold, Almaden Minerals and Tarsis Resources.
Important Disclaimer
The information and opinions contained within this document reflect the personal views of the author and should be viewed as food for thought and amusement only. The author may from time to time have a position in any of the securities mentioned. There are no guarantees of the accuracy, reliability or completeness of the information contained herein. Independent due diligence and discussions with one’s own investment and business advisor is strongly recommended. These writings are not to be construed as an offer or solicitation with respect to the purchase or sale of any security or as an endorsement of any product or service. We do not request or receive compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.


  1. I am learning about blogs and like what you did in yours blog.Bullionist

  2. My brother recommended I would possibly like this web site. He was once totally right. This submit truly made my day. You can not imagine just how a lot time I had spent for this information! Thanks!
    buying gold online

  3. Great work you have done by sharing them to all. simply superb. Thanks for a nice share you have given to us with such an large collection of information. Invest in gold with Gold Buying Genie

  4. Your work article, blogs I mean over all contents is must read stuff.

    gold 401k help

  5. These are very useful investment tips. I will recommend to my friends for reading this blog.

    How to invest in gold

  6. Trying to find out more about epithermal deposits. This helps. Like the diagram, but what are the regions indicated by numbers 1-4? Just curious.