X-Cal Resources fka XCL

[marcos]

' X-Cal's drilling awakens its Sleeper gold play

X-Cal Resources Ltd
XCL
Shares issued 58,958,583
Jan 6 2003 close $ 0.73
Tuesday January 7 2003
Street Wire
by Will Purcell

With the recent surge in the price of gold to levels not seen since 1997, Shawn Kennedy's X-Cal Resources Ltd. is carrying on with slow-moving plans to awaken its Sleeper gold project in the northwestern corner of Nevada, about 40 kilometres northwest of Winnemucca. The aptly named project was named for its location on the western flank of the Slumbering Hills, but when the bottom fell out of the gold market, the moniker seemed especially fitting, much to the chagrin of the company's promoter, Mr. Kennedy, and his unhappy shareholders, who watched as their shares dropped from a high of $1.45 in 1997 to a low of just eight cents late last year. The project had a productive past, as nearly two million ounces of gold were recovered from the Sleeper mine over a 10 year stretch before mining was halted in the mid-1990s, due to falling grades and rising costs.

X-Cal had hoped to quickly get things going again with a more efficient operation and a better exploration program, but the project slipped into Rip Van Winkle mode for the past few years, as gold dipped below $300 (U.S.) an ounce. With gold again on the rise, the company revived its sputtering promotion last spring, and X-Cal's shares have awakened as a result.

The Vancouver-based Mr. Kennedy, a relentless but pleasant tout in the smoothest gold mining tradition, has been hunting gold since he formed X-Cal in 1981, along with his mentor, Franc Joubin, who passed away just as gold began
its swoon in 1997. X-Cal was formed to pursue the precious metal in southwestern British Columbia, but Nevada became a priority for the two prospectors, after some key finds were made in the state. X-Cal poked around on several properties in the region as a result, and it was no great surprise that the company began picking up ground in the vicinity of the Sleeper mine during the mid-1990s, which has led to X-Cal now being the main explorer in the area surrounding Sleeper.

Gold has been mined in the area for most of the past century, but the Sleeper deposit, discovered by Amax Gold Inc. about 20 years ago was by far the richest source of gold in the district, and it is that particular bit of history that offers Mr.
Kennedy and X-Cal revived hope that more gold will be recovered from the area. Amax's John Wood began poking around the Slumbering Hills in the early 1980s, and a drill program finally turned up a high-grade vein in 1984. Amax worked quickly, and by 1986, it had its Sleeper mine built and running. The mine gave the company a welcomed boost in the early days, but as things turned out, Amax worked a bit too quickly. The company built its mine before it had conducted a complete geological evaluation of the site, apparently due to financial constraints and the attraction of a considerable amount of rich ore.

Things started off in fine fashion for Amax. In 1986, the mine produced just over 130,000 ounces of gold, most of it from high-grade rock that contained enough visible gold that the mine employed armed guards to reduce the risk of theft. The
mill processed rock with an average grade of 25.6 grams per tonne that first year, at an average cost of $60 (U.S.) per ounce, and Amax began expanding its operation as a result. Problems immediately began cropping up however. Another high-grade vein was discovered in the eastern wall of the open pit, but the mine's office had to be moved before it could be mined. The haste with which the mine was built resulted in a few additional mistakes. Sleeper also produced gold by leaching, and the leach pads were sited on what turned out to be a likely extension of the high-grade ore, northeast of the main open pit. If that was not enough, the mine's mill sits on what was subsequently determined to be a quantity of leachable ore.

Undaunted, Amax continued to expand its Sleeper mine, and production reached a peak of 250,000 ounces by 1990, although costs of production slowly mounted as well as the grade of rock sent through the mill continually declined. Operating costs reached $125 (U.S.) an ounce by 1990, and things quickly deteriorated after that, as the accessible high-grade zones were mined out. In 1993, operating costs had soared to over $300 (U.S.) per ounce, and the mine produced just 100,000 ounces that year, nearly half of it from the leach pads. In its last few years of operation, the Sleeper mill was processing rock with an average grade of about 3.4 grams per tonne, and the writing was on the wall. Amax shut the mine down in 1996 and quickly signed a deal with X-Cal that has gradually turned the project over to Mr. Kennedy's company. Through its 11-year life, Sleeper's mill produced 1.24 million ounces of gold, while the leach pads accounted for another 438,000 ounces. As well, the mine produced 2.3 million ounces of silver. The cash costs of that metal worked out to about $160 (U.S.) per ounce of gold, although the low cost was largely due to the presence of high-grade ore in the early days.

Mr. Kennedy's hope for Sleeper actually begins above ground, in the tailings pond and the heap leach pads. Amex milled about six million tonnes of rock over the life of the mine, and its gold recovery rate was just less than 89 per cent, below what would normally be expected. That leaves about 160,000 ounces of gold in the tailings, if Amex's calculations were correct, along with something approaching two million ounces of silver. An even greater resource is believed to exist above ground in the leach pads, where about 45 million tonnes of material are thought to hold nearly 600,000 ounces of gold, as Amex's recovery rate was just 43 per cent over the life of the mine, compared with rates of about 70 per cent at other Nevada gold mines. Like many who try reworking old producers, X-Cal now thinks that those figures may prove to be on the conservative side. The company believes that Amax was able to recover less than half of the gold contained in its mined ore; the remainder would presumably be slumbering on in the processed material, assuming a significant amount did not make its way past the armed guards in the early days.

Some estimates suggest that there could be as much as 2.5 million ounces of gold in the leach pads, tailings pond and waste dumps. That figure seems at odds with the original data, but it is apparently based on a reworking of all the data now available, which reveals that a considerable amount of low-grade ore was sent to the waste dumps. X-Cal now claims that there are an additional 1.8 million ounces of gold in the dumps, contained in about 73 million tonnes of rock with an average gold grade of 0.75 gram per tonne. That grade is actually slightly higher than the average original grade of the material processed on the leach pads. Extracting the gold from the above ground resource could be the key to X-Cal obtaining full title to the Sleeper mine from its original owner, which merged with Kinross Gold Corporation in 1998. The still remaining obstacle to that is for X-Cal to obtain bonding for the property from an insurance company for the likely reclamation costs at the mine, and the expense of that could be defrayed by selling at least a portion of the above ground gold.

Reprocessing the heap leach pads is now more complicated than it would have been prior to Kinross completing detoxification and surface contouring, but there are still benefits to be had from going after the additional gold. Prior to 1990, Amax had been recovering just over half of the contained gold, but that dropped to just 35 per cent when the company stepped up the mining rate. Things improved somewhat in 1993, but recoveries remained below the 50-per-cent mark. The key to recovering the remaining leach pad gold is the 20 million tonnes of material that had been processed in the early 1990s. With the boost provided by that material, X-Cal thinks that it can recover an additional 346,000 ounces of gold from the 45 million tonnes of material, with a cash cost of about $260 (U.S.) per ounce. The initial projections indicate that X-Cal could recover about $115-million (U.S.) worth of gold, at a cost of about $90-million (U.S.). That might seem hardly worth it, but the work would result in the relocation of the leach pads, freeing up the area that X-Cal thinks will contain the northeastern and eastern extensions of the mine, and possible new high-grade zones.

As well, a significant amount of gold is known to be still in the ground. The Sleeper pit and its extensions contain a reserve of about 26 million tonnes, with an average grade of about 1.74 grams per tonne, or about 1.45 million ounces of gold, as well as nearly seven million ounces of silver. About half of that is contained in the West Wood vein, named after its discoverer, Mr. Wood, who may well have been frustrated that the find had a low priority. Amax defined West Wood with just 6,700 metres of drilling, but since then, X-Cal's drilling has produced hints of higher-grade zones, with one intersection producing a grade of 14 grams per tonne over about 60 metres, including a 1.5-metre section with a grade of 440 grams per tonne.

The prospects for high-grade ore also seem high in the northeastern extension of the Sleeper pit. Amax kept working its way eastward toward the leach pads until the wall of the pit began to slough, and high-grade material was rendered unavailable as a result. The final round into the eastern wall is believed to have buried a section of ore that had produced an assay of nearly 2,000 grams per tonne from one of the blast holes. Reserves in this area are limited to just two million tonnes with a grade of 1.63 grams per tonne, but a limited drill program could produce a significant increase, if the high-grade zones continue under the leach pads. As well, additional drilling in the area at the southern end of the leach pads could produce a jump in the gold reserve. The area contains a resource -- that is resource, not reserve -- of nearly 100 million tonnes with an average grade of 0.44 gram per tonne, including reserve of 13 million tonnes with a grade of 1.4 grams per tonne, and additional drilling should upgrade more of the resource, especially if X-Cal's belief that the high-grade veins continue through this region as well.

As a result, the region east of the open pit now seems to be a priority for X-Cal. The company is planning about 20,000 metres of drilling in 38 holes spread over eight targets, but the first target to be tested is a vein just east of the mine that
displays a chicken track texture. Amax had drilled some shallow holes into the target, but X-Cal believes that gold deposition would have taken place at depth. Surface sampling has produced some encouraging gold and silver values, and the company will put its hopes for a high-grade zone to the test with five deeper holes.

A promising result from that program would be good news, as it would boost the chances that more high-grade zones lie hidden in the company's other targets in the Slumbering Hills region.

Reviving the Sleeper play with a better exploration program will not come cheaply. X-Cal proposed spending about $13-million in 1998, and it will likely take about $15-million to complete the work today, over a three-year period.
That might be a tall order for the junior company with barely enough cash to get things started; as at the end of September, X-Cal had about $1.3-million in its coffers. Still, things are much rosier than they were just a year ago, when X-Cal's stock was mired at a dime. Mr. Kennedy dusted off his promotional skills in the spring, and his company's stock awakened, soaring to a high of 95 cents in late May. During the summer, X-Cal laid plans to come up with $25-million (U.S.) for Sleeper, and the company touted several reports that had been prepared to help sustain the promotion, although details of just how it will find the cash have been few. With the promise of a new drill program and the buoyant gold market, the market continues hopeful that Mr. Kennedy can rouse his Sleeper play. X-Cal closed down two cents Monday, at 73 cents.

(c) Copyright 2003 Canjex Publishing Ltd. http://www.stockwatch.com '