More Bright Blue Skies Over Feni (An Analysis of Vangold Resources, VAN-VSX)

November 24, 2003

The Feni Islands of Papua New Guinea have some of the greatest blue sky potential of any gold project in the world. In my report on New Guinea Gold, (NGG-VSX), The Bluest of Blue Sky Potential, I detailed some of the rather unique aspects of the geology of the Feni Islands that make them so remarkable. This report will elaborate on that geology and, with a little bit of detective work, how Vangold Resources, who are working toward a 75% interest in the properties on the Feni Islands, is quickly narrowing in on what could turn out to be one of the largest gold deposits in the world. While the emphasis of this report is on the Feni Islands, Vangold is not a "one shot wonder". During the years of the gold bear market, this company's management was working on acquiring other important prospects as well. Even without an ounce of gold from the Feni Islands, based on these other projects, the shares of this company are still extremely undervalued.

Back in 1998, using a search engine, I came across this remarkable fact: gold was being deposited in a hot spring on Ambitle Island (the larger of the two Feni Islands) in concentrations of 1 oz. per ton! Clearly this was something to look into! For this to occur, there almost certainly has to be substantial underground deposits of gold. In addition, the Feni Islands are in the same "gold corridor" as the super world class Lihir deposit with some 50 million ounces of gold and counting, and the large Bouganville deposit (15 million ounces) in the opposite direction from Lihir. And, as discussed in "The Bluest of Blue Sky Potential", the unusual crossing of an old subduction zone and a fracture zone result in a combination of uplifting factors that have undoubtedly been largely responsible for the gold already discovered there and strongly suggest there is much, much more.

The geology of the Feni Islands and the Lihir Islands are very similar. In addition, both sets of islands are volcanic islands with hot springs and geysers, both on land and in shallow water just offshore. So, it was perfectly logical to use what was known about the Lihir Island deposit as a model to guide the explorers to the gold on Ambitle Island. The Lihir Island deposit lies, for the most part inside a volcanic cone, or caldera.

The gold found there is a combination of a gold porphyry deposit enriched by gold laden hydrothermal flows. Gold in porphyry tends to be relatively low grade, but may be medium grade. But such porphyry deposits may be very large. On Lihir Island, the gold in the porphyry system is associated with pyrites. The same is likely to be true with Ambitle Island. Iron, probably as iron pyrite, shows up as the intense red area in the aeromagnetic survey pictured below. A large, medium to low grade gold porphyry system might be found somewhere in that area:

Hydrothermal flows will follow the paths of least resistance and so seep through major faults, cracks in rocks, and porous rock or soil. The more cracks and pores there are, the more gold that can be deposited.

As one can well imagine, the chemistry of elements and compounds deep with the earth is very different from that which occurs under more normal temperature and pressure conditions. Water boils at 100o C at sea level and this limits the temperature of water to this maximum level. Deep within the earth under greater pressure, the boiling point increases just as in a pressure cooker. Even marginally water soluble compounds become much more soluble under these high pressure and high heat conditions. Along the underwater slopes of Lihir and Ambitle Islands, sea water seeps in, is heated by active volcanism within, and then, it pushes its way upward carrying, over time, vast amounts of minerals including gold. Acids are also formed which aid in dissolving minerals. When it reaches a point where the pressure drops and nears normal atmospheric pressure, a more or less horizontal "boiling zone" occurs and less soluble minerals are deposited.

Those more soluble compounds including some containing potassium and arsenic, known to be associated with gold deposits, tend to be carried further upward and serve as indicators that concentrations of gold may be present. Both potassic alterations and arsenic anomalies mark the Lihir deposits.

When New Guinea Gold began drilling, they assumed that the most likely place to find a major deposit was in the central caldera. At that time gold was in a bear market. Money was running out with little chance of obtaining more financing. Diamond drilling had to be limited to just a few holes. The result was that gold was indeed found in the central caldera. In fact, close to half a million ounces have been inferred. (One of the last holes drilled, MAD001, intersected 52m with 2g/t Au within 188m with 1.2g/t Au. The hole terminated in plus 1g/t Au at 256m.) But it was not the anticipated major kind of deposit comparable to Lihir. There are plenty of prospects left in that central caldera. A major discovery may yet await us there. But there appears to be a much more prospective target to the south.

The Mystery Solved?

After the drilling was done, an induced polarization study was done. This consists of running an electric current through the ground and picking up that current with electrodes placed elsewhere. The current will be modified as it flows through the ground depending upon the degree of conductivity of the rock, soil and minerals it passes through. When two substances of dissimilar conductivity are in the ground, a charge builds up at the border between these two substances, similar to that which occurs in a capacitor. When this occurs, as the electric current is picked up by the electrodes, a delay in the current is detected as long as electric current switch remains on. Then, when it is switched off, a discharge of stored current from the ground, similar to the discharge of a capacitor, is detected. Areas of high conductivity will be recorded as an "induced polarization anomaly" and add a very important piece of evidence that gold ore exists in that location. Look now at the I. P. anomaly that turned up on the Ambitle Island survey and where it exists in relation to drill hole MAD001.

The induced polarization survey did show up the gold deposit already found. It shows up as the yellow area. So drill hole MAD001 did hit the anomaly, but not the area of highest intensity which shows up red on the chart. Just based on the I. P. survey, it looks like there is a very hot target along line the major fault that runs through the island in a NE direction. The red area from its NE tip to its SW tip is about 700 meters long. To add to the intrigue look at the original potassic alteration map done by geologist Rod Davies. There is an unmistakable circular shape to the appearance of the area of high potassium levels in the southwestern portion of the island. This northeastern part of that circular area coincides with the high I.P. anomaly.

Now look at this radar image map. The outline of the rim of the central caldera is marked in blue. But there is an unmistakable arc-like ridge to the south of the major potassium anomaly. I have marked the ridge with a magenta colored line.

If the arc were extended around to become a complete circle, it would have the potassium and I.P. anomalies within. The ridge is less evident to the NW, but I have marked the apparent watershed with green dots helping to make a circle-like shape more evident. Could it be an older caldera? It appears to be so. This caldera, like the model from Lihir, has largely collapsed into the sea. And, like the Lihir model, it low enough that the collapsing of the caldera wall on the seaward side may have resulted in the influx of sea water into the caldera resulting in the rapid cooling of the hydrothermal area causing deposition of large amounts of gold. Four major faults traverse across this area. And this zone is an area of breccias (volcanic cracked rock in a matrix of smaller particles), just as in the Lihir model. (Recall that gold can be deposited in porous or broken rock.) Apparently, this much eroded caldera is more ancient than the central caldera and was partially damaged by its later eruption. This is good news, because the older the caldera, the longer that the deposition process of minerals within has taken place resulting in greater gold enrichment. The original size of the caldera must have been almost 3 kilometers across and covered about 7 square kilometers. The newer central caldera, however, has "taken a bite" out of it reducing its NE to SW diameter by about a kilometer. This older caldera is associated with hot springs which appear all across the western quadrant of the island. This is important, because these hot springs are the source of the hydrothermal gold deposits, just as in the Lihir model. Of course, their outlets may change locations through time. Note in the map below the location of the hot springs on Ambitle Island. They are marked in pink color:

So, it appears that the Lihir model may apply to Ambitle Island after all. Both Ambitle Island and Lihir Island are noted for their active hot springs, some of which are geysers. Although, Lihir may have the largest gold deposit in the world, Ambitle Island has a few superlatives of its own. On the western tip of the island is a tiny inlet called Tutum Bay. Dr. Thomas Pichler of the Univeristy of South Florida wrote concerning it:

"The underwater hot springs in Tutum Bay when compared to other submarine occurrences, however, are unique in that they have by far the highest liquid discharge… The force of the discharge [of a single vent] is comparable to that of a firehose which discharges 300 to 400 L/min. Whenever close to a vent we could hear it roaring… The hydrothermal fluids contain extremely high arsenic concentrations of more than 400 times seawater concentration and discharge approximately 1500 grams of arsenic per day into Tutum Bay. These values are the highest arsenic concentration found in any marine setting including black smoker fluids from mid-ocean ridges." Remember that arsenic is one of the elements generally associated with gold and was an important marker associated with the Lihir deposit.

There are some important geologic differences between Lihir and Ambitle. Ambitle Island, arising as it has right out of an old ocean trench, or subduction zone, has a deeper base than Lihir. In fact, on its south side, its slope steeply dips to over 3000 meters in depth. This would suggest that water is probably drawn into the hydrothermal system at deeper levels and could carry gold up from deeper deposits. This is probably why the hot springs in Tutum Bay discharge such a high volume of water. Another difference is that gold was found in a hot spring at Kapkai on western Ambitle Island in concentrations of more than 1 oz/t. As far as I know, no such high concentration of gold was found in any of the hot springs on Lihir.

Nine out of ten of the hot springs, including Kapkai, are on or near the faults that traverse the "Old Caldera Zone". The southernmost WNW trending fault points right to Tutum Bay where underwater hot springs gush forth huge volumes of water from deep within the base of Ambitle Island. Almost certainly, this circular area loaded with porous and cracked rock (breccias) with hydrothermal fluids circulating through it that are known to contain gold, has been enriched with gold over long periods of time. The connection between these faults, the hot springs and the "Old Caldera Zone" are illustrated below:

Hence, it appears that the Lihir model is complete with regards to the "Old Caldera Zone". Personally, I think the best bets are on this area. But with over 30 prospects on the island, there could be major gold deposits found elsewhere, perhaps in several locations. It appears we will find out quite soon just where the gold really is. A relatively new technique for finding gold is being employed and the results should be available within weeks.

Biogeochemical Exploration for Gold on Ambitle Island to Yield Results Very Soon!

Part of the problem in exploring for gold on Ambitle Island is that there is a thick layer of volcanic ash (powdery rock, mineral and volcanic glass fragments) that covers the island. This makes soil sampling on the surface unreliable. Samples have to be taken from under the ash, which is time consuming and difficult, and may produce erroneous results. However, a far more efficient alternative has been found. As the article "Biogeochemical Exploration for Gold in Tropical Rain Forest Regions of Papua New Guinea" reports, "Biogeochemical surveys conducted over the densely vegetated Ladolam gold deposit on Lihir Island have demonstrated that analysis of primary rainforest material can be used as a geochemical exploration tool in tropical regions."

This technique involves taking samples of a particular type of tree, Astronia palauensis, which grows all across both the Lihir and Feni Islands in a density of about one tree per 100 square meters.. The level of gold in the tree tissues corresponds to the level of gold in the soil. The roots reach down deep enough into the soil to draw up gold from below the ash level. You can see the results of this work from Lihir in the picture below:

If the areas of highest concentrations of gold in the Astronia trees are compared with the actual areas of gold deposits as shown in the Lihir Presentation, p. 28, it becomes apparent that there is a very high co-relationship between the two. Since the flora and geology on Ambitle are so similar, this approach can much more rapidly identify the areas of near surface gold deposits at a much lower cost. Subsequent deep drilling of the area may then turn up deeper deposits.

As this report is being prepared, Dr. Wayne Takeuchi, a research biologist at Harvard University, is conducting a biogeochemical exploration on Ambitle Island. About 12 square kilometers will be covered using this method. The results are expected around the end of November. At the same time, a stream sediment pan concentrated survey is taking place on the island. See the Vangold News Release of October 16th, 2003 for more details. The information from all of this follow up work will be added to previously collected data to determine the best sites for deep diamond drilling. A heavy duty drill rig is expected to be on the island in December or January. The results of this entire exciting exploration project will be out within a few months!

Vangold will earn in 75% ownership of the Feni Islands, New Guinea Gold, will have 25% of Feni, and Macmin Silver, which has 46.1% of the shares of New Guinea Gold, will effectively own 11.5% of the deposit. If a major Lihir-like deposit is found, the shares of all of these companies, especially Vangold's, will soar!

More Property Acquisitions in Papua New Guinea

There is more good news for Vangold and New Guinea Gold. They have just announced a new joint venture arrangement in acquiring all the shares of a private Papua New Guinea exploration company called Kanon Resources Ltd. This company has five properties in Papua New Guinea with a total area of 1399 square kilometers. These are advanced stage gold projects with a considerable amount of work already done on them. The drill and trenching results so far are nothing short of outstanding. Here is the summary taken from the News Release of 17 November 2003. I have highlighted the best of these in red.

I will report more information on these properties as it becomes available.

Fantastic Blue Sky Potential

Clearly, from all of the foregoing, Vangold Resources has a tremendous amount going for it. With a rising gold price, ownership of most of the important gold camp of Rossland and the fabulously extraordinary potential of the Papua New Guinea properties, especially the Feni Islands, this company is a tremendous investment. And the Gallagher gold property and East Corning oil and gas properties are more icing on the cake.

My next report will provide more information on the new Papua New Guinea properties, and, of course, updates on the Feni Islands!

Disclosure

We own shares of Vangold. I will be compensated by Vangold for my time in preparing this report, though I have retained my editorial integrity.

Paul the Benjaminite, B.S., A.S., completed seven years of university studies including such diverse subjects as chemistry and business. He is a teacher whose professional experience includes eight years as a secondary school teacher of sciences including chemistry, physics and basic geology.

The Federal Reserve Bank of New York holds the world's largest accumulation of monetary gold.