Lion One Metals (LIO-TSXV)

What was previously seen as a modest-sized gold deposit accessible from underground now appears to be a massive deposit that may be mined from surface.

The project was explored a decade ago by Emperor Mining, which operated the Vatakoula mine, 50 kilometers away on the same island. Vatakoula has produced 7 million ounces of gold over the past 70 years, with the current resource estimated at 4 million ounces. Emperor initially viewed Tuvatu as a satellite deposit and sought high-grade ore that could be trucked to its main operation. In the end, they completed an evaluation of Tuvatu as a stand-alone mining operation. Even with a gold price of $300 an ounce, the project was found to be economic. That company went bust before the mine could be developed. Lion One effectively got the Tuvatu property out of receivership in a complex transaction.

Based on the historic work and some initial work by Lion One, they commissioned an independent resource estimate. The figures show an indicated mineral resource of 172,000 ounces of gold (760,000 tonnes at 7.05 grams/tonne) plus and inferred 480,000 ounces (2.6 million tonnes at 5.7 g/t). Those 650,000 ounces are now seen as only a small portion of the Tuvatu potential. The work now underway makes it clear that Lion One is on track to report a substantial near-term boost in its resource estimate, with the ultimate potential for this deposit to be much larger yet.

Earlier this month I visited the Tuvatu project and spent two days on site with senior management and the geological team. That visit greatly enhanced my understanding of the project and of its large-scale potential.

The first step in understanding the potential of Tuvatu is to look closely at the Vatakoula deposit. Just 50 kilometers away along a well-defined regional trend, that deposit is geologically similar to Tuvatu. Both are related to volcanic calderas associated with tectonic activity and are of a similar age. Importantly, the 11 million ounces of combined production and resources at Vatakoula is entirely based on high-grade, vein-type material intended to be mined from underground. That deposit was never looked at as a potential bulk-mineable deposit. In other words, the total contained gold at Vatakoula could be much larger than the 11 million ounces reported because the lower grade material was never considered.

When Emperor explored Tuvatu, they took the same approach as at Vatakoula – seeking high-grade veins. They recognized the geological similarities at Tuvatu and after a brief reconnaissance they focused on one area that offered potential for high-grade ore. They drilled 570 holes (12,000 meters of reverse circulation and 68,000 meters of core) and completed 1.6 kilometers of underground workings. A portion of the drilling was conducted from the underground workings.

With the objective to find high grade ore, Emperor sampled and assayed just 20,000 meters, or less than 30%, of the core. Nearly 40,000 meters of core was never sampled and assayed as it did not have visible indications of high-grade gold values. Further, Emperor ignored silver and base metals, assaying only for gold. Lion One believes there are important amounts of those metals and will test for them in future assays.

Lion One is now re-examining the old core and sampling the previously un-sampled intervals. The initial results extracted from that warehouse of core have been highly encouraging.

The company has three main objectives in the current program. First, they are looking for extensions to the presently identified vein-hosted deposits. The earlier work was largely constrained by a desire to achieve near-term production. Once Emperor put the underground workings in place, areas that were not immediately within reach were ignored. One spectacular example is an intersection of 3.7 meters that assayed 284 g/t gold. Located beneath the tunnels, that intersection was never followed up

Lion One is prioritizing the core sampling program to first examine those holes that might carry gold values just outside of the previous resource area. They are also designing a drilling program to fill in crucial gaps in the previous drilling that could tie in additional resource areas such as the high-grade interval noted above.

The second objective is presently being advanced by surface trenching as well as the core assaying program. Assays from the first holes assayed by Lion One demonstrate that the material between the veins also carries significant gold values. Recent assaying of Hole 14 identified six intervals of potentially economic gold values.

It now appears likely that large volumes of rock might carry economic gold values, opening the project up to bulk-mining potential.

The deposit occurs in a mountain, with the underground access consisting of a decline (sloping tunnel) that begins some distance above the valley floor. Lion One sampled the existing road cuts on the mountainside. They are now cutting trenches in the slope as well as cutting roads across the slope that serve to expose the bedrock. The newly developed roads improve access across the property and will serve as drill roads and drill pads for the next phase of drilling. Samples from those trenches have shown both wide intervals of potentially bulk-minable grades (for example 25 meters of 5.5 grams per tonne) as well as high-grade intervals that were not previously recognized (for example 119 grams per tonne across 0.43 meters).

Further sample results from both trenching and the old core are in process. My examination of the recent trenches suggests that the upcoming results will be in line with the previous results. Broad intervals that carry gold values that average anywhere near a gram would be extremely positive.

The trenching results are enormously important. They show that substantial gold values are present at surface, up to 300 meters vertically above the resource zone.

At this time, there is no firm evidence that the gold values continue from the resource zone to the surface. In this situation, that is a reasonable hypothesis. The first phase of drilling is intended to probe that interval between the trenches that carry gold values and the resource area.

The area encompassed by the resource area through to the surface gold values contains several hundred million tonnes of material. The premise of the exploration program is that significant portions of that material will carry gold values that might be economic in an open pit mining scenario. If that premise holds up, there is scope for a plus-5 million ounce deposit. That figure considers just the area that encompasses the present resource up to the surface. The zone remains wide open, laterally and to depth.

The focus of the Lion One effort is naturally on the prior resource area, given the abundance of historic data. They are also examining 10 other areas within a four by five kilometer trend that have produced gold values on surface in a similar geological setting. Beyond that immediate trend, additional large prospective areas await initial examination. Most intriguing, a large area with a geophysical signature similar to Tuvatu and located a few kilometers away has not yet been examined.

Lion One also holds two other large concessions on an adjacent island. Those projects are located along the same regional tectonic trend that hosts Vatukoula and Tuvatu and they are in a similar geological setting. Surface sampling has produced gold, copper and other metal values at surface but they have not yet seen significant exploration. Management are considering means to advance those projects, including joint ventures or a spin-out.

As Lion One explores the Tuvatu project and the various peripheral surface targets, they are also trying to understand what lies beneath the Tuvatu system. Trenching, together with re-examination of the old core, has shown the presence of broad zones of hydrothermal alteration typical of porphyry-type environments. The porphyry potential at Tuvatu is the third objective in the Lion One exploration program.

The current thinking is that the gold-bearing veins and the stockwork zone are the higher-level expression of a porphyry system. That is a very typical situation.

Further evidence for a porphyry system will be sought as the company re-logs and samples the core. Some of the drill holes will be pushed through the near-surface gold zones to probe the deeper part of the geological system. The presence of a gold-copper porphyry system would be a huge bonus for Lion One shareholders. Some of the biggest gold-copper porphyry systems in the world are found along the South Pacific tectonic margin that hosts Tuvatu.

Lion One has C$23 million of cash on hand with which to conduct an aggressive drilling program. The management and geological team are highly experienced and capable of advancing the project. If the entire exploration program finds nothing further, the present share price is well supported by the present resource. In reality, there is abundant evidence that Tuvatu is a very large and richly mineralized gold-bearing system that has the potential to turn up one or more very large gold deposits and evidence for that potential will become evident within weeks.

To summarize the many elements of the Lion One story:

1. The 650,000 ounce resource outlined to date at Tuvatu is only a small portion of the potential. The current share price reflects only that resource.

2. The resource area includes only    high-grade vein material and is open in all directions.

3. Tuvatu is close to, on trend with and geologically similar to Vatakoula, with 11 million ounces of production plus resources. (The Vatakoula figures reflect only the higher grade vein material that has been examined to date. That deposit may be substantially larger if lower grade material is included.).

4. Re-examination of historic results and recent work by Lion One makes it clear that the high-grade resource can be expanded well beyond the present limits.

5. A stockwork zone found at surface above the resource area has opened the potential for a large, near surface, potentially bulk mineable deposit, with multimillion ounce potential.

6. The drilling and underground work at Tuvatu has examined only one of the more than 10 known gold occurrences that have been identified to date on the Lion One property within a large and highly prospective geological environment.

7. Two earlier stage properties on another island offer the potential for near-term value creation for Lion One shareholders.

8. The Tuvatu gold-bearing system appears to be underlain by a large porphyry gold-copper system. If that is confirmed, it would be a huge bonus for Lion One shareholders.

9. Core sampling, trenching and soon drilling will provide a steady stream of news for many months, culminating in an updated resource estimate that could be many times the present figure.

Lion One is still a new story, not yet appreciated by investors. Growing investor awareness should provide a near term boost to the share price. Further results from trenching and core logging should add considerable value to the project. The start of drilling should focus a lot of attention on this company, as investors begin to realize the potential for a large gold deposit.

Price August 26, 2011: C$1.09
Shares Outstanding: 48 million
Shares Fully Diluted: 63 million
Market Cap: C$52 million
Contact: Investor Relations
604-998-1250
www.liononemetals.com 

Last Updated July 2011-1