Goldsource Mines Inc.

A Bright Future in Coal Exploration and Mining

Mineral resource exploration doesn’t always take you where you expect it will. This was a lesson learned by Goldsource Mines Inc. when their search for diamond targets led them to an unprecedented and exciting coal discovery, 50 km north of Hudson Bay, Saskatchewan, a small town of less than 2,000 residents. Scott Drever, President of Goldsource, relates that when they made the discovery in April 2008, the geologists in their group were surprised to find coal in the region.

In a short period of time, Goldsource has conducted a limited drill program in the area—on what they call their Border Property—and the results are promising, according to Drever, who has nearly 40 years of international experience with exploration and mining operations and has a strong record in corporate management, development, and strategic planning in the  industry. “It was serendipitous,” he says.

A unique find in a unique landscape
Northern Saskatchewan is a remote region, with little habitation and no significant industrial operations in the area. “At the surface, there’s really nothing preventing us from doing a mining operation,” says Drever. But under the surface, it’s a different story. The Border Property presents Goldsource with some logistical challenges. The area is a “floating bog”, wet in the summertime, and Drever says that Goldsource “got chased out” because of the weather in spring of 2008. The nine holes that were drilled in June, July, and August required the use of helicopters to get workers and equipment in and out of the area. “It’s very difficult and very expensive to try to do that, because of the muskeg conditions in the summertime.” The unstable ground means that it’s very difficult to get heavy equipment on the ground. If a mining operation should be developed the water issue can be solved with various water management techniques, such as diversion, to allow the work to proceed, says Drever, but for the current exploration stage, Goldsource’s best bet was to wait for cold temperatures and the resulting freeze-up.

Promising results from initial drilling program
Two initial discovery holes were drilled in April of 2008. The drilling conducted last spring yielded valuable findings. “We got some good results out of that program,” says Drever. Out of the nine holes, Goldsource had six major intercepts, which allowed them to get a better idea of what the property might eventually produce. “It was able to give us some good information on the quality of the coal, in terms of its BTU value and ash content,” Drever says.

Goldsource came across the Border discovery while conducting airborne geophysics, looking for diamondiferous kimberlite targets. There were six or eight spots in that area that the company wanted to drill as potential diamond targets. “I would like to say it was all good management and smart geological work, but we were as surprised as everybody else in terms of finding the thickness of coal that we found,” says Drever. The thickness is of the coal is more than 20 metres and was quite near to surface, and, according to Drever, they were surprised that there had been no previous work in the area that might have led to its discovery.

The company’s winter drilling program got an early start this year, aided by cold temperatures in Northern Saskatchewan since late November and early December, allowing the work to progress more quickly. Says Drever: “Once the frost gets pounded down into the muskeg, then it will support fairly sizable equipment.” The company has been able to build roads to allow more for drill sites to be constructed. They have 35 holes laid out for the discovery area itself to delineate the deposit, to get a sense of the size of the deposit, how thick it is, how many tonnes they can calculate as being present, and to give Goldsource a good sense of the overall quality of the deposit.

The coal that has been found on the Border Property ranges from high volatile bituminous B to sub-bituminous C thermal coal in rank. Generally, a given deposit will yield a fairly consistent quality of coal, with a variance up or down one rank at most.  

Coal is ranked, among other parameters, according to its BTU content, also known as heating value; it can be labelled as peat, lignite, sub-bituminous, bituminous, or anthracite, from lowest to highest heating value. Drever notes that 50 to 60 per cent of power generation in North America uses coal. The wide range of thermal coals can be priced from $30 to $130 per tonne, while metallurgical coal, which usually comes out of bituminous categories, has recently been valued near $250 per tonne. Early in 2008, it was more than $300 per tonne.

Ideal infrastructure for a commodity on the move
Goldsource’s serendipity in finding such a substantial coal deposit didn’t stop there. The location of the Border Property, and its proximity to beneficial infrastructure and resources, make the discovery even more gratifying. Drever notes that the nearest town, Hudson Bay, has a skilled labour force from which the company can draw. “Coal obviously is a bulk commodity, and if you’re going to transport it anywhere, then you have to have mass transportation,” says Drever. There are well established gravel roads traversing the property itself, and there is a CN rail line that runs from Central Saskatchewan north to Churchill, Manitoba, a port that operates four to five months per year. These assets leave Goldsource with reliable means of accessing the property and transporting coal if a mine becomes operational. Goldsource will have ample routes to move coal to port. “We’ve have a rail system on the south end that connects to the trunk lines that go both ways across Canada and into the U.S.,” says Drever. This means that Goldsource’s coal could conceivably go to market on the west coast, headed for Asia, or to the lake head in Canada, with eastern markets in mind, or it could be shipped south into the U.S. Drever says there is also a possibility of having an onsite power station, and in such a case, only the power would need to be transported.

In discussing the coal power industry and the bad rap it gets in the press, Drever says that emissions are still a problem, but he puts faith in the ability of technological developments to lessen the environmental impact. “There’s no question this has been an issue in parts of the world, and in some parts of the world it still is,” he says. “There’s been a big movement to reduce the emission over the last 10 or 15 years, certainly in North America.” Requirements for strippers or cleaning-type facilities on power plants have become stricter, as well, and environmental standards on the mining of coal itself are being raised. Mining companies are under heavier obligations to work towards reclaiming previously mined areas. “Because so much of North American power is generated by coal, it becomes a trade-off between improving the environmental issues and your power requirements.” Drever notes that energy demands are not decreasing; in fact, they are increasing fairly dramatically. “Our ability to generate the supply for that increased demand from alternative sources is relatively limited,” he says. With wind and solar power, the technology at this point in time isn’t in place to produce sufficient electricity at a reasonable price, so that it can replace current base load power stations. “I think [coal] will be around for all long as we need energy,” Drever says.

The technology being developed in other nations to turn coal into alternative energy sources is reframing the way coal-based energy production is viewed. Drever points out two plants in China, where developers are working with South African groups on coal liquefaction and gasification. “I look at this discovery that we’ve made in that light,” he says. “I don’t think of it necessarily as a thermal coal product; if it’s big enough, potentially you can apply some liquefaction processes to it and create petroleum products.” Another possibility is to use gasification to produce alternative products, which Drever says are probably much cleaner in terms of energy generation than the today’s coal thermal power plants.

Looking ahead at 2009 and beyond
Drever emphasizes the importance of the Border Property. Its significance is not limited to Goldsource and its outlook, but also the region of Northern Saskatchewan and the province as a whole. 

In summer of 2008, Goldsource’s stock went from 35 cents to more than $19 in a matter of a few weeks, says Drever. It has since receded to $2.50, in part because of the expectations that were built into it, but largely due to the huge hit the general market has taken. The initial spike in value shows the uniqueness and value of the Border Property, though. “I don’t think there has been a discovery of this nature in Canada for many years, says Drever, “and it’s something that is hitherto unknown in Saskatchewan in terms of the quality and the thickness of the seams and being as near to surface as it is.” Drever says there has been a lot of interest in the project, and it has generated significant land-acquisition activity in Saskatchewan. He estimates that, historically, the area under coal licences was about 140,000 hectares in the entire province, but since this discovery became known, that number has skyrocketed to 8 or 10 million hectares under application. “It’s created a land rush over a stretch of five or six hundred kilometres,” says Drever, “and there’s a huge amount of interest in how this turns out and develops.” There has been interest from the provincial government as well, notes Drever. “It could be a major thing for Saskatchewan.”

For the next year, Goldsource focus its energies on the Border Property. However, Drever says, the company has already made moves to acquire and develop additional properties in pursuit of coal. He says that as a result of this discovery, the company has completed additional research and has acquired properties in Manitoba. In regards to Goldsource’s other Saskatchewan property, Drever says that it has very similar earmarks in terms of geology and potential discovery, and they will be testing there later this year. “We try to keep an open mind and spend our dollars in a fashion that gives us the best potential for the least risk,” says Drever.

In regards to the company’s past in diamonds, Drever indicates that Goldsource is not ruling out future exploration for the gems. “We’re explorers, and you never give up hope that what you started out to find is truly there,” he says. “Our group tends to think outside the box quite a bit in terms of what we’re looking for and what might turn up,” he adds, noting that often when people are out looking for one resource or one kind of deposit, they come across something else entirely. Those looking for proof of this need look no further than Goldsource’s own promising discovery on the Border Property.

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