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12/7/10

Brent Cook on Seafield Resources (SFF.v)

Brent Cook's Exploration Insights letter last Sunday devoted part of its space to last week's news release out of Seafield Resources (SFF.v). Your humble scribe has received permission to reproduce Cook's thoughts here at IKN, so here they are below. What follows, ladies and gentlemen, is the difference between hucksters that pretend to know about drilling results and professional geologists who do actually know what the hell they're talking about. Enjoy Cook's analysis.

Influential newsletter writers and Seafield’s big hole
...........
Speaking of investment letter writers, I understand that the Midas Letter is calling Seafield Resources (SFF.TSX-V) the next Ventana, and advises that you grab as much as you can with both hands at under $1.00.  Ventana Gold (VEN.TSX) has a 3.5 million ounce inferred gold resource in Colombia and is the subject of a takeover offer of approximately $1.5 billion.  Seafield, or Ventana II if you prefer, announced a drill intersection of 449 meters grading 1.29 grams per tonne gold including 10 meters @ 2.87 g/t Au, and 23.95 meters @ 9.18 g/t Au.  Within the higher grade section was a 2-meter interval grading 70 grams per tonne gold.  SFF (~99 million shares outstanding and ~146 million fully diluted) popped from $0.23 to $0.57 on huge volume of 70 million shares after it opened for trading on Friday. 
I reviewed the results and the well-written 43-101 after the drill hole announcement, and since I received a number of queries from subscribers, offer the following quick and dirty review of the Miraflores property in Colombia.
The property has seen a number of drill campaigns from several exploration companies, the most recent being B2 Gold, in 2007.  The historical work, plus a report from the renowned economic geologist Richard Sillitoe concluded that Miraflores is a multi-phase magmatic-hydrothermal breccia.  Meaning, the mineralization is confined to a fractured and broken pipe-like body formed by the injection of several magmas and hydrothermal fluids related to these intrusives. There are three alteration and mineralization phases, of which it appears that an early silica and base metal event is associated with the better gold mineralization.  Drilling, mapping, and underground sampling have essentially defined the limits of the body at about 250 meters by 280 meters.  Although the breccia body is open to depth, drilling suggests that the better gold mineralization is concentrated in the upper 250 meters or so.  There is some evidence that a high grade core dipping to the southwest could extend the mineralization to depth in one direction.  
In April 2010 SFF estimated an inferred resource, based on approximately ten drill holes and underground sampling, of 776,373 ounces grading 1.295 grams per tonne gold for the Miraflores breccia pipe.  The resource report noted that the high grade mineralization within the body occurred mostly within a central core and was both erratically distributed and nuggety (localized very high grade gold that is difficult to model in a resource estimate).  The highest grades (3 to 429 g/t Au) occurred in fault veins, and mineralization generally decreased towards the edges of the breccia body. 
Our handy-dandy drill interval calculator (pictured below) reveals that, excluding the two higher grade intervals in DH-03, the SFF announcement of 449 meters grading 1.29 grams per tonne gold consists of 415 meters grading 0.798 grams per tonne gold plus the two high grade sections.  Within the higher grade, 23.9 meter interval, there is a 2-meter section grading 70 grams per tonne gold.  This narrow interval alone has a significant influence on the entire 449 meter interval, such that when excluded the grade drops to just under 1g/t Au for the remaining 447 meters.  DH-03 went through the guts of the breccia pipe, and the drill results are representative of the deposit-- basically they confirm the previous drilling and resource estimate.  Hmm…this is not looking good.

(Fig. 1- Breakdown of Seafield’s 449 meters grading 1.29 g/t Au)
In summary, all the excitement is over a single drill hole that really offers minimal new information on a gold deposit that has been effectively defined by previous work.  Miraflores is a discrete breccia pipe hosting a decent resource centered around a higher grade core.  There may be the potential to add ounces at depth to the southwest as indicated by the deeper interval announced by SFF this week.  It is difficult to tell how much of the resource could be economically mined because the deposit rests on the side of a steep hill; developing the deeper portions could entail the removal of a significant amount of barren rock (high strip ratio). 
Although the upside to the Miraflores property may lie in as yet undiscovered or undrilled targets, that upside existed at $0.23, and has nothing to do with the 449 meters grading 1.29 grams per tonne gold or, the 415 meters grading 0.798 grams per tonne gold plus a couple of high grade intervals.  This is not Ventana II, and Miraflores is not a large enough deposit to entice me.  If other gold in soil anomalies on the property noted in an October 6 news release are the real sex to this play, then it is best to really look at the historical results and wait until SFF begins releasing additional data from those targets.  Considering that a single drill hole through a known deposit caused over two-thirds of SFF’s outstanding shares to trade hands in one day, one has to wonder who made the better trade, buyers or sellers.  Monday’s action should prove interesting.