Feni Islands Hidden Gold Mystery Solved

Do you like a good mystery? So do I, especially if it can be profitable. The Feni Islands grabbed my attention some years ago because the regional geology is extremely ideal for finding a major gold deposit. But really that is an understatement, because the potential is not just for a major deposit, but perhaps for the world's largest known gold deposit. Vangold has now developed an excellent working model that explains all of the data collected since exploration began almost three decades ago. What is more, that model reveals almost precisely where to find the concealed gold. And the evidence compiled so far by Vangold and New Guinea Gold is so compelling that they are really on to something stupendous that it leaves little room for doubt. Please read on!

Vangold (VAN.V) and New Guinea Gold (NGG.V) have a 50:50 joint venture with Vangold working towards earning a 75% interest in the property which covers the entire land area of the two Feni Islands.

Regional Geology of the Feni Islands

One reason the island chain where the Feni Islands are found is extremely interesting is because one of the islands, Lihir, contains one of the largest gold deposits in on earth. The estimated resource at Lihir is 40 million ounces of gold averaging 2.95 grams of gold per tonne, not including the gold already mined, in excess of 5 million oz. (Estimates range up to 60 million.) The Feni Islands have a similar geological setting to Lihir Island. Both are situated ideally along TWO subduction zones. One subduction zone produced the Tabar-Lihir-Tanga-Feni (TLTF) island chain. Lihir arose right out of another subduction zone. That same subduction zone has associated with it two long sub-parallel faults that both cross Feni. One of them produced seamounts that form a chain with the Feni Islands.

Besides the gold corridor in which the Feni Island lays, what defines it as a prospective island is its hydrothermal flows. Even two subduction zones may not bring gold very close to the surface. However, hot water arising from deep within the island can carry substantial amounts of minerals, over time, to surface and near surface levels. Ambitle Island, the larger of the two Feni Islands, arguably has the best setting in the world for hydrothermal flows on a gold bearing volcanic island. The chart below illustrates the difference between Lihir and Ambitle in that regard. The gold deposits on Lihir are found in its SE portion in the Luise Caldera. Off the east coast of Luise, the underwater base slopes steeply down to about 2000 meters. In about the same horizontal distance, the slope off the South side of Ambitle steeply dips to about 3000 meters.

This evidence suggests that Ambitle, the larger of the two Feni Islands, has stronger hydrothermal flows in the southwestern part of the island than occur in Lihir's Luise caldera. Further evidence supporting this idea is the fact that the shallow area near Tutum Bay on the west side of the island has the strongest underwater geysers in the entire world! Not only does that represent exceptional hydrothermal flows, but that area also has the highest arsenic levels of any marine environment in the world! And arsenic is associated with gold in many deposits around the world, including Lihir's.

The Fiji Island Model

A huge amount of data has been amassed at the Fiji Islands with regards to hydrothermal gold deposition. The largest known deposit, on Viti Levu Island, has some 8 million ounces of gold in a large caldera. That deposit was found in the western portion of the Tavua Caldera at Vatukoula. Smaller quantities of gold are being found in the central portion of that same caldera.

The following chart from a report on Fiji geology shows the position of the major gold deposit in relation to the caldera it is within.

Note particularly that there are several calderas on the island. The Vatukoula deposit is associated with the caldera that has a high magnetic intensity (charts b and c) and the highest potassium concentrations (chart e). If these key indicators plus anomalous gold in the immediate vicinity are found, it is very likely that significant hydrothermal gold deposits are nearby. The illustration below demonstrates how hydrothermal flows make deposits.

The Fiji Island Model Applied to Ambitle Island

So, hydrothermal flows will come out of the ground in a ring shape around a central hard rock core. Now, a comparison of this model with the region of a high magnetic anomaly on Ambitle Island reveals, not one, but two (actually one and a half) calderas with heavy mineralization.

The larger of these two calderas, the Hidden Caldera, is circled in the picture above. It is called "hidden" because it was covered over by subsequent volcanic eruptions. The middle of the circle has less magnetic intensity. That is the core area. In a gold bearing region, that core probably has some low grade gold and copper mineralization associated with it and possibly high grade quartz veins. However, the real treasure is likely to be in the dark areas where the hydrothermal flows occurred and heavy mineral deposition has taken place. Most of these are related to multiple faults and many are quite deep since they were caused by eruptions centered off the north end of the island. (On Lihir, they are planning to mine down to 200 m below sea level.) It appears, although it is not certain, that this Hidden Caldera area no longer has active hot springs, except on its western rim, which is now a part of the Southern Crater and possibly in its southwestern portion. The center of the hydrothermal activity has now moved on to the western part of the island.

The same sort of circular pattern of nodes, like a string of pearls, can be seen in the red area to the NW of the Hidden Caldera in the Southern Crater area. Probably originally a caldera, only a portion remains. Some of it has been eroded away. Later eruptions in the northeast have blown away its northeastern half. Notice, however, that the magnetic intensity is actually highest in this area. Nevertheless, drilling has shown that the dark brown smudge on the chart above, in Kabang, is low in gold. (The best intercept in the core was AMD02, total length of 250 m mineralized, average 0.98 g/t.) Apparently iron compounds arising at the intersection of two major faults, has been deposited in the area.

A further insight from the Fiji islands Model is that gold will typically be deposited in the ring like area high in magnetics which surround an area lower in magnetics, but high in potassic alteration. Why does this occur? Gold compounds will easily go through substitution reactions with other metallic compounds composed of copper, lead, iron, etc. Those compounds, in turn, will react with other compounds higher in the electrochemical series. The result is that potassium gets shoved out of the area and can appear near the surface. Therefore, high potassic alteration shows that these chemical reactions are occurring somewhere down below.

Is there strong potassic alteration on Ambitle Island as in the Fiji model? Yes, but it is irregular looking because the Hidden Caldera has a 400 m high hill centered over the western portion of it.

But wait, do these findings of magnetics and potassium really prove that a major gold deposit is to be found on Ambitle Island? No, it does not. However, other evidence shows the probability is extremely high. For one, it is evident that half of one of those calderas was blown away by the eruption in the central part of the island about 2300 years ago. Gold in stream panned concentrates proved to be almost ubiquitous in the Central Caldera zone. Drilling in that area has been mostly negative, however, which suggests that the gold was rained down with the falling debris from the eruption. Subsequent erosion led to accumulation in streams. This proves that there is quite a lot of gold on Ambitle Island. However, the time since the last eruption has not been enough for major deposition of gold to occur again in that Central Caldera. But what about the areas relatively undisturbed for countless eons of time? Would not the two pieces of evidence of (1) proven gold bearing fluids and (2) proven areas of high mineralization indicate a major gold find?

The contiguous area of high intensity magnetics (red color in the south on the aeromagnetic survey) represents about 11 square kilometers. So, how can gold deposits be found quickly? As mentioned above, a magnetic high is not a direct indication of gold. It merely indicates iron and other magnetic compounds associated with hydrothermal flows. The highest magnetic spot, which was also a high I.P. anomaly, proved to have negligible amounts of gold. It is therefore important to locate the genuine sources of hydrothermal flows which will have the complete spectrum of mineralization.

The Lihir Model and Hydrothermal Flows and Faults

Lihir geology is more similar to Ambitle's than Fiji's. The following, from the Lihir Presentation, describes where the gold deposits were found on Lihir:

• There were both steep dipping and horizontal controls present, with the feeder structures being responsible for the transport of the ore fluids into the zone and the horizontal component consisting of dispersion away from feeders into 'wet' open space breccias
• Highest grades occurred at the intersection of feeders with permeable units
• Steep pipes exist within flat blankets
• Only zones within competent rocks had strong surface gold geochemistry,
• Surface geochemistry anomalies were variable based on host permeability

The "feeder structures" mentioned above are faults. In order for that hydrothermal water with its precious load of gold and other minerals to reach near the surface, it must find cracks, or faults, in the ground for it to flow through. The deeper the faults, the more easily hydrothermal mineralized solutions can find their way upward. These faults allow both vertical and horizontal movement of hydrothermal flows. Shallower faults may also be important if they intersect these deeper faults. Gold deposition can take place within these faults and in porous areas such as limestone or breccia (rock blasted to fragments by a powerful eruption) that they intersect.

Another important point from the Lihir Model is that gold anomalies on the surface appeared only in faults between "competent" rocks, those that are solid, not extensively cracked or permeable. On Ambitle, the extensive faulting, as discussed below, means that very few competent rocks remain in the southern part of the island, so surface mineralization is extremely limited.

There is a very deep vertical fault, the Matampasel Fault, running through the island from SW to NE. (In the chart below, it is labeled "Kabang Structural Zone".) Probably, it is the primary carrier of mineralized fluids from the active hydrothermal areas in the SW to the NE. That northern area also contains known gold mineralization. This was borne out by panned concentrate samples in the northern tip of the Central Caldera up to 85.7 g/t Au (see second chart below).

The next chart was made by superimposing the aeromagnetic survey upon the RADAR image of the island. During the above sea level existence of the little island, there have been numerous eruptions. A very large one caused the "Northern Giant Caldera", which, including the part currently under water, must have been about 13 km across. Please notice the large circular structure, indicated in pink, which follows a similar path. The eruption causing the Northern Giant Caldera, which was huge compared to the size of the island, caused shockwaves to pass through the narrow and deep island, cracking it from west to east. It is evident from the map below that hydrothermal flows followed that fault. A similar fault is marked in green, but that one had less hydrothermal flows in the east but more in the west. Blue arrows on the right point to many such faults.

Due to the lifting of the northern end of the island, flexing in the center has caused literally hundreds of NW-SE trending faults, some major, others very minor. Some of the major ones are indicated in yellow and orange in the chart above. You can see the evidence of this in the graph below:

It is also evident that many of these faults serve as feeder zones, especially in the area of the high magnetic anomalies.

The subduction zone sub-parallel faults and numerous huge eruptions, centered to the north, northeast and southeast of the island have caused many deep straight or circular faults that also serve as vertical and horizontal channels of ore bearing fluids.

It should be very clear that these flows are literally saturating many parts of the island with mineralization from the SW to the SE and to the NE portions of the island. This is further borne out by an early survey of the island looking for visible gold in the rivers and streams. A side by side comparison with the aeromagnetic survey overlaying the radar image reveals that at least some of these long faults are channeling gold bearing fluids:

Although there are a couple of rivers on the south side draining the Hidden Caldera area which apparently have no gold in them, this should not be surprising considering the small magmatic core (see next chart) and magmatic intrusions and erosion in the area. The more porous limestone or siltstone area on the southern tip has allowed gold to escape into the nearby river in the Natong area. (The potassium anomaly chart above also shows high potassium in that area.)

What more proof is there? In fact, in the panned concentrate survey, the largest result for the entire island was from a spring along several major faults and near a hot spring. That result was 1710 g/t! Very nearby was a positive in the biogeochemical survey which measures gold in tree bark (drawn up from the roots). This area will be drilled in the upcoming drill program beginning late March or early April.

Exploration in the porous Natong area has produced some excellent results, the highest grades on the island. Only 5 of 18 diamond drill holes intersected mineralization. (See the next chart.) According to the technical report, the following results were obtained:

Diamond drilling: 10m at 5.71g/t Au (Hole NSD002), 1.45m at 8.69g/t (Hole NSD001), 0.95m at 35g/t, and 3m at 10g/t. Copper grades have been found to be 0.4 to 0.6 percent. There is a large area of anomalous arsenic. [You know where that came from!] Erratic gold in breccia fragments were up to 75g/t Au.

These excellent results were obtained from just the very outer fringes of the hydrothermal system.

The Kabang area is mostly in the core area of the Southern Crater. That core has many low grade gold intercepts. Nearby, Hole MAD001, was a good intercept with 52m of 2 g/t gold within 188m of 1.2 g/t gold. That was in an area where gold accumulation has been taking place for only a couple of thousand years. The Hidden Caldera may be millions of years old!

The Natong favorable drill intersections were about 4 km from the nearest known (active) hot spring, but the entire area between seems to be one huge mineralized system!

Amazingly, diamond drilling can begin almost solely based on the magnetic image. The dark brown lines within the red colored area represent mineralization in faults or intersections of faults.

Minus the core areas, which probably have only low grade gold, the contiguous red colored area on the chart above covers about 8 square kilometers.

Some of the deeper faults have resulted in magmatic intrusions that have mostly prevented further deposition of minerals in some areas. On the other hand, these same intrusions literally covered over and preserved much of the Hidden Caldera by preventing erosion from wearing down the heavily mineralized areas. In addition, these intrusions in the Southern Crater have converted some of the heavily mineralized faults into hard rock which has also preserved the mineralization. There are also some heavily mineralized pipes which have eroded more slowly than the surrounding areas. The following chart superimposes digital terrain upon the aeromagnetics image.

In short, it appears that Ambitle Island has almost the ideal situation for a world class gold deposit with:

• One of the world's largest gold deposits on geologically similar neighboring island, Lihir
• Extraordinary hydrothermal flows
• Known gold deposition on the island associated with the fringes of the mineralized area
• Broad areas of mineralization (Including all areas of island of high to medium intensity magnetics minus cores: approx. 26 sq. km)
• Very greatly mineralized faults that are highly visible on the aeromagnetic survey (which makes for easy drill targets)
• Many of the mineralized faults very deep, much deeper than caldera bottoms
• Extremely high panned concentrate from a water spring directly over a mineralized fault
• Preservation against erosion of large parts of the mineralized area

The proof, of course, will be in the diamond drilling, which begins soon. Finally, Vangold and NGG have tiny market capitalizations compared to Lihir Gold, which has hedged part of its production. VAN and NGG are unhedged.

Disclosure:

We own shares of Vangold and hold warrants of New Guinea Gold. I will compensated by Vangold for my time in researching and writing this report.

This report represents the views of the author and not necessarily those of the JV partners. The independent views presented in the report were welcomed, and where appropriate, incorporated into the Feni Exploration strategy.