re: old articleJuly 03, 2008
Douglas Lake Minerals Set To Be The Conduit For Millions Of Dollars To Flow Into Tanzania From China
By Alastair Ford
“AtChristmas we came across this property in Tanzania, shown to us by acompany geologist - a burlap sluice operation producing 200 kilos ofconcentrate per month”. Thus begins the tale of the latest chapter ofthe Douglas Lake Minerals story, as told by Douglas Lake’s vice president Byron Hampton. That chapter is not yet over, but already there’s been a surprising twist.
Lastmonth the company had to re-release test results from soil samplestaken from the said alluvial property, which goes by the name ofMbwemkuru, after Echo Test Laboratories over-stated the grades by afactor of ten. Thus a result that showed up as 408.3 grammes per tonnegold on 11th June was re-stated six days later at 40.83 grammes pertonne. Embarrassing, but hardly fatal. After all, everyone makesmistakes, and, in a way, with labs under so much pressure these daysit’s perhaps surprising that we don’t hear about them more often. Butanybody in the market who bought when the shares spiked up to over 90cents might be feeling a bit bruised though. When the company releasedits correction the shares slipped back, and are currently trading at 67cents.
Mbwemkuru marks a new chapter for Douglas Lake,because although the company has been on the ground in Tanzania for alittle while now, it’s not so far made as much progress as it wouldhave liked. The previous strategy hasn’t exactly worked out, as ByronHampton is the first to admit. The idea was to secure as much land aspossible and then let joint venture partners work it up. But that raninto the perhaps predictable hitch one joint venture partner who signedup, Canaco, had other more pressing priorities and didn’t progress onthe Tanzanian side of its portfolio as rapidly as Douglas Lakewould have liked. Unfortunately Canaco was the first such joint venturepartner, and others were somewhat discouraged by the apparent lack ofsuccess. “It didn’t work out for Douglas Lake.And it made it almost impossible to have other joint venture partners”,explains Mr Hampton. But the Canaco joint venture has just about runits course now, giving Douglas Lake a freer hand to change course and pursue its prospects at Mbwemkuru.
Aside from the unexpected twist to the story inmid-June, there are two key plot-lines to the Mbwemkuru chapter. Thefirst is the project itself. Don't let the burlap sluice put you off:although as an alluvial gold property it may not rock everybody’sworld, the sheer size of it transforms the proposition. “It’smineralized for sure over a two and a half by 20 kilometre strike”,says Byron Hampton, who goes on to compare it, perhaps a littleoptimistically, to the Wits. There seems little doubt, though, thathe’s right when he says more generally, “for sure, there’s an awful lotof gold there. We’ve tested, and our Chinese partners have tested”.Which brings us to the second plot-line: the Chinese. The company hassigned off on a joint venture deal with the Tianjin Institute ofGeology and Mineral Resources, a deal which effectively makes Douglas Lake the Institute’s Tanzanian arm, and on terms that shareholders should find mighty favourable.
The relationship is still quite young, so we’llhave to see how it grows over time. But the basic facts are plainenough. The Institute has a mandate to spend US$4 billion onexploration. Plenty of that will go into Tanzania, and it will gothrough Douglas Lake. After Barrick, Douglas Lakehas the largest land package in Tanzania, so although the Chinese may -to some extent – be shooting fish in a barrel, they got themselves apretty big barrel. For its part Douglas Lakegets the back-up of a billion dollar Chinese mining operation tosupport exploration. And since the Chinese are only really interestedin product, that means they’re not really too bothered about the termson which their kit, their people and their money gets used. To put itanother way, under the terms of the deal, the Chinese bought 20 percent of Douglas Lake and gained the right to all future output from any of Douglas Lake’sproperties. At this stage there not too bothered about how that outputis delivered or who pays for its development. It effectively amounts toan offer for a free carry on exploration costs for the other 80 percent of Douglas Lake’s shareholders. But, like we said a moment ago, the relationship is quite young, so we’ll have to see how it develops.
One thing is clear: the Chinese like Mbwemkuru. “Inthe beginning of May we took 17 Chinese geologists and one interpreterdown to this property”, says Byron Hampton, “and they fell in love withit”. Given that it only cost Douglas LakeUS$1 million to acquire, plus a three per cent royalty, the companyseems to be getting an awful lot of mileage out of it. But, says MrHampton, Mbwemkuru “is why the Chinese did the deal. They literallytook a shovel out and panned gold at 70 sites. They’re convinced”. Itmay not quite match up to the standards of National Instrument 43-101,but who needs that when you’re a cash-rich Chinese mining giant? And,with Mbwemkuru likely to be producing 100,000 ounces per year, withinthe year, Douglas Lake isn’t exactly complaining either.