Junior targets tungsten-moly deposits

NORTHERN DANCER PROJECT, Yukon Territory - Folded into the rocks of this remote valley astride the border between Yukon Territory and British Columbia is at least 20 percent of the world's known tungsten resource. And overlapping that abundance is a hefty deposit of molybdenum.

For Largo Resources, this mineral wealth 290 kilometers, or 180 miles, southwest represents a major opportunity and hopefully, a surmountable challenge. The Toronto-based junior is pursuing Northern Dancer and another advanced-stage project in Brazil, the Maracas Vanadium-PGM deposit. It also holds a large (60,000 hectares or 145,000 acres) land position and prospective gold exploration properties in Ecuador.

Northern Dancer hosts widespread tungsten-molybdenum porphyry style mineralization. One of the world's largest known tungsten-molybdenum porphyry systems, the mineralization is hosted in fractures and veins associated with a northeast-trending sheeted vein system in calc-silicate (skarn) rocks and spatially related to a felsic intrusion (quartz-feldspar porphyry). The deposit, which has been tested by drilling for 1500 meters along strike, 500 meters vertically and 600 meters in width, remains open along strike to both the northeast and southwest as well as at depth.

Overlapping opportunities

Tungsten and molybdenum mineralization are concentrated in two zones, which partially overlap. In the core of the Northern Dancer deposit, there is a higher-grade molybdenum zone where molybdenite occurs within and adjacent to the felsic intrusion. Surrounding and partially overlapping the molybdenum zone is a much more extensive tungsten zone where scheelite occurs in northeast-trending sheeted quartz veins in skarn.

At the start of the 2008 exploration season, the core of Northern Dancer had been partially delineated by 94 diamond drill holes and 496 meters of underground workings. This work was done by AMAX Minerals Exploration from 1977 to 1980 (51 holes) and by Largo Resources, which completed a 17-hole diamond drill program in 2006 and a 26-hole program in 2007.

In April, Largo announced an updated NI 43-101 compliant resource estimate for Northern Dancer with 394 million metric tons of 0.10 percent tungsten and 0.25 percent molybdenum in indicated and inferred resources - 140.8 million metric tons in the indicated category, grading 0.10 percent tungsten and 0.026 percent molybdenum; and 253.2 million metric tons grading 0.10 percent tungsten and 0.022 percent moly in the inferred category.

The estimate includes a higher grade tungsten zone containing indicated resources of 17.1 million metric tons grading 0.17 percent tungsten and 0.029 percent moly and inferred resources of 18.7 million metric tons grading 0.16 percent tungsten and 0.023 percent moly.

Largo projected 860 million pounds of tungsten and 205 million pounds of moly in the deposit with a total gross value of $16.3 billion at April 2008 prices of $12 per pound for tungsten and $35 per pound for moly.

During a media tour here in June, Andy Campbell, vice president of exploration for Largo Resources, described the 1,500-hectare, or 3,615-acre, Northern Dancer claims (23 in Yukon and three in British Columbia) as "a very, very large low-grade system" that the company sees as especially prospective.

Campbell said Largo believes its investment in Northern Dancer will prove to be a terrific bargain. "There's nothing you could get into in precious metals at this stage for this level (of investment). … We're already there in terms of earn-in," he said.

Moreover, the outlook for tungsten is good despite current economic upheaval because the world has few known tungsten resources. Demand for the strategic metal is expected to increase at a compound annual growth rate of 7.8 percent until 2020, according to Largo.

Northern Dancer's potential for molybdenum production, however, is more problematic because of other resources competing for development, Campbell said.

Another factor that favors Northern Dancer is the property's location, just 13 kilometers, or 8 miles, from the Alaska Highway and 300 kilometers, or 186 miles, from a deepwater port in Skagway where ore concentrates can be shipped to smelters in Asia.

One potential complication could be Northern Dancer's location, which will require Largo to obtain permitting from federal, Yukon Territory and British Columbia regulators. Drainage and access for the property are both in British Columbia, though most of the claims are located in Yukon.

Two development breakthroughs

With a target of 2013 for first production, Largo has begun metallurgical testing of core samples and is holding ongoing discussions with potential off-take and joint venture partners.

This year Largo's exploration objective was to provide improved definition of the higher grade tungsten and molybdenum mineralization as well as fill in gaps in information especially at the shallower levels of the deposit.

When Largo optioned the property from Strategic Minerals, all 51 holes that had been drilled were vertical in orientation.

"We changed the angle of drill and were able to show the mineralization in a better light," Campbell said.

Further study of the deposit also showed that virtually all of it is mineralized with no waste, but there are significant zones of high-grade material that can be mined during the first few years of production, said Farshid Ghazanfari, a geological technical consultant to the Northern Dancer Project from Toronto-based Forbes & Manhattan.

Largo has identified 50 million metric tons of high-grade tungsten ore in deposits to the southwest at Northern Dancer and hopes to delineate near-surface targets of molybdenum in high-grade ore to the northeast.

"The molybdenum is very important for us as a revenue generator," Ghazanfari said. "We're hoping as we drill that the cores will show better grades and more sheeted wings that will bump the grade. As we do drill we're getting a better handle on the resources. It's almost like two separate deposits with an overlap of the two."

During metallurgical testing, Largo decided to investigate optical sorting, a technology used in the diamond- and talc-mining industries. Sorting core under normal and ultraviolet light as well as x-rays and with dense media separation, the junior was able to reject about half of the mill. The process will enable the company to shrink the size of its mill by half to 20,000 metric tons per day.

"This keeps the cap-ex costs down, so you get more bang for your buck," said Tim Mann, Largo's vice president of engineering. "From a technical perspective, optical sorting and defining the high-grade zones are the breakthroughs for the project."

Largo envisions developing an open-pit mine in order to get tungsten ore into the mill as soon as possible but actually mining both resources concurrently.

"The mill would be on site, and we're currently thinking that we can produce a tungsten con and a moly con," Mann said.

Positive 2008 drill results

Preliminary analysis by Largo's technical personnel in September indicated that the drill results were significant enough to contribute materially to an upgraded mineral resource estimate that should positively affect the economics of the project.

"This will potentially be achieved by improving the projected grade profile of the mine operation during the initial years of production by the inclusion of near-surface and potentially higher-than-average grade material in the mine production plan that is not included in the current mineral resource estimate due to the lack of previous drilling information," Largo said in a statement in September.

The company outlined plans for a scoping study by this fall that would have investigated dry stack tailings and diesel generation for power, at least in the early years of the mine. That study would have led to a pre-feasibility study in 2009. Largo, however, opted to defer the scoping study until it could update its resource estimate for Northern Dancer.

"We believe it is in the best interest of Largo shareholders to base the scoping study on an updated resource estimate that incorporates the results of the 2008 drill program, designed as it was to upgrade and expand the existing resource and confirm higher-grade zones of mineralization," Largo President and CEO Mark Brennan said Sept. 29. "Based on the positive results in the first 13 holes, we expect that the updated resource model could significantly improve overall project economics," he added.

By November, Largo had reported assay results from 23 holes in the 38-hole (11,500 meters) program drilled this summer. The results reinforce the junior's assessment of resources at Northern Dancer.

"Reported drill results are better than expected and continue to confirm the higher-grade tungsten and molybdenum zones. We expect that these results will have a positive impact on an updated resource estimate and the modeling of the higher-grade zones," said Largo's Campbell.

Largo said the new intersects, so far, are narrower but 40 percent to 300 percent higher-grade than the deposit grade.

Highlights include hole LT08-119, which cut 371.50 meters grading 0.15 percent tungsten and 0.025 percent molybdenum of which 79.40 meters graded 0.29 percent tungsten and 0.032 percent moly; and hole LT08-126, which intersected 323.09 meters grading 0.13 percent tungsten and 0.033 percent moly of which 206.00 meters graded 0.16 percent tungsten and 0.033 percent moly.

The molybdenum results also continue to be higher than the deposit grade.

On Dec. 5, Largo said it is awaiting final assays from 2008 drilling and expects to complete an updated NI 43-101 compliant mineral resource estimate after it receives them.