A Visit To Quest Rare Minerals’ Strange Lake & Misery Lake Projects

In August I had the chance to join an analysts’ tour of Strange Lake, the rare-earth-element (REE) deposit owned by Quest Rare Minerals Ltd. (TSX.V:QRM, AMEX:QRM) and the company’s flagship project. While there we also had the opportunity to visit Misery Lake, another rare-earths project owned by Quest.

The Strange Lake deposit is located close to Canada’s Quebec / Labrador border region. It is approximately 80 miles west of the Voisey’s Bay nickel-copper-cobalt mine on Labrador’s east coast, and around 135 miles northeast of Schefferville, Quebec. The project site is about 170 miles north of Goose Bay, Labrador, and it was from here the group took off for the flight by Air Labrador Twin Otter charter planes. 90-minutes later we arrived at the exploration camp at Strange Lake, landing on a permanent airstrip built on a glacial esker deposit (a ridge of stratified materials) close to Lac Brisson, not far from the actual Strange Lake.

On the trip were a number of analysts from financial and capital-market institutions in Toronto, New York and elsewhere, as well as Mickey Fulp (the well-known “Mercenary Geologist”) and Steve Zajac, a consulting geologist who is advising Quest on the Strange Lake project. Steve was involved in the original exploration work at Strange Lake in the 1970s, as Chief Geologist of the Iron Ore Company of Canada (IOC). According to Mr. Cashin, Quest’s President & CEO, IOC was not far from a production decision on Strange Lake, but unfortunately the bottom fell out of the iron-ore market around that time. This meant that the steel guys involved with IOC wanted the company to focus its attention on iron ore, not rare earths, and the project became relatively dormant, exchanging hands several times, until Quest came along.

We were hosted on our visit by Pierre Guay and Patrick Collins. Mr. Guay is Quest’s Manager of Exploration, overseeing the day-to-day operations of the camp and its personnel. Patrick Collins is Quest’s Senior Project Geologist for the Strange Lake project. Mr. Collins was present when the first drill hole was made, and will see the exploration program through to its completion.

You can see photographs taken during the visit, in the galleries below (click on each image to enlarge it). On my second full day on-site I had a bit of a camera malfunction, but fortunately one of the analysts on the trip took some good pics of the day’s activities, and kindly allowed me to use some of them for this report. Mr. Collins also provided some additional core-sample photographs, some with labels; I can confirm that these images match the core samples that I saw during the trip.

The Strange Lake Alkalic Complex (SLAC) is part of a post-tectonic, peralkaline granite complex, which has intruded along the contact between older gneisses and monzonite of the Churchill Province of the Canadian Shield. At present, the primary area of interest at Strange Lake is the so-called B Zone, which was discovered during the 2009 exploration program. Quest published an updated 43-101 compliant mineral-resource estimate for the B Zone in April 2011. The deposit contains an estimated 140.3 Mt of rare-earth mineral resources at the Indicated level, with an average grade of 0.93% total rare-earth oxide (TREO), and an estimated 89.6 Mt of resources at the Inferred level, with an average grade of 0.88% TREO. Both of these estimates assume a 0.58% TREO cut-off grade; for the purposes of the pre-feasibility study (discussed below), Quest used a cut-off grade of 0.95% TREO.

In total there are an estimated 2.1 Mt of TREOs in the ground at the B Zone, and with an average heavy REO (HREO) distribution of 39% in the TREOs present, the deposit is one of the largest and richest potential HREO deposits in the world. 67% of its value comes from the presence of critical REOs, as that term was recently defined by the US Department of Defense. In addition to the presence of REEs, the project is of interest for co-products of beryllium (Be), zirconium (Zr), niobium (Nb) and hafnium (Hf), which, according to Mr. Cashin, have the potential for providing strong credits within the overall cost structure of the project. The Be present, for example, may be of interest to Canadian (or other) defense contractors who do not want to be dependent on US sources for this important element.

Recent drilling at the B Zone has led to the discovery of a pegmatite “spine” more than 25 m thick, which trends northwards towards the airstrip and which contains higher grades of TREOs. The pegmatite material has a coarse-grained mineralogy, associated with volatiles and past fluid flow. The pegmatite spine is both sheet-like and finger-like in nature, with and layers of material in the main deposit. The spine appears to go under the lake to the north. Additional drilling is being undertaken to determine the margins of the spine and to better define its edges. So far, the B Zone appears open along strike to the north and south.

The overall deposit contains a wide range of minerals and in places exhibits very significant alteration. The three main aliquots or portions of the B-Zone deposit are the pegmatite spine, alkaline granite and altered granite. Although there are some variations in the TREO content within these aliquots, the mineralogy of each is similar, which will allow them to all be processed using the same methods and flow sheets. There are significant quantities of gittinsite (a calcium zirconium silicate REE-bearing mineral) in the pegmatite spine. Other REE-bearing minerals present in the B Zone are aegirine, gerenite, gadolinite, kainosite, pyrochlore and zircon. Non-REE-bearing minerals commonly found here include amphibole, feldspar, fluorite, pyroxine and quartz.

Quest uses Activation Laboratories for its material testing and analysis. This company has a preparation lab in Goose Bay, where core samples are sent to be crushed, ground and milled, before 20 g pulp samples are bagged and sent to Ancaster, Ontario for testing and analysis. The rest of the material is warehoused in Goose Bay. At a later date, Mr. Cashin said that these surplus materials could be used for metallurgical testing. On occasion, drill holes will be twinned and an entire core sample will be sent for studying the variability of the minerals within the rocks present in the entire deposit.

While in the core shack, I asked Mr. Collins and Mr. Cashin about the reliability and accuracy of the handheld Niton XRF analyzers that they used. Mr. Collins said that a properly calibrated system would be accurate to within 20%, but that a rigorous calibration process was required to achieve that.

The Main Zone of the Strange Lake project (2 miles southeast of the B Zone) was the starting point for Quest’s exploration at Strange Lake. During our visit to this area of the project, Mr. Guay commented that it is not as altered as the B Zone. In the summer of 2010, Quest decided to remap the whole area in order to update the original data that had been produced by IOC. 30 holes were drilled to depths of up to 75 m; the results indicated the presence of pegmatites towards the west of the zone. Further exploration may be conducted at a future date.

Quest completed a preliminary economic assessment (PEA) from Wardrop Engineering for the B Zone project, in September 2010*. The PEA looked at an average production of 12.5 ktpa of TREOs over the 25-year projected life of the mine (at a cut-off grade of 0.95% TREO, higher than the cut-off grade used in the mineral-resource estimates). An open-pit production rate of 4 ktpd was proposed, with an initial estimated strip ratio of 0.4:1 (this is the ratio of waste material to ore recovered ). The PEA estimated required capital expenditures of around C$560M, which included a 25% contingency.

The PEA was based only on mineralization estimates within 200 m of the surface; Mr. Cashin estimates that there is mineralization as far down as 300-350 m below the surface. Most of the pegmatite spine, with its higher concentrations of TREOs, is within 125 m of the surface, with little overburden. The B-Zone resource is open in all directions, including at depth and below adjacent Lac Brisson, although the materials below the lake would almost certainly not be considered for future exploitation.

Work on the flow sheet for the production of REOs at Strange Lake continues. Initial work using an acid bake at 220°C for one hour on the REO-bearing granites and pegmatites resulted in the successful production of 77-93% REO slurries. Mr. Cashin said that physical beneficiation would not be required for the minerals, beyond initial crushing and grinding of the feed stocks, thus avoiding potential REO losses via early pre-concentration steps.

Mr. Cashin went on to say that past processing tests on the REE-bearing silicate minerals present at Strange Lake, resulted in the gumming up of the filters with a silica gel, which results from the process. The acid-bake process avoids this problem as the silica gel is desiccated, and falls to the bottom of the reaction vessel. Up to five concentrates will be produced; tailings will be dry stacked, with a process developed to recover water and acid, which could then be recycled for use in the processing facility.

The original processing plan was to send slurry concentrates via pipeline to the Labrador coast for processing, but the permitting process was deemed to be too difficult. Quest is now looking to build concentration and separation facilities close to the proposed Strange Lake mine site in Quebec, in order to simply the process.

Sulphuric acid is the principle initial reagent for processing, Mr. Cashin said that the company was looking at the feasibility of having elemental sulphur (S) shipped to the future processing facility at Strange Lake, in order to produce the acid on-site.

The company is also looking at the development of an access road for shipping materials in and out of the facility once built. Two options are being considered; the first would be a 75 mile-long road east to Voisey’s Bay; the second would be a 135 mile-long road southwest to Schefferville. Estimates indicate that the capital expenditures involved would be approximately $135M and $250M respectively. When factoring in the cost of maintenance over the 25-year mine life, total cost estimates are $600M for a road to the coast, and $2.4B for a road to Schefferville. Obviously for cost reasons, a road to the coast is preferred.

In the meantime, Quest has already begun airborne, topological and environmental studies on the impact of building such a road. There is also the need to avoid aboriginal archeological sites and other sites of importance. The goal is to have the road underway by early 2013 at the latest, so that it can be completed in time.

As part of the pre-feasibility study (PFS) now underway for the B Zone, Quest is looking at the possibility of attaining lower strip ratios, perhaps as low as 0.25:1, by revising the angle of the planned pit wall, which because it is contains particularly robust rock, could be set as steep as 55°. The B Zone has gone from discovery to initiation of a PFS in less than two and a half years – a relatively short period of time for such projects.

The northern edge of the planned open pit will be at least 150 m from the lake and airstrip, to prevent any problems of seepage. The pit has a planned depth of 125 m to start; the first ten years of mining, targeting the pegmatite spine, is estimated to produce higher grades of TREOs than the rest of the B Zone, and will be executed at a high production rate of 18-19 ktpa TREO in the same period. Mr. Collins commented that as additional in-fill drilling results have been analyzed, the company has started to consider altering the original pit design, in order to accommodate additional mineralization that has been found.

Mr Cashin said that Quest hopes to complete the PFS by Q1 2012. The initial proposed flow sheet is slated for completion at any time now, with the information gleaned from the metallurgical testing being used to put together a pilot plant in early 2012. This would be undertaken by Hazen Research at their facilities in Colorado, with a goal of producing end products that could be tested by potential end users for quality and consistency. A bulk sample of 25 t of material will be used to test the run of process in the pilot plant; 15 t of that material has already been excavated, with an addition 10t to be removed in the future.

Quest has recently been engaged in a joint venture with Search Minerals, on part of the Strange Lake Alkali Complex (SLAC). Much of the SLAC was explored by IOC in the past, but only via shallow drilling. IOC had a historical (non-43-101-compliant) resource estimate of 53 Mt @ 1.96% TREO (0.66% Y oxide + 1.3% REOs), along with oxides of Zr, Nb and Be. Search acquired a series of claims in the vicinity, and in June 2010, through its Alterra Resources subsidiary it entered into an agreement with Quest, for the latter company to acquire up to 65% of the interest in 30 mining claims adjacent to Quest’s own claims on the SLAC. This was in return for conducting an exploration program on the claims, in addition to the transfer of Quest shares to Alterra.

The camp at the Strange Lake project is pretty impressive. Located to the west of the active exploration area, next to Lac Brisson, it is very well-provisioned and can accommodate up to 80-90 people at any one time. Mr. Cashin explained that the camp uses a “6 weeks on, 10 days off” rotation, with work conducted during 12-hour shifts. This is the second year that Quest has been based at this camp; it was first established towards the end of the 2009 exploration season, with significant infrastructure first put in place at the beginning of the 2010 season. The company recently tripled the size of the kitchen and canteen; provisions are flown in from Schefferville and Goose Bay. The camp uses a 40 kW generator for electricity, plus a backup. There is a nurse’s station, wireless internet access connected to a satellite uplink and even a makeshift sauna on-site!

Mr. Cashin commented that the turnover of employees at the camp is very low – word gets out concerning the good working conditions at the site, and this means that the project can attract high-quality personnel. Such conditions no doubt contribute the the relatively high productivity of the drilling program, with a single hole being drilled on average every 24 hours. The drilling contractors are paid per meter of core drilled.

Quest’s drilling contractor is Forage Boreal, the contracting division of Versadrill, the manufacturers of the machines being used for the drilling. At the time we visited, the project was using four exploration diamond-drill rigs for in-fill drilling, with a fifth drill rig being used for outside targets and doing condemnation or sterilization drilling (used to make sure that areas around the site to be allocated for tailings, processing facilities etc do not contain valuable minerals). The crews have also twinned 12-16 existing drill holes, to allow for the subsequent completion of location-specific metallurgical testing.

This season will likely be the last for exploration drilling at the B Zone; Mr. Cashin told his geologists that if they had particular targets at which they wanted to take a look, then now was the time to do it. The next phase for the project will be the transition from exploration to engineering, with an associated change in personnel and activities on site. The geologists and other exploration personnel will then turn their attentions to Misery Lake and possibly other targets in the vicinity. In some of the early surveying work, for example, the folks at Quest noted radiometric anomalies associated with a boulder train close to the SLAC; there is some interest in determining the sources of associated mineralization.

Around 20% of the non-Quest-owned portion of the SLAC lies within lands subject to the Labrador Inuit Lands Claims Agreement. This area is now part of the autonomous region of Nunatsiavut on the eastern side of the Quebec / Labrador border. Mr. Cashin indicated that these lands may become available for auction at some point in the future, and that Quest would determine at that time if they would bid on them. One potential challenge of working so close to the border between Quebec and Labrador is that the exact position of the boundary between the two provinces has never really been properly defined. There are a handful of marker posts indicating the boundary, around 100 m away from the pit in the Main Zone that IOC excavated in the 1970s. The boundary between the two provinces was only set in 1927, and there are indications that Quebec never formally recognized the position of the border. Still, the issue is not exactly a flash point at this moment in time.

Quebec has long been known as one of the most mining-friendly jurisdictions in the world. The Quebec government gives a 50% rebate to companies who spend money on eligible mineral-exploration initiatives, upon presentation of audited financial statements. Mr. Cashin said that Quest will soon be in receipt of a $3.35 million rebate from the provincial government, as a result of the companies 2010 exploration activities. He indicated that Strange Lake has been visited by senior officials from the provincial government, and that the Ministry for Natural Resources and Wildlife has designated specific personnel within the ministry to liaise with Quest on this project. Mr. Cashin noted that to date, most mineral projects on Quebec and elsewhere in Canada, were located south of the 49th parallel. Since Strange Lake is located above the 49th parallel, the company is benefiting from the Quebec government’s “Plan Nord”, its long-term economic-development strategy for that region of the province.

The provincial government is interested in the strategic potential of projects such as Strange Lake. Mr. Cashin said that he had been able to discuss Strange Lake with various governmental departments during a recent trade mission to Japan and Korea.He commented that there may be some interest in helping to bring separation facilities and other elements of the supply chain, to the area. Mr. Cashin also said that from his own experience during his time working for the Ontario Ministry of Mines, he estimated that for every $1 that provincial governments put into the development of projects (or into helping conditions conducive to their development), the investment produces $3 in revenues due to subsequent private investment.

In 2007, Quest undertook reconnaissance of a significant ring alkaline intrusion at Misery Lake, some 80 miles south of Strange Lake. Grab samples indicated TREO content of up to 8-9% TREO, with 17-20% HREO content. The government of Quebec subsequently did a detailed magnetic survey of the region, and geochemical samples have also been taken. In 2011 Quest will likely complete 6,000 m of drilling at Misery Lake, out of an initially planned 10,000 m (there were a number of weather-related delays).

The group took the trip to Misery Lake from the Strange Lake camp by float plane and helicopter. The group was accompanied by Mr. Guay and by Laura Petrella, a student from France completing her master’s degree in geology at McGill University, with a thesis focused on the Misery Lake property. Ms. Petrella said that the Misery Lake claims were extensive, and that a significant amount of prospecting and surveying was required to keep them in good standing. The materials at Misery Lake have similarities to those at the Lovozero deposit in Russia’s Kola peninsula, and elsewhere.

There is significant overburden covering much of the deposits of interest (up to 35m thick in some places), so this made it challenging to characterize the area. The short field season at Misery Lake (2-3 months long) also made it very challenging to explore here; there was absolutely no infrastructure in place at the site, and the geologists are shuttled back and forth from a hunting and fishing lodge located around 6 miles away, by helicopter or float plane. Mr. Cashin indicated that they may start to build a permanent camp at Misery Lake next year.

Mr. Guay said that the company was looking to develop enough information from the site at Misery Lake, to interest potential third-party partners to assist in the development of the project, as a way of speeding up the exploration process. There had been some initial interest from JOGMEC, the Japanese government entity, but a joint venture was ultimately not initiated.

A comment that Mr. Cashin made early on in the visit, was that the company was looking to expand its Board of Directors to include additional individuals who have experience with mining development. Just this past week, the company announced the appointment of one such individual, George Potter, to their Board.

Overall, I was very impressed with all aspects of the Strange Lake project, and the management team behind it. The project is clearly well on its way to completing the pre-feasibility study, and determining the flow sheets required to produce end products. Although the project site is pretty remote, the company has not let that stand in the way of making significant progress. On a side note, I was also impressed with the way that the Quest team handled some unexpected logistical challenges before we arrived at Strange Lake, caused by the notoriously unpredictable weather in that part of the world. The little things can make all the difference.

My thanks go to Peter Cashin and his colleagues at Quest Rare Minerals Ltd., for facilitating the visits to Strange Lake and to Misery Lake.

Disclosure: at the time of writing, Gareth Hatch is neither a shareholder of, nor a consultant to, Quest Rare Minerals Ltd. (Quest). He did not receive compensation from Quest or from anyone else, in return for the writing of this article.