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Exploration

Clouds part, mood turns positive

February 22, 2017
by Norm Tollinsky
In: Exploration, Featured

 More diamond drills turning

First Mining Finance CEO Chris Osterman and director David Shaw looking over drill core. The Vancouver-based junior miner has acquired a mineral bank of 25 properties in North America, including four gold properties in northwestern Ontario.

First Mining Finance CEO Chris Osterman and director David Shaw looking over drill core. The Vancouver-based junior miner has acquired a mineral bank of 25 properties in North America, including four gold properties in northwestern Ontario.

Upswing? Downswing? Who knows? Ask Garry Clark, president of the Ontario Prospectors Association or Andrew Cheatle, executive director of the Prospectors and Developers Association of Canada, and they’ll tell you the mining industry is headed in the right direction. But check out the most recent estimates of exploration and deposit appraisal expenditures from Natural Resources Canada, and you have to wonder.

“2016 has been a better year,” said Clark. “There’s more exploration going on, there are more people in the field and more diamond drills turning. People seem to be busier. There was a little more optimism after Christmas last year and in the spring, so people were coming back to the market and investing. Now, we’re in a questionable period with gold down again, but it’s still not a bad price when you consider the exchange rate (for the Canadian dollar).”

Cheatle is of a similar mind. “I think it’s fair to say that we’ve started to see a rebound,” he observed. “There has been a short-term dip in the last few weeks, but we’ve seen some very big improvements compared to where we were at this time last year. A number of mid-tier companies have seen their stock price increase two to four times. In May, I think we saw the highest rate of financing activity since 2014. There’s definitely a more positive mood. We have even started to see the return of generalists into the market. All this is reflected in increased field activity… but let’s not kid ourselves, we’re still not back at the top of the market.”

According to estimates published by Natural Resources Canada, exploration spending in 2016 fell to $394.8 from the 2015 total of $440.2 million. Junior mining companies picked up the pace, spending $82 million – a healthy increase over the $53.2 million spent in 2015, but still a far cry from the $452.2 million they put in the ground in 2012.

During the same time, spending by senior mining companies in Ontario fell from $387 million to an estimate of $312.9 million.

The year saw some major mergers and acquisitions with Tahoe Resources picking up Lake Shore Gold, and Kirkland Lake Gold combining with St. Andrew Goldfields and Newmarket Gold. Several juniors struggling to keep the lights on were also snapped up. For example, Gold Canyon Resources, Chalice Gold Mines, PC Gold and Tamaka Gold traded their Northern Ontario properties for shares of First Mining Finance, (See Page 35) a Vancouver-based company pursuing a “mineral bank” policy.

The other big trend we saw was a new focus on lithium, graphite and cobalt, all of which are critical components of batteries and in short supply as a result of Tesla and mainstream automobile manufacturers – even mining equipment manufacturers – accelerating the production of electric vehicles. Companies hoping to take advantage of the shift to battery power include Avalon Advanced Materials (See Page 36), Zenyatta Ventures (See Page 34), Ardiden Ltd., International Lithium Corp., and a host of juniors descending on the Town of Cobalt (See Page 37).

Northwestern Ontario

Goldcorp’s flagship Red Lake complex recorded a decrease in gold production for the nine months ending September 30th – from 276,000 oz. to 236,000 oz. During third quarter of the year, the Number One shaft was placed on care and maintenance, the Red Lake mill was slated for closure, and later this year, the Campbell shaft will be placed on care and maintenance, reducing the number of shafts from four to two in a bid to trim operating and maintenance costs. In November, Goldcorp also laid off 27 employees in Red Lake.

On a brighter note, the company is working to advance two Red Lake exploration projects. A concept study on the HG Young exploration discovery was to be completed by year-end leading to the commencement of a decline from surface, a bulk sample and a pre-feasibility study by mid 2017 assuming a positive business case.

A concept study on the Cochenour project, which combines the existing workings of the historic Cochenour Mine and the Bruce Channel gold discovery, was also slated for completion by year-end. Tight spaced drilling at Cochenour reveals an indicated resource of 598,000 tonnes grading 15.03 g/t for 289,000 oz., and an inferred resource of 3.9 million tonnes grading 17.09 g/t for 2,147,000 oz. of gold. As of June 30th, HG Young had an indicated mineral resource of 304,000 tonnes grading 17.02 g/t for 166,000 oz, and an inferred resource of 1.2 million tonnes grading 18.08 g/t for 693,000 oz.

Production at Goldcorp’s Musselwhite Mine, 480 kilometres north of Thunder Bay, was 186,000 oz. as of September 30th – 3,000 oz. short of the total for the same period last year. But the big news was the company’s approval of the $90 million Materials Handling Project, which will see the construction of a winze and associated infrastructure to reduce the reliance on high-cost truck haulage. Following completion of the winz in the first quarter of 2019, Goldcorp anticipates incremental production of 20 per cent and a 10 per cent reduction in operating costs for the life of the mine.

Premier Gold, based in Thunder Bay, transitioned to a producer in 2016, reporting production of 112,018 oz. of gold from its 40 per cent share of South Arturo in Nevada and its Mercedes operation in Mexico, which it acquired in October from Yamana Gold for $140 million.

In Northern Ontario, Greenstone Gold, a partnership between Premier and Centerra Gold, released a feasibility study on the Hardrock Project near Geraldton reporting open pit probable reserves of 4.7 million ounces of gold, a 14.5 year mine life and annual production of 288,000 oz. Capital costs were estimated at $1.25 billion. Next steps include the completion of an environmental assessment, permitting, project financing and discussions with First Nations.

At its 100 per cent owned Hasaga property in Red Lake, Premier Gold reported an indicated resource of 1,123,900 oz. of gold and 630,500 oz. in the inferred category based on 50,000 metres of drilling in 2016. The Hasaga property is host to the past producing Hasaga, Buffalo and Gold Shore mines.

In October, Premier signed two option agreements – one with Kinross Gold to earn a 50 per cent interest in the Goldbanks project in Nevada contingent on spending $20 million on exploration within five years, and a second one with Goldcorp to earn up to a 100 per cent interest in the Alto-Cristina project in Mexico contingent on staged payments totaling $7 million.

Another junior miner active in the Red Lake camp, Vancouver-based Pure Gold, completed 78,800 metres of drilling at its Madsen project in 2016. Madsen hosts two past producing mines, existing mine infrastructure, including a 550 tonne per day mill, a 1,275-metre shaft, a headframe and a portal. It received approval in December to re-open an existing portal and ramp, and has announced a four-rig drilling program of 70,000 metres for 2017. Indicated and inferred mineral resources total 1,225,000 oz. The Madsen Mine operated for 36 years, producing 2.5 million ounces of gold at an average grade of 9.9 g/t gold.

New Gold’s Rainy River Mine, 65 kilometres northwest of Fort Frances, is expected to begin operating later this year. As of September 30th, the company had spent $620 million on mine development with an estimated $425 million budgeted for project completion. The 21,000 tonne per day combined open pit and underground operation is scheduled to produce 325,000 ounces of gold per year at all-in sustaining costs of $710 per ounce over the first nine years of mine life.

Underground operations are scheduled to commence in the second half of 2018.

North American Palladium was forced into a financial restructuring in August 2015, resulting in a substantial reduction in debt and the assumption of a 92 per cent equity position by Brookfield Asset Management. The company reported a net loss of $24.6 million as of September 30th, 2016, and was on target to report a year-end result significantly better than the $216 million loss it recorded in 2015.

Palladium prices fluctuated wildly through the year – from a low of $473.80 per ounce in January to a high of $770.20 in November.

Palladium production at North American Palladium’s Lac des Iles Mine 90 kilometres northwest of Thunder Bay totaled 111,584 ounces for the first three quarters of the year compared to 166,785 ounces for the full year 2015.

Treasury Metals is advancing toward a bankable feasibility study on its 100 per cent owned Goliath Gold Project, 20 kilometres east of Dryden. Permitting is under way for an open pit and 2,500 tonne per day processing facility. Startup costs are estimated at $92 million. Work on an environmental assessment is in progress and a second drill was added in September. The Toronto-based junior mining company has measured and indicated resources of 1,165,800 ounces of gold. In November, Treasury Metals announced the acquisition of Goldeye Explorations and its Weebigee Project near Sandy Lake, giving it a second high-quality asset in northwestern Ontario.

Hemlo – White River – Wawa

Moving east, Barrick Gold’s Williams Mine was expected to produce between 215,000 and 230,000 ounces of gold at all-in sustaining costs of between $830 and $880. The last of three Hemlo mines still in operation, the Williams Mine is counting on the discovery of new ore zones to extend the life of the mine.

Eighty kilometres east of Hemlo, Harte Gold is extracting a 70,000-tonne bulk sample on its Sugar Zone property and has applied for a further 30,000 tonnes. It closed a $25 million financing in November to fund ongoing exploration, including a 15,000-metre drill program, and hopes to have a permit for full commercial production later this year. The Sugar Zone contains a NI-43-101 compliant indicated resource of 980,900 tonnes grading 10.13 g/t (uncapped) for 275,000 ounces of gold and an inferred resource of 580,500 tonnes grading 8.36 g/t (uncapped) for 156,000 ounces.

It was a banner year for Richmont Mines and its Island Gold Mine near Wawa. The mine is expected to report record production of between 62,000 and 67,000 ounces of gold for the year. It also reduced operating costs and is planning a mill expansion, which will allow it to boost throughput from 900 to 1,100 tonnes per day starting in 2018. An ambitious drill program during the year boosted reserves to 2.1 million tonnes averaging 8.26 g/t for 561,000 contained ounces.

Wesdome’s underground Eagle River and open pit Mishi mines, 60 kilometres southeast of Hemlo, produced 47,737 ounces of gold in 2016 and announced guidance of between 52,000 and 58,000 ounces for this year. The company’s 2017 exploration budget includes $4.5 million for Eagle River and $5 million for its Moss Lake property, 100 kilometres west of Thunder Bay. Moss Lake, a large tonnage-low grade deposit amenable to surface bulk mining methods, hosts indicated resources of 40 million tonnes grading 1.1 g/t gold and an inferred resources of 50 million tonnes at 1.1 g/t. Capital spending for 2017 includes $1.2 million for road improvements at the Mishi pit and $1.7 million for an underground ventilation raise.

Also busy in the region is Argonaut Gold, which concluded a 39,447-metre reverse circulation drill program at its Magino property in November. The property, 40 kilometres northeast of Wawa, is host to the past producing Magino Mine. The company envisions an open pit operation with a 10-year mine life and plans to carry out a feasibility study this year. Magino has four million ounces of indicated mineral resources.

Sudbury

In Sudbury, the prolonged slump in nickel prices has forced Vale and Glencore’s Sudbury Integrated Nickel Operations into cost containment mode. Stuart Harshaw, Vale’s vice-president, Ontario operations, told the Sudbury Chamber of Commerce in November that at current nickel prices, more than half of nickel producers are losing money.

“Things haven’t been this bad this long in decades, if ever,” he observed. “As someone with 25 years of experience in the industry, I can tell you there’s no doubt that what we’re seeing is unprecedented. Not only Vale, but nickel producers around the world have had to make significant adjustments to stay in business.”

Global inventories and weak demand from China, he said, have created a chronic nickel surplus. “In fact, if every nickel mine shut down, there would still be enough nickel for a half year of supply.”

Despite the challenging business environment, Vale continues to advance its $1 billion Clean AER project, which will result in an 85 per cent reduction in sulphur dioxide emissions. It also completed a $75 million emission reduction project at its Copper Cliff nickel refinery.

Harshaw said he expects to bring the first phase of the proposed Copper Cliff mine project to Vale’s board early this year. “If approved, it represents a potential investment of hundreds of millions of dollars and will support nickel, copper and precious metal production at the company’s Sudbury operations for the next 20 years.”

Development of its Creighton Deep project will also extend mining decades into the future, but the company must first overcome the challenges associated with mining at extreme depths.

“We’re currently mining at the 8,000 foot level at Creighton and our intent over the medium to long term is to mine down to 10,000 feet,” he said. “That’s five and a half CN Towers stacked on top of each other.”

Glencore’s Sudbury Integrated Nickel Operations is similarly challenged. The company’s two existing mines in the Sudbury Basin – Nickel Rim and Fraser – only have enough ore to sustain operations to 2021. Two ultra-deep development projects – Onaping Depth and Nickel Rim Depth – are on the drawing board, but dependent on board approval. In the interim, said vice-president Peter Xavier, “we’re actually breaking rock on both of them…as a display of commitment.”

The company is also following up encouraging results at its Norman West project north of Capreol.

Difficult market conditions have also impacted on KGHM International, which is delaying construction at its Victoria project on Sudbury’s Worthington Offset Dyke. A new electrical substation, temporary waste treatment plant and other surface infrastructure are in place, but shaft construction scheduled for 2016 was put on hold. The deposit contains 14.5 million tonnes of inferred resources grading 2.5 per cent nickel, 2.5 per cent copper and 7.6 g/t precious metals. Initial capital cost for the development of Victoria could be up to $1 billion if it decides on a two-shaft scenario. Meanwhile, production continues at KGHM’s Morrison deposit.

Elsewhere in the Nickel City, Sudbury Platinum Corp. and Transition Metals completed 18,000 metres of drilling at their Aer-Kidd project, located between Vale’s Totten Mine and KGHM’s Victoria project, while Wallbridge Mining turned its attention to its Parkin properties on the northeast corner of the Sudbury Basin. Partnering with Lonmin Plc, Wallbridge drilled 11,030 metres at Parkin in 2016 and has a 20,000-metre drill plan this year. It’s also “re-initiating active exploration” on its East Range properties adjacent to Glencore’s Nickel Rim South Mine and Vale’s Victor Deep and Capre development projects. Armed with a positive pre-feasibility study, Wallbridge is also working to bring its Fenelon Gold Project in Quebec into production.

Timmins – Kirkland Lake

In Timmins, Goldcorp’s Porcupine division produced 211,000 ounces of gold in the nine months ending September 30th with ore coming from its Hoyle Pond, Dome and Hollinger Mines. A concept study on its new Dome Century Project, an expanded open pit with an indicated mineral resource of 4.5 million ounces and 0.9 million ounces in the inferred category, is due for completion early this year. The company will proceed with a pre-feasibility study if the results are positive.

The Borden project near Chapleau, 160 kilometres west of Timmins, is advancing toward production. Goldcorp acquired the property from Probe Mines in 2015 and expects to complete phase one of a pre-feasibility study by the end of March. It also awaits an advanced exploration permit to construct a ramp and extract a 30,000-tonne bulk sample this year. The company has already announced plans to develop Borden as Ontario’s first all-electric mine.

On Januray 25th, IAMGOLD received approval of its provincial environment assessment and reported details of a positive preliminary economic assessment (PEA) for its Côté Gold project, 130 kilometres southwest of Timmins. The mid-tier miner, which has operating mines in Surinam, Burkina Faso, Mali and Quebec, expects to complete a pre-feasibility study by June and initiate applications for permitting. The PEA estimates average annual production of 302,000 ounces of gold over a 21-year mine life at all-in sustaining costs of $686/oz. Initial capital costs for the open pit operation are estimated at just over $1 billion.

In April, Tahoe Resources completed the all-share acquisition of Lake Shore Gold’s West Timmins Mine and Bell Creek Complex, along with the Whitney, Fenn-Gibb and Juby projects in a deal valued at C$945 million. Tahoe reported production of 76,657 ounces of gold from its two Timmins’ mines for the two quarters ending September 30th. An $80 million extension of the Bell Creek shaft to 1,080-metre level will continue this year with completion expected in 2018. A 225-hole (76,255 metres) exploration drilling program was carried out at Timmins West, Bell Creek and Whitney properties subsequent to the acquisition of Lake Shore Gold merger in April. Work on the three properties will continue in 2017 with an additional focus on the Fenn-Gib and Juby projects.

While gold continues to glitter in Timmins, the city is bracing for the closure of Glencore’s copper-zinc-silver Kidd Mine in 2022. Closure will result in the loss of more than 800 jobs and a payroll of more than $100 million. Ore extraction is currently taking place at the 9,600-foot level, making it the deepest base metal mine in the world.

Also winding down is De Beers’ Victor Mine, Ontario’s only diamond mine. Located in the James Bay Lowlands, 90 kilometres west of the Attawapiskat First Nation, Victor is due to run out of ore in 2018, and has been unsuccessful obtaining community consent to proceed with work on the nearby Tango Extension.

“We’re parking Tango for now,” said Tom Ormsby, head of external and corporate affairs for De Beers Canada. “Of the other Kimberlites in that cluster, Tango has the most potential, but we still don’t know what’s in it and, without formal community consent, we haven’t been able to get a bulk sample. As a result, the gap between the end of Victor and the start of another mine is getting quite large, so we decided to rethink the opportunities at the site.”

One opportunity the company is studying is to process some six million tonnes of stockpiled low-grade material.

“Normally, we would wait to do the low-grade stockpile later in the life of the operation when all the mining is done, but we’re actually looking at that now,” said Ormsby.

“We have been engaging with the new chief and council, but they still have a lot of challenges before them. Overall, the community has been very supportive, but they’re tied up with their housing and suicide crises.”

The Victor mine employs 530 people, 35 to 40 per cent of whom are First Nation employees. Once mining winds down, that number will be significantly reduced.

However, the company will continue engaging with the community, said Ormsby. “We could get a letter anytime and do a bulk sample next winter.”

On a more positive note, Gowest Gold and Sage Gold both announced plans to proceed with production. Gowest secured financing of $17.6 million to fund underground development at its Bradshaw Gold Deposit, 32 kilometres northeast of Timmins, and Sage Gold has been permitted to begin production at its Clavos Gold Project, 20 kilometres from Timmins.

The Bradshaw project has a NI 43-101 indicated resource of 422,000 ounces and an inferred resource of an additional 755,000 ounces. Clavos, with an indicated mineral resource of 194,600 ounces of gold and an inferred resource of 120,000 ounces, is expected to begin production the third quarter of this year.

Primero Mines’ Black Fox Mine, near Matheson, was expected to end 2016 with production of between 60,000 and 70,000 ounces of gold at all-in sustaining costs of between $1,250 and $1,300. The company reported a loss of $11.1 million in Q3 as a result of labour problems, an electricity outage and other problems at its San Dimas Mine in Mexico, and in December received notification from the New York Stock Exchange of non-compliance with the exchange’s listing standards for minimum trading price.

Detour Gold’s huge open pit operation 300 kilometres northeast of Timmins produced 537,765 ounces of gold at all-in sustaining costs of $1,005/oz. in 2016. Production this year is expected to fall between 550,000 and 560,000 ounces at all-in sustaining costs of between $1,025 and $1,125 per ounce. Production from the West Detour pit was expected in 2018, but will now be delayed until 2021 as a result of a First Nation request for an environmental assessment by the federal government. Detour Gold shares jumped 13 per cent January 31st due to the better than expected production guidance and the cash conservation impact of delaying development of the West Detour pit.

Alamos Gold’s Young-Davidson Mine, 60 kilometres west of Kirkland Lake, produced 170,000 ounces of gold in 2016.

Guidance for 2017 calls for gold production of between 200,000 and 210,000 ounces at total cash costs of $625/oz.
Capital spending in 2016 totaled $95 million. This year, capital spending will be between $70 million and $80 million.

Other than Tahoe’s acquisition of Lake Shore Gold, the biggest news in mergers and acquisitions for 2016 was Kirkland Lake Gold’s emergence as a mid-tier miner having first successfully absorbed St. Andrew Goldfields with its Holt, Holloway and Taylor mines, then in November combined with Newmarket Gold, which brings into the fold three Australian mines with production of over 220,000 ounces. With its flagship Macassa Mine in Kirkland Lake, the new Kirkland Lake Gold can boast annual production of over 500,000 ounces of gold.

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