Mining, exploration take a beating

New Gold, Detour, Premier Gold are among the exceptions

Mining company execs manning the booths at the PDAC’s Investors Exchange in Toronto this year will have a harder time than usual convincing wary investors to part with their cash as excess supply and weak demand continue to take their toll on commodity prices, balance sheets and stocks.

In 2015, the price of gold hit a high of US $1,302 in January and fell to $1050 in December. Nickel was just shy of US $7.00 a pound in January and trading under $4 by the end of the year.

The story was much the same for copper (a high of $2.85 per pound, low of $2.00) and palladium (high of US $826, low of $476).

It’s no surprise then that exploration activity has taken a beating globally. In Ontario, Natural Resources Canada estimates exploration and deposit appraisal expenditures will come in at $399.8 million for 2015.

That’s down from $468 million in 2014, $562 million in 2013, $961.5 million in 2012 and a little over $1 billion in 2011.

Though still the number one jurisdiction in the country in terms of exploration expenditures, Ontario’s share of Canada’s total spending has fallen from a high of 30.8 per cent in 2010 to a low of 21.3 per cent last year.

Junior mining companies have been especially hard hit, accounting for only $91.1 million in exploration expenditures in 2015 – down from three consecutive years of spending in excess of $450 million from 2010 to 2013.

Of the $399.8 million in spending in 2015, $289.1 million was spent in the search for gold, and most of the rest for base metals.

In December, the Ontario Ministry of Northern Development and Mines unveiled an updated Mineral Development Strategy and a $5 million fund to subsidize grass roots exploration, but any meaningful turnaround for the industry will ultimately depend on a rebalancing of global supply and demand, which could take several years and more hardship for miners, suppliers and shareholders as a result of mine closures, layoffs and constrained capital budgets.

One factor that has tempered the plunge in commodity prices for Ontario miners has been the simultaneous devaluation of the Canadian dollar, which fell from a high of 85 cents at the beginning of the year to a January 12, 2016 value of 69 cents. Based on the lower exchange rate for the Canadian loonie, gold miners in Ontario are pocketing close to C$1,550 per ounce, which helps to keep the wolf from the door.

The current market environment might be the perfect time to invest in future capacity given the time it takes to bring a new deposit into production and the lower cost of exploration and capital inputs in a depressed market, but not every operator has the means or the intestinal fortitude to take the risk.

Northwestern Ontario

One exception is New Gold Inc., which is spending $877 million to bring its Rainy River project into production by mid-2017. Located 65 kilometres northwest of Fort Frances in northwestern Ontario, Rainy River will be a 21,000 tonne per day open pit and underground operation producing an estimated 325,000 ounces of gold per year (see story, Page 32).

Work is also ongoing at Goldcorp’s Cochenour project in Red Lake, which combines the existing workings of the historic Cochenour Mine with the Bruce Channel gold discovery. A six-kilometre haulage drift connecting the Cochenour project to the Red Lake Complex was completed in 2014. Work in 2015 included the excavation of an incline ramp to the 3,080-foot level, preliminary stope-level development and the completion of an internal ventilation raise. Total project expenditures to September 30th were $410 million. Once in production, the Cochenour project is targeted to produce up to 250,000 ounces of gold per year. For the nine months ending September 30th, Goldcorp produced 275,800 ounces from Red Lake and 189,100 ounces from Musselwhite, 480 kilometres north of Thunder Bay. All-in sustaining costs were US $796 per ounce from Musselwhite, and $889 per ounce from Red Lake.

Rubicon Minerals’ Phoenix project, one of Northern Ontario’s hottest mine development stories of the last few years, turned out to be the biggest disappointment of 2015. The Red Lake area mine poured its first gold in June on schedule, but quickly ran into problems when it became clear that the geology of the deposit was more complex than previously thought. In November, the company ceased all underground operations and laid off 330 employees. Rubicon stock, once valued at a bit over $6.00, plunged to .03 cents in January when the junior miner slashed its gold resources by 88 per cent. The debacle was attributed to the company rushing into production on the basis of a positive preliminary economic assessment, not doing sufficient infill drilling and skipping prefeasibility and bankable feasibility studies.

North American Palladium also had its troubles in 2015, but stayed alive by converting outstanding loans owed to Brookfield Capital Partners into equity, representing 92 per cent of outstanding shares. The palladium miner laid off 44 employees at its Lac des Iles mine 90 kilometres northwest of Thunder Bay, scaled back its milling operations to a 14-day on, 14-day off schedule and lowered its production guidance to between 160,000 and 170,000 ounces of palladium for the year – down from 185,000 to 205,000 ounces.

An eventual recovery in PGM prices will be welcome news for two junior mining companies – Panoramic Resources and Transition Metals – which have made interesting discoveries in northwestern Ontario. Panoramic Resources has an earn-in agreement with Rio Tinto on its Thunder Bay North project while Transition Metals has partnered with Impala Platinum on its Sunday Lake project (see story, Page 25).

One junior miner that managed to keep busy in 2015 was Premier Gold. By methodically assembling a portfolio of properties in areas of historical gold production and partnering with senior mining companies, the Thunder Bay junior made the most of what has been a disastrous year for most of its peers.

In February 2015, Premier Gold struck a deal with Centerra Gold to form a 50/50 partnership for the joint ownership and development of Premier’s Trans-Canada project, including its Hardrock gold project in the Geraldton-Beardmore Greenstone Belt east of Thunder Bay. Centerra made an initial contribution of $85 million to Premier on closing of the deal in March and agreed to contribute a total of up to $300 million in cash over time. A feasibility study on Hardrock is scheduled for completion by the first half of 2016.

Days after announcing the deal with Centerra, Premier concluded a property swap with Goldcorp, acquiring the Hasaga property in Red Lake in return for its 35 per cent interest in the East Bay property in Red Lake and its 100 per cent interest in the PQ-North property near Goldcorp’s Musselwhite Mine. Then in December, Premier entered into an agreement with Pure Gold Mining to acquire a 513-hectare land package adjacent to the Hasaga property for $5 million in cash and shares. Host to the past producing Hasaga and Gold Shore mines, the expanded 1,200-hectare Hasaga property boasts near surface mineralization amenable to an open pit operation. Premier completed 60,000 metres of drilling on the property prior to the acquisition from Pure Gold and plans to do another 40,000 to 60,000 metres of drilling this year.

The deal-making continued in April with Premier entering into an agreement to acquire Goldcorp’s 40 per cent interest in the South Arturo Mine in Nevada for $20 million in cash and 5 per cent of its interest in the Rahill-Bonanza joint venture in Red Lake. Premier’s 60 per cent partner in South Arturo, Barrick Gold, plans to be in commercial production by mid-year, providing Premier with a revenue stream it can use to fund other opportunities.

In addition to all of the above properties, Premier owns a 44 per cent interest in the Rahill-Bonanza property located between Goldcorp’s Red Lake Complex and its Cochenour project. Goldcorp, which has a 56 per cent interest in the property, has recorded high-grade intercepts of up to 46 grams per tonne over 11 metres from an underground drilling program in the haulage drift traversing Rahill-Bonanza.

An anomaly among junior mining companies, Premier Gold saw its share price climb from $2.18 in January 2015 to $2.71 on January 11th of this year.

Elsewhere in northwestern Ontario, Barrick Gold completed the acquisition of surface and mineral rights adjacent to its Williams Mine in Hemlo from Newmont Mining. Drilling on the property has encountered a number of high-grade intercepts with significant potential for further extending the mine life of the operation 350 kilometres east of Thunder Bay. Gold production from the Williams Mine for 2015 was expected to come in at between 200,000 and 225,000 ounces at all-in sustaining costs of between $940 and $980 per ounce.

Sixty kilometres east of the Hemlo gold fields, Harte Gold, led by this year’s Bill Dennis Award winner Stephen G. Roman, is taking a 70,000 tonne bulk sample from its Sugar Zone deposit. A preliminary economic assessment from 2012 estimates an indicated resource of close to one million tonnes grading 10.13 grams per tonne for 319,280 ounces of contained gold and an inferred resource of 580,500 tonnes grading 8.36 g/t for another 155,960 ounces of gold (see Page 26 for more on Harte Gold).

Working our way further east, Wesdome Gold Mines’ Eagle River and Mishi mines, 83 kilometres northeast of Wawa, recorded production of 36,900 ounces for the nine months ending September 30th and plans to increase production to between 72,000 and 80,000 ounces by 2019. Richmont Mines’ Island Gold Mine, 83 kilometres northeast of Wawa, was also unfazed by the steep drop in gold prices, announcing record production of 55,040 ounces at a head grade of 7.31 g/t for 2015.

Sudbury

Falling nickel prices took their toll on Sudbury through 2015 with First Nickel shutting its Lockerby Mine and going into receivership in August, and KGHM placing its McCreedy West Mine on care and maintenance in October. Layoffs earlier in the year and the eventual closure of Lockerby Mine affected approximately 225 jobs, while the placing of McCreedy West on care and maintenance resulted in 49 layoffs.

There were no layoffs or curtailment of operations at Vale and Glencore, but by December, the unemployment rate in Sudbury had risen to 8.4 per cent because of the impact of industry cost cutting on the city’s extensive mining supply and service sector.

In the current environment, Vale is in no rush to move forward to develop its Copper Cliff Deep or Victor-Capri projects. On the bright side though, work continued on Vale’s Clean AER project, which will reduce sulphur dioxide levels from its Copper Cliff smelter by 85 per cent, and a collective agreement with the United Steelworkers was signed in August, assuring labour peace for the next five years.

Last year, Glencore’s Sudbury Integrated Nickel Operations unit completed a scoping study on its Nickel Rim Depth deposit and a prefeasibility study on Onaping Depth. This year, plans call for drilling off Nickel Rim Depth and conducting a feasibility study on Onaping Depth. The company currently operates two mines in the Sudbury Basin – Nickel Rim South and Fraser Mine.

In November, KGHM International announced it had decided on a two-shaft scenario for its Victoria project in the Sudbury Basin. “Work continued on gaining access to the deposit, including…the preparation of preliminary shaft infrastructure and the foundations for the lift machinery,” it noted in its third quarter report. Construction of the power substation was underway, engineering work was in progress and further drilling was commenced to identify additional mineralization.

One shaft will go down to 1,800 metres, the other to 2,200 metres with sinking to commence in June. Victoria has an inferred resource of 14.5 million tonnes grading 2.5 per cent copper, 2.5 per cent nickel and 7.6 g/t precious metals. Victoria is in the final stages of obtaining full funding, said Galina Meleger, KGHM communication specialist. Production startup is scheduled for 2018-2019.

On the same Worthington Offset Dyke that hosts KGHM’s Victoria project and Vale’s Totten Mine, Sudbury Platinum Corporation, a joint venture of Transition Metals and Royal Nickel, drilled nine holes and conducted borehole geophysics at its Aer-Kidd project in 2015. This year, it’s hoping to raise $3.5 million to do another 18,000 metres of drilling.

It’s not the easiest time to raise money, said Transition Metals president and CEO Scott McLean, “but there’s a lot of interest in the project, we have a strong lead order of $1.5 million and we’re pretty confident that we’ll be able to top up the rest.”

Elsewhere in the Sudbury Basin, Wallbridge Mining produced 155,000 tonnes of ore containing 3.05 million pounds of copper and 38,200 ounces of precious metals at its Broken Hammer open pit. The Sudbury-based junior recorded $22.2 million in revenue for the nine months ending September 30th and a net loss of $25,502. Open pit mining at Broken Hammer concluded October 30th.

Timmins – Kirkland Lake

In Timmins, Lake Shore Gold had a banner year, selling 183,300 ounces of gold. The company reported positive results from a 40,000-metre surface and underground drilling program at its 144 Gap Zone, and completed the acquisition of Temex Resources Corp., which gives it a majority interest in the Whitney project adjacent to its Bell Creek Mine and milling facility. Lake Shore Gold also has the Fenn-Gib advanced exploration project 60 kilometres east of Timmins and the Juby project, halfway between Sudbury and Timmins, which was acquired with the purchase of Temex Resources. For the nine months ending September 30th, it recorded all in sustaining costs of US $845 per ounce and net earnings of $13.2 million. For 2016, Lake Shore Gold plans to produce between 170,000 and 180,000 ounces of gold at all-in sustaining costs of US $950. Investors rewarded the company driving up its stock price from 0.78 cents at year-end 2014 to $1.12 on December 31st 2015.

Goldcorp’s interest in Ontario as a safe, reliable jurisdiction was manifested in its acquisition of the Borden project in northeastern Ontario from Probe Mines in March 2015. Acquired for total consideration of $526 million, the Borden property is located 160 kilometres west of Timmins and has two million ounces of indicated and inferred ounces of gold. By September 30th, Goldcorp had spent $11 million on the project and completed 105,000 metres of drilling. The plan is to truck the ore for milling at its Porcupine operation in Timmins.

In January, Goldcorp announced that it would permanently cease underground mining activity at its Dome Mine this summer. One of the district’s most prolific and longest running gold producers, Dome Mine was discovered in 1909 and went into production the following year. The closure will result in layoff of 115 employees and 76 contractors. Mining operations at Goldcorp’s Porcupine Gold Mines subsidiary will continue at its Hollinger open pit and Hoyle Pond Mine. For the nine months ending September 30th, gold production from the Porcupine Gold Mines totaled 199,400 ounces at all-in sustaining costs of $1,009 per ounce.

Glencore’s Kidd Mine in Timmins, the deepest base metal mine in the world at 9,889 feet (three kilometres), produces approximately 40,000 tonnes of copper and 70,000 tonnes of zinc per year. It was originally planned for closure in 2018, but operational efficiencies have allowed the company to extend the mine life until 2020-2021. The company hasn’t commented on whether plunging commodity prices will hasten the planned closure date, but Glencore, like most miners, has been impacted by the current economic environment and is looking at asset sales and reduced capital spending to improve its balance sheet. In production since 1966, the Kidd Mine is Timmins’ largest employer, accounting for some 900 paycheques.

In July, Alamos Gold and AuRico Gold merged, creating a new intermediate gold producer with three mines and six development projects in Canada, Mexico and Turkey. The three operating mines include AuRico’s Young-Davidson Mine in Matachewan, 60 kilometres west of Kirkland Lake, and the Mulatos and El Chanate mines in Mexico. For the three months ending September 30th, the Young-Davidson Mine produced 115,664 ounces of gold at all-in sustaining costs of US $988.

Another intermediate producer, Primero Mining Corp., expected 2015 production of between 70,000 and 80,000 ounces of gold from its Black Fox Mine, 65 kilometres east of Timmins, at all-in sustaining costs of between US $1150 to $1200 per ounce. Primero expects first production from Black Fox’s Deep Central Zone in Q2 2016 and is continuing to advance the environmental permitting and scoping study for its proposed Grey Fox open pit project, three kilometres south of Black Fox. The Deep Central Zone is estimated to contain approximately 160,000 ounces of gold at an average grade of 8.5 grams per tonne.

One development project of interest in the Timmins area is Gowest Gold’s Bradshaw project, which has a 43-101 compliant indicated resource of 2.1 million tonnes grading 6.19 grams gold per tonne for 422,000 ounces of gold and an inferred resource of 3,629,097 tonnes grading 6.47 g/t for 755,000 ounces. Gowest is working to raise money for an advanced exploration program this summer that would drive an underground ramp on its property and extract a 30,000-tonne bulk sample (see story, Page 29).

Detour Gold’s massive open pit mine 185 kilometres north east of Cochrane was on track to produce approximately 500,000 ounces of gold at all-in sustaining costs of between US $1050 and the $1150 per ounce for 2015. A total of 5.2 metric tonnes of ore, equivalent to a throughput rate of 56,015 tonnes per day was processed in the third quarter of 2015, an increase of 14 per cent compared to the third-quarter of 2014. Detour Gold had a stellar performance on the TSX, rising from $4.14 at year-end 2014 to $14.41 at the close of 2015.

In November, Kirkland Lake Gold entered into a binding definitive agreement to acquire St. Andrew Goldfields Limited. The transaction provides the expanded Kirkland Lake Gold with substantial landholdings and potential annual production of between 260,000 and 310,000 ounces of gold per year (see story Page 30).

James Bay

In the James Bay Lowlands, Ontario’s only diamond mine has less than three years of mine life left and, although DeBeers Canada is working on an environmental assessment to develop the nearby Tango Kimberlite, there’s no guaranty conditions will be favourable for project approval by December 2018, said Tom Ormsby, the company’s director of external and corporate affairs.

“These are challenging times with the current economic environment and the downturn in diamond prices we saw in 2015,” said Ormsby. “We’d like to continue mining at Victor because some of the other Kimberlite pipes we have on our property have potential, but the conditions of the market right now are so difficult.”

Rough diamond prices fell 16 per cent in 2015.

“And it’s not just the economics,” said Ormsby. “It’s all the other things that are required: the extensive permitting, the community engagement and future impact benefit agreements.”

It might still be technically feasible to have Tango ready to mine before the Victor pipe is exhausted. “It just depends on if we can get everything across the finish line and if the market comes back. Anything that doesn’t line up is probably going to impact on the potential.”

In December, De Beers placed its Snap Lake diamond mine in the Northwest Territories on care and maintenance and laid off 434 employees.