Financial Post, Mar 3, 2015
Will Gold Canyon be next?
You may not be actively shopping for shoes, but if you stumble on a stylish pair discounted 90% – you’re probably going to buy them.
This bargain-hunting reflex has hit the gold sector causing a flurry of acquisitions including Goldcorp’s (NYSE: GG) $526 million acquisition of Probe Mines, Agnico Eagles’ (NYSE: AEM) $205 million acquisition of Cayden Resources, and Timmins Gold (TSX: TMM) $140 million purchase of Newstrike Capital.
Newmont Mines’ (NYSE: NEM) CEO Gary Goldberg also recently stated that “We’re always looking to improve our portfolio,” and “It doesn’t hurt to just look around.”
Gold Canyon’s (TSX.V: GCU) Ontario, Canada Springpole project may be the next shiny set of shoes about to be scooped up.
“Gold Canyon offers one of the best opportunities to leverage the price of gold,” wrote Bob Moriarty in a December, 2014 publication note, “at $0.10 a share, you are paying about $2.60 an ounce for gold in a safe jurisdiction. That’s pretty hard to beat.” [ed. note: GCU share price has risen 70% since then].
Springpole is one of the highest quality bulk tonnage gold deposits in Canada. In 2013, Gold Canyon announced a Preliminary Economic Assessment (PEA) for the project, supporting a conventional open-pit mine and milling operation.
“Springpole Gold is an alkaline gold deposit,” stated GCU Director Dr. Quinton Hennigh in an exclusive interview. “These alkaline systems are typically large and disseminated with low deleterious elements. The first time I looked at Springpole I felt that it could be a 3 million + ounce gold system, and it has far exceeded my expectations.”
Eric Sprott invested in the first tranche financing in 2010 to get the company drilling. That program was a success, revealing several intervals of over 100 meters of two to three gram gold. Since then 85,000 meters have been drilled, proving up a 5.1 million ounce resource.
“We published the Preliminary Economic Assessment (PEA) in March 2013,” recalls Hennigh. “The deposit had glowing economics. The initial operation was projected to generate 217,000 ounces of gold and 1.2 million ounces of silver per year. The silver credit is significant. Six grams of silver for every gram of gold, definitely improves the economics of the mine.”
At $1,300 gold and a 5% discount Springpole has a pre-tax net present value (NPV) estimated at US $579 million, a pre-tax internal rate of return (IRR) of 25.4%, and a non-discounted payback of just 1.7 years. While the gold price has recently fallen to US $1,200 per ounce, in Canadian dollars it is higher than what it was when the PEA was released. Not only will the revenue be positively affected, operating costs are likely to be lower, owing to much lower oil and steel prices. Hence, if the PEA were to be revised, the numbers should actually look better today than they did when gold was US$1,300 per ounce.
“We’ll be mining a pit resource of about 1.25 grams per ton of gold and about 6.31 grams per ton of silver,” stated Hennigh. “It is a robust metal asset with consistency and continuity. We are also looking at a strip ratio that is very low. From the point of view of a mine investor wanting to de-risk its money – the Springpole Gold project is a safe bet.”
The Red Lake Camp is in a favorable mining jurisdiction. There are no mines immediately around Springpole, but Goldcorp’s Musselwhite project is to the north-east, and several historic mines are in close proximity.
“We’ve done a lot of engineering work to make sure that we can mine this deposit without any net environmental damage,” stated Hennigh. “I anticipate that we will dyke and dewater a small portion of the lake on our property. We’ve completed extensive studies of the fish habitat, establishing that there are no endangered species or sensitive spawning grounds. We are continuing to receive advice and support from the Department of Fisheries and Oceans Canada (DFO).”
Hennigh does not anticipate any environmental, geological or financial impediment to moving the Springpole project forward.
“We’ve signed a protocol agreement with the local First Nations,” stated Hennigh. “They have a protocol agreement amongst themselves, to negotiate in good faith with Gold Canyon. We expect it to be a fruitful partnership – with employment, knowledge and economic benefits flowing in both directions.”
Hennigh stresses that Gold Canyon is not an early stage exploration company.
“For our next steps, we will be advancing our geo-technical work,” stated Hennigh. “That includes drilling holes to test the structural integrity of the pit. The PEA has formed a solid foundation for launching into a feasibility study. There was small amount of ‘inferred resource’ that needed to be converted to ‘indicated’. Although our resource has not officially been updated, the last drill program was designed to accomplish that. Currently, the PEA pit resource is effectively all indicated, meaning we can take it forward to feasibility level study without the need for further resource drilling.”
Because mineralization in the Springpole deposit is consistent, Hennigh and the Gold Canyon geological team think it is possible to go right to a feasibility study. The PEA estimated cash cost is US $636/equivalent ounce gold, with a life of mine of 11 years.
“This is one of the best bulk tonnage projects left in Canada,” stated Hennigh. “Over the past few years, projects like ours have been bought one-by-one.”