How to Play Exploration Mining Companies in This Market

The Gold Report |

Few know and understand Québec-based mining projects like Eric Lemieux, mining analyst with PearTree Securities Inc. He understands that the low commodity price environment is hindering widespread exploration but explains that for companies with cash, exploration dollars go further in tough times. In this interview with The Gold Report, Lemieux provides some perspective on several brownfield exploration projects he recently visited in Québec's Abitibi and Val-d'Or regions, while providing updates on other Québec gold and other mining projects with near-term catalysts.

Québec Province within Canada

The Gold Report: Canada recently elected a majority Liberal government under Justin Trudeau. Will that government's promise to bring "credibility" back to environmental impact assessments have an effect on mining projects in Québec?

Eric Lemieux: The federal government has a platform of ensuring that decisions are based on science, facts and evidence. I look forward to that coming to fruition nationally. In Québec there is BAPE, the Bureau d'audiences publiques sur l'environnement, a provincial agency that brings credibility to environmental reviews and permitting. Investors shouldn't have any reason to be anxious about environmental impact assessments and the incoming government of Prime Minister Justin Trudeau.

TGR: You just returned from some site visits in the Abitibi, specifically the Val-d'Or and Rouyn-Noranda regions of Québec. What's your sense of the health of mining exploration in these camps compared to other years when you've been there?

EL: These regions are struggling because of the low commodity price environment. You can see that the area is less vibrant and the impact is probably greatest among the mining service providers like drillers and assay labs. But that means the cost of drilling has gone down and the wait times for assay data are not as long. Some companies are taking advantage and going full speed ahead with their projects. This is a great time to explore, if the company has the capacity.

TGR: Against that backdrop, what are some companies that are having success? And what do they have in common?

EL: They typically have a healthy cash position and the capacity to raise more money, even in this market. Their financial position allows them to continue project development or explore, which is not the case for many of the issuers.

TGR: Tell us more about your recent visits. What got you excited?

EL: I started with a visit to the NioGold Mining Corp. (NOX:CA) (NOXGF) offices in Val-d'Or, Québec. NioGold is advancing its Marban project near Dubuisson on the western side of Val-d'Or, not far from the Canadian Malartic mine, now owned by Agnico Eagle Mines Ltd. (AEM:CA) (AEM) and Yamana Gold Inc. (YRI:CA) (AUY). NioGold should be coming out with a resource update and it's a project that will likely move forward given its proximity to the Canadian Malartic open pit.

Our next stop was to see Canadian Malartic from afar. It is at the fourth or fifth bench level of depth. It is a world-class mining operation.

Finally, we went west to Rouyn Noranda where the first thing one sees is the Horne smelter complex, and the Falco Resources Ltd. (FPC:CA) offices are smack in the middle of it. It was nice to see a well-executed brownfield project. Projects near old mining sites sometimes hold pleasant surprises.

TGR: Robert Wares, the CEO of NioGold, helped discover Canadian Malartic by rethinking the approach to that deposit. Could Marban be another high-grade, open pit?

EL: Yes. Robert Wares is a geologist and the technical person who was really the thinking behind Canadian Malartic initially because it took somebody to think outside the box and say, "With all these underground, high-grade past-producers, maybe a lower-grade, higher-tonnage gold operation would work in this camp." Now Robert Wares has the Marban deposit. The Marban mineralization would be quite suitable for the Canadian Malartic mill, which is about 17 kilometers (17km) away by road, and could eventually be trucked there. It's actually higher grade than Canadian Malartic.

TGR: Is there sufficient continuity of grade at Marban to become an open-pit mine?

EL: My understanding of the Marban deposit is that there is good grade continuity and NioGold envisions an open pit without too much stripping. Most importantly, the metallurgy is simple enough that it could act as good mill feed.

TGR: Agnico Eagle and Yamana Gold have a new discovery at Canadian Malartic. Tell us about that.

EL: The Barnat Extension and the Norrie and Jeffrey gold zones are northeast and east of the current operations. The company could eventually displace Highway 117 to get at that Barnat Extension resource. Some good underground intercepts in the Odyssey and Norrie zones indicate that it's a little higher grade than what is being mined at Canadian Malartic and amenable to an underground bulk tonnage scenario. Perhaps with further work, the company will find other elements surrounding that World-Class deposit. I think Norrie and others will ultimately go into the mining plan.

TGR: The people behind Falco are also associated with Canadian Malartic.

EL: The people behind Falco are the pillars of the original Osisko Exploration and the development of Canadian Malartic. Confirmation drilling on the Horne 5 project has essentially confirmed the historical database that was accumulated by Noranda Inc. over 60 years of mining and drilling. There is an opportunity there deep underground. With work progressing at Horne 5, Falco is now seeking a Horne 5+ by delineating a near-surface resource that could easily fall into a mining plan.

TGR: What would it mean if Falco could outline some near-surface tonnage?

EL: There's the possibility to generate cash flow sooner as it works its way down to Horne 5, the flagship operation. In the scope of a mining operation, it could go down with a portal, do some raises and other work, and that infrastructure will ultimately serve the flagship Horne 5 mine later on. Any potential near-surface resource is just gravy on the greater story. That's the attraction: Falco can get access to smaller deposits near surface and generate some early cash flow. It doesn't take much in terms of size if it has an overall plan to go to greater depths to get to Horne 5.

TGR: What are some other developments in the Val-d'Or camp?

EL: I did not visit Integra Gold Corp. (ICG:CA) (ICGQF) but I've been on site previously. Integra has been putting out some very interesting news. It's drilling its Lamaque-South gold project and recently received its underground and bulk sampling permits for the Triangle Zone. It's probably one of the most active explorers/developers in Québec.

TGR: Will Integra be able to continue to raise money to develop these assets?

EL: If it takes it step by step, I think so. The Triangle Zone is the first mouthful and it is palatable and feasible. In one of the latest press release, Integra said that it's slowly developing the underground portal to conduct underground exploration and take a bulk sample. Sigma-Lamaque is a past producer, and Integra owns the entire mining complex and land package. The Sigma-Lamaque deposit might have some opportunities either laterally or at depth. That's probably the reason for Integra's Gold Rush Challenge, to make accessible all the historical drilling data and have people pore through them. Perhaps the Sigma-Lamaque complex turns out to be a Red Lake District in its own right. That might be an attractive proposition for a major player.

TGR: What would you consider the Top 3 mineral discoveries in Quebec in the last three or four years?

EL: At the Association Exploration Minière du Québec (AEMQ) convention in early October in Montreal, the Discovery of the Year award (previously termed the Prospector of the Year award) was given to Eastmain Resources Inc. (ER:CA) for its Eau Claire project. People might say that wasn't a discovery but the association wanted to highlight the fact that even though this is a project that has been worked for the last decades, the pace of progress has accelerated over the last year, and there have been some little incremental discoveries along the way that have greatly improved the geological model and steadily advanced the project.

The 2014 winner of that award was Balmoral Resources Ltd. (BAR:CA) (BAMLF), with the Grasset nickel-copper-platinum group elements (PGE) discovery. And the 2013 winner was Balmoral's Martiniere/Bug Lake gold discovery.

Another noteworthy discovery is Oban Mining Corp.'s (OBM:CA) Windfall Lake project, somewhat in-line with Eastmain Resources Eau Claire project as a project that has steadily advanced and seen recently the pace of progression accelerate.

TGR: Balmoral has put out a number of drill results on Grasset now. What does that look like to you?

EL: I still envision an 8 million ton (8 Mt) deposit, with the possibility of it being even bigger. It's not a world-class deposit just yet, but there are some interesting ingredients that suggest that Grasset has merit. The fact that metallurgical studies suggest that the high-grade mineralization doesn't have too many deleterious elements is a positive. The maiden resource estimate should come out eventually before Q1/16, but a ballpark figure of 10 Mt is not bad for a project that is well located.

CEO Darin Wagner and his team have maintained good relationships with the nearby First Nations communities. It's about 65km from the railhead at Matagami and it's in Québec, which has good mining legislation. All in all, it's a project for either an acquisition or to bring to another level. There is always potential for other deposits in that ultramafic complex.

TGR: What are some other noteworthy discoveries that could become perhaps more noteworthy with further drilling?

EL: The whole Québec Detour Trend might hold other surprises. It is a well-endowed structure that remains a hotspot. We talked about Balmoral, but there are other players there. Adventure Gold Inc. (AGE:CA) recently partnered with SOQUEM Inc., a Quebec Crown corporation, to explore its Lower Detour land package. Midland Exploration Inc. (MD:CA) is also partnered with SOQUEM on the Casault project and has assembled a large land package.

Detour Gold Corp. (DGC:CA) recently got drilling results from its Zone 58 North along the lower Detour Deformation Zone. The Zone 58 North appears to be a different type of mineralization from that being mined at the Detour Gold open pit. That zone is turning out to be an important discovery that will likely have ramifications on both sides of the Quebec/Ontario border. There's some ripe fruit out there that is not being worked because of the state of the market. That could be a catalyst for more mergers and acquisitions.

TGR: What do you make of Adventure's Pascalis project?

EL: Again, this is a brownfield project near Val d'Or. The underground Beliveau mine was mined by Cambior on this property in the early 1990s. And with the success of Canadian Malartic, more companies are looking at past-producing underground mines that could have open-pit potential or extensions laterally or at depth. Pascalis is about 40km east of Val-d'Or, road accessible, and close enough to town to attract a knowledgeable workforce. Adventure has shown that there are low-dipping, east-west vein structures that were overlooked in the past and could serve as the basis for an open pit. It certainly merits more drilling. The grade at Pascalis is relatively robust, at almost 2 grams/ton. With SOQUEM working on its lower Detour acreage permits, Adventure can refocus on Pascalis and advance it to the next level. My expectation is that the company will work on a preliminary economic assessment (PEA) in 2016.

TGR: What are some companies that have money to work their projects?

EL: Midland Exploration recently did a deal with the Québec Inc. (which includes Québec funds such as SODEMEX, SIDEX and FTQ) and currently has over $17 million in working capital. It's now one of the bigger players in the greater scope of things because it has the financial capacity and is probably very well positioned to replicate André Gaumond's wonderfully successful story with Virginia Mines Inc.

TGR: Midland is a prospect generator. Which prospect is its flagship?

EL: There is no flagship. But in light of this current market, it's sometimes better to have this business model than have a flagship that is not moving because there's no wind. Midland has a set of projects that are partnered with some major companies that are advancing them. And Midland has some other properties at 100% ownership that it can continue to advance because it now has money. Those properties will eventually be taken out by some other party or re-partnered with another entity.

TGR: What approach is Midland taking to build the value of the company?

EL: Midland is applying the same model that André Gaumond did with Virginia. If you recall, Gaumond had an important portfolio of projects. Before he made the Éléonore discovery, he didn't necessarily have a flagship project. The strength of Virginia was that it had a portfolio of projects that it was always advancing at different levels. Gaumond eventually sold Éléonore to Goldcorp Inc. (G:CA) (GG) in 2004 for about $500M.

TGR: Eastmain made a second discovery at Eau Claire that could make that asset more appealing. What are your thoughts on Eau Claire redux?

EL: Eastmain recently discovered the 850 West Zone and some other prospects not too far from the original Eau Claire 450 West Zone. Eastmain has committed to a PEA in 2016. It will be a noteworthy catalyst because it will provide a better sense of what it can do with this high-grade, open-pit project. I tip my hat to President and CEO Don Robinson and his team for persevering and advancing this project slowly but surely. It's been able to show, with Eau Claire specifically, the confluence of east-west quartz tourmaline veins and the lower-grade alteration zones. When you have this combination of structures, you get these potential pods and Eastmain has modeled that. The company still has a huge land package and eventually it will be able to apply that model to the whole land package and make this a very interesting play. My long-term thesis is that the Eau Claire deposit, which is relatively proximal to the Éléonore mine, could fall into the general mine plan at Éléonore.

TGR: What is Quebec's next mine?

EL: It is Stornoway Diamond Corp.'s (SWY:CA) Renard diamond mine. My understanding is that things are advancing on time and under budget. Renard is looking to start production in mid-2017, which is not far away. It's a sizable project and taking into account the Inferred resources and the target for future exploration, I expect this mine could produce for more than 35 years.

TGR: Are there others?

EL: We're in an evolving economy where there's pressure to build cleaner, sustainable products. The one that is likely to have the biggest impact on the mining sector is electric automobiles, like those being made by Tesla Motors Inc. (TSLA). Quebec is a well-endowed mineral province. In addition to gold and base metals there is lithium, rare earth elements and graphite, all of which are used in electric cars.

I was on the field in late October at Nouveau Monde Mining Enterprises Inc.'s (NOU:CA) Matawinie graphite property in the Saint-Michels-des-Saints area, about 130km north of Montreal. Graphite is not my specialty but I was able to appreciate the quality of the graphite flakes at this project. And given that it's an industrial mineral, the timeline to production at Matawinie may be a lot quicker than some other projects in Québec.

TGR: What are three or four pieces of news that you're eagerly anticipating from these companies over the next couple of months and into 2016?

EL: The first is more results from the Zone 58 North on the Lower Detour Deformation Zone. That's Detour Gold's project. If the company starts to go underground, that means that it's really on to something. That would percolate for the rest of the players working along the Detour Trend—Midland, Adventure Gold, Balmoral and Tri Origin Exploration (TOE:CA) on the Ontario side. If this becomes an area play, that would be most interesting.

The second is Integra coming out with a resource estimate by year's end. The current resource is under 0.5 million ounces. Integra will probably double that. The Triangle Zone is growing and the company has committed to doing a PEA by Q2/16, but it's already setting the stage by preparing some underground work.

The third is the Eastmain Resources' Eau Claire PEA in 2016. I've been covering Eastmain since 2008 and have been lobbying for a PEA since maybe before 2010. Obviously, Eastman has been active over that timeframe and has improved its geological understanding of the Eau Claire project. It may have even cracked the geological code there.

The last one would be Balmoral's maiden resource for the Grasset nickel-PGE discovery, which should be published by year's end. That may be a catalyst for some major company to say, "This is a camp-scale discovery, and we are going to make a bid."

TGR: Parting thoughts?

EL: PearTree Securities realizes that a mine is not built in a month or six months. It takes time. As an exempt market dealer, one of the roles of PearTree Securities is to work with Canadian mining exploration companies to arrange and close Flow Through Share Donation financing placements, a valuable novel source of capital for many firms. Exploration mining companies can realize attractive premiums to their current market prices and minimize the dilution. They also gain the opportunity to attract global investment that might not otherwise be available with traditional financing, with a common theme of long term appreciation.

TGR: Thank you for your insights, Eric.

Eric Lemieux is a consulting technical advisor to PearTree Securities Inc. of Toronto. Previously he was a mining analyst with Laurentian Bank Securities. He worked for nine years as a consultant responsible for applying Regulation NI 43-101. He has worked at the Montreal Exchange, and prior to that managed exploration projects for Cambior, Noranda and SOQUEM. He holds two master's degrees, one in mineral economics from the Colorado School of Mines and one in metamorphic-structural geology from Laval University.

Source: Brian Sylvester of The Gold Report

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DISCLOSURE:
1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Balmoral Resources Ltd., Falco Resources Ltd., Integra Gold Corp. and Midland Exploration Inc. Goldcorp Inc. is not associated with Streetwise Reports. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
3) Eric Lemieux: I own, or my family owns, shares of the following companies mentioned in this interview: Adventure Gold Inc., Balmoral Resources Ltd., Eastmain Resources Inc., Falco Resources Ltd., Integra Gold Corp., Goldcorp Inc., Midland Exploration Inc., Nouveau Monde Mining Enterprises Inc., NioGold Mining Corp., Oban Mining Corp. and Stornoway Diamond Corp. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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Companies

Symbol Name Price Change % Volume
AEM Agnico Eagle Mines Limited 38.28 -2.15 -5.32 3,126,232
AUY Yamana Gold Inc. (Canada) 2.89 -0.13 -4.30 13,338,946

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