Premier Gold Mines (PG-T) has completed a much-anticipated resource estimate on the four gold deposits—Hardrock, Brookbank, Kailey and Key Lake — that make up its Trans-Canada project in the Beardmore-Geraldton Greenstone belt.
On a consolidated basis, the measured and indicated resource at Trans-Canada now stands at 4.12 million ounces of gold from both open pit and underground, and another 3.65 million ounces of gold in the inferred category from open pit and underground, a global increase in size of 81% over the previous resource estimate completed in April 2011.
The increase was partially due to a reduction in the open-pit cut-off grade from 0.83 gram gold per tonne to 0.50 gram gold per tonne, however, and markets were hard on the stock. Premier announced the resource update after markets closed on Dec. 19, and when trading resumed Dec. 20 its shares closed down 1.5% or 6¢ at $4.04 within a 52-week trading range of $3.51-6.79.
Rob Chang of Cantor Fitzgerald in Toronto argues that the market misinterpreted the resource increase because they focused on the grade reduction, and points out that if the cut-off grade was held constant, the resource at the Hardrock deposit still shows a sizeable increase of 2.5 million oz. gold, or 70%. Chang holds a buy rating on the stock and has increased his target price from $7.15 to $7.25 per share.
The Hardrock deposit represents 77% of the Trans-Canada project’s total measured and indicated ounces and 93% of its inferred ounces.
Steve McGibbon, Premier’s executive vice president corporate and project development, emphasized on a conference call that the company wanted to be conservative in its definition of measured and indicated resources and that the reduction in the resource is really a transfer of ounces from the measured and indicated category back into the inferred category.
“We believe this new resource better represents the data and continuity we’re beginning to see in the ore body as a whole,” he explained to analysts and investors on the conference call. “When you look at inferred, there is an increase of about 183% in ounces, not just from measured and indicated but also from organic growth, and an increase in grade of about 9.5%.”
For the four combined deposits, Trans-Canada has open pit measured and indicated resources of 60.50 million tonnes grading 1.44 grams gold for 2.79 million oz. contained gold and 11.82 million tonnes grading 1.46 grams gold for 554,000 oz. contained gold in the inferred category. Underground the four deposits have total measured and indicated resources of 6.93 million tonnes grading 5.94 grams gold for 1.32 million oz. contained gold, with an additional 16.47 million tonnes of 5.85 grams gold for 3.1 million oz. contained gold in the inferred category.
Breaking down the new resource estimate into its various parts, the Hardrock deposit, 3 km south of the Town of Geraldton has open pit measured and indicated resources of 46.66 million tonnes grading 1.51 grams gold for 2.26 million oz. gold and inferred resources of 6.62 million tonnes grading 1.74 grams gold for 370,000 oz. gold. The underground resource at Hardrock contains measured and indicated resources of 5.05 million tonnes at an average grade of 5.48 grams gold for 889,000 oz. gold and 16.01 million tonnes grading 5.91 grams gold for 3.04 million oz. of inferred.
Premier has identified open pit mineralization at Hardrock where historic gold mining comes to surface, and underground mineralization consists of both new horizons located parallel to the historic mine and extensions of the main zones historically mined, the company says.
At the Brookbank deposit, about 77 km to the west of Hardrock along the Trans-Canada Highway, open pit measured and indicated resources stand at 2.64 million tonnes grading 2.02 grams gold for 171,000 oz. gold and inferred of 0.71 million tonnes grading 2.38 grams gold for 13,000 oz. gold. Underground Brookbank’s measured and indicated resources tally 1.85 million tonnes grading 7.21 grams gold for 429,000 oz. gold and inferred at 0.40 million tonnes averaging 4.02 grams gold for 53,000 oz. gold.
Premier views Brookbank as a potential underground opportunity although the current resource, the company says, suggests that a small portion of the deposit may be amenable to being evaluated as an open-pit mining resource. Because it is situated close to the existing Northern Empire mill, Brookbank could be a stand-alone project or a satellite deposit for Hardrock.
About 2.5 km away from Hardrock, the Kailey deposit has measured and indicated open pit resources of 8.63 million tonnes grading 0.95 grams gold for 265,000 oz. gold and inferred of 3.69 million tonnes grading 0.97 gram gold for 115,000 oz. gold.
Finally, the Key Lake deposit, about 11 km to the west of Hardrock, and open at depth, has open pit measured and indicated resources of 2.57 million tonnes grading 1.17 grams gold for 97,000 oz. of contained gold and inferred of 1.35 million tonnes of 1.29 grams gold for 56,000 oz. gold. Key Lake’s underground resource stands at 0.03 million tonnes grading 6.48 grams gold for 6,000 oz. contained gold in the measured and indicated category and 0.06 million tonnes of 3.57 grams gold for 7,000 oz. contained gold.
In a brief research note, Eric Lemieux of Laurentian Bank Securities, points out that the Hardrock deposit remains open for growth and that ongoing drilling and recently discovered new gold zones offer further upside for expansion. “The next warranted course of work would be a preliminary economic assessment to qualify and quantify the merits of the mining operations and a central mill complex.” Lemieux has a speculative buy rating on Premier and a target price of $7.50 per share.
Ebe Scherkus, chairman of the board, said on the conference call that the company expects to complete a PEA on Trans-Canada in the latter half of 2013, noting that the company had recently bulked up its team with the addition of Paul Girard, an experienced mining engineer previously with Agnico-Eagle Mines (AEM-T, AEM-N), to help guide development.
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