An additional 86,500 metres of drilling and a deeper Whittle shell utilizing steeper pit walls has contributed to a significant increase in the size of Premier Gold Mines' (TSX: PG) flagship Hardrock deposit in northern Ontario, the company says.
The Thunder Bay-headquartered junior unveiled an updated mineral resource estimate for Hardrock today in which the maximum depth of the open-pit portion of the resource was based on an optimized Whittle pit 587 metres from surface — an increase in depth of 118 metres compared to the previous resource estimate tabled in October 2013.
This has resulted in both an increase in the open-pit indicated resource as well as in new open-pit inferred resources. Highlights of the updated resource estimate include an open-pit indicated resource of 3.97 million ounces of gold, an increase of 1.62 millon ounces, or 69%.
Stephen McGibbon, Premier’s executive vice president corporate and project development noted on a conference call that the goal following the completion of the 2013 resource estimate was to convert inferred resources to indicated and improve the confidence and quality of the resource estimate “and we’ve been able to do that to a very high degree of success.”
At a cut-off grade of 0.5 gram gold per tonne, the new open-pit indicated resource stands at 83.87 million tonnes grading 1.47 grams gold per tonne for 3.97 million oz. gold and the open-pit inferred resource is 10.23 million tonnes averaging 1.53 grams gold for 501,000 oz. of gold.
In the underground portion of Hardrock and at a cut-off grade of 3 grams gold per tonne, indicated resources are 5.17 million tonnes grading 5.40 grams gold for 898,000 oz. of gold and inferred resources of 12.92 million tonnes averaging 5.40 grams gold for 2.24 million oz. gold.
When combined, Hardrock's total open pit and underground resource stacks up as 89.04 million tonnes grading 1.70 grams gold for 4.87 million oz. gold in the indicated category and 23.15 million tonnes grading 3.69 grams gold for 2.74 million oz. gold.
The latest resource estimate uses the same cut-off grades and gold price (C$1,399 per oz.) as were used in the previous 2013 resource estimate to ensure an apples-to-apples comparison, management said.
Premier acquired the project in December 2008 and began work in 2009. Since then the company has completed over 600,000 metres of drilling and extended the deposit down plunge where it remains open.
“There’s been a lot of excitement building on the Hardrock deposit,” Premier’s chairman, Ebe Scherkus, said at the start of the conference call. “We’ve been busy on it during the last couple of years and the latest results will show that this deposit is certainly growing into a world-class deposit with enormous upside potential.”
Ewan Downie, Premiers’ president and chief executive, remarked that he was “very happy” with the results and that Hardrock — the company’s core asset — could assist the company “transition from explorer to producer.” He also noted that the company has a strong balance sheet with about $55 million in cash and investments and plans to drill an additional 35,000 metres at Hardrock this year in an effort to convert the final open-pit inferred ounces to the indicated category before the company completes its feasibility study in the first half of 2015. It is also planning exploration drilling on new targets at Hardrock. “There continues to be significant regional exploration” potential, he added.
A preliminary economic assessment completed in March modelled a 15-year mine life with gold production in excess of 3 million oz. mined at a rate of 10,000 tonnes per day during initial mining operations, rising to 18,000 tonnes per day in the third year of operations. But based on the new resource estimate and Hardrock’s larger in-pit gold resources, production throughput of more than 10,000 and 18,000 tonnes per day, respectively, may be possible. The PEA estimated that metallurgical recoveries for gold over the life of the mine are expected to average 89.6%
The Hardrock deposit is one of four at Premier’s 100%-owned Transcanada project about 3 km south of the town of Geraldton in the Beardmore-Geraldton greenstone belt. The project resides along the Trans-Canada Highway and is accessible year-round. In addition, the Trans-Canada natural gas pipeline passes close to the site.
Management noted that several open-pit options have been identified that could increase the scale of the project. “We have taken a capital restrained approach so we had picked a pit slope that would be similar to the capital we used in the January 2014 PEA,” Downie said. “But if you weren’t constrained by capital there are options to make a larger project than what we have envisioned.”
News of the expanded resource estimate sent Premier’s shares to a new 52-week high of $3.17 per share, up 22¢ or 7.5% on the day with 3.3 million shares changing hands.
Rob Chang of Cantor Fitzgerald raised his target price to $4.15 per share from his previous target price of $3.85 and describes Premier as “extremely undervalued” and one of his “top picks.”
CIBC World Markets’ analyst Jeff Killeen raised his target price from $4.00 per share to $4.40 per share and estimates a greater than 20% internal rate of return for the project based on spot gold prices, which he says “is a key hurdle rate.”
“A combination of positive economics and proximity to infrastructure positions Hardrock as a candidate for development,” he writes.
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