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DAILY NEWS Oct 31, 2012 4:46 PM - 0 comments

Scott McLean says project generation model a win-win

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Scott McLean and Kevin Stevens were part of a four-man team at Falconbridge that in 2001 discovered the high-grade Nickel Rim South deposit in Sudbury, Ontario.

The Prospectors and Developers Association of Canada awarded McLean and his teammates the prestigious Bill Dennis Prospector of the Year award for the find in 2004, and the deposit, now a mine owned by Xstrata Nickel, moved into commercial production in 2010. The high-grade deposit is expected to provide feed for Xstrata’s Sudbury smelter for the next fifteen years.

McLean chalks up the discovery to a re-tooling of the exploration strategy in the Sudbury Basin, where mining companies had traditionally looked for very large tonnage deposits and explored to depth. The new strategy of the Falconbridge team  involved searching for small to medium-sized deposits within the contact and footwall environments that were above depths of 1,500 metres.

“When I came in I was put in charge of developing a new strategy and recognized that there is a heck of a lot of value in exploring for smaller, higher grade deposits more typically found in the footwall of the Sudbury Basin,” McLean explained in a telephone interview from Sudbury. “By doing that, rather than continuing to look at depth, we took a new look at the Basin.”

The first step was to develop a new 3D model for the Basin and then identify areas that had been underexplored. One of the first areas that came to light with the new approach was the Eastern range of the Sudbury Basin, where there had been some smaller past producers.

The team pursued some interesting geophysical features in the area and then pinpointed a highly conductive anomaly after surveying a historic drill hole, about 3 km north of the Sudbury Airport, with more modern geophysical equipment. The result: the discovery of the Nickel Rim South deposit about 1,100-1,700 metres below surface.

Falconbridge was bought out by Xstrata Nickel in August 2006, and McLean stayed on with Xstrata for another year after that. But in the fall of 2007, the geologist decided to venture out on his own and set up HTX Minerals with his former colleague and Prospector of the Year award winner Kevin Stevens, a geophysicist. The pair started raising capital in January 2008 — just before the global financial crisis struck.

The timing was bad but there was a silver lining. The experience confirmed in their view the value of project generation as a business model and the importance of making strategic alliances, rather than trying to raise money as a junior with one or two projects in volatile equity markets and diluting shareholder value along the way.

The first strategic alliance HTX completed was with Impala Platinum Holdings (ILPLA-L) in July 2008. The partners are looking for platinum group metal deposits in the Mid-Continental Rift region, north of Lake Superior in Ontario. The two companies signed a second, three-year alliance in January 2011, with Implats investing about US$4.1 million.

HTX completed another strategic alliance earlier this year with the Nunavut Resource Corporation to explore Nunavut's Kitikmeot region. NRC is investing $18 million over five years for HTX to identify gold, base metal and diamond targets in Kitikmeot, a 450,000 square kilometre region in Nunavut that is about 90% as large as the Yukon.

Under the terms of the agreement the two companies will identify properties of interest, and form joint-venture partnerships to conduct further exploration activities that may lead to the discovery of economic deposits and potentially to the development of mines and infrastructure in the region.  

The initial focus of the alliance primarily will be on un-staked portions of the 11,509 square kilometres of Inuit Owned Land (surface and mineral rights) in the Kitikmeot region and on Article 41 Lands, which are strategically located in the centre of the Slave Structural Province, about 360 km northwest of Yellowknife in the Northwest Territories. (The Article 41 Lands were granted to Nunavut as part of the boundary reconciliation between the NWT and Nunavut, and just to the south of them are the Ekati and Diavik diamond mines. To the north are the Lupin gold mine and the Gondor and Izok Lake base metal deposits.)

“Nunavut is the only place in Canada where the land claims have been settled,” McLean explained. “The intention of this alliance is to bring the Inuit in fully as partners, to teach them the allow them to become full partners in the projects that we generate.”

HTX has a number of projects it is generating including Dessert Lake, a uranium project in the NWT; Timberwolf, a nickel-copper-PGM project in Minnesota; and Owen, a nickel-copper-PGM project near Sudbury.

But it is most excited about AER Kidd, a property in the Sudbury Basin that it has optioned from Ca-Nickel Mining (CML-T), formerly Crowflight Minerals. AER Kidd is adjacent to Vale’s (VALE-N) huge Totten deposit, and to its east lies the Victoria underground deposit, which is being developed by KGHM International. (Quadra FNX held the property until its acquisition by KGHM in February.) 

AER Kidd “is in identical geology and on trend of both of these deposits,” McLean says. “It has some past production but has untested exploration potential beneath previous workings. We’re in the process of taking that out of the company and into a public vehicle, hopefully this year.”

McLean has no plans to take HTX public any time soon. "It doesn't need access to capital," he explained. But HTX did spin out Transition Metals (XTM-V) as a private company in late 2009. The company was seeded with about $1 million from private investors in May 2010 and taken public in August 2011. 

HTX holds about 6% of Transition Metals and like HTX, the junior is operated on the project generator model. The company's flagship project, discovered in 2010, is the Haultain property in the southern Abitibi, about 1 km outside of Gowganda in the heart of the old Gowganda silver camp. 

The geological setting at Haultain has similarities to that of Kirkland Lake, 75 km to the northeast, McLean said, and the property has widespread gold mineralization over a strike length of 1.5 km. Exploration highlights include a channel sample grading 97 grams gold per tonne over 40 centimetres and drill intercepts of 2.4 grams gold over 7.1 metres; 4.7 grams gold over 3.1 metres; and 82.5 grams gold over 0.4 metres in hole 21. The deposit is open down dip and along strike.

Transition Metals’ other key project is Janice Lake, about 190 km north of La Ronge in north-central Saskatchewan, which came open for staking earlier this year. The property had previously been worked over by Noranda in the 1990s and Phelps Dodge in the early 2000s before the company was bought out by Freeport McMoRan Copper & Gold (FCX-N).

Janice Lake — a property about 13 km by 5 km in size — hosts about twenty different copper showings at surface and has had only sparse drilling. Historic drill holes returned intercepts of 0.77% copper over 33 metres; 0.9% copper over 11 metres, 0.65% copper over 8.8 metres; and 0.64% copper over 24 metres.

Altogether, Transition Metals has about twelve projects. McLean and his team have found joint-venture partners for two and is close to signing a third.

“Transition Metals is a project generator — we like the business model — it keeps shareholder equity in good check. It helps mitigate the risk and it creates a lot of different irons in the fire,” McLean said. “If we do our job right, at the end of the day, we’ll have a minority interest in many projects, but our shareholder equity will be very tight, maybe 40-50 million shares outstanding.”

Currently Transition Metals has 29.2 million shares outstanding (fully diluted) and is trading at 15¢ per share within a 52-week range of 15¢-45¢.

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