After Sandstorm Gold (TSX: SSL; NYSE-MKT: SAND) bought Premier Royalty, Abraham Drost, the latter company’s CEO, found himself looking for his next gig.
The sale of Premier was just the latest success for Drost, who also steered Sabina Gold & Silver (TSX: SBB) and Sandspring Resources (TSXV: SSP; US-OTC: SSPXF) towards solid market valuations, and now it was time to find a new challenge.
Drost’s new focus is a project that he has been well familiar with, as Bruce Reid, then the CEO of Carlisle Goldfields (TSX: CJG; US-OTC: CGJCF) and now its chairman, introduced Drost to Carlisle’s Lynn Lake gold project in northern Manitoba some two years ago.
“I couldn’t jump in then because of Premier Royalty,” Drost told a crowd at a downtown Toronto luncheon in mid-February. “But now two years later, I peeked under the covers and was impressed with what I saw.”
Drost was convinced of Lynn Lake’s potential to become a low-cost, relatively straightforward gold mine in the foreseeable future, and one that could be developed based on its good relations with aboriginal communities around the project.
The straightforward part comes from the project already connected with powerlines, rail and highways, as well as Carlisle having a good grip on any future mine’s economics.
In December the company released a preliminary economic assessment (PEA) that estimates a post-tax net present value of $377 million using a 5% discount rate and a US$1,300 per oz. gold price. It also generates a 25.5% internal rate of return, again on a post-tax basis.
Those numbers were enticing enough to convince Drost that a mine will get built at Lynn Lake, and he wants to be the one to get it there.
“Hats off to Bruce for bringing it to this point,” Drost said. “Now it’s launch time.”
But before turning the ignition, the mine plan will have to be optimized to make it more appealing to increasingly frugal financiers.
“When we get to the initial capital costs, that’s when people say, ‘Whoa, wait a minute — how does a company with a $16-million market cap consider a $274-million capex?’” Drost said. “And I agree.”
To get over that hurdle, Drost has made it his first priority as CEO to deliver an optimization plan that will likely consider a smaller mine that focuses on the richest of the site’s mineralized bodies.
On that front, Lynn Lake presents some options.
The project boasts four deposits with National Instrument 43-101 compliant resources.
Combined, the MacLellan, Farley Lake, Burnt Timber and Linkwood deposits host measured resources of 8.1 million tonnes with an average grade of 2.13 grams gold per tonne and indicated resources of 14.4 million tonnes grading 2.28 grams gold, for a grand total of 1.45 million oz. gold.
But any optimization plan will likely focus on the two best-defined, and to this point, most-promising deposits: MacLellan and Farley.
MacLellan holds 866,000 oz. gold of the outlined measured and indicated ounces, but it is Farley that captures the attention with its grade of 3.45 grams gold on 5.04 million tonnes of indicated resources.
And that grade may be conservative, as a former producer at the site, Black Hawk Mining, mined an open pit at Farley with a head grade exceeding 4 grams gold per tonne.
That higher-grade potential in an open pit has Carlisle drilling on Farley to bring much of the 2.7 million tonnes of inferred resources (with a grade of 2.75 grams gold) into the indicated category, but it is also looking for more.
The company has intersected an interesting mineralized zone beneath the Farley pit shell. The zone is called Farley Deeps and was discoverd by a drill hole that returned 6.83 grams gold over 35 metres.
Drost said it is too early to put a dollar figure on an exploration budget for Farley, but he estimated that it will cost $3 million to $4 million to move its inferred resources into the indicated category.
Drost also heralded Manitoba as being a top mining jurisdiction. He told the crowd that the provincial government and the aboriginal communities near the project are eager to see development in an economically starved area of the province.
He added that Manitoba has the lowest power costs in North America (in the 2.5¢ per kilowatt hour range), a 10-year tax holiday on the amount invested in mine construction, and a proven track record of success, with seven mines in production.