In its first real update since 2012, Harte Gold (TSX: HRT; US-OTC: HRTFF) has tripled the resource at its Sugar gold deposit, 80 km east of the Hemlo gold camp in northern Ontario.
The new 1.5 million oz. resource is based largely on Harte’s 2017 drill program (138,000 metres) and 50% is classified as indicated and situated in the upper 500 metres of the deposit.
The Sugar Zone (including the Middle Zone) now has an estimated 2.61 million indicated tonnes grading 8.52 grams gold per tonne for 714,200 contained oz. gold and another 3.59 million inferred tonnes (to 1,000 metres deep) grading 6.59 grams gold for 760,800 contained oz. gold. The resource used a 3 gram gold cut-off.
Harte says the gold grade is continuous at depth and will improve, with its 30,000-metre infill drill program planned for 2018 at the deposit’s Sugar and Main zones.
In the meantime, the company is also working on a preliminary economic assessment based on the resource update that it plans to complete by the end of April. Initial production is scheduled for the second half of the year, while the process plant could commission by June.
The company has already completed a 70,000-tonne, advanced exploration bulk sample and mined 30,000 tonnes under its first-phase production permit.
Stephen Roman, Harte’s president and CEO, was unavailable for an interview, but said in a press release that the deposit has “significant size potential.”
“As we have been mining at the Sugar Zone property for the last two years, we have confirmed the grade, continuity and mining method,” he said. “We will continue to develop this mineral resource at depth and along strike.”
Mining analysts Mike Kozak of Cantor Fitzgerald and Pierre Vaillancourt of Haywood Securities say Harte could become a takeover candidate. The project is near infrastructure, in a safe jurisdiction and close to other producing mines.
Barrick Gold’s (TSX: ABX; NYSE: ABX) Hemlo mine is 60 km from Sugar while Alamos Gold’s (TSX: AGI; NYSE: AGI) Island Gold mine and Wesdome Gold Mines’ (TSX: WDO) Eagle River and Mishi mines are 80 km away. (Goldcorp’s [TSX: G; NYSE: GG] Borden project is also within 100 km.)
“Given Harte’s enviable combination of top-tier grade and favourable location [northern Ontario, Canada], we continue to believe the company is a very strong takeover candidate and point to multiple potential suitors, all with nearby operating gold mines,” Cantor Fitzgerald’s Kozak says in a research note to clients. “Harte is in the ‘sweet spot’ with high-grade exploration results, an upcoming PEA and initial production over the next several months serving as near-term catalysts.”
Kozak points to Alamos Gold’s all-share acquisition of Richmont Mines and its Island Gold gold mine in September 2017 as a reference point, noting that the transaction valued Richmont at an enterprise value of US$683 million, which equated to $854 per oz. on proven and probable reserves and US$379 per oz. on total constrained resources.
“At the time of the acquisition, the Island gold mine had 43-101 compliant resources of 1.8 million oz. grading 9.4 grams gold per tonne,” he writes. “Harte’s 100%-owned Sugar Zone project is located in the same gold camp, approximately 80 km via paved road from Richmont-Alamos’ Island gold mine. In our view, Harte’s resource update … further enhances the similarities to Richmont. Applying a multiple of US$379 per oz. gold [total resources] would imply a $1.16-per-share value for Harte Gold.”
At press time Harte’s shares were trading at 41.5¢ within a 52-week trading range of 36¢ (February 2017) to 87¢ (April 2017). Haywood’s Vaillancourt says the Sugar deposit likely has at least 2 million oz., with more down dip and district potential.
“With a property covering more than 620 sq. km, including 30 km of strike length along the Dayohessarah Deformation Zone, the regional potential is significant,” he says in a research note. “The geology at the south and northwest portions of the property suggests a mineralization style comparable to that at the Hemlo gold mines.”
In January, Harte announced a discovery 10 km south of the Sugar Zone that it has named the K7 Zone. An initial drill hole there returned a 5-metre intercept grading up to 1 gram gold within an altered feldspar porphyry 200 metres below surface. The host rock is different than the classic Sugar Zone quartz sheer zone, and Harte says it has greater potential for large tonnages.
The company recently closed a $32.4-million private placement, issuing a total of 57.37 million shares at 47¢ per share and 9.78-million flow through common shares at 56¢ per share.
Appian Natural Resources Fund kept its pro rata interest by acquiring 16.28 million shares for gross proceeds to the company of $7.65 million in the final tranche of the offering. Appian now owns 113.09 million shares in the company, or 19.9% of Harte’s issued and outstanding common shares.
While Vaillancourt says Harte’s current stock price is expensive, given that Sugar is not yet in production and so far has “limited institutional support,” he has a “buy” rating on the company and a 90¢-per-share target price.
“With 562.4 million shares and a market cap of $247 million [618 million shares fully diluted], Harte has a lot of shares and is expensive for a company that is not yet in production,” he cautions. “The valuation is pricing in the success of a resource increase and upcoming production. The lack of institutional support outside of Appian Capital and Orion Mine Finance, may also reflect reticence from major investors at these levels.”
“Making the transition to full-time underground operator and commencing commercial underground mining in 2018 will be a significant step for Harte,” he continues. “The company will also have to manage a scale-up of operations as the deposit grows.”