It’s been a brutal year for many companies in the mining sector, but 2014 is turning out to be pretty good for debt-free junior explorer Kaminak Gold (TSXV: KAM; US-OTC: KMKGF).
In June, a preliminary economic assessment of its Coffee gold project in the Yukon, 130 km south of Dawson City, modelled a $305-million heap-leach gold mine that would operate at 5 million tonnes per year and produce an average of 167,000 oz. gold annually over 11 years, at all-in sustaining costs of US$688 per oz.
In July the company’s shares surged more than 30% after Kaminak announced that Ross Beaty and Zebra Holdings (the trust of the late Adolf H. Lundin) became significant shareholders. Beaty and Zebra Holdings each made a $6.8-million investment through non-brokered private placements for a $13.5-million total cash infusion.
The company kicked off a feasibility study at the end of July and released positive results from its recently completed $3.5-million phase-one exploration drill campaign, which include a new gold zone called Kona North.
The objective was to drill-test gold-in-soil anomalies near the current resource that could contribute open-pit oxide resources to the mine plan.
The program’s 27 drill holes identified shallow, predominantly oxidized gold-bearing structures within the Kona North zone, and extended mineralization 900 metres along strike on the Supremo T3 trend and intersected high-grade gold mineralization at the Cappuccino zone.
Targeted zones within the phase-one program were all within 1–2 km of the existing resource and included Kona North, T3 North, Macchiato, Cappuccino, Arabica and Latte West.
A $2-million second-phase exploration program has already begun. Phase two targets the Kona North zone, but will also investigate other gold-in-soil anomalies near the current resource.
Four diamond core drills and two RC percussion drills are turning on the property, undertaking resource delineation, infill, condemnation, geotechnical, hydrological and metallurgical drilling.
Kona North, a 1.5 by 0.5 km gold-in-soil anomaly, straddles a contact between Permian gneisses and schists (host rocks to the Latte–Supremo zones at Coffee) and the Cretaceous Coffee Creek granite.
Drill hole 376 at Kona North intersected 3.55 grams gold per tonne over 28 metres from 14 metres downhole and 2.66 grams gold over 9 metres from 53 metres downhole. Hole 379 cut 4.05 grams gold over 8 metres from 38 metres downhole, and 3.79 grams gold over 8 metres from 51 metres downhole.
The phase-one program extended the Supremo T3 zone northwards to at least a 3.5 km strike length, with the best drill results coming from the intersection of the T3 and Macchiato trends. Highlights included 1.95 grams gold over 14 metres from an 81-metre depth and 2.21 grams gold over 9 metres from 128 metres deep. The T3 structure is open to the north along strike and to depth.
The Coffee project has an indicated resource of 14 million tonnes at 1.56 grams gold for 719,000 contained oz. gold, and inferred resources of 79 million tonnes grading 1.36 grams gold for 3.43 million contained oz. gold. The resource is based on a cut-off grade of 0.5 gram gold for oxide transitional material and 1 gram gold for sulphide material.
According to the June PEA, Coffee would produce 231,000 oz. gold in its first year of commercial operation, and the project would generate a $2.4-billion total gross revenue and $1.2-billion operating cash flow.
At US$1,250 per oz. gold, Coffee carries a $330-million after-tax net present value (NPV) at a 5% discount rate, and a 26% internal rate of return (IRR). At a US$1,400 per oz. gold price, the NPV and IRR rise to $465 million and 33%. The project has an after-tax payback of two years.
David Sadowski of Raymond James argues in a research note that the company “should garner a premium multiple reflective of the project’s high-quality, low technical risk and excellent jurisdiction.”
He estimates that with $25 million in cash, Kaminak “is fully funded well into next year,” and says the feasibility study remains on track for late 2015.
Sadowski has a $1.90-per-share price target on Kaminak.
Over the last year Kaminak’s stock has ranged from 45.5¢ to $1.19 per share. At press time it traded at 97¢.