DAWSON CITY, YUKON — Three years ago, the first hole drilled into Kaminak Gold’s (TSXV: KAM; US-OTC: KMKGF) Coffee project returned 17.1 grams gold per tonne over 15 metres. Two months later a slew of solid drill results had defined eight separate gold zones.
It was a stunning start. And now, with 183,000 metres of drilling completed, Kaminak is showing that a healthy gold endowment is just one of Coffee’s strengths. With gold that leaches quickly and easily, zones that have grown together into open-pittable deposits, manageable access, favourable topography, settled land claims and reams of highly prospective ground left to explore, this four-year-old project is already making the transition from a pure exploration play to one with an eye on development.
New president and CEO Eira Thomas is leading that transition. Thomas took over in February from Rob Carpenter, the geologist who founded Kaminak in 2005 and steered the junior through its first few remarkable years at Coffee before stepping down for personal reasons.
Thomas’ arrival took some observers by surprise, likely because Thomas is known as a diamonds guru. However, when looking for a leader to take a northern Canadian project to production, the commodity proved less important than knowledge of the process. And Thomas has experience with northern mines: she helped develop the Diavik mine and led Stornoway Diamond (TSX: SWY; US-OTC: SWYDF) for several years, as it pushed for development at Renard. She is putting that experience to work at Coffee.
“We are positioning Kaminak to get to the finish line,” she said at the Coffee camp. “We’re starting to really build a company that is not just focused on exploration, but one that is thinking about the future, and when we will have our first mine in production. That’s certainly what my mandate is coming in here. We’re not waiting to be bought out. This isn’t about dressing it up to boot it out the door.”
The switch from exploration to production has rewritten the project’s operations manual. Instead of just adding ounces, Kaminak is targeting resource growth in particular areas to increase deposit continuity. Rather than just showing that Coffee has lots of gold, Kaminak is proving that Coffee’s gold can be extracted easily and efficiently. And on top of promoting the good geology, Kaminak is talking about infrastructure and First Nations relations.
The project’s 3.2 million oz. gold may still be inferred, but Kaminak has confidence that Coffee is getting bigger and better-defined, and before long could be in production.
Coffee is in the western Yukon, 130 km south of Dawson City and 300 km northwest of Whitehorse. It sits within the Tintina gold belt, a 1,200 km long fault-bounded arc stretching from northern B.C. up through the Yukon and west through to southwest Alaska, wherein 200 million oz. gold have been discovered or mined.
However, Coffee is not a typical Tintina gold deposit.
“Most of the other mines and projects in the belt are associated with porphyry copper-gold mineralization,” Thomas said. “At Coffee we’re talking about a deposit that is structurally controlled, hydrothermal and gold only, and generally much higher grade than other Tintina deposits.”
As with many recent Yukon gold discoveries, Coffee started out as a gold-in-soil anomaly identified by Shawn Ryan, the Yukon prospector credited with sparking the modern gold rush in this part of the Yukon.
Ryan spent years hiking the ridges of the White Gold district and sampling the long-lived, deep soils of the unglaciated area to get a glimpse of the bedrock geology. His perseverance paid off in 2010 when Kinross Gold (TSX: K; NYSE: KGC) paid $138 million to acquire Underworld Resources. The prize was the White Gold project, a 1.6 million oz. gold deposit that had been a Ryan gold-in-soil anomaly just two years prior.
The lesson was that soil sampling works in the White Gold district — and it is certainly working at Coffee.
Carpenter and his team optioned Coffee back in 2008 because the soil anomaly was so intriguing.
The next year, Kaminak had Ryan’s company GroundTruth Exploration extend the sampling grid.
When the results came back, something interesting emerged: the gold anomalies looked linear. This revelation happened just as Underworld was proving that its White Gold discovery was not a classic Tintina porphyry, but a structurally controlled system. Kaminak thought that perhaps Coffee — just 30 km south of White Gold — was a structurally controlled gold system, too.
In 2010 the company brought a drill rig to site. The first hole tested the T3 anomaly and returned 17.1 grams gold over 15 metres. Then Kaminak moved the 1.5 km west to test another linear anomaly and hit into 2.1 grams gold over 59 metres. Before the fourth quarter, Kaminak had outlined eight gold zones at Coffee.
“Then in 2011 the strategy was to try to establish some continuity on these things,” Thomas said. “The criticism in 2010 was: ‘That’s great — you’ve got gold kind of everywhere, but how does this all fit together?’ So we started to systematically drill off these deposits.”
There are now 12 gold zones at Coffee. The property as a whole stretches 50 km east to west along a ridge and ranges between 10 and 20 km in width. Eleven of the 12 gold zones are in the western half of the land package, spread along 10 km of the ridge. The twelfth zone is a large but early stage prospect known as “Sugar,” located in the property’s southeast corner.
The main zones are divided into two clusters. The western cluster comprises the Americano West, Americano, Espresso and Kona zones. Kona hosts a small inferred resource, totalling 989,000 tonnes grading 1.48 grams gold. The larger and more defined cluster of zones sits 6 km to the east, near the middle of the property, and hosts the rest of Coffee’s 3.2 million oz. gold resource.
Originally, this area offered seven zones — Sumatra, Latte, Latte North, Macchiato, Supremo, Double Double and Arabica — but zones that were once disparate have grown together. Now it is generally known as the Supremo–Latte–Double Double area, and it contains the rest of Coffee’s inferred resource, which totals 64.4 million tonnes grading 1.56 grams gold.
“What is exciting is that we’ve basically linked all of these deposits,” Thomas said. “We now believe this is all one system, and we haven’t limited it in any way — it’s still open along strike in every direction and at depth.”
Exciting indeed, as that was precisely the goal driving this year’s 50,000-metre exploration program.
To illustrate the impact of this year’s results, Thomas pulled out a drill section from Supremo. A dotted line marks the pit wall as defined by the 2012 resource estimate. Just outside that pit wall drill holes hit into significant mineralization. And it was not just at Supremo where resources grew larger and more connected: news releases throughout the season bore such titles as “Latte North now connected to Latte” and “Kaminak drilling extends Supremo 750 metres along strike to connect with Latte.”
“In previous years we had been much more focused on identifying new structures and building ounces on new structures, but this year we focused on building smart ounces based on what a mining scenario might look like,&rdquo
; Thomas said. “Our drilling has been focused on building proximal ounces to known gold zones to try to make sure we maximize the potential and the economics around our first conceptual mining study.”
That focus also means Kaminak has been targeting shallow, oxidized gold ounces. The company has completed a few deep holes, including one that cut through 464 metres of rock and returned mineralization from 350 metres depth. However, that intercept carried sulphide gold mineralization, because between 150 and 200 metres depth the rocks at Coffee change from oxide to transitional, and then to sulphide.
Oxidized gold mineralization is usually recoverable via heap leaching, and testing to date suggests Coffee’s gold responds well to leaching. Sulphide mineralization does not. Since a Coffee gold mine would start out as a heap-leach operation, at this stage only oxide and transitional mineralization is pertinent.
Kaminak is calculating how many ounces it added during the season. The company intends to release a new resource estimate in the coming months that it can use as the foundation for a preliminary economic analysis due out next year. That timeline is only possible because Thomas and her team are focusing on the main Supremo–Latte–Double Double area, despite the desire to test areas like the Sugar anomaly or the Americano–Espresso–Kona area, which could alone be a flagship project for another company.
“I think we’ve got good visibility to 5 million oz. within the Supremo–Latte–Double Double area, though overall the regional potential of the Coffee project will add significantly to that in time,” Thomas said. “Sugar we last tested in 2012, and got some interesting results. It’s not small and it’s an incredibly strong gold-in-soil anomaly — it has as high a tenor, as we have in the Supremo–Latte–Double Double area, so we know we’ve got to get back there.”
There is much regional work left to do at Coffee. The tens of thousands of soil samples taken to date only cover 20% of the property’s 600 sq. km. The temptation to test soils is strong because the company has discovered mineralization beneath 90% of the gold-in-soil anomalies it has drilled.
“But at the moment, we’re staying focused,” Thomas said. “And now we’ve got enough information that we think it’s time to start putting some pit outlines on this and look at strip ratios, and see what an economic mining opportunity might look like.”
Thinking about mining
In designing a mine, a few questions frame everything else. One is: How big? Coffee’s large, continuous, near-surface deposit makes a large operation seem an obvious choice, especially if the deposit grows as expected.
Kaminak will pursue that option. However, the company will also investigate ways to start small and scale up.
“There is no doubt in my mind that when we do the economic analysis on this the net present value will benefit from a greater investment early, because this is a big deposit,” Thomas said. “However, if we continue to live in this crazy market, the potential for starting small and scaling up is real. Also, a major would look at this project differently than a Kaminak, so we will have that range of options on the table.”
Supremo provides a good example of Coffee’s scalability. Using a cut-off grade of 0.5 gram gold, the Supremo zone offers 12.3 million tonnes grading 2.01 grams gold, for 798,000 oz. All those tonnes are continuous and sit within 200 metres of surface. If the cut-off grade is boosted to 2 grams gold, Supremo’s resource condenses down to 3.7 million near-continuous tonnes averaging 4.34 grams gold, for 514,000 oz.
Similar stories play out at Latte and Double Double.
“A lot of our high-grade material daylights at surface and hangs together,” Thomas said. “These areas represent early stage opportunities where we could keep our capital low, focus on quick payback and look to scale the project over time. That’s really important in our current economic climate because raising capital is really difficult, and big projects with big capital expenditures are just not resonating in the marketplace.”
Mines also need a metallurgical process, and here the answer is simple: heap leaching.
Multiple phases of deformation have allowed water to seep into the rocks at Coffee. Then, since the area was not glaciated, there were no massive sheets of retreating ice to scrape away these softened surface rocks. The result is a deep weathering profile that reaches 150 metres depth in most places.
That makes the gold easy to recover. Bottle-roll, carbon-in-leach and carbon-in-pulp leach tests on oxide samples taken from Supremo, Latte and Double Double recovered 90.7–97.9% of the contained gold. Transitional material at the site also leaches nicely: the same tests on samples of deep transitional material from Supremo recovered 90.7–92.4% of the contained gold.
“While we got slightly lower recoveries on the transitional material it was still greater than 90%, and that is a phenomenal result,” Thomas said. “And not only are we getting good recoveries, it’s also leaching quickly.”
Quickly indeed. In just 15 days a column-leach test recovered 83.2% of the gold in a composite sample from Latte and Supremo.
Chief geologist Craig Finnigan credits nature for making their metallurgical lives easier.
“The gold recovers so well because mother nature has basically done the job for us by oxidizing the upper portion of this deposit,” he said. “If you look at a thin section under a microscope you can see visible gold, and it’s free.”
As expected, leaching was not effective on sulphide samples, recovering just 2–5.3% of the contained gold. But that doesn’t mean the sulphide gold is inaccessible. It means recovering gold from the deeper parts of Coffee will require a different metallurgical process, such as flotation.
“We haven’t done a lot of deep drilling yet because we’re finding so much near-surface mineralization,” Thomas said. “But we are doing more work on the sulphide this year. We’re working to characterize it and trying to understand how the gold is locked up in the structure, and what we might need to do to liberate it.”
Kaminak wants to understand its sulphide gold resource for posterity, but at present only the heap-leachable gold matters. Thankfully, most of the resource at Coffee falls into that category. Of the 64.4 million inferred tonnes at Coffee, only 5 million are sulphide. The rest is split between oxide and transitional.
Kaminak is conducting more metallurgical test work, this time focused on optimal crush sizes. The company has hired Fred Lightner — a metallurgical engineer who specializes in heap-leach design and operation — to run the met program and advise on the PEA.
Next on the designing-a-mine checklist is social licence. Does Kaminak have local support to develop a mine at Coffee? The short answer is ‘yes.’
Coffee sits within the traditional territory of the Tr’ondek Hwech’in, which like most First Nations in the Yukon has settled its land claims with the government. In May Kaminak and the Tr’ondek Hwech’in signed an exploration co-operation agreement in which both parties agreed to work together to build a positive and mutually beneficial working relationship with respect to the Coffee pr
The agreement would need revising if Kaminak makes a development decision at Coffee. For now what matters is that the company feels it has a good working relationship with the Tr’ondek Hwech’in.
Other considerations in designing a mine include location and infrastructure. At first glance, Coffee might seem challenged in that department. After all, there is no road into the project. On second glance, though, it becomes apparent that Coffee enjoys good accessibility.
For one, the project sits alongside the Yukon River. In 2011 Kaminak built a landing site on the river, which allows the company to send supplies to Coffee by barge from Whitehorse. For that first season Kaminak sent a barge to the site every week or so, to keep up with fuel demand at a project that relied on helicopters to move drills.
Now that has changed. Last year Kaminak built a 23 km road from the barge-landing site up the hill to the Supremo–Latte–Double Double area. Since rough roads on the hilltop already connected Coffee’s various zones, the new road linked all of the project’s key areas together.
“We can drive a B-train of fuel off the barge and right up to the deposit area, and we can store bulk fuel on-site,” Thomas said. “It means we could operate at Coffee year-round. We haven’t done that yet, but this year we did mobilize in late February and started drilling as of March 1.”
The road cost $1.2 million, but since switching from heli-supported drills to skid-mounted rigs, Kaminak’s drilling costs have dropped from more than $500 a metre to less than $280 per metre. To boot, the road was not hard to build.
“The 23 km road was actually quite cheap — the total cost was $1.2 million,” Thomas said. “I can tell you, having worked in the north, that’s a pretty manageable cost. Certainly you couldn’t build a road in Nunavut or the Northwest Territories for that cost. It was also easy to permit. All told, we built this in under three months.”
Topography eased Kaminak’s road-building effort. The Coffee deposits sit atop a plateau set back some 30 km from the Yukon River. The terrain is gentle and the hill rises slowly and steadily from the riverbank. Things are different on the other side of the river, where cutbanks topped with steep hillside rise straight up from the river. The gold at Coffee certainly put itself on the easier side of the river.
Soon the company will look at another road, this one connecting Coffee to the Yukon highway system. A winter road to Western Copper and Gold’s (TSX: WRN; NYSE-MKT: WRN) Casino project already comes within 30 km of Coffee, and Thomas says her team will investigate the potential to convert that into a permanent road.
“The bottom line is that even though we’re in the north, this is a pretty good place to be working,” Thomas said. “We feel comfortable enough about the opportunity to build a permanent operation in this area. We don’t think that infrastructure will be prohibitive.”
Money and people
“The team itself has gone through a few changes in the last year or so, but the core geological team has remained intact, really since the beginning of the project,” Thomas said. That team includes chief geologist Finnigan, vice-president of exploration Tim Smith, senior project geologist Geoff Newton, project geologist Joe Currie, and project geologist James Scott, all of whom have been with the project since at least the first drill hole, if not earlier.
With a strong group of geologists already in place, Kaminak needed to bolster its development-oriented team. Thomas’ appointment was part of that, as was the addition of Allison Armstrong as director of lands and environment.
Thomas’ appointment caused some surprise in the markets — Kaminak’s share price fell more than 20% the week after the news broke — but after six months on the job, Thomas was knowledgeable, confident and excited as she took visitors on a site tour. She also noted that she had kept an eye on Coffee all along.
“I stepped in having known a lot of this group and having known Rob Carpenter over the majority of my career,” Thomas said. “The North of 60 Club is a small one, so we tend to be pretty familiar. I knew the quality of the team was first-rate and I knew Kaminak was onto something that I view has the potential to be world-class.”
Kaminak also added to its board Richard Hall and Bradley Blacketor — both seasoned mining executives who have built mines and negotiated mergers and acquisitions. Hall also has considerable experience with heap leaching.
Kaminak will have spent $14 million at Coffee this year, which makes it the largest exploration program in the Yukon. In September the company added $2.9 million to its bank account, selling 3 million flow-through shares at 95¢ apiece. With those funds Kaminak should finish the year with $8 million on hand.
A year ago Kaminak shares were worth $1.95. Over the last 52 weeks they have fallen by more than half, bottoming recently at 63¢. Kaminak has 91.4 million shares outstanding, 100.8 million fully diluted.