WPC Resources (TSXV: WPQ) — soon to be named Lupin Gold Corp. — plans to bring the past-producing Lupin gold mine online, while also advancing the nearby Ulu gold property.
Both are within Nunavut’s Kitikmeot region and were part of Echo Bay Mines’ core assets in the eighties. From 1982 to December 2004, the underground Lupin mine churned out 3.4 million oz. grading 9 grams gold per tonne. In mid-2002, Echo Bay agreed to a three-way merger with Kinross Gold (TSX: K; NYSE: KGC) and TVX Gold to create a senior gold producer. Due to low gold prices, Kinross took the Lupin mine offline in February 2005. Throughout the decades, both Lupin and Ulu changed hands several times before ending up in Mandalay Resources’ (TSX: MND) back pocket.
Meanwhile, WPC — essentially inactive until 2014, owing to a lack of finances — came back to life last May by proposing to buy private firm Inukshuk Exploration for the Hood River concession next to the Ulu property. At the end of May, it signed an option agreement on the Ulu concession with Elgin Mining. A few days later, however, Mandalay tabled a $70-million bid for Elgin. After the acquisition closed, Mandalay, which was only interested in Elgin’s producing Bjorkdal gold mine in Sweden, put the Lupin mine up for sale.
“When Mandalay said they wanted to sell off the Lupin property, we figured they were going to be looking for $30–40 million,” says WPC’s president Stephen Wilkinson, explaining Elgin had spent that much to acquire both Lupin and Ulu from Minmetals Resources in 2011. (Under that purchase, Elgin provided $4.8 million, 3.8 million shares, and posted a $27-million environmental bond for the properties.)
“Our principal shareholder at that time was Ned Goodman’s fund, and Ned had loved the business plan, and he basically said: ‘Go after it, because we’ll make sure that you get financed.’ That gave us a lot of chutzpah, I guess, chasing down these assets,” the analyst-turned-executive says. (The Goodman Gold Trust has a 15% interest in WPC.)
Before joining WPC last June, Wilkinson served as a mining executive and director of various companies, including ValGold Resources (TSXV: VAL) and Northern Orion Exploration, where he helped restructure and refinance the company.
As part of WPC’s initial assessment, Wilkinson, who was already familiar with Lupin, put together a geological team to inspect the mine and existing surface infrastructure, asking his team to find a reason not to buy the asset.
“The lead engineer, who was a German fellow, said, ‘No problem, I could kill this project quite easily’ … he came back and he was just frothing, and said we had to go after it. It was a wonderful asset,” Wilkinson recalls.
However, uncertain it could make a compelling bid for Lupin, WPC’s management at first withdrew their interest, but had a change of heart after meeting Mandalay’s executives, and realizing there was room for negotiation.
Mandalay’s attitude towards Lupin was that “they didn’t have the management time or interest to go into a Far North operation, which would have required a fully dedicated team to make sure it worked right,” Wilkinson says.
After a quick huddle, the companies settled at a $3-million purchase price for the Lupin mine and an agreement for the Ulu property.
In mid-January 2015, WPC signed a non-binding letter of intent with Mandalay to buy its 100%-owned subsidiary Lupin Mines Inc., which held the Lupin and Ulu properties, for $3 million, 18 million shares and a $1.6-million convertible note for the environmental bond.
Once Lupin reaches commercial production, WPC would provide Mandalay 10,000 oz. gold over three years, or 834 oz. a quarter.
The transaction is set to close in mid-May, after which WPC will change its name to Lupin Gold Corp.
The Lupin mine, located 400 km north of Yellowknife on the western side of Contwoyto Lake, contains five contiguous leases, spanning 68 sq. km. The property is accessible by air, or a winter road.
Surface infrastructure on-site includes a 2,100-tonne-per-day mill, 200-person camp, power plant, tailings facility, water facilities and fuel storage. Wilkinson says the market value of the 2.1 million litres of diesel and 60,000 litres of jet fuel on-site exceeds WPC’s $4-million market capitalization.
Historic production at Lupin came from four zones — West, Central, East and McPherson — and a limited amount from the West Zone South of Shaft. The latter zone has an historic estimate of 1.1 million inferred tonnes at 11.32 grams gold for 403,000 oz. While WPC intends to mine this zone first, it says previous drilling shows there is mineralization near surface at the L19 and L25 zones and at depth at the Centre, West, M1 and M2 zones. Mineralization often occurs with pyrrhotite, arsenopyrite and quartz veins in a banded iron formation.
“The beauty of these banded iron formation units is that they tend to have good units going from surface downwards in these sort of continuous, higher-grade areas. Once you lock onto one of those, there could be maybe another million ounces in one zone,” Wilkinson says.
WPC envisions Lupin as a 1,000-tonne-per-day underground operation, generating 100,000 oz. gold a year over an initial four-year life, with production starting as early as 2017. “We believe that if we have a good winter road … [by] January or February 2017, we should be turning the mill on and starting the processing of low-grade material in order to get the mill functional again. And within three to four months after that we should be in commercial production.”
But to get there, the junior estimates it would need to line up $50 million in stages for the next two years. This would include $3 million to close the Lupin and Ulu purchase, $27.5 million to refurbish the Lupin mine and plant, $8 million to drill the Ulu and Hood properties, and the rest to fund working capital, related work and contingencies.
“This isn’t going to be cheap,” Wilkinson admits. “This is probably one of the things that has the market sort of scratching its head the most about us.”
To raise enough for Lupin, WPC is looking at using debt, a metal-streaming agreement and a joint-venture partner. It intends to raise funds to explore its Lupin and Ulu properties through flow-through shares over the next two years.
The Ulu project is a high-grade gold vein system hosted within an Archean greenstone belt, 150 km north of Lupin. In April 2015, WPC increased Ulu’s 2011 resource by reinterpreting the vein system and remodelling the historic drill results. Ulu’s Flood zone holds 2.5 million measured and indicated tonnes grading 7.53 grams for 605,000 oz., plus 1.6 million inferred tonnes of 5.57 grams gold for 226,000 oz. If all goes to plan, WPC intends to develop Ulu down the road as a satellite deposit.
Once the Lupin mine is online, Wilkinson says the operation could earn a net $50 million annually at US$1,200 per oz. gold, helping the company recoup its investment in a year.
Arranging the financing package will be a struggle, but Wilkinson says the company couldn’t have been happier with Lupin’s purchase price.
“If this was an asset that nowadays … you would want to go from scratch, you would need five to six years for permitting and construction, and $200 million to $300 million. And we are buying if for
how much?” he says.
WPC recently closed at 6¢ and has 65.5 million shares outstanding.
Wilkinson notes the firm raised $1.2 million in equity last year to eliminate its negative working capital position.
In April 2015, it closed a $627,000 private placement to help fund the Lupin and Ulu acquisition.