13 months later.. Gold Canyon's 'solid' Springpole resource disappoints
2012-02-28
After delivering a string of exciting drill results over the past two years at its Springpole gold project, in northern Ontario, Gold Canyon Resources (GCU-V) released a long-awaited resource update for the project totalling 3.7 million oz. gold and 16.4 million oz. silver — only to see its share price fall.
At a cutoff grade of 0.4 gram gold per tonne, the project holds 30 million indicated tonnes grading 1.26 grams gold and 5 grams silver for 1.2 million oz. gold and 4.8 million oz. silver. Inferred resources add 60 million tonnes averaging 1.27 grams gold and 6 grams silver for 2.5 million oz. gold and 11.6 million oz. silver.
The estimate used a gold price of US$1,300 per oz. and US$15 per oz. silver. The resource was modelled within an optimized pit shell and incorporated 39,000 metres of drilling completed over the past two years.
Investors disappointed with the resource traded Gold Canyon shares down 56¢ or 23% yesterday on the news, but the stock recovered somewhat to end the day at $2.10, or 15% lower.
In a conference call today, Quinton Hennigh, the company’s technical advisor and a director of Gold Canyon, acknowledged that investors had been expecting “a much larger number” out of the resource.
However, Hennigh emphasized that the resource was based on very conservative assumptions about costs, metal prices and recoveries in comparison to other resource estimates.
“I have worked for many major mining companies for many years of my life and I feel it’s important to put numbers out that are realistic,” he said. “The assumptions, although conservative, speak volumes about this project. Basically, I feel one could throw an atom bomb at these numbers and it would not fall apart — these are as solid as rock.”
The resource was estimated based on mining costs of US$2 per tonne, processing costs of US$12 per tonne, general and administrative costs of US$2 per tonne, and estimated recoveries of 80% for gold and 60% for silver. The pit, which extends as deep as 360 metres, was assumed to have a strip ratio of 3:1.
The previous resource, in 2006, counted more than 240,000 oz. gold, mostly in the inferred category. (That estimate also combined both open pit and underground resources.)
Drilling at Springpole, 110 km northeast of Red Lake, is ongoing, with 50,000 metres planned for 2012. About 80% of that will be infill drilling, which should help boost resources by converting in-pit material currently classified as waste to resources. Not enough drilling has been done in some parts of the deposit (both at depth and in some shallow areas) to be able to classify all material within the modelled pit at Springpole as inferred resources.
Hennigh said the grades at Springpole set it apart in terms of quality from other bulk-tonnage gold projects in Canada, noting that even though grades were capped to negate the effects of bonanza gold in certain zones, the overall grades are still strong.
He anticipates that 25,000 to 30,000 metres of new drill results will find its way into a new resource update and a preliminary economic study on Springpole slated to be released in the fall.
The company has brought in two barges to the project for a total of four and expects to add ounces with shallow drilling at the Portage zone, which lies under Springpole Lake, this summer. Barge drilling at the project only got started last August, and was interrupted by forest fires that spread across northern Ontario.
With three drills already at work and two more set to start shortly, Hennigh noted the company should be able to make much faster progress at the project this year.
“This resource gives us a solid foundation upon which we believe we can quickly build significant upside through ongoing drilling in near-surface areas proximal to this resource, along the strike of the Portage zone to the southeast, and at depth where drilling has recently encountered higher-grade mineralization," said Hennigh in a press release.
He also expects an improvement in recovery rates, which, in the resource estimate, were based on limited bottle-roll tests. Metallurgical testing is under way, with results expected in the late spring or early summer.
The company has about $13 million in working capital with warrants expected to bring in $9 to $10 million over the next eight months. Gold Canyon expects to raise money again later in the year in conjunction with the PEA.
The Springpole deposit is hosted in an alkaline intrusion and has characteristics of Archean orogenic gold, and of potassic gold deposits such as Cripple Creek.
Hennigh noted that drilling alkaline systems, which tend to be large, takes time, and that there is upside both in known zones and in new targets at Springpole.
In a note to clients, Adam Graf, senior mining analyst at Dahlman Rose & Co., stated that the upcoming resource in the fourth quarter could be substantially larger.
“Although this resource estimate was shy of what some may have anticipated, we remain confident of the company’s continued exploration success and ability to grow the Springpole asset,” reads the note.
Graf has a target of $6.64 on the stock.
There are several zones at Springpole. The Portage zone is a porphyry instrusion with gold hosted within polyphase autolithic breccias. Rock in the zone is friable and difficult to drill, but could make for very easy milling.
In other zones, including Main to the northwest and East Extension to the northeast, gold occurs in high-grade veins and pods hosted in diatreme breccias composed of intrusive and country rock fragments. Known mineralized zones at Springpole occur within a 4-sq.-km area that represents 15% of the greater alkaline intrusive complex.
The company has a 52-week trading range of $1.60-4.22 and 122.2 million shares outstanding.