'Major milestone' for Lake Shore Gold with Timmins mill purchase.

The acquisition of a Timmins processing mill by Lake Shore Gold is a huge leap forward for the fast-growing Vancouver junior miner-turning-gold producer.

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In late January, Lake Shore announced the signing of a letter of agreement with Goldcorp Canada, manager of the Porcupine Joint Venture, to acquire the Bell Creek mine and mill assets in a $10 million cash and stock transaction.

The deal will be finalized in late March after a 60-day due diligence period.

Besides acquiring an inactive 1,500 tonne per day mill, the Bell Creek complex includes a mine containing high-grade ore, a hoist, headframe, tailings facilities, office buildings, plus road and hydro access.

"It's a major important milestone for this company on a number of fronts," says Meghan Brown, Lake Shore's manager of investor relations.

The mill acquisition means the company can fast-track their exploration plans to possibly bring the best of their gold properties into production with less permitting time, especially their flagship gold project, Timmins West, located 40 kilometres away.

Lake Shore is investing $7 million this year for exploration in the Timmins mining camp and expects to finish a pre-feasibility study at Timmins West by mid-year to assess the property's mineral resource. The company has also filed for permits to sink an exploration shaft for underground drilling at Timmins West and plans to mine a 20,000 tonne bulk sample.

Brown says purchasing an existing mill is a good pickup considering the cost of building a new complex on a greenfield site.

"To replicate a new mill of that type would be range of $50 million to $60 million to build," says Brown. "This puts us in control of our own destiny and really removes a lot of risk from the company."

At Bell Creek, there's both a mill and mine containing a high-grade ore body that sit only a few hundred metres away from where Lake Shore is doing exploration at their Vogel-Schumacher project.

"One of the neat things about this transaction is now we think we can do the underground exploration at Vogel-Schumacher by drifting over from underground through the Bell Creek headframe and shaft, rather than drilling from surface or having to sink another exploration shaft."

Prior to the deal, Lake Shore was considering either toll-milling with other mills with excess capacity, or building one of their own.

"This means we're not at the mercy of another company in milling options," says Brown. "We've believed that we could bring Timmins West into a mine without having to build a new mill because of the excess capacity in the area. Now we have our own mill so we're in control of our decision-making."

Brown says Bell Creek mine has a future both as an exploration shaft and a gold producer.

The last resource estimate at Bell Creek was reported in 2004 by Goldcorp and its joint venture partner Kinross Gold. There was an indicated resource of 50,641 ounces of gold at 8.25 grams per tonne, and an inferred resource of 85,888 ounces of gold at 7.70 grams per tonne.

Lake Shore plans to update that estimate with an eye on bringing it into production.

Bell Creek mill has been on care and maintenance for four years. "It will take time and money to get it running, but it's a matter of months not years," says Brown.

Among the improvements are an extra grinding circuit in order to process ore from Timmins West because of the different type of mineralization on the western edge of the Timmins camp.

www.lsogold.com

By IAN ROSS 

Northern Ontario Business