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Golden opportunities: exciting new gold districts offer huge potential in Ontario.

Ontario has been producing gold for over a century, since the first discovery in the Kirkland Lake area in 1903 led to subsequent high-grade deposits found in Timmins and Red Lake. Over the past few years, new areas of gold mineralization have been identified in previously overlooked areas, creating excitement that there is yet more of the precious metal to be found in the province.

The behemoth of Ontario's gold producers is Goldcorp's Red Lake mine in northwestern Ontario, one of the most profitable gold mines in the world. In 2013, the mine produced 493,000 oz of over 20 g/mt gold, yielding revenues north of $684 million. Yet industry-wide cost pressures forced Goldcorp to consider new ways to optimize production at the historic site.

George Burns, executive vice president and COO of Goldcorp Inc., described the "cell mining" concept that divides the underground mine into different areas, with one team per cell who are responsible for equipment, planning, scheduling and execution. "Last year we increased our development vertically by 50% simply by empowering our workforce to deliver better results," he said.

At current reserve levels, Red Lake is expected to be operating for another 12 years. Goldcorp's future success in Ontario lies in its Cochenour project, which is scheduled to begin production in 2015. Located just 5 km west of Red Lake, Cochenour is forecast to produce between 225,000-250,000 oz/y of gold.

"We will be touching the ore body later in 2014. The shaft is nearly complete and we are currently working on connecting the shaft to the ore body," said Burns.

Just a few kilometers north of the Red Lake mine is the Phoenix Gold project, which junior company Rubicon Minerals Corp. is planning to put into production in 2015. The project was initially discovered in 2008.

"The deposit was formed by the same series of geological events responsible for the deposition of gold at Goldcorp's Red Lake mine. There are two major folding structures in the Red Lake district; one where the Goldcorp's Red Lake mines are located, and another one 7 km to the northwest, along the axis of which the Phoenix Gold project is located," said Michael Lalonde, a former director of underground operations at Goldcorp who is now president and CEO of Rubicon Minerals.

The Phoenix Gold project has a resource estimate of more than 3 million oz using a 4 g/mt cut-off, and is expected to produce more than 165,000 oz/y for 13 years. Rubicon has constructed an all-weather road, brought line power to the site, built a tailings management facility, a 200-person camp, a new headframe, and a modern hoisting plant. In addition, the company recently completed shaft sinking at 730 m below surface, and is now fully equipped and commissioned.

M&A hones in on Ontario

Gold companies on the hunt for developing assets are looking at projects in stable jurisdictions with known areas of mineralization to increase their reserve base.

Since 2012, there have been a number of major acquisitions in the gold sector in Ontario: IAMGOLD acquired Trelawney Mining and Exploration Inc., Osisko Mining Corp. acquired Queenston Mining Inc., Primero Mining Corp. acquired Brigus Gold Corp., and New Gold Inc. acquired Rainy River Resources.

New Gold's president, CEO and director, Robert Gallagher, explained why Rainy River represented a good platform for the company's first foray into Ontario. "Two years before we made the acquisition, the company was valued at over three times the final purchase price. The fall in the gold price made it very difficult for Rainy River to finance the construction of the project, which they had estimated to cost around $800 million. When Rainy River's market capitalization got to a price where our acquisition of it with a reasonable premium to the market was very positive on a per-share basis, we did the transaction," said Gallagher.

Yet there has been a seismic shift in the merger market since 2013, when New Gold acquired Rainy River Resources, according to Cameron Mingay, partner at Toronto-based law firm Cassels Brock and Blackwell LLP that acted for New Gold on the deal. "The fall in gold prices led to a decrease in the valuations of projects, and companies who are in the position to make acquisitions can offer lower premiums if they can manage to do so," he said.

This point was driven home with the first major deal of 2014, when Goldcorp offered a 15% premium to purchase rival gold company Osisko. Comparatively, New Gold offered a 42% premium to acquire Rainy River just over six months prior. While Goldcorp eventually lost out on the Osisko deal to a creatively structured joint bid by Agnico Eagle and Yamana Gold Inc., who will jointly operate the company's projects in Quebec and Ontario, these actions prove that the acquisitions market is heating up after a lengthy period of inactivity.

New gold districts in Ontario

It is significant that the Rainy River, Trelawney and Queenston projects, the objects of these bids, are all outside of the traditional gold mining camps in Ontario. New gold districts in the province are emerging and Ontario companies with projects in underexplored areas are demonstrating how much more gold there is yet to be found. The difficulty in these areas lies in the geology: while the Timmins and Kirkland Lake gold deposits were largely discovered near surface, it is likely that many other deposits are going to be discovered under glacial cover and are therefore much harder to find. "The Rainy River deposit was discovered through integrating surficial geology and detailed till sampling and drilling," explained James Siddorn, vice president at SRK Consulting, part of a team that investigated the geological controls on gold mineralization at Rainy River. "This sub-surface discovery proves that, although deposits are undoubtedly harder to find these days, many more await discovery in Ontario. To locate them, we must also apply our geological knowledge combined with the use of geophysical data sets to understand the distribution of structures and their control on the distribution of mineralization.

One such company with a known asset outside of traditional mining camps is Treasury Metals, whose Goliath Gold project in northwestern Ontario is in close proximity to the Rainy River and Cote Lake projects. The project, which has a resource of 1.7 million oz and average grade of 2.87 g/mt, also hosts a significant upside potential. "The C Zone is a new shoot that Treasury identified in early 2013, and has great potential to contain another company-maker hole," said Martin Walter, president and CEO of Treasury Metals.

Also exploring in the area is Tamaka Gold, a private exploration company whose Goldlund property is situated on the same greenstone belt as the Rainy River project. "The property was an operating mine between 1982-1985, producing around 18,000 oz/y. Tamaka controls an 18 km mineralization strike between the towns of Sioux Lookout and Dryden," said Tamaka's president and CEO, Howard Katz. The project contains grades of around 1.3 g/mt, which is higher than most of the recently acquired projects in the region.

Exploring in the shadow of a headframe

While new gold districts are always exciting, exploration in these areas can bring more risks than even Canadian investors are willing to handle in current market conditions. Exploration companies with assets near known producing mines are at an advantage.

Harte Gold is an exploration company with an asset located 60 km west of Barrick's Hemlo mine, which produced more than 204,000 oz in 2013. The company is using its knowledge of the area to find a similar deposit at its Sugar Zone property. "The Sugar Zone deposit is a sheer zone hosted quartz vein with gold mineralization coming right to surface. At Hemlo, a similar environment existed," said Stephen Roman, chairman, president and CEO of Harte Gold. "On our property, regional prospecting uncovered what we call the "Peacock showing", named after our prospector, Mr. Terry Peacock, which assayed 87 g/mt, in a similar sericitic schist as Hemlo, where more than 20 million oz were found. We are currently focusing our work on starting the advanced exploration program and bulk sample on the Sugar Zone property."

Timmins: the historic producer

The Timmins gold camp in northern Ontario is one of the most productive gold mining camps in the world. With mines in operation since 1910, the area has produced more than 70 million oz of gold, yet companies continue to find new deposits in the Abitibi greenstone belt.

St. Andrew Goldfields currently produces nearly 100,000 oz/y of gold from its Holt, Holloway and Hislop mines just outside of Timmins. While their Holt mine, a former Barrick operation, has a good five years of reserves left, the company is also exploring its 120 km land base in one of the two major fault zones in the area; the Porcupine-Destor fault zone.

"If you look at SAS's land package from Matheson east to the Quebec border, it is very underexplored due to the topography of the area: huge glacial deposits of overburden with sand and alluvial sitting on top. No one has ever really viewed the bedrock. Now we have science to find the location of the fault and the technology to drill through it," said the company's president and CEO, Duncan Middlemiss.

The other major fault zone in the area, Pipestone, runs parallel to the north of Porcupine-Destor. Compared to Porcupine-Destor, Pipestone is even less explored. Greg Romain, CEO of Gowest Gold, believes that the Porcupine zone represents a major area for potential discovery in the Timmins mining camp: "Our North Timmins Gold project covers a 109 [km.sup.2] land package and, beyond Gowest's flagship project, Bradshaw, we have intersected gold on a number of other parts of the project and identified numerous targets that deserve further exploration."

With new gold mines set to open and new areas of exploration proving fruitful for Ontario mining companies, the sector has done everything it can to weather the gold storm in 2013. Gold companies may have experienced the biggest drop in the price of the precious metal in recent memory, but there are signs that the market is beginning a bull run.

Both Rob McEwen and Eric Sprott have staked their careers in the gold sector. Rob McEwen, the founder of Goldcorp and now chairman and CEO of McEwen Mining, believes that gold prices could hit $5,000/oz over the next few years. "All of the reasons that gold was running before have not changed: debt levels are accumulating, and the cost of servicing that debt will become onerous," he explained. "Also, a number of major gold projects expected to come on-stream over the next few years have been delayed, potentially constraining supply."

Eric Sprott, CEO and CIO of Sprott Asset Management and a self-confessed gold bug, is slightly more conservative in his estimate. "If we look at the gold price trends since 2000, we can expect to see a $2,100 /oz gold price by the end of 2014," he said. "There is huge demand for gold in China and India, central banks are buying gold again and mint sales are skyrocketing--yet there has been no increase in production." The funds Sprott runs that are invested in gold stocks were up 40% in the first seven weeks of 2014.
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Title Annotation:Global Business Reports: MINING IN ONTARIO
Publication:E&MJ - Engineering & Mining Journal
Geographic Code:1CONT
Date:Jul 1, 2014
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