PDAC 2012 Day 1

We are at PDAC this week researching mining companies and stories. The Toronto Convention Center is busy as usual with thousands of mining heads taking care of business. Almost 600 exhibitors (not including the “trades” like drillers and consulting firms) are manning the impressively-long isles of booths so there is simply no chance that we can catch up with all the people we’d like … but we’re certainly going to try hard. The list of “top priority” stories that we are following numbers over 60 so we’ve got our work cut out for us. That said, we’re going to try meeting with some companies suggested by Metal Augmentor subscribers as well … we’ve already received a few requests and would like to invite other subscribers to name a name or two (please use the comments section to do so). A list of exhibitors at the “Investor Exchange” can be found here. In addition, if you happen to be at PDAC yourself, we’d be happy to meet in person. Just send us an email with “PDAC Meeting” in the header with your details. We also plan to continue tweeting some of our findings — the plan being to have the most tweets with the #PDAC hash tag — so please consider following us on Twitter as well.

Okay, let’s go on with reporting some of our findings from the first day at PDAC. For the sake of speed, we’re leaving off company symbols and other details in favor of getting the raw reporting done.

Gryphon Gold — Lisanna Lewis, VP-Treasurer, mentioned new pump with proper sizing that can supply 1200gpm to the leach pad as an initial step to turn around the production story at the Borealis project in Nevada. Previously we’d learned that it would be summer before the leach characteristics of the reprocessed tailings (much less the raw ore they plan to eventually mine) could be fully evaluated. As a result we’ve been in a wait-and-see mode with this story. In the meantime, the hope would be that old management took the OPUD with them.

Aurizon Mines — We spoke with Jennifer North, Investor Relations Manager, again to better understand the company’s pipeline. It remains management’s plan to finish evaluating the economic and development parameters of Joanna by mid-year in order to make a go or no-go decision. Pending this decision, Joanna remains the number one project in Aurizon’s development pipeline with the Marban project joint-ventured with NioGold being number two. There is a possibility that Marban could become the top priority if Joanna is not going forward but Aurizon is also looking around for quality gold deposits with near-term production potential. Whatever happens, the year 2012 could be an exciting one for gold in Quebec.

Goldgroup — Caballo Blanco is the low grade oxide gold project in Mexico that Goldgroup plans to develop as its initial mine. The project looks relatively easy … with John Sutherland, VP-CFO, explaining some salient details and providing a project update … and should progress quickly to development after the PEA is completed next month. There are some regional rumblings about open pit mining but that is not unusual for this part of Mexico. And while Caballo Blanco isn’t sexy or massive, neither was Timmins or Argonaut when their respective projects were at a pre-development stage .. and yet those companies are now well-respected and successful cash cows with Mexican open pit, heap leach gold mines.

Avalon Rare Metals — While Avalon will have its development challenges, the investor relations duo of Ron Malashewski and Mandeep Singh Rayat does a good job of emphasizing that (1) the company has tried hard not to understate the cost or complexity of building the mine and processing plant (and therefore may avoid the same nasty negative surprises that are plaguing the rare earth projects as they progress through early development efforts) and (2) a fully feasibility study supported by advanced pilot plant testing should be completed by year-end thereby making the case that Avalon could be one of the nearest-term producers aiming to sell separated rare earth oxides (the “Lynas model” that is also being pursued by the likes of Frontier Rare Earths in South Africa). We haven’t given this angle much consideration but will need to study it closer and will therefore plan to meet with Bill Mercer, VP-Exploration, later in the week to discuss some technical details.

Marathon Gold — We spoke with Phillip Walford, President/CEO, about some of the unique features of the high-grade Leprechaun Gold Deposit at the Valentine Lake Gold project in Newfoundland. They have some really nice gold intercepts in quartz-tourmaline-pyrite veins forming in what appears to be dilational jogs related to shears along a major regional fault structure. And although the focus is near-surface mineralization that can be extracted via open pit, Phillip makes the point that the gold mineralization falls into the “orogenic” classification and thus could have significant upside at depth as well as resource growth potential along strike where the company is likely to focus its efforts for the time being.

Mirasol — Paul Lhotka, Principal Geologist, explained the ways in which Coeur d’Alene Mines has been expressing satisfaction with the progress of exploration at the Joaquin joint venture. By all rights it looks like Coeur could get serious about making Joaquin its newest silver mine … and with a company like Coeur you often see things instantly go from crawl to sprint. At Virginia, Paul points out the early stage of the regional exploration effort and cautions against an analysis of resource potential that relies more on blue sky than brown ground (in other words, they have found some nice zones so far including the central Julia vein but these are discrete ore bodies holding no insight as to the presence of any others nearby). That type of honest and frank attitude is always appreciated.

Corvus Gold — We talked about the North Bullfrog gold deposit with Russell Myers, President, to understand why a deposit at such a low grade (under 0.40 grams per tonne gold) can indeed be economic under the right circumstances. As usual it comes down to where the rocks are and how easily the gold can be coaxed from them with cyanide.

Levon Resources — We met Vic Chevillon, VP-Exploration, at the core shack and looked at some of the diatreme breccias Levon has drilled at the Cordero Project. Vic pointed out that although the resource is already pretty friggin’ big, the company is now stepping out to add resource along the pit edges. This would help convert to ore some of the rock currently modeled as waste and thereby result in a larger resource and perhaps better project economics. Frankly a project like this probably doesn’t make sense at $10 silver but it starts to look pretty darn good at $30 … in the same way that Goldcorp’s Penasquito didn’t make sense at historically-low metal prices but may work in the current environment. That said, Vic has a goal of finding the gold he suspects is located nearby because it is the gold (rather than silver or base metals) the majors seem to be after.

Excellon Resources — The booth caught our attention because they posted a Toronto police officer at the booth … very Village Peoplesque. At first we thought maybe it had something to do with the ongoing union problems but actually the officer was posted to guard some substantial silver dore bars. Since Excellon produces and ships a concentrate to smelters via Trafigura (the commodities trader), there is no telling if this silver actually came from La Platosa. We would have liked to learn about plans being formulated to eventually expand production beyond 200tpd, but due to water inflow it was made pretty clear that at this particular mine the 200tpd was something of an upper limit.

Queenston Mining — Last time we spoke with Queenston in detail (which was PDAC 2011) the company did not have any gold deposits advanced far enough to discuss in detail. Now they do with a PEA for Upper Beaver that looks quite toothy. We went over a few things with Bill McGuinty, VP-Exploration, and then talked strategic possibilities with Charles Page, President/CEO. With Upper Beaver turning out quite robust, a central mill with ore being fed from several district mines may no longer be the best strategic option. Although the idea itself remains valid, it might be made irrelevant if more of the deposits start to look as robust as Upper Beaver.

Esperanza Resources — The open pit heap leach Cerro Jumil project in Mexico continues to progress toward development and should eventually attract a more decent valuation as the Feasibility Study is completed toward the end of this year, or if Paul Bartos, VP-Chief Geologist, can successfully expand the deposit and make another discovery at one of the nearby targets the company plans to drill (once surface rights and permitting are taken care of). It seems a bit more patience is needed here but not that much.

Global Minerals — Pumping water to gain underground access at the Strieborna silver deposit in Slovakia has gone relatively well — Esperanza’s Paul Bartos, VP-Chief Geologist, is keeping close tabs on the progress given that his company owns a nice chunk of Global — and it looks like they should be able to build underground drill stations in a few months to advance the resource definition efforts as well as target some additional areas for expansion. As with mother ship Esperanza, some more patience is needed but the action and news flow should pick up as the year progresses.

SilverCrest Mines — We’ve been trying to gain a better understanding of the large, low grade silver/copper deposit that SilverCrest is exploring at La Joya in Durango, Mexico. Low grade silver deposits can be tricky to mine and process at a profit so it is important to evaluate each one and if possible to find an analogy of a successful operation. In this case there are apparently some analogies to the Sabinas and San Martin mines being operated by Penoles and Grupo Mexico, respectively. Unfortunately we hadn’t gotten very far in evaluating that angle because Eric Fier, COO, who apparently knows quite a bit about those mines, has been a very busy man recently. But no worries as Mr. Fier’s daughter, Rosy, came to the rescue at PDAC and was very clearly able to articulate not only what La Joya was mostly about (stacked lower grade mantos cut by high grade stockwork feeders and underlain by a skarn) but also to provide the analogical context to Sabinas (where mining is underground and exploiting mainly the skarn). As a result of the much-better understanding, we have shifted our thinking on La Joya from simply a “large, low grade silver deposit” to a more complex deposit model with potentially several paths to production. The key would be the wide range of cutoff grades possible as a result of the high grade stockworks constituting a significant portion of the tonnage. In other words, La Joya may not turn out to be a massive mining scenario with several hundred million “silver equivalent” ounces but that’s okay given that 50 million ounces of higher grade open pittable silver with a mean copper credit would still be quite valuable (perhaps more than a huge low grade silver deposit).

Disclaimer: We don’t currently own any of the above companies with the exception of NioGold and we do not receive compensation for our commentaries from any party. This is not investment advice, which you should seek from a licensed investment professional.