Lake Shore Gold updates resource at Timmins West

Greater knowledge from mining and development work over the last year and a half, results from infill drilling and a reinterpretation of drill results have culminated in an updated resource estimate for Lake Shore Gold’s (LSG-T, LSG-X) Timmins West mine complex in northern Ontario.

The latest resource consists of updated resources for the Timmins deposit from previous estimates completed in September 2009 and an initial resource estimate for the Thunder Creek deposit, which was first released on Nov. 16, 2011. (The Timmins West mine complex includes the Timmins deposit and the Thunder Creek deposit.)

The Timmins deposit has 2.95 million tonnes of indicated resources grading 6.34 grams gold per tonne for 600,900 contained oz. gold, and 1.58 million inferred tonnes of 5.54 grams gold for 281,500 oz. gold.

At a cut-off grade of 1.5 grams gold per tonne, the Timmins West mine and Thunder Creek deposit add up to 5.83 million tonnes grading 5.99 grams gold per tonne for 1.12 million oz. gold in the indicated category, plus 4.27 million inferred tonnes at 5.76 grams gold for 791,500 contained oz. gold.

Lake Shore expects to release an updated reserve estimate and a preliminary economic assessment before April and says there is resource potential in extensions and new discoveries. Definition and expansion drilling is well underway.

The Timmins resource includes 445 holes, with 86,408 metres of underground drilling from September 2009. Most of the new holes drilled into the Timmins deposit were designed as infill and definition drill holes to test areas above the 800-metre level, drilled from platforms between the mine’s 260-metre level and 650-metre level.

The company says it has already identified “significant gaps” within the Timmins deposit that lie “in close proximity” to existing resource blocks with “excellent potential to host new resources with additional drilling.”

“If you look at the resource of the Timmins deposit, the overall grade didn’t change that much overall from the resource estimate that was completed in 2009 . . . and we used more stringent criteria,” says Mark Utting, Lake Shore Gold’s vice-president of investor relations. “So you’re talking about a much higher level of confidence of what we have, and this will support our mine planning and mine production over the next several years, so we’re very pleased.”

Mineralization at the Timmins deposit is closely related to quartz vein swarms and stockworks with bulk-mining potential.

In  January the company said it was completing a mine engineering study, including capital and operating plans, for integrating the Timmins and Thunder Creek deposits into a single Timmins West mine.

The company has also boosted resources by 700,000 oz. gold at its Thorne-Gold River trend property, 4 km south of the Timmins mine.

Resources at the 3-km-long Gold River trend now stand at 5.3 million inferred tonnes grading 6.06 grams gold per tonne for just over 1 million oz., plus 690,000 indicated tonnes grading 5.29 grams gold for 117,400 oz. 

The estimate used a 2-gram-gold per tonne cut-off grade.

The resource is contained in two deposits: the 1.5-km-long East deposit and the 500-metre long West deposit.

The previous Gold River trend resource, released in 2002, counted 400,000 inferred contained oz. gold at a 3-gram gold grade per tonne.

In other news, Lake Shore Gold entered an agreement earlier this month with Franco-Nevada (FNV-T) in which Franco-Nevada will pay US$35 million to Lake Shore Gold for a 2.25% net smelter return royalty on the minerals sold from the Timmins West complex. 

Franco-Nevada also acquired 10.1 million shares of Lake Shore Gold in a private placement at $1.49 per share for $15 million in proceeds. The sale represents a 5% premium to Lake Shore Gold’s 10-day, volume-weighted average trading price.

Kerry Smith, a mining analyst at Haywood Securities in Toronto, has a “sector outperform” rating on the stock with a 12-month target price of $3.50 per share. Smith’s target price is based on a 0.9-times multiple to a $3.92 net asset value per share at a long-term gold price of US$1,150 per oz.

At presstime Lake Shore Gold traded for $1.51 within a 52-week range of $1.10–$4.42 per share. The company has 400 million shares outstanding.

“Our current model assumes production from a 4,000-tonne-per-day mill at Timmins West by 2015, a delay from company guidance of late 2013 to early 2014, and additional ounces from the Timmins, Thunder Creek, Vogel, Schumacher, Marlhill, and Bell Creek mines, compared with the company’s current reported reserves,” Smith stated in a research note to clients on Feb. 16. “The valuation for Lake Shore continues to be leveraged to exploration success.”

Smith adds that in this year’s first half Lake Shore Gold will be focused on mine development, with ore delineation and infrastructure at all three mines to provide more underground working faces and increase available tonnages.

“This work will require processing lower-grade development ore of about 3.5 grams per tonne gold, which will reduce production in the first part of 2012. We view this development work as a positive step, and Lake Shore’s target is to develop about one million tonnes at each of the Timmins, Thunder Creek and Bell Creek mines — which should be adequate to support an expanded mill at 3,000 tonnes per day [about 1.1 million tonnes per year milled].”

Commercial production at the Timmins mine began on Jan. 1, 2011. The company poured 86,565 oz. gold last year and processed 83,585 oz. gold from milling 671,467 tonnes at an average grade of 4.03 grams gold per tonne. 

This year the company expects to produce between 85,000 oz. and 100,000 oz. gold, with production weighted to the second half of the year.

Mine production is delivered to the company’s wholly owned mill on the Bell Creek property east of Timmins. The mill operates at a 2,000-tonne-per-day capacity, but the company plans to boost that amount to 3,000 tonnes per day by late 2012.