Mega keeps the ball rolling at Monument Bay

Mega Precious Metals’ (MGP-V) president and chief executive James Rogers has lofty plans for the company’s Monument Bay gold project in northeast Manitoba, which was previously drilled by past operators as a potential high-grade underground pit.

Now Mega – the project’s fifth successor since Noranda – is working to establish a viable open pit and underground scenario at Monument Bay, located 570 km northeast of Winnipeg.

“The vision there is basically getting in the order of four million ounces in the current footprint, above 500 metres [depth], and looking to have at least two million of those in open pit. And the reason for that is it could support a production rate of a greater than 200,000 ounces per a year,” Rogers explains in a phone interview.

With that output rate, and assuming total costs of US$800 per oz. and gold price of US$1,500, Rogers reckons the project could carry a US$1-billion net present value (NPV) on a discounted basis.

While the projections are based on the company being able to grow the current pit resource to 2 million oz. gold, Rogers says he believes it’s possible given the room for expansion within the current resource footprint and district.

“And having come from a mining background, our approach is to see what we think we have and reserve engineer making it happen.”

Its first step of that process to support those predictions will be completing a scoping study, which is expected by next June. 

Before it does that, it will need to build up Monument’s current resource. A 20,000-metre infill drill program is ongoing on the  pit, while another 5,000 metres will be slated to test three of the 30 new targets identified in last year’s campaign.

The 2012 drill program was originally 50,000 metres, before the company trimmed its exploration budget.

“We’re [sort of] riding out the market storm,” Rogers says, adding if the company’s share price picks up, it could always accelerate the program.

As of now, the program should run until October at a cost of US$9 million.

Once that’s done, Mega will update the existing resource estimate, incorporating the results from this year’s and last year’s programs. Previous drilling back to 1990 will also be included in the estimate anticipated out early next year.

Rogers expects that update to add more than 1.3 million oz. gold to the existing resources at the project.

Total resources at Monument Bay currently stand at 12.9 million tonnes grading 2.50 grams gold for 1.04 million oz. gold in measured and indicated. It has another 14.2 million tonnes at 3.78 grams for 1.7 million oz. inferred.

While building the resource is a priority, Rogers says finding more deposits and proving that Monument is a multiple deposit gold system and camp will be a huge upside.

“The reality is if there are multiple pits in the district, then the sky is kind of the limit,” says Rogers, adding the area has the potential of becoming a gold camp in the long run.

“I really believe the district is a camp,” comments Rogers, saying the company identified over 30 new targets on the 256-sq.-km property as part of 2011’s 27,000-metre program.

“And when we look at the geophysics and geochemistry, there are anomalies all over the property. And a lot of those anomalies and structures are high angles to the shear zone, which is where the orebody is, and from my experience in Red Lake that is were the high-grade zones are. So, I really believe we have a deposit we can make into a mine. But, the best is yet to come.”

(Rogers was the chief mine geologist at the Dickenson mine, now part of Goldcorp’s [G-T, GG-N] Red Lake gold mines.)

Monument is expected to come online in 2017 and have a 10-year life.

To get there, the company will need to keep closing equity financings to carry out its exploration plans during 2012-2015, and fund the equity portion of building a mine at Monument Bay, which is slated for 2015, writes NCP Northland analyst Dan Hrushewsky in his initiating report, dated March 27, 2012.

In the latest private placement in March Mega raised $12.3 million by offering 5.2 million units at 61¢ per unit and 12 million flow-through units at 76¢ apiece.

Rogers says he hopes to do the next financing at a higher share price, preferably when Mega is trading around a $1.

Apart from the common hurdle many juniors like Mega face to raise funds, Rogers concedes accessing the project is a slight challenge as there’s no roads yet.

The property is usually reached by chartered ski or float equipped aircraft from a few places, with Red Sucker Lake, some 52 km away, being the nearest.

But charter and commercial flights are also available from Winnipeg to Red Sucker Lake, Island Lake, or Gods Lake Narrows.

Mega recently finished building a 1,525-metre airstrip on the ice at Twin Lakes to service the 40-person camp.

During the winter months, a winter road extends to Red Sucker Lake from Island Lake if conditions permit. The property can also be reached via snowmobiles and bulldozers from Red Sucker Lake or Gods Lake Narrows.

But he’s quick to add the fact the project is “somewhat isolated” is a reason why he’s optimistic about it.

“The reality is it’s not that isolated, when you do things right,” Rogers says, explaining that the company dropped its drilling costs by $100 per metre by bringing in bulk fuel via its new airstrip.

He goes on to say the company is moving its relationships with the Red Sucker Lake First Nation and the government of Manitoba forward.

The company has been working with the Red Sucker Lake First Nation to advance Monument Bay, which is on the Red Sucker Lake First Nation’s ancestral lands.

Through collaborative efforts, the three parties have created a “Project Participation Framework” to find ways for the local communities to participate in the development of the project.

(Currently, 65% of the company’s workforce is comprised of aboriginals from the immediate or nearby communities.)

To fund these initiatives, the Manitoba government has funded the Red Sucker Lake First Nation’s participation in a non-brokered private placement for the benefit of that First Nation group, Rogers explains.

Last August, the company announced that the Red Sucker First Nation was participating in a non-brokered private placement of 786,000 units priced at 51¢ apiece for net proceeds of $400,000. Each unit consists of one share and a half warrant.

Analyst Hrushewsky sees the project to be promising, noting it has the potential to become a low-cost operation given its good grades, low cost power and metallurgy. He has a sector outperform rating on the stock and target price of 85¢.

The measured and indicated resources in the project’s open-pit grade 1.69 grams gold per tonne, and in the underground average 5.06 grams gold.

A Manitoba Hydro power line runs within 50 km of Monument Bay, offering electric power at a tenth of the cost of conventional diesel generated power, says Hrushewsky.

He adds metallurgical tests to date show that 90% of the in-situ gold can be processed from a gravity circuit, using a two-stage grinding process, which could possible shrink the capex by half and could further trim operating costs.

Mega CEO plans to continue optimizing the project and keeping his spirits high is the fact he’s the fifth operator at the property.

“We are the fifth company in here, and five is my lucky number, so I figure that is going to make a difference. I have been told by lots people between five and seven on a property, it’s usually the operator that is successful with it. Our goal is to be the successful operator and to move this thing forward,” Rogers observes.

“I think it will be extremely attractive to bigger companies when we prove it’s more than just a single pit, but a gold camp with multiple deposits.”