Gold Canyon gains ounces but loses grade at Springpole

Gold Canyon Resources (GCU-V) managed to boost total ounces in its latest resource update, but it did so at the cost of grade.

The company announced the latest calculation for its Springpole Gold project, which sits 110-km northeast of the Red Lake mining camp in Ontario, and said the deposit now holds indicated resources of 128.2 million tonnes grading of 1.07 grams gold and 5.7 grams silver per tonne for 4.41 million oz. of gold and 23.8 million oz. of silver.

Inferred mineral resources came in at 25.7 million tonnes grading 0.83 grams gold and 3.2 grams silver per tonne for 690,000 oz. of gold and 2.7 million ounces of silver.

The estimate updates a calculation released in February of this year that outlined just 1.22 million oz. of indicated resource, but at a higher grade of 1.26 grams per tonne. Inferred resources from the earlier report outlined 2.45 million oz. from 60 million tonnes with an average grade of 1.27 grams gold. Overall grades have fallen 19% from the February estimate.

The lasted round of ounces were generated using a cutoff grade of 0.4 grams per tonne gold and despite the drop in average grade the deposit still benefits from its ability to maintain a majority of its ounces with increasing cut-off grades — a fact that should provide greater flexibility when it comes time to develop the deposit.

When the cutoff grade is increased to 0.6 grams, the deposit still projects 3.85 million oz. of indicated ounces and when it is moved up to 0.8 grams the estimate outlines 3.24 million oz. of gold.

But the lower grade ensured that the new estimate didn’t have across the board admirers.

CIBC’s analyst Jeff Kileen for one said it was decreasing its price target to $2.55 from $3.00 due to the effect of the lower grades in his resource model.

After wrestling with the new numbers, the market seems to be siding with the company, as Gold Canyon shares have climbed as much as 10% to $1.45 after initially dropping to $1.31 on the news.

Gold Canyon says the new resource will be the foundation for a preliminary economic assessment (PEA) that it expects to have out in early 2013.

The latest estimate incorporated 36,000 meters of drilling that didn’t make its way into the February estimate, and all of those metres were drilled with a diamond drill rig that targeted infill and step-out drilling.