Integra Gold gets creative with Sigma-Lamaque

VANCOUVER — It’s not often that a junior company can get its hands on a 2,200-tonne-per-day processing facility a mere 500 metres way from its resource-stage project boundary. But that’s exactly what Integra Gold (TSXV: ICG; US-OTC: ICGQF) accomplished in September when it acquired the Sigma-Lamaque mill and mine. President and CEO Stephen de Jong says the deal took some ‘fancy footwork’ to complete, but it offers the company upside.

The Sigma and Lamaque gold mines sit on the outskirts of the town of Val-d’Or, Que., and have produced 9 million oz. gold over a 60-year history, with Sigma formerly operated in decades past by Placer Dome and Lamaque run by Teck Resources (TSX: TCK.B; NYSE: TCK).

Placer consolidated the land package back in 1993, and since then it has passed through the hands of a variety of owners such as McWatters Mining, which built a new mill at Sigma but went bankrupt when resources were grossly overestimated.

The last mining-company owner before Integra  was Century Mining, which went bankrupt in mid-2012 after trying to restart production. The project was a killer for Century due to high debt and looming reclamation costs for the project’s historic tailings.

But Integra saw an opportunity to pick up a relatively new mill facility at a steep discount. The company brokered a deal with creditor Deutsche Bank wherein it would pay $7.6 million for the package, with only $1.8 million of that due in cash and the rest in Integra shares.

“There have been some difficulties with the operation, as a few juniors have gone bankrupt attempting to get things running,” de Jong says in an interview. “There’s the outstanding reclamation obligation pursuant to the old tailings, but we figure our project and resources are the key that unlocks the puzzle. We took a mill that’s 500 metres away and essentially picked it up at a 95% discount.”

For the reclamation issue, Integra struck a deal with a regional waste-rock outfit to cope with the historic rock piles. Under the agreement, the unnamed general contractor will remove the waste rock for use in industrial aggregate and related projects, as well as chip in $1 million of the overall purchase price.

An independent review pegged the reclamation obligations for Sigma-Lamaque at $12 million, but after adjusting for the waste-rock deal, Integra estimates its obligations will drop to $5 million.

There is also an outstanding $3.5-million bond in place with the Quebec Ministry of Energy and Natural Resources. Integra and the waste-rock company have agreed to split the bond, with $2.5 million going towards Integra’s environmental reclamation needs.

“We’ve had a great response from the township and all levels of government on the agreement, as we’re dealing with a historic obligation that’s been neglected for a long time and offered the potential for real economic growth,” de Jong says. “That reclamation obligation really scared a lot of people away, since there’s a substantial waste-rock pile. We’ll have this outfit taking on the waste rock to create aggregate and industrial products. It’s basically like a gravel quarry for them.”

Integra will be on the hook for $775,000 in cash for Sigma-Lamaque, and carry a $2.5-million reclamation obligation. In return the company has secured a mill that de Jong says is in “phenomenal condition,” and includes a permitted 2,200-tonne-per-day complex and tailings facility next to Lamaque South. Metallurgical gold recoveries from the mill have been reported by prior operators in excess of 95%.

“We looked at this alongside other mill opportunities in the area, and there are a lot of them. There are mills with a six-month mine life left and big operations running below capacity,” de Jong adds. “Logistically having a facility so close to our resource allows us to avoid transportation and toll-milling fees. We all think gold is going to make a nice recovery, and we’ve secured something that should have upside in the future.”

The key for Integra lies in its Triangle and Parallel gold zones, which the company discovered over the past few years on Teck’s old exploration ground south of the mill site. Integra’s ground hosts 1.5 million indicated tonnes grading 10.2 grams gold per tonne for 499,200 contained oz., with inferred resources tacking on 489,000 tonnes at 15.1 grams gold for 237,000 contained oz.

The company is transferring permits that include certificates of authorization for underground development and tailing facilities, and exploring development of an access portal from the old Sigma pit towards the Parallel zone. The option could offer Integra capital savings since its original plan had been to hit Parallel from surface.

In March Integra tabled a preliminary economic assessment (PEA) at Lamaque regarding its nearby mills. The toll-milling scenario would have cost $69 million to develop and included an underground mine that would produce 112,000 oz. gold annually at all-in sustaining costs of $805 per oz. The original study forecast costs of $46 per tonne processed, with the markup attributed to toll milling estimated at $15 to $20 per tonne.

The PEA showed an $88.5-million after-tax net present value at a 5% discount rate, along with a 38% internal rate of return (IRR) and a 1.8-year payback period.

“Project synergies from the acquisition are expected to reduce estimated capital and operating costs, while also de-risking Lamaque South by securing processing capacity as opposed to toll-milling arrangements under the previous PEA,” de Jong noted. “As a result, we expect production operating costs could be several-million-dollars-per-year less than estimated.”

Meanwhile, Integra is in the midst of one of the more sizable junior drill programs in Canada. The company had eight drills turning earlier this year, and is spending $6 million on a program that should total 40,000 metres by year-end. The main targets have been Triangle and Parallel, though the company will also focus on the No. 5 Plug and Fortune zones.

Around 15,000 metres are also earmarked for what Integra calls “significant exploration targets.”

On Sept. 10 Integra reported the final results from 2014 drilling at Triangle, with highlights including: 3 metres of 22.02 grams gold from 225 metres deep in hole 14-14; 2 metres of 25 grams gold from 254 metres deep in hole 14-54; and 2.2 metres of 19.32 grams gold from 170 metres deep in hole 14-56.

“Our program at Triangle was about fifty-fifty infill and expansion. The mineralization is very much contained within the intrusive plugs, and what we’ve done is hit it along the fringe of the plug outside of the volcanics. There was no resource on these zones, and the resources we do have in the area were quite loosely drilled,” de Jong adds.

The company has drilled 60,000 metres since its last resource estimate, and expects to include 40,000 of those metres in a resource update due in the fourth quarter.

In June the company closed a $10-million private placement wherein it issued 30.2 million units at 20¢ per unit. Each unit comprises a share and a warrant that entitles the holder to buy another share for 30¢ within two years.

“With this mill we have the ability to expand, and there’s great opportunity with a lot of small deposits in the region held by companies that can’t justify the capital requirements needed to build their own infrastructur
e,” de Jong says.

“We do like the idea of looking outward, but it’s the concept of ‘walk before you run.’ We haven’t found a magic formula to get to our nameplate capacity. It’s just that Parallel and Triangle are basically two separate mines that happen to be located right next to one another.”

Integra shares have traded within a 52-week range of 16¢ to 42¢, and closed at 24¢  at press time.

The company has 186 million shares outstanding for a $44.6-million market capitalization.