Premier to be ‘next major gold miner,’CEO Downie says

VANCOUVER — Premier Gold Mines (TSX:  PG; US-OTC: PIRGF) is hoping to follow in the footsteps of some major Canadian success stories in the gold space. And the company has gotten  closer to reaching that goal with a US$20-million cash deal for Goldcorp’s (TSX: G; NYSE: GG) 40% stake in the South Arturo project, 35 km northwest of Elko, Nev.

South Arturo consists of a series of sediment-hosted, Carlin-style gold deposits related to the former Dee gold mine. Barrick Gold (TSX: ABX; NYSE: ABX) holds the remaining 60% of the project and serves as operator.

In mid-2014 Barrick announced that the U.S. Bureau of Land Management had approved an environmental impact statement allowing the restart and expansion of a past-producing open-pit mine at the site, which sits 10 km northwest of its Goldstrike operation.

Barrick plans to start mine development later this year and process the high-grade, high-return part of the resource over the next two years at Goldstrike’s facilities that can handle refractory ore.

Premier’s proven and probable reserves total 1.1 million tonnes grading 4.4 grams gold per tonne and 6.62 grams silver per tonne for 161,000 contained oz. gold and 243,000 contained oz. silver. The company’s measured and indicated resources include 20.5 million tonnes of 1.3 grams gold and 6.67 grams silver for 860,000 contained oz. gold and 4.4 million contained oz. silver.

“We looked at the growth profile of major gold miners like Goldcorp and Agnico Eagle Mines, and we’re trying to follow that model with a portfolio of strong assets we expect to hit production over the next several years,” president and CEO Ewan Downie explains during a phone interview.

“What we were missing was that upfront production, and if we’re successful with South Arturo it puts us around eight months out from meaningful gold ounces. And I don’t think we’d be shy if we found another in-production opportunity to add to the portfolio. We’re looking to build the next major gold-mining company, and in order to see that type of growth I think you really need to have that pipeline,” he adds.

Along with the South Arturo acquisition, Goldcorp has agreed to complete a $12.5-million private placement with Premier, which Downie says makes it a “half-cash, half-stock deal.” The companies have a history of working together in Ontario’s prolific Red Lake district, and co-own the Rahill-Bonanza joint venture near Goldcorp’s Cochenour project.

Another condition of the South Arturo deal involves Premier relinquishing another 5% in Rahill-Bonanza, which will drop its stake to 44%. The agreement is also subject to Barrick not exercising its right of first refusal.

“Based on what we’ve done in Red Lake, I’d say we’ve become friends with Goldcorp along with business partners. Other opportunities and deals always come out of that, and South Arturo is the most recent rendition of that relationship,” Downie comments. “These are instances where both companies see the benefit of consolidating ground and working together in strong jurisdictions.”

The deal follows hot on the heels of a Red Lake property swap between the two companies in February that saw Premier pick up a 100% interest in the past-producing Hasaga project in exchange for its 35% participating interest in the East Bay property, and its 100% stake in the PQ-North property near Goldcorp’s Musselwhite mine in Ontario.

Hasaga is close to the Balmer-Confederation unconformity, which is a highlight in multi-million ounce Red Lake mines. The Hasaga and Gold Shore mines, which produced 240,000 oz. gold from 1936 to 1952, remain open at depth.

“Hasaga will actually be our biggest project this year in terms of dollars spent,” Downie says, adding that the company will drill 50,000 metres at the project this year.

“It’s a totally different type of target for Red Lake. Typically everyone is looking for that narrow-vein, high-grade mineralization in the area, but I think the open-pit opportunity has been largely overlooked. The porphyry was mined on the property through the 1950s, and it was a bulk-underground operation. We’re really targeting the disseminated gold around that high-grade mineralization,” he continues.

Premier also attracted a substantive partner with operating experince to its Trans-Canada property, which includes the development-stage Hardrock gold project in Ontario’s Geraldton-Beardmore greenstone belt. In February the company struck an agreement with Centerra Gold (TSX: CG; US-OTC: CAGDF) that netted the junior $85 million in cash and up to $185 million in development funds to help complete a feasibility study at Hardrock.

Centerra also agreed to provide Premier up to $30 million based on the results of an updated resource estimate, and can earn a 50% interest at Trans-Canada by spending $300 million on the project.

According to a January 2014 preliminary economic assessment, Hardrock would carry $411 million in development costs and produce 203,000 oz. gold annually at cash costs of US$737 per oz. over a 15-year mine life. Current resources total 89 million indicated tonnes grading 1.70 grams gold per tonne for 4.9 million contained oz., and 23 million inferred tonnes of 3.69 grams gold for 2.7 million contained oz.

“Given the current market, we found that financing a project like Hardrock would be difficult. We didn’t really see a ‘green light’ for that development capital at attractive terms, so we opened up the data room and had a few parties look at the project,” Downie says.

“We had more than one offer, but picked Centerra as the preferred partner. If you look at what we’ve done in Red Lake, we welcome that partnership model because it spreads the risk, and should allow us to participate in more opportunities compared to companies developing assets alone,” he adds.

Shifting large development capital costs to partners with more financial strength to shoulder the burden helps Premier redirect funds to explore its earlier-stage projects. On top of Hasaga the company is planning to get drill bits turning at its wholly owned McCoy-Cove project along the Eureka-Battle Mountain trend in north-central Nevada.

Premier hopes to define a heap-leach open-pit prospect at its Windy Point target, and follow up on high-grade mineralization below the McCoy ramp, which is highlighted by broad intercepts from historic underground drilling that have never been mined.

Echo Bay Mines operated the Cove mine at the site from 1988 through 2001, with production totalling 2.6 million oz. gold and 100 million oz. silver. Recent exploration drilling by Premier led to finding the 2201 zone, hosted within the Dixie Valley conglomerate beneath the Cove pit.

2201 is similar to the polymetallic-sulphide veins that produced gold and silver at Cove. Mineralization within the zone is hosted in both stratabound and high-grade quartz and polymetallic-sulphide veins that appear to be smaller, imbricate thrust faults refracting upward from the Cove thrust.

The project hosts 425,000 indicated tonnes of 10.5 grams gold for 143,000 contained oz., and 882,000 indicated tonnes of 9.81 grams gold for 279,000 contained oz. Premier has secured what it labels a “good faith” processing arrangement with Newmont Mining (NYSE: NEM) that could allow for accelerated development.

“Using the partnership model we’ve been able to take on several projects we likely wouldn&rs
quo;t have been able to manage otherwise,” Downie says. “When you look at some of these development-staged companies trying to go it alone, they just keep issuing stock to make sure these projects get across the line. Our capital structure is pretty tight in comparison, and will allow us better optionality in terms of future mergers and acquisitions.”

Premier holds cash and equivalents of $110 million. Shares have traded between $1.61 to $3.52 in the past year and last closed at $2.44. There are 159 million shares out for a $390-million market cap.