Darnley Bay buys NWT zinc deposits, updates BC resource

Darnley Bay Resources (TSXV: DBL) is acquiring 42 zinc-lead deposits over a 68 km strike length in the Northwest Territories, and the junior explorer’s management team is providing a clear path towards production.

The assets — collectively known as the Pine Point project — consist of an underground deposit, an open-pit deposit and a cluster of smaller open-pit deposits, 10 km south of Great Slave Lake and 42 km from Hay River.

They are part of the larger Pine Point district, where Cominco mined 64 million tonnes of ore grading 7% zinc and 3.1% lead from 50 open pits and two underground deposits between 1964 and 1987.

“We’re after the 48 million tonnes of resources that Cominco — and another company active in the area, Westmin — left behind,” the junior’s president and CEO Jamie Levy says. “This acquisition is a game changer for Darnley Bay. It is rare in the mining business that the opportunity to acquire an entire mining district presents itself.”

An aerial view of two historic open pits mined by Cominco, at Darnley Bay Resources’ Pine Point zinc project in the Northwest Territories. Credit: Darnley Bay Resources.

Darnley Bay will pay an initial fee of $50,000 and issue 1.15 million shares to KSV Kofman Inc. — Tamerlane’s the court-appointed receiver for the bankrupted previous owner Tamerlane Ventures — for the option to buy 100% of the Pine Point assets.

Darnley Bay would then make a payment of $2.95 million before Jan. 22, 2017, and issue another 23.9 million shares. (KSV would redistribute these shares so that after the redistribution and the completion of a financing by Darnley Bay of $5 million, no new Darnley Bay shareholder related to this agreement would own more than 19.9% of the company’s shares.)

If the financing is completed at a price below 20¢ per share, Darnley Bay would issue another 1.25 million shares to KSV for each cent below 20¢, to a maximum of 2.5 million shares.

Before the project’s previous owner, Tamerlane Ventures, went into receivership, it prepared a technical report that outlined reserves for the project’s assets. (Previous drilling on the property by Tamerlane, Westmin and Cominco totalled 1.3 million metres in 18,422 holes.)

According to the March 14, 2014 report, the R-190 underground deposit contains proven reserves of 647,308 tonnes grading 12.5% zinc and 6.1% lead, and probable reserves of 357,311 tonnes grading 8.3% zinc and 3.8% lead.

The N-204 open-pit deposit has probable reserves of 12.8 million tonnes grading 2.6% zinc and 0.7% lead, while the other open pits contain proven and probable reserves totalling 10.4 million tonnes grading 3.5% zinc and 1.5% lead.

The technical report also estimated that the project would yield a 35% after-tax internal rate of return and $111-million after-tax net present value on a base case of US95¢ per lb. zinc and US$1 per lb. lead, at a Canadian dollar at par with the U.S. dollar.

The Pine Point property belongs to a class of carbonate-hosted lead-zinc sulphide deposits known as Mississippi Valley-type deposits, which include the Nanisivik and Polaris deposits in Canada. The deposits are known for moderate to high grades, non-complex metallurgy, and processing and beneficiation characteristics that yield high-quality concentrates.

Cominco shut down its mining operation in the Pine Point area in the late 1980s due to lower zinc prices, the expense of maintaining a mining town at Pine Point and because they had bigger zinc projects coming online (Polaris in Nunavut and Red Dog in Alaska).

Levy and Kerry Knoll, the company’s chairman, are convinced the property offers exploration upside, with 34 untested geophysical anomalies and 15 km of strike length that has never been drilled.

Zinc-rich crystals in a drill core sample from Darnley Bay Resources’ Pine Point zinc project.  Credit: Darnley Bay Resources.

“There is a deposit on that trend — on average, every kilometre and a half — and yet you have 15 km that has never been tested,” Knoll says. “The reason Cominco didn’t drill it was because it was too far from their mill, so it’s very, very prospective ground.

“This looks like — with little exploration — that it could be a mine,” Knoll adds, who over the last 35 years has built four mines and cofounded several mining companies, including Blue Pearl Mining, which is now Thompson Creek Metals (TSX: TCM; US-OTC: TCPTF); Glencairn Gold, now B2Gold (TSX: BTO; NYSE-MKT: BTG); and Wheaton River Minerals, now Goldcorp (TSX: G; NYSE: GG). Last month, Thompson Creek Metals was acquired by Centerra Gold (TSX: CG) in a deal worth US$1.1 billion.

Levy notes that the project has the six factors he looks for in a project.

“Pine Point has historic size, it’s got grade — which is economic at today’s prices — it’s got phenomenal infrastructure, a good jurisdiction in Canada, willing aboriginal partners and exploration upside,” he says. “I’m sure there are other favourable things, as well, but all factors are important in our decision-making process.”

In terms of infrastructure, the project can be reached by an all-weather, year-round highway from Hay River, which has an airport with flights to Edmonton and Yellowknife, a rail terminal and a port from which all barge traffic travels down the Mackenzie River. There is also a power line over the property.

“You have a rail head there so you could get the concentrate out,” Knoll says. “A lot of these zinc deposits are isolated, and unless you’re near tidewater or a rail head, you’re probably going to struggle — so there are a lot of things lined up here that make it look like a mine to me.

“We want to stay in Canada,” he adds. “We know the laws and permitting requirements, and we know we’re allowed to build mines here where you’re not in some other places.”

In addition, most analysts agree that the fundamentals look strong for zinc.

“Given what’s happened to zinc our timing is really, really good,” Knoll says. “Zinc was at a five-year high.” The benchmark zinc contract on the London Metal Exchange reached US$2,485 per tonne on Nov. 1, which is its highest since August 2011, according to Reuters.

Knoll notes that Pine Point is “every bit as good a deposit,” (and larger in terms of in-situ pounds in the ground) as the company’s Davidson molybdenum-tungsten project near Smithers, British Columbia.

Last month the company updated the Davidson project’s resource estimate based on drilling dating back to the 1950s. The latest resource is based on 73,000 metres in 218 holes, 23 of which were drilled by the project’s previous operator.

Davidson’s measured and indicated resources, at a 0.2% molybdenum sulphide cut-off grade, now tally 90.1 million tonnes grading 0.3% molybdenum sulphide (MoS₂) and 0.03% tungsten trioxide (WO₃), for 340.5 million lb. molybdenum and 67.5 million lb. tungsten.

At a higher 0.3% MoS₂ cut-off, measured and indicated resources stand at 34.4 million tonnes grading 0.4% MoS₂ and 0.04% WO₃, for 170.1 million lb. molybdenum and 27.3 million lb. WO₃.

“The numbers are good, the grade is slightly higher and tungsten adds a nice kicker,” Knoll says. “On top of that, we have more pounds, so it’s all good.”

At some point, when the company has the funds, it will proceed with a preliminary economic assessment to determine what price is needed for a mine there, Knoll says. “We don’t know that number yet until the work is done. A lot of engineering work has been done. It was done on a shipping scenario, but we would look at building our own mill.”

Thompson Creek Metals completed a feasibility study on Davidson in 2008, but never filed it on Sedar. The study envisioned trucking ore to the mill at the Endako moly mine to the southeast (now owned by Centerra, but on care and maintenance since July 2015), but the trip accounted for half of the project’s production costs of US$9.46 per pound.

Thompson Creek Metals disposed of Davidson in 2013, when the company retreated from the molybdenum business.

In addition to Davidson and now Pine Point, Darnley Bay holds a huge gravity anomaly in the Northwest Territories near Paulatuk, a hamlet along the shores of Darnley Bay in the Inuvialuit Settlement Region. Early exploration programs there failed because none of the holes were drilled deep enough to test targets. The company plans to undertake more work on the anomaly.

Over the last year, Darnley Bay’s shares have traded within a range of 1¢ to 24¢. At press time the company was trading at 18¢ per share and had a $9.6-million market capitalization.