Carlisle CEO says Lynn Lake is a ‘project for our times’

VANCOUVER — The exploration game is afoot for Carlisle Goldfields (TSX: CGJ; US-OTC: CGJCF) across its expansive land package at the Lynn Lake gold camp in Manitoba. The company never lacked drill targets or historic data on the 350 sq. km property, but had opted to play it conservatively due to its junior stature and the unpredictable nature of capital markets over the past few years.

The scenario changed for Carlisle in late 2014 when it signed a strategic agreement with mid-tier producer AuRico Gold (TSX: AUQ; NYSE: AUQ) that brought in a cash influx and a mutually beneficial joint-venture arrangement. The partners announced in January that expenditures at Lynn Lake would total $13 million this year, with $4 million earmarked for growth-oriented exploration programs.

In November AuRico subscribed for 70.6 million common shares in Carlisle — or 19.9% of the company for $5.6 million at 8¢ per share — and signed a joint-venture agreement to earn a 25% stake in Lynn Lake for an initial $5-million cash contribution. AuRico can also earn up to another 35% interest by spending $20 million over three years and delivering a feasibility study.

The goal posts shifted in April when AuRico arranged a $1.5-billion merger with Alamos Gold (TSX: AGI; NYSE: AGI). But according to president and CEO Abraham Drost, Carlisle remains optimistic about Lynn Lake’s prospects despite the fluidity in the partnership dynamic.

“The deal is scheduled to close [before July], but it looks like a fait accompli at this point. From our perspective we see business as usual. I’d note that the champions of Lynn Lake at AuRico are making the transition over to Alamos, including chief operating officer Peter MacPhail,” Drost added.

“Since the project is in Canada we think it meets the jurisdictional criteria for Alamos, and it should be good for us, because the merger will result in a company with a stronger balance sheet. From our understanding the work programs will be moving ahead as planned,” he said.

The companies are expected to put $9 million towards a Lynn Lake feasibility study this year. The plan will focus on the historic MacLellan and Farley Lake mine sites, which were the subject of a preliminary economic assessment (PEA) released in early 2014.

The PEA is based on 9.1-million measured tonnes grading 2.09 grams gold equivalent for 547,000 contained oz., and 14.2 million indicated tonnes of 2.41 grams gold for 949,000 contained oz.

The US$185-million development featured a sequenced open-pit mining model between Farley Lake and MacLellan that would process material via a central mill facility that is expected to run at 7,500 tonnes per day.

Lynn Lake would crank out 145,000 oz. gold annually over 12 years, with all-in sustaining costs of $644 per oz. Even at US$1,100 per oz. gold the PEA featured intriguing economics, including a US$257-million after-tax net present value at a 5% discount rate, a 26% internal rate of return and a 2.8-year payback period.

Now that Carlisle has a cashed-up joint-venture partner, however, the strategy at Lynn Lake may change. Not only will the companies not be as sensitive toward development capital — which could result in developing Farley Lake and MacLellan at the same time — but the exploration upside on the greater property package can get the attention it needs to join the mine plan.

“It’s one of the big upsides of working on a collection of historic, brownfield sites … many of these areas have been explored since the 1940s, but we put it all together in one cohesive package. The big game-changer for us is that we now have the funding to follow up on a real wealth of historic exploration data,” Drost said.

“I’d say that based on past drilling, we conservatively have 30 solid gold occurrences along the belt that remain untested,” he added.

MacLellan and Farley Lake are situated in the north belt of the Lynn Lake greenstone belt, within the Churchill structural province of the Canadian Shield. The north belt is a north-facing homocline and consists of rhyolites, overlain by andesite and basalt, sedimentary rocks and an upper basaltic unit.

Both deposits are located within a structural corridor called the “Rainbow trend.” MacLellan has been recognized as a synshear-hosted, orogenic-related gold-silver deposit, while Farley Lake is considered an epigenetic, iron-formation hosted gold deposit.

Carlisle will be operating drill programs this year on “special exploration areas” under the agreement with AuRico, which refer to targets that lie outside the feasibility level areas around MacLellan and Farley Lake.

The company has a historic exploration database, including 5,000 drill holes, which has been combined with modern induced-polarization surveys to identify priority targets.

The first area of interest lies near Maynard Lake, where Carlisle has identified “good gold values” in historic drill holes. The company released assays from five holes punched at the target on June 10, with highlights including: 10.6 metres grading 1.64 grams gold per tonne from 36 metres deep in hole 15-04; and 4.5 metres of 5.04 grams gold from 107 metres deep in hole 15-05.

“The main structure cutting through there is the Johnson shear zone, and we’ve already outlined significant inferred ounces along trend there. The grades tend to be lower down south, but I think once we have the mill built, the grade threshold will really come down,” Drost noted.

“The real priority in our exploration is higher-grade shoots, and opportunities along the Johnson shear. Adding some higher-grade results in that area could see the entire belt moved into the upcoming feasibility study,” he said.

Carlisle classifies the area as the southern belt, which hosts the Burnt Timber and Linkwood deposits. The drilling shows potential for high-grade shoots due west along trend of the inferred resources, related to splay structures along the Johnson shear.

Burnt Timber hosts 23.4 million inferred tonnes grading 1.04 grams gold for 781,000 contained oz., while Linkwood’s resources total 21 million inferred tonnes of 1.16 grams gold for 783,000 contained oz.

“We’re not restricted from putting some focus on the northern belt as well. We have a beautiful gold occurrence that hosts tens of metres of substantial grades, sitting all alone in an interesting structural and geological environment,” Drost added. “That’s an example of a historic showing we acquired by staking, and lo and behold, previous work appears to show it’s a dead ringer for Farley Lake.”

Carlisle has traded within a 52-week window of 13¢ to 42¢, and closed at 26¢ per share at press time. In late January the company completed a 6.5-to-1 share consolidation, which results in 55 million shares outstanding for a $14.2-million market capitalization.

Drost explained that the consolidation was meant to “clean up” some liquidity issues and generate a better share price to capitalize on investment opportunities.

“Listen, we’re caught in a down-draft in the mining cycle, and the juniors tend to lag the mid-tiers and seniors on, let’s say, leverage to gold price. From my perspective Lynn Lake is a project for our times. We don’t need the gold price to go up since we have strong economics, even below current levels.”