Stepout exploration yields riches for Richmont

In the first full week of January, Richmont Mines (TSX: RIC; NYSE: RIC) released high-grade intercepts at significant depths from stepout exploration beneath its Island gold mine in northwestern Ontario. It prompted analysts at Macquarie Bank to hike their price target on the junior gold producer from $5 per share to $7 per share.

Exploration in the C-zone returned an intercept of 19.87 grams gold per tonne over 3.9 metres at a vertical depth of 1,203 metres, and another intercept of 7.44 grams gold over 8.5 metres at a depth of 858 metres.

The Island gold mine, 83 km north of Wawa, has produced over 300,000 oz. gold from above the 400-metre level, and is expected to produce more than 40,000 oz. gold in 2014.

Richmont began drilling below the producing mine in 2011 and a year ago reported an indicated resource of 456,000 tonnes grading 11.52 grams gold per tonne for 169,000 contained oz. gold, along with inferred resources of 3.2 million tonnes grading an average of 9.29 grams gold per tonne for 955,000 contained oz. gold.

The 19.87-gram-per-tonne intercept in drill hole 14-1C was 250 metres down-plunge from the limits of the defined resource.

Richmont intends to spend $7.6 million on exploration at the Island mine in 2015.

This year’s 61,000-metre drill program will hopefully extend the deposit eastward to add to the number of ounces per vertical metre down to a 1,000-metre depth, which should impact Richmont’s development cost per ounce, the company says.

Renaud Adams, who was appointed CEO in October 2014, said in an interview that management believes the deposit “definitely has the potential to go way beyond the current resource,” and describes the results of stepout drilling so far as “pretty successful.”

Adams said that in the exploration program’s second phase — most likely in 2016, once the company secures a better angle for drilling — the deposit will grow below the 1,000-metre level.

Michael Gray and Duncan Lai of Macquarie said in a research note that the 19.87-gram-per-tonne intercept exceeded their expectations and supports their view that the C-zone could host more than 2 million oz. high-grade gold. They also said they “rate exploration potential as ‘high,’ given its Archean greenstone gold geological setting.”

The analysts “have a high conviction that Richmont’s C-zone discovery is a potentially transformative high grade/high margin long mine-life asset.”

At press time Richmont’s shares traded at $4.05 apiece within a 52-week range of $1.21 and $4.29 per share. The junior has just over 48 million shares outstanding.

In addition to its Island gold mine, Richmont has the producing mines Beaufor and Monique. Beaufor is an underground mine 25 km northeast of Val-d’Or, Que., and Monique is an open-pit mine 25 km east of Val-d’Or.

Richmont has produced more than 1.4 million oz. gold since 1991 and will be presenting as part of  Red Cloud’s pre-PDAC Investor Showcase in Toronto on Feb. 27th.