Eastmain’s new team offers a three-asset strategy

Eastmain Resources (TSX: ER) has new management, led by president and CEO Claude Lemasson, and a new vision to advance its three key gold assets — Clearwater, Eastmain and the Éléonore South joint venture (JV) — in Quebec’s relatively underexplored James Bay region.

Eastmain holds the top land position, covering 1,376 sq. km, where Goldcorp (TSX: G; NYSE: GG) operates its Éléonore gold mine. This mine started commercial production in April 2015. Last year, the mine forecasted output of 250,000 to 280,000 oz. gold.

“As you know, the company was completely focusing on the one asset, which was Clearwater, with the Eau Claire deposit. My number-one vision was that ‘Well, we don’t have one asset, we have at least three.’ Because we have 11 properties [in James Bay] and three of those properties have interesting potential … two have actual resources in different stages, and one is potentially a discovery,” Lemasson says.

“The vision is three projects. But the other part of the vision is to define a strategy on moving each one forward. So we did that and … defined a plan of execution.”

The company took action soon after Lemasson took the helm last April as part of a management shakeup triggered by former shareholder Columbus Gold (TSX: CGT). Columbus said it would launch a proxy contest to take control of Eastmain due to the “slow progress” under Eastmain’s former management team, which held the reins for over 20 years.

Quebec-focused junior Integra Gold (TSXV: ICG) then stepped in and extended a $6-million lifeline. Along with the much-needed investment, Eastmain got a new group of executives and directors, including Integra’s chairman George Salamis and Integra’s president and CEO Stephen de Jong. Both executives sit on Eastmain’s seven-member board, chaired by Laurence Curtis.

Lemasson — who is an engineer by training, with 30 years of experience in mining construction and operations, including executive stints at Guyana Goldfields (TSX: GUY) and Goldcorp — notes Eastmain’s former management had “great” prospectors, explorers and geologists that pushed the Clearwater project — where they discovered the Eau Claire deposit in 2011 — to a certain point. But given the market pressures to produce an economic study and the drop in gold price, they couldn’t advance Clearwater after the June 2015 resource estimate. This partly owed to a lack of funds.

Lemasson and his five-member team, which includes mining analyst Joe Fazzini as chief financial officer, hit the ground running. They improved the firm’s cash and equivalents to $19.5 million by the end of July 2016, up from $1.2 million from the end of January.

The team also defined a plan to advance Clearwater to a preliminary economic assessment (PEA). They agreed the deposit first needed “significantly more drilling.”

Last August, Eastmain launched an aggressive $8.8-million, 63,300-metre drill program at the fully held Clearwater project, 45 km south of the Éléonore gold mine.

Eastmain is drilling 55,700 metres at the Eau Claire deposit, with a focus on infill drilling, while the other 7,600 metres will test drill-ready open-pit targets within 15 km of Eau Claire.

The goal of the program is not growth, but quality and proving up the deposit for an updated resource estimate, followed by a PEA, Lemasson says.

“Leading up to the PEA we want to have something solid that we really believe in, as opposed to just showing this big resource with lots of indicated and inferred. I’m much more focused on trying to show what’s mineable out of the current resource.”

The Eau Claire deposit hosts 7.2 million measured and indicated tonnes grading 4.09 grams gold per tonne for 951,000 oz. gold. It has another 5 million inferred tonnes at 3.88 grams gold for 633,000 ounces. The deposit also holds tellurium. The 2015 estimate includes 99,000 metres drilled between 2011 and 2013.

Eastmain’s previous team conducted another 13,000 metres at Eau Claire in late 2015 that are not in the current estimate. These metres, along with the ongoing 63,300 metres, will be in the update.

Lemasson says that Clearwater drilling will wrap up in April, noting the revised resource estimate should be out in June, followed by a PEA at year-end.

“The PEA could show us that within 400 metres’ depth we have a mine, meaning we have an open-pit and shallow underground mine, with an eight- to 10-year mine life, with a certain level of production. We are not looking for high, high production, as this is a narrow-vein deposit. We are looking for a smaller-tonnage, higher-grade deposit.”

Lemasson envisions the project will start with two or three smaller open pits, before mining underground starts with a shallow production ramp. Throughput could range between 1,500 to 2,000 tonnes per day.

The 516 sq. km Clearwater project is road-accessible and located 20 km from a power-generating station. Gold mineralization consists of “structurally controlled, high-grade, en echelon-sheeted quartz-tourmaline veins, and adjacent altered rock.” The gold-bearing veins extend over 1.5 km long and 900 metres deep. The project remains open to the east and at depth.

Metallurgical tests have shown 95% gold recoveries based on a straightforward process. “We are talking on the front-end: crushing, grinding and gravity, followed by flotation and a carbon-in-leach circuit.”

While the base-case scenario assumes Eastmain would build a mill on-site, Lemasson says Eastmain could truck the Clearwater ore to the nearby Éléonore mill as an alternative. This would require a 50 km long road going north instead of a mill. “It’s early days to even say if it is an option, but it is something to consider.”

Although Eastmain has yet to approach Goldcorp, Lemasson says he has strong ties with the major. From 2006 to 2009, he served as Goldcorp’s general manager of projects, where he was in charge of the Éléonore project. Before that, he worked as Goldcorp’s mine general manager at Red Lake for nearly six years.

Elsewhere in James Bay, Eastmain is wrapping up its 2016 work programs on the wholly owned Eastmain mine project and the jointly held Éléonore South JV, which sits 5 km from the Éléonore mine.

At Eastmain, the firm started a 3,700-metre trenching program last July, followed by a 7,500-metre drill program in September, which finished in January. The program was budgeted at $1.5 million.

The Eastmain project includes a partly developed gold-copper mine, where previous owners Campbell Resources and its subsidiary defined a historic resource of 255,750 oz. gold grading 10 grams gold, and produced 40,000 oz. gold from 100,000 tonnes of 10.58 grams from the mine’s A and B zones in 1995.

Rather than build a mill on-site, Campbell made an ice road to truck the stockpiled ore to a mill in Chibougamau, 320 km away. When the ice road melted away, Campbell put the mine on hold, Lemasson says, adding that the company ran into financial problems soon after and went under.

The 80 sq. km property is now accessible by Route 167 North — a permanent road built as part of Quebec’s Plan Nord and by Stornoway Diamond (TSX: SWY) to access its Renard diamond mine. “This is what they wished they had 22 years ago,” Lemasson says.

“Up next, we are underway with line cutting, followed by an induced-polarization survey over the Julien and Suzanna targets (two of the four targets on the mine’s 10 km trend). We will drill on the targets in March, and announce our expanded drilling program later in the year,” the company’s manager of investor relations, Alison Dwoskin, notes.

The company is also reviewing its historic data on the Eastmain mine project. The review should wrap up by April.

At the Éléonore South JV project — where Eastmain and Goldcorp each own 36.7%, and current project manager Azimut Exploration (TSXV: AZM) holds 26.6% — Lemasson reveals little work has been done since 2013, owing to whether and how the 147 sq. km property should be explored.

“Three years were completely wasted and stalled. The joint venture was not doing anything because there was this disagreement,” he says.

Once Lemasson stepped into his current role, he called up both partners to smooth out the rough patches. The three firms agreed to resume exploration. They kicked off a $2-million program, including a 5,000-metre, two-phase drill program that began in September. The partners completed the 12-hole, 2,500-metre phase-one program in November. Ten of the 12 holes testing a prospective corridor at least 3 km long by 500 metres wide hit mineralization. The program’s second phase should start later this year.

According to its planned budget, Eastmain expects to spend $6.6 million in the three months ending in March, leaving it with $6 million on hand to start the second quarter.

As the drill results trickle in, Eastmain is putting together the 2017 technical programs on its three key assets, which could include “bigger and better” drill programs. Lemasson expects to share the details of those programs and budgets early in the second quarter.

Given the firm would have spent up to $13 million in the past eight months on the  programs it started in 2016, the executive anticipates Eastmain would need to raise capital to fund the upcoming programs.

So far, Lemasson has expanded Eastmain’s focus, raised funds, resumed drilling on its three key properties and instilled market confidence.

“This turnaround is probably the best way to summarize the last eight months … I would consider this my biggest achievement of 2016, if you want to call it that — turning this company around completely.”

Eastmain shares closed Jan. 20 flat at 52¢, within a 52-week range of 29¢ (March 17) to 97¢ (Sept. 23). The company’s top-three shareholders include London-based fund Polygon at 9.7%, Goldcorp at 6% and Integra at 5.1%.