Hope Bay springs eternal for TMAC

VANCOUVER — In a few short months, privately held TMAC Resources has acquired a large gold project in northernmost Canada, signed a memorandum of understanding (MOU) with the Inuit association that owns the project lands, added $35 million to its bank account and secured a $15-million line of credit with one of the world’s largest gold miners, Newmont Mining (NMC-T, NEM-N).

But for TMAC, the pace isn’t about to slow. In the next few months the company plans to complete a public listing, raise additional capital and complete a prefeasibility study of its new gold project, while completing regional exploration and working to deepen local relations.

That’s how quickly you have to move if you hope to bring such a huge and isolated gold project online by 2015 — one that Newmont backed away from just a year ago.

There aren’t many people who could advance a project that quickly in today’s trying economic times. But TMAC might prove the exception to that trend, thanks to the strong team at its helm.

The private company is headed by Terry MacGibbon, well-known for founding FNX Mining. A highly successful mining company, FNX was taken over by Quadra Mining in a $1.6-billion deal in 2010. The merged entity, known as Quadra FNX Mining, was acquired in late 2011 by KGHM Polska for $3.3 billion.

MacGibbon is not the only FNX alumnus at TMAC. The company’s CEO is Catherine Farrow, a Ph.D. geologist who held key management roles at FNX and Quadra FNX (later renamed KGHM International) where she worked as chief operating officer. Several other former FNX executives are also on the TMAC team.

These credentials may be why TMAC was able to secure the deal it did with Newmont. In the deal TMAC took over ownership of Hope Bay, a 10 million oz. gold project in Nunavut, along with $300-million worth of tax credits that TMAC can apply against future mining production revenues.

Newmont retains a 1% net smelter royalty, from a project that just a few years ago was on track to become the major’s next mine.

Newmont acquired the project through a US$1.6-billion takeover of Miramar Mining in 2007, and over the next few years sunk almost $500 million into Hope Bay, including some 90,000 metres of surface drilling and 10,000 metres of underground drilling in 2011 alone. The company also developed a decline into the high-grade Doris North deposit, in preparation for test mining and underground exploration, and had even stockpiled some ore.

In January 2012 Newmont announced an ambitious work plan for the project. A month later, however, it changed its tune: the miner put all of its Hope Bay plans on ice, citing dissatisfaction with the geological information to date and competition for capital from other projects.

A month after that, Newmont recorded a $2.09-billion impairment charge related to Hope Bay, which covered the US$1.6 billion it spent to acquire Miramar Mining for the project in late 2007, as well as the US$500 million or so it had spent at the site since. The project was shelved.

Now, despite having sunk more than $2 billion into the project, Newmont has essentially given Hope Bay to TMAC. In addition, the mining major has provided TMAC with money to advance its old project.

The money came in two forms. First, Newmont subscribed for 1.3 million flow-through TMAC shares at $3.40 a piece and 10.2 million regular shares at $3 each — a private placement worth $35 million. The TMAC shares it acquired in that placement will, of course, provide Newmont with exposure to Hope Bay’s upside. Second, Newmont is providing TMAC with a credit facility for up to $15 million, repayable in cash or TMAC shares by the end of 2014.

TMAC may have received ownership of Hope Bay from Newmont, but the company couldn’t work at the site without consent from the Kitikmeot Inuit Association (KIA). KIA is a non-profit society that owns some 106,000 sq. km of lands in Nunavut, including Hope Bay.

KIA is supporting TMAC’s move into Hope Bay. In a MOU, KIA consented to transferring all Hope Bay permits to the project’s new owner, a set of legal paperwork that includes surface leases, land-use licences and an Inuit impact and benefits agreement.

Hope Bay sits 685 km northeast of Yellowknife, which places it 160 km above the Arctic Circle. It’s not an easy place to work. Winter conditions are harsh and infrastructure is completely lacking. In addition, there is just a six-week window of time to transport bulk goods and equipment to site, when the Northwest Passage melts and ships can pass through.

But there’s a simple reason why Newmont liked Hope Bay before and why TMAC likes Hope Bay now: gold. Newmont did not update the project resource, but previous work by Miramar outlined a gold resource containing 10.6 million oz., across all categories.

The ounces are contained in several deposits spread across the Hope Bay greenstone belt, which extends along more than 80 km and across 20 km. MacGibbon says TMAC intends to start by putting Doris into production, just as Newmont had planned. Doris is a high-grade underground deposit at the north end of the belt that holds 1.1 million indicated tonnes grading 19.31 grams gold per tonne, plus 1.6 million inferred tonnes averaging 14.54 grams gold, for 1.5 million contained oz.

The Boston deposit, at the south end of the belt, contains 4.7 million tonnes averaging 10 grams gold across all resource categories. There are several other small, high-grade zones, as well as the larger, lower-grade Madrid deposit that offers 75 million resource tonnes grading 3 grams gold.

TMAC aims to publish a prefeasibility study on Doris by the middle of this year. The company also intends to complete a public listing, but there is no timeline yet for that move. MacGibbon says the timing depends on market sentiment.