Houston Lake takes steady path towards production

Houston Lake Mining’s (HLM-V, HLKMF-O) president and chief executive Grayme Anthony knows what it is to persevere.

Taking the reigns of Houston Lake just after the Bre-X Minerals scandal unfolded and commodity prices took a wrong turn, Anthony decided to keep his hands firmly on the wheel.

So while others were scrambling for the exits, Anthony and his team coolly began securing mineral properties in the three areas of the commodities market they thought would have the most long-term potential — gold, platinum and rare earth metals.

With gold prices now hovering around US$1,000 per oz. and platinum in the US$2,000-per-oz. range, that decision has proven prescient.

What’s more, the early moves allowed Houston Lake to avoid going into the more dangerous regions of the world and to build a portfolio that takes the political risk discount out of any valuation models, as all of the company’s three projects sit in northwestern Ontario.

Its Pakeagama project sits the farthest north and is host to tantalum, rubidium, cesium and lithium, while Tib Lake represents the company’s platinum play and returned a highlight intersection last year of 14.5 metres grading 1.12 combined platinum group elements.

But despite the potential of the projects, Houston Lake is focusing on its West Cedartree gold project, near Kenora.

Home to three near-surface gold-bearing properties, Anthony says an open-pit operation at West Cedartree represents the company’s best chance at generating strong near-term cash flows.

While the Red Lake mine, roughly 300 km north of West Cedartree, is synonymous with gold mining in western Ontario, the region has hosted many other mines over the past 100 years. At the turn of the century, the area around Kenora was known as one of the province’s most prolific gold-producing areas, turning out half of Ontario’s gold production.

Houston Lake is trying to spur a renaissance in the area by proving up resources at Cedartree. While two of its three most prospective properties came with historic resources, the third, known as the Angel Hill gold zone, represents an entirely new resource.

In 2005, Houston Lake released a National Instrument (NI) 43-101- compliant inferred resource of 106,400 tonnes grading 2.97 grams gold for 10,160 oz.

While the resource is small at this point, Anthony points to results from a May 2006 bulk sample on the zone as encouraging. In all, 189.8 oz. gold were produced from 1,041 tonnes of ore for a 93% recovery rate with an average head grade of 5.67 grams gold per tonne.

Not only did the sample represent the first gold produced from the area in 10 years, it also netted Houston a tidy $52,000 profit and provided a strong indication of the sound economics of extraction. And, Anthony points out, the numbers would have been even stronger without the costs of trucking the ore 300 km to Red Lake– as they would be if Houston Lake follows through on its plan to build its own mill.

But before the company can tackle the logistics of building a mill, it must first bring up the total tonnage at Cedartree.

With an eye towards reaching the 100,000-oz. benchmark, drilling is under way on Houston Lake’s two other nearby properties, Dogpaw and Dubenski, to put together NI 43-101-compliant resources.

The historic resource estimate at Dogpaw stands at 54,000 tonnes grading 15.43 grams gold per tonne for roughly 27,000 oz., while Dubenski hosts historic resources of 355,286 tonnes grading 6.32 grams gold for roughly 72,000 oz.

Houston is aiming to complete an NI 43-101-compliant resource for the projects by fall.

Last year, Dogpaw saw roughly 2,500 metres of drilling and the company plans to have another 3,200 metres drilled this year.

As for Dubenski, the property saw 17 holes for 1,800 metres drilled as part of last year’s program, and has generated much of the company’s recent stream of news.

In April, Houston Lake announced results from the last four holes in the program. Highlights included 1 metre at 763 grams gold from a depth of 13 metres, while another hole returned 25 metres at 4.95 grams from 101 metres. Earlier drill results from the same program, also released in April, were highlighted by 8.78 grams gold over 14 metres.

Further drilling at Dubenski and Dogpaw will be funded by a recently announced private placement that will raise $1 million for the company.

Even though drilling at the projects stopped while waiting for financing to come through, Houston Lake hasn’t been sitting on its hands. An induced-polarization survey is being carried out at Dubenski that will provide information to a depth of 400 metres.

The company expects results from the survey soon.

While Dubenski, Angel Hill and Dogpaw all lie within 4 km of one another, the geological setting of Dubenski differs from the other properties.

Farther east of the northwest-trending fault system that gave rise to the Dogpaw and Angel Hill deposits, Dubenski sits adjacent to the Cameron Lake fault system that hosts Nuinsco Resources’ (NWI-T, NWIFF-O) Cameron Lake project. Cameron Lake sits roughly 10 km southeast of Dubenski and has a measured and indicated resource of 120,000 oz. and an additional inferred resource of 170,000 oz.

If resources at Dubenski prove to be as fruitful as Cameron Lake, Houston Lake may have a mine on its hands.

And while Anthony concedes that some investors would like to see drills turning faster at all three properties, he believes a slow and steady hand brings advantages.

“The trouble with going too fast is you sometimes waste money,” Anthony says. “It sounds good to shareholders that you have all these drills going at once, but I’d rather have one going at a time so that you can adjust to any hiccups you might encounter along the way.”

It’s an attitude that isn’t at all surprising given that steady progress and the ability to adjust to hiccups in the broader sense is what put Houston Lake where it is today.