Integra’s Sigma purchase a game changer at Lamaque

VANCOUVER — According to Integra Gold (TSXV: ICG; US-OTC: ICGQF) president and CEO Stephen de Jong, his company’s recent acquisition of the 2,200-tonne-per-day Sigma mine and mill complex for $7 million brings a “better defined pathway to development and production” at its neighbouring Lamaque gold project on the outskirts of Val-d’Or, Que.

And if a recently released preliminary economic assessment (PEA) is any indication, the purchase could also offer materially improved financial returns. The new study models a 1,300-tonne-per-day operation at Lamaque that takes advantage of existing surface and underground infrastructure located 1 km from Integra’s Parallel and Triangle gold zones.

“The story behind the capital savings is the fact we no longer need any surface infrastructure at Parallel since we’re extending the underground workings right next to the Sigma mill,” de Jong explains during an interview. “In addition we’re seeing lower operating costs, which substantially decreased without the toll-milling. We’re optimizing the mill for our throughput rate, but we’re not removing anything, so if we need to scale back up to full capacity, we can do that quite easily. Long-term we have a clear path about how we can increase our annual gold production.”

Lamaque sits in the heart of the Val-d’Or gold camp and is underlain by steeply dipping, east–west striking volcanic flows and pyroclastics units intruded by intermediate mafic plugs, dykes and sills. Mineralization is characterized by “vein-type” mesothermal, structurally controlled deposits. The gold-bearing quartz tourmaline can be sub-vertical, moderately dipping or sub-horizontal veins.

The plan is to access Triangle via a ramp from surface 450 metres west of the deposit limit. The company notes that condemnation drilling completed in late 2014 for the proposed decline location cut “multiple high-grade zones” in the area.

Meanwhile, access to Parallel would be achieved through a 700-metre lateral ramp from the Sigma underground workings, which include a fully serviced portal at the southeast wall of the historic Sigma pit.

The PEA makes use of a resource calculated in September 2013. But since that time Integra has drilled another 70,000 metres, and plans to update the resource numbers during the first quarter.

Lamaque’s global indicated resources stand at 1.5 million tonnes grading 10.2 grams gold per tonne for 499,200 contained oz. Inferred resources are  488,500 tonnes of 15.1 grams gold for 236,500 contained oz. All calculations assume a 5-gram gold cut-off grade.

The resource update will be a  milestone for Integra, since important aspects for Lamaque’s development is increasing the projected mine life. The mine could operate on current resources for 4.5 years, but drilling over the past 18 months appears to show expansion potential at Triangle, the Fortune zone and the No. 5 plug.

“There are a lot of big companies being public about the fact that Quebec is where they want to grow and spend money. Osisko is the obvious one, and it was a big statement for the jurisdiction,” de Jong says.

“As a company we’re pushing forward to production, but as we do that we become more valuable to anyone looking at us,” he adds. “The fact that we have our permits is huge because the first question you’re always asked is: ‘How quickly can you be in production?’ We check a lot of boxes except for mine life, and I think the real re-rating for our company will come when we demonstrate we can grow our resources.”

Recent condemnation drilling at Triangle discovered a potential near-surface extension 200 metres west of the deposit. The program tested the site of a proposed exploration ramp, but wound up discovering a large area for further exploration.

In early December Integra released assays from the target, with highlights including: 9 metres of 3 grams gold from 222 metres deep in hole 14-1; 1 metre of 3.46 grams gold from 39 metres in hole 14-10; and 1 metre of 3.25 grams gold from 91 metres in geophysical hole 14-3.

The company followed up with results from No. 5 and Fortune in early January. Drilling at Fortune focused on increasing confidence in two major east–west vertical shear zones 75 metres apart, while also partly testing for lateral extensions.

Highlights from Fortune include: 3.7 metres grading 7.37 grams gold from 201 metres deep in hole 14-2; 4.8 metres of 11.19 grams gold from 131 metres depth in hole 14-1; and 4 metres of 7.7 grams gold from 110 metres in hole 14-2.

The No. 5 plug is notable, as it sits just a few hundred metres south of the proposed underground development at Parallel. Integra punched 4,300 metres at the target in late 2014 to evaluate lateral continuity outlined in a program completed in 2012.

Drilling intercepted “multiple narrow, high-grade veins,” with highlights including: 9.5 metres grading 4.59 grams gold from 222 metres deep in hole 5-14-1; 7.2 metres of 3.06 grams gold from 240 metres in hole 5-14-8; and 1.5 metres grading 17.9 grams gold from 152 metres in hole 5-14-16.

“The No. 5 is a defined, intrusive plug that’s similar to the historic mineralization at Lamaque and Sigma. Now you don’t have vein frequency that you did at Lamaque, but what we’ve seen are interesting results from surface to 350 metres, which is intriguing because we could just fork off the drift we’re putting into Parallel and access No. 5,” de Jong says. “The idea with this type of deposit is that you want to have as many working faces as possible, so that’s one more production point that prevents bottlenecks at the mill.”

The updated resource will build the foundation for a prefeasibility study Integra plans to start this year, but Sigma is already making an impact at Lamaque.

The company’s previous  PEA on the project was in March 2014. As a result of the infrastructure acquisition, Integra’s new study shows a drop in capital expenditures and operating costs. The company also figures it can drop its pre-production period and overcome permitting hurdles.

No provincial environmental impact study (EIS) is needed for the project, as Quebec’s daily production threshold is 2,000 tonnes. As a result of the Sigma acquisition, federal regulators and the Canadian Environmental Assessment Agency (CEAA) are considering the project an extension of the Sigma property rather than a new application. This will allow Integra to apply for an amendment to the EIS, as opposed to conducting a new study.

“The number-one reason for the drop in the pre-production period is the decrease in time we need to access Parallel,” de Jong says. “But the other thing that’s happened is the permitting. We hadn’t fully anticipated receiving permission to take the EIS at Sigma and amend it to include our property. That means we don’t need to spend eighteen to twenty-four months doing a whole new study. And that’s because as far as surface impact goes, only 3% is on the Integra-Lamaque side of the fence.”

On the development front, Integra reports that incorporating the existing infrastructure should cut its pre-production timeline by six months to 18 months. Capex estimates have also dropped by $7.3 million to $61.9 million, and operating costs have declined 17% to $551 per oz.

Annual production is relatively comparable, with Lamaque expected to produce 110,000 oz. gold per year compared to 112,400 oz. in the 2014 PEA.

The real
improvement is evident in the updated economics. Gold-price assumptions have dropped US$100 to US$1,175 per oz., while Lamaque’s after-tax net present value has jumped US$25 million to US$113.5 million, and the project’s internal rate of return (IRR) is up 21% to 59%.

“We were public about the changes that would occur in the PEA after the acquisition, but personally I was a bit surprised about the jump in the IRR,” de Jong comments. “Some of that is based on the weakening Canadian dollar, but I think it shows the market that the mill is an extremely accretive acquisition for very little cash. The numbers we used, I think, are still conservative, so if you use spot prices today the economics are even more impressive.”

Investment bank M Partners has a “buy” rating on Integra along with an 80¢ per share price target, and noted in a Jan. 13 research report that “Integra is likely to be an attractive acquisition target because of both solid economics and near-term production potential. The proceeds from the company’s recent flow-through financing favourably position it to move the project into advanced exploration. Additional exploration success is likely to support the stock in the near-term.”

In December Integra closed a bought-deal private placement wherein it used Quebec’s super flow-through program to raise gross proceeds of $8.2 million. The company has in excess of $11 million to fund 2015 exploration. Integra plans on drilling 50,000 metres in 2015, and have up to eight drills operating by the end of February.

“Expansion will really happen at Triangle since it’s basically open in all directions. We’re also going back to the No.4 plug, which is open to the east. We’ve had some phenomenal results there in the past right from surface,” de Jong says.

“What we’re really looking forward to, however, is drilling new claims acquired in the Sigma deal to the northeast of Triangle. The ground is along what we call the No. 4 plug trend. These intrusive plugs that carry mineralization like the Lamaque mine show up really well due to the magnetite. We’re seeing a lot of these magnetic highs along that trend, and we’d really like to test those other targets,” he says.

Integra shares have traded within a 52-week range of 14¢ to 42¢, and jumped 5% on the PEA news before closing at 23¢ per share. 

The company has 210.6 million shares outstanding for a $46.4-million market capitalization.