KL Gold, Queenston lock up more of Kirkland Lake camp

Queenston Mining (QMI-T, QNMNF-O) and Kirkland Lake Gold (KGI-T, KGI-L) are teaming up again in the Kirkland Lake gold camp of northeastern Ontario.

The two companies — which already have joint ventures for the Gracie West property and for 50% of Newmont Mining’s (NMC-T, NEM-N) West Kirkland property — are extending their partnership with four more exploration properties in the area.

The news sent shares of the companies up in Toronto: Queenston gained 8% or 15 to $1.92 on volume of 241,000 shares traded, while Kirkland Lake was up nearly 5% or 54 at $12.44 on 512,000 shares.

The properties — known as the South Claims and the East Claim — are situated south of Kirkland Lake Gold’s (KL Gold) Macassa mine and Queenston’s Amalgamated Kirkland property.

KL Gold and Queenston will pay $638,750 in cash and $600,000 worth of their shares over three years for the South Claims, with the vendor retaining a sliding-scale net smelter return royalty (NSR) ranging from 1.5% to 3%, depending on the price of gold.

The East Claim is being bought for $150,000 from a second vendor who will retain a 2% NSR. The JV can buy back half of the NSR for $1 million.

The East Claim hasn’t yet been explored, but it’s the South Claims that are the key to the deal. The companies believe that ore at KL Gold’s New South mine trends over to the newly acquired ground.

“Structural analysis to date indicates that a possible source of mineralization for the gold in the New South mine complex may be from further to the south, and now together with Queenston Mining, our land position covers the entire area of interest,” Brian Hinchcliffe, KL Gold’s president and chief executive said in a statement.

In an interview, Hinchcliffe said that Queenston’s position as a longtime and dominant landholder in the area made it an ideal partner — especially since Queenston’s interest is on the exploration side of things, while KL Gold is looking towards production.

“We’ll operate together on the exploration,” he says. “We have a very good working relationship, and when it comes to production, we’ll sort out a fair deal.”

An underground exploration program is planned on the South Claims that will include 1,500 metres of diamond drilling.

KL Gold discovered the ABM and New South zones in an area to the north of the South Claims in 2004 and 2005, respectively. In all, the company says there are 15 mineralized zones in the New South mine area.

The latest results from KL Gold’s drill program at the New South zone were highlighted by 9 metres grading 35 grams gold per tonne and 18.2 grams gold over a true width of 5.8 metres. The company says drilling increased the strike length of the New South zone to 640 metres.

Prior best intersections from the ABM and New South zones included 17 grams gold over 8.8 metres and 80 grams gold over 27 metres.

The newly acquired South Claims already have an old 122-metre vertical shaft sunk near what is known as the Amalgamated Break. The shaft was sunk in the early 1900s when underground drifting on a series of gold-bearing veins was done. The companies say no exploration has been reported on the property since then.

As for its current JV at Kirkland Lake West — the partners are in the second phase of underground exploration. The property is adjacent to and west of KL Gold’s Macassa mine. The JV is earning a 50% interest at the property from Newmont by spending $2.5 million by June 30, 2008; it has already spent $970,000.

Hinchcliffe says exploration work at Kirkland Lake West will proceed in parallel with exploration drilling on the South Claims and the New South mine area.

Funding for such a robust exploration program will come in part from KL Gold’s new private placement of roughly 484,000 shares priced at $12.40 a share for gross proceeds of $6 million. The placement was announced on April 18, and once completed, it will bring the number of outstanding shares to roughly 54 million shares.