Lake Shore flaunts 6.4M oz. resource

By early next year Lake Shore Gold (lsg-t, lsg-x) was aiming to boast a gold resource of 6-million to 8-million ounces. A goal it recently achieved with initial resources from its Thunder Creek and Fenn-Gib projects, bringing company-wide ounces to 6.4 million, with room for further growth.

On Nov. 17, Lake Shore announced a NI 43-101 resource estimate of 2.05 million oz. (65.3 million tonnes grading 0.97 grams gold per tonne) at its Fenn-Gib property, situated some 60 km east of Timmins, Ont.

That breaks down to 1.3 million oz. from 40.8 million indicated tonnes at 0.99 gram gold, and 750,000 oz. from 24.5 million inferred tonnes at 0.95 gram.

Lake Shore’s CEO and president Tony Makuch said Fenn-Gib’s initial resource was in-line with the company’s estimate of at least 2 million oz., and could further increase.

“We believe the potential to add to the resource with further work is excellent given that there is only limited drilling below 300 metres and to the north, east and west of the Main zone,” Makuch explained in a press release.

He said the company is already seeing intriguing drill results for its first four holes, which were not included in the initial resource, but extends mineralization 200 metres to the north.

Analyst Kerry Smith of Haywood Securities writes in a Nov. 17 note that while the 2.05-million oz. resource is “on the low-end” of the anticipated 2 to 3 million oz., he estimates that the total resource within and outside of the optimized pit shell design equals 3.44 million oz. grading 0.79 gram, using a 0.35-gram cutoff.

To derive to the current resource, Lake Shore used a cutoff grade of 0.5 gram gold for in pit resources and 1.5 grams for out of pit resources, along with a gold price of US$1,190 per oz. and a 10% dilution.

The resource was based on 319 holes totaling 86,017 metres, at a depth of 300 metres over a 1.25-km strike length. Most of those holes were drilled between 1986 and 1999 on the Main zone by the project’s previous owners: Pangea Goldfields and Barrick Gold (abx-t, abx-n). Lake Shore bought the 29-sq.-km property from Barrick in May 2011 for 14.9 million shares or $60 million.

Supporting a conceptual annual production of more than 150,000 ounces, Fenn-Gib is stepping closer to becoming a third significant production source for the company, Smith reckons.

He predicts if the new drilling can lower the [3.7-to-1] strip ratio and bump gold grades above 1.1 grams it could possibly transform Fenn-Gib “in to a decent gold project with a large bulk-mineable deposit with some high-grade potential as well – which is typical of the Timmins camp.”

A day before releasing Fenn-Gib’s estimate, Lake Shore posted an initial resource for the Thunder Creek property also in Timmins. The project hosts 1.03 million oz. gold from 5.6 million tonnes grading 5.76 grams gold.

It contains 521,600 oz. from 2.9 million indicated tonnes at 5.64 grams gold, and 510,000 oz. from 2.7 million inferred tonnes at 5.89 grams.

“We are off to a good start at Thunder Creek in establishing a resource base to support long-life, profitable mining,” stated Makuch.

The resource is based on 440 new holes for 131,431 metres, starting from 250 metres to a depth of 900 metres over a horizontal strike of 300 metres. The resource is contained in 11 distinct zones, with mining widths of up to 24 metres. More than 75% of the resource exists in two key zones within the 600-metre and the 800-metre level, mostly within a 200-metre vertical interval.

That 200-metre interval around the 730 level contains about 650,000 oz. averaging about 6 grams gold and over 3,250 oz. per vertical metre.

That level will provide several years of productive mining, said Makuch, adding it could supplement ore at the company’s Bell Creek mill. Situated on the Bell Creek property, east of Timmins, the mill is undergoing expansion to process 3,000 tonnes per day by late next year, before ramping up to 5,500 tonnes per day. 

Lake Shore has initiated detailed engineering studies on the 200-metre interval and is working on a scoping study at Thunder Creek and Timmins Mine deposits, which it plans to combine into a single mining operation. Recently, the company intersected mineralization 1.9 km below the Timmins Mine’s current reserve. “That is one hell of a stretch!” commented Makuch, who later added there may be a similar opportunity to extend the adjacent Thunder Creek deposit to depth.

Thunder Creek’s resource estimate assumes a long-term gold price of US$1,200 per oz., a cutoff grade of 1.50 grams per tonne, which considers a 10% internal dilution at 1.75 grams per tonne.

Smith of Haywood Securities writes the company’s current 6.4 million oz. resource is expected to grow with reserve and resource updates from the Timmins Mine, Bell Creek and the Gold River Trend in early 2012.

Lake Shore has 27 rigs turning on its properties as part of its $30-million drill program.

Smith notes while the company continues to deliver on the exploration side, it needs to work on its operational front to receive a better valuation.

Currently, Smith has a price target of $3.50 with a sector outperform rating. Similarly, Bart Jaworski of Raymond James has an outperform rating on Lake Shore and a $3.10 target.

At presstime, Lake Shore Gold closed at $1.47, within a 52-week range of $1.27 to $4.42.