Lake Shore ups its exploration efforts at 144 Gap zone

On the back of its 2014 financial and exploration successes, Lake Shore Gold (TSX: LSG; NYSE-MKT: LSG) has bulked up its exploration efforts and is keeping the ball rolling into 2015.

The gold miner reported a boost in production, sales, revenues and earnings in the first quarter. Output from its Timmins West and Bell Creek underground mines in Ontario’s Timmins camp was a record 53,000 oz., up 19% from a year ago. The junior processes ore from both assets at its Bell Creek mill, which underwent a 3,000-tonne-per-day expansion in the third quarter of 2013, boosting Lake Shore’s performance. 

“Since we have finished our mill expansion, we’ve had six consecutive, strong quarters of operating results and financial results,” Lake Shore’s vice-president of investor relations Mark Utting says.

The record quarterly production came from a 12% year-over-year increase in the average grade of 5.7 grams gold per tonne, beating the company’s 2015 guidance of 4.4 grams gold, as it accessed higher-grade areas, brought down external dilution and improved grade control. The company, however, expects grade will revert to its guidance throughout the year, Utting says.

Gold sales totalled 52,600 oz. at an average price of US$1,219 ($1,504) per oz., generating record revenues of $79.1 million, up 29% from the year earlier.

The strong production, higher average grades and the weaker Canadian dollar lowered the firm’s all-in sustaining costs by 22% to US$750 per oz., beating its 2015 target range of US$950 to US$1,000 per oz. 

The improved costs and higher sales volumes led to a 44% year-over-year growth in cash flows, from operating activities of $35.9 million. Net earnings for the quarter were $12.1 million compared to $4.6 million. Adjusted profit per share was 3¢ — up from 1¢.

During the first three months of 2015, the firm invested $12.3 million of capital on mostly mine development, new equipment and in-mine drilling. It made $4.3 million in debt repayments, with one more payment left to pay off its senior debt, and poured another $4.9 million in drilling and exploration at the 144 Gap zone.

Discovered last October, the zone sits southwest of the Thunder Creek deposit and covers 4 km of the 6 km long 144 trend that hosts Timmins West’s two deposits: Thunder Creek and Timmins. 

Drill results released in late April have extended the 144 Gap zone’s minimum dimensions to 400 metres along strike and 400 metres down-dip, with key intercepts returning 8.81 grams gold over 8.2 metres and 15.95 grams gold over 4.9 metres.

“Those dimensions would make it at least as large, if not larger, than our Thunder Creek deposit, just in pure dimensions. So it’s a large zone and we’re enthused by it, and the results have been good so far. [We’ve had] seven drills turning there [daily],” Utting says. 

The zone also has a wide, high-grade core, measuring 75 to 125 metres along strike, 50 to 125 metres wide and 300 metres down-dip. 

Given the encouraging drill results, Lake Shore expanded this year’s $18-million exploration budget to $25 million to include more drilling at the 144 Gap zone and a program to explore the 144 trend, where the junior has intersected new mineralization.

New work includes 50,000 metres of surface drilling and 10,000 metres of underground drilling at 144, at a cost of $7 million. About 45,000 metres of that surface drilling will test the 144 trend towards the prospective 144 North and 144 South targets, while the remaining metres will extend and expand the 144 Gap zone. 

“We think what we could have there is a repeating series of gold deposits running right down that area,” Utting says of the trend. “We’re going to investigate the prospects, and we may indeed have a large gold complex on our hands.”

This year, 144 should see 140,000 metres of surface drilling and 40,000 metres of underground drilling, including driving an exploration drift from Thunder Creek — some 700 metres away — to set up an underground drilling station. 

Lake Shore intends to complete an initial resource estimate for the 144 Gap zone by year-end. The estimate should be out in early 2016. The firm hopes to turn the 144 Gap zone into its third mine. 

At Bell Creek, the junior has added 32,500 metres of underground drilling and 800 metres of development for an underground drill platform, for another $6 million, which will largely be capitalized. About half of the drilling will convert resources to reserves between the 775 and 1,100 levels, while the rest will upgrade inferred resources, and explore for new resources below the 1,100 level.

Owing to the drill success in 2014, the company increased its total gold reserves in March by 29% to 773,300 oz., based on 5.5 million tonnes of 4.4 grams gold. 

While Lake Shore is on track to reach its annual production guidance of 170,000 to 180,000 oz. gold, it is eyeing long-term growth. “It is an exciting time for the company, not just because we are performing extremely well, but because of what we see ahead of us and the potential of further growing the company out. And really, all of this is happening in the Timmins camp, and we think it is a great place to be a miner,” Utting says.

The stock closed May 4 at $1.25, up 60% for the year. It had $77.1 million in cash and bullion at the end of March.