McIlvenna Bay keeps growing for Foran

Foran Mining (FOM-V) has bulked up resources at the McIlvenna Bay zinc-copper-gold-silver volcanogenic massive sulphide (VMS) deposit in east central Saskatchewan, with increases of 15% and 18% in indicated and inferred tonnage.

Indicated resources equal 13.9 million grading 1.28% copper, 2.67% zinc, 0.49 gram gold and 17 grams silver per tonne, while inferred resources stand at 11.3 million tonnes of 1.32% copper, 2.97% zinc, 0.43 gram gold and 17 grams silver.

The Vancouver-based explorer, led by Patrick Soares, has essentially consolidated resource estimates on different zones completed in 2006 and 2011 to unveil a “slightly larger global resource with better copper and gold grades,” George Topping, an analyst at Stifel Nicolaus, writes in a recent note. Topping has a “buy” recommendation and a $1.50 target price on Foran.

Global resources now stand at 25 million tonnes grading 1.3% copper, 2.8% zinc, 18 grams silver and 0.46 gram gold compared to the earlier 22 million tonnes of 1.1% copper, 3.8% zinc, 19 grams silver and 0.2 gram gold, Topping notes, adding that the better copper and gold grades make up for the lower zinc values.

Contained global metal equals 719 million lb. copper, 1.5 billion lb. zinc, 377,000 oz. gold and 14 million oz. silver.

The updated resource for McIlvenna Bay shows a 35% increase in contained copper, while zinc has declined by 13% (from 1.7 billion lb. to 1.5 billion lb.), “but netting that with increase in copper and higher gold credits suggests an overall metal increase on a copper or zinc equivalent basis of 27% (from 1.1 billion lb. of copper equivalent to 1.4 billion lb. and from 4.3 billion lb. of zinc equivalent to 5.5 billion lb.),” Fraser Mackenzie’s Aleksandra Bukacheva said in an email. Bukacheva has a $1.30 target price and a “buy” recommendation on the stock. 

The new resource is largely contained in the Main Lens and Copper Stockwork zone (CSZ), and to a lesser extent in Lens 3.

The Main Lens hosts large massive to semi-massive sulphide mineralization in two distinct zones: the copper-gold rich Upper West Zone and the primarily zinc-silver Zone 2. The copper-gold-dominant CSZ lies directly below the Main Lens, while Lens 3 sits in the hangingwall of the Main Lens.

The 2013 resource is based on 178 diamond holes and a net smelter return of US$60 per tonne. Long-term metal prices of US$3.25 per lb. copper, US$1.10 per lb. zinc, US$1,400 per oz. gold and US$25 per oz. silver were used.

The McIlvenna Bay deposit sits in the heart of the 203 sq. km McIlvenna Bay property in the famed Flin Flon greenstone belt of Manitoba–Saskatchewan. It starts 35 metres below surface and extends 2 km down-plunge and remains open for further growth. 

Topping comments the project is an hour’s drive from HudBay Minerals’ (HMB-T) Flin Flon concentrator and zinc plant making it, in his view, a good acquisition target.

“While development of McIlvenna is only likely in 2015, we believe such a deposit should be acquired before construction,” he argues.  

Analysts predict HudBay may pursue McIlvenna as the major already operates several large VMS deposits — such as the 777, Trout Lake and Lalor mines — in the Flin Flon and Snow Lake camps of Manitoba.

“You’ve got HudBay active in the region. They are starting up Lalor right now. But at some point they are going to be thinking about the next one and this is a big next one, potentially,” Haywood Securities analyst Stefan Ioannou says.

While Ioannou doesn’t formally cover Foran, he has visited the site and has been watching the company’s progress.

“The bottom line is it’s a big deposit, it’s got good grade and it is in an established mining camp,” Ioannou explains, pointing out a lot of the other nearby projects are jointly owned by HudBay. “Whereas this one is still 100% Foran, and they are in the driver’s seat from a negotiation point of view down the road if HudBay gets interested,” he says.

Fiona Childe, the company’s vice-president of corporate development, says Foran has received interest on the project from various groups which it’s evaluating. Meanwhile, it will continue to advance McIlvenna Bay towards production.

Currently, the junior is wrapping up a 2013 winter program where it drilled the deposit and tested regional targets on the surrounding 270 sq. km land package. Regional drilling focused on the 7-km-long corridor between McIlvenna Bay and Balsam, a smaller VMS deposit with a historic resource. Results from the program should be out shortly.  

Foran is also completing engineering and environmental studies for an upcoming preliminary economic assessment (PEA) on McIlvenna Bay. While it hasn’t released a timeline for the PEA, Bukacheva at Fraser Mackenzie believes the junior is well funded to complete the engineering studies for the PEA before year end. The debt-free firm exited 2012 with $8.7 million in its treasury.

It recently ended at 39.5¢ within a 52-week trading range of 36¢–$1.08.