Mega Precious can’t help but think big

Mega Precious Metals (MGP-V) could be the most aptly named gold company on the junior circuit.

With assets in Manitoba and Ontario, the company’s well-heeled management team thinks bigger is better when it comes to mining.

The philosophy is embedded in Mega CEO Jim Rogers, who was formerly Goldcorp’s (G-T, GG-N) regional exploration manager for Ontario and Manitoba, where he deepened his appreciation of  economies of scale.

“One thing I learned from my time at Goldcorp is that a high net present value (NPV) is a function of the production rates and costs,” Rogers says. “So we’re looking to get to the right size and make our projects economic enough to unlock their potential.”

Rogers left Goldcorp in September 2008, and Ewan Downie, of Wolfden Resources and Premier Gold Mines (PG-T) fame, recruited him to find and develop projects in the Red Lake district of northwestern Ontario. Downie still serves as a director of Mega.

And while Rogers was intrigued with the assembled assets in the region — which were made up of the North Madsen and the Headway projects — there still wasn’t a slam-dunk, company-builder project in the portfolio.

Pinetree Capital’s (PNP-T) CEO and founder Sheldon Inwentash advised Mega’s management team that resource companies that survive are ones that secure projects that are well positioned to move into production.

Inwentash has a track record in technology and resource investing, and his words weren’t taken lightly. Shortly after, Mega picked up a 20% stake in Rolling Rock Resources, a company with an intriguing project known as Monument Bay in northeastern Manitoba, near the Ontario border.

“Rolling Rock didn’t have management that knew what they were doing,” Rogers says bluntly. “The stock and the company were both floundering, and there was an opportunity to pick it up cheap and move forward on the project.”

In December 2010 Mega acquired Rolling Rock through an all-share offer that saw Rolling Rock shareholders receive 0.4 of a Mega Precious share for each  share, which at the time only valued Rolling Rock at $10.1 million.

Rolling Rock didn’t gather much market momentum behind Monument but it wasn’t idle, either, and it put together a preliminary economic study of a mine that would turn out 80,000 oz. gold per year.

Rogers, however, says that vision was too small. Today, Mega envisions a mine turning out between 100,000 and 120,000 oz. gold per year, with production fed by a 4-km open pit.

The large open pit has highlighted another difference between past and present operators: unlike Rolling Rock, which viewed the project as mainly an underground mine, Mega has raised the prominence of the pit while maintaining that some ore be mined underground.

To beef up the project to the weight Mega wants, it will have to continue its pace of outlining more ounces. To find these ounces the company has looked to extend the deposit to the west while optimizing the eastern section, and by exploring for gold between known vein structures.

If mineralized material between the veins proves economic — and results are pending — Mega could go big, and usher in higher production rates that could drive down costs and generate a greater NPV.

The first part of the plan, to extend westward, has already borne fruit in the form of stellar results from a recent stepout program at the Burn zone, which was highlighted by 34 metres grading 1.08 grams gold, 94 metres of 0.98 gram gold, 26 metres of 1.6 grams gold and 131 metres of 0.8 gram gold. The results came out of four holes.

Mega says the drilling extended surface-pit mineralization as well as potential for underground bulk mining. In all, 28 holes were put into the zone over a strike length of 1,800 metres.
In the pit shell’s eastern section at the A, B and G zones, both Bema and Rolling Rock focused on a grouping of high-grade veins.

Mega is the first company to drill between the veins, and core from the testing is part of the 30,000 metres being assayed.

Rogers is optimistic about the results, and believes that the recent drilling could add 300,000 to 400,000 oz. of resources within the pit outline when a resource update comes out at year-end.   

“The goal is a 4 million oz. footprint with over 2 million oz. coming out of an open pit,” he explains. “In the eastern side, there’d be both open-pit and underground mining, with the open pit going down to the 300- to 400-metre level.”

Within that pit, but also considering underground mining beneath it, measured and indicated resources stand at 12.9 million tonnes grading 2.5 grams for 1.05 million oz. gold, while inferred resources come in at 14.2 million tonnes grading 3.78 grams for 1.7 million oz. gold.  

Generating larger scales of production and a higher NPV would help ensure that Mega clears the biggest hurdle: its location.

Monument Bay is 570 km northeast of Winnipeg, and while Mega controls the Manitoba side of the belt, the site is remote.

The project has to be flown into, so the company has built a 1,500-metre airstrip on the ice.

Rogers, however, says the government is committed to putting a road into the First Nations community at Gods Lake within the next five years — which is 120 km from the project — and says it would improve accessibility.

And while transportation infrastructure has a ways to go, a power line runs just 48 km from the project. The cables carry cheap Manitoba power ringing in at 4 cents per kilowatt hour, which is roughly half the cost of power in Ontario.

District potential

Monument Bay is a shear-hosted, Archean-age lode gold project on a splay of the Stull Lake-Wunnummin fault zone, the eastern extension of the fault system that hosts Goldcorp’s Musselwhite gold mine on the Ontario side of the border.

With a land package that covers 256 sq. km of prospective land, Mega is not limiting itself to the known deposit. It has delineated 18 mineralized zones on the property, and geophysical studies show it has the right fault structure for more gold discoveries.

Rogers points out, however, that while the geophysical signatures are promising, the right contrast is required between rock types.

He says the ground surrounding the known deposit offers potential, and that across the belt’s width, Mega geologists are finding the same rock-type variability as in the deposit.

The team’s exploration work has found strong evidence of multi-directional structures within mixed sedimentary and intrusive rocks, yielding gold showings across the full width of the 10-by-25-km belt.

“It’s all good news for my dream that this will be a multi-mine belt in the future,” Rogers says.

To help with discovering new gold zones, Mega geologist are using a high-tech version of a “black” ultraviolet light.

The tool is useful in the field because of a correlation between the presence of gold and scheelite tungsten, a mineral that glows under a black light.

“It’s common in a big system to have tungsten and molybdenum associated with gold,” Rogers explains. “At Red Lake the sulphide zones have this scheelite association, as well . . . it certainly makes for a cheap way to explore for gold.”

While creative methods of exploration are keeping costs down, Mega is in a strong cash position relative to most juniors, with $9 million in the kitty, and a burn rate between $450,000 and $500,000 per month.

This enviable cash position was achieved by astut
e market timing: Mega closed an equity financing deal just before markets tanked.
“We closed the deal on March 22,” Rogers says, “and if we did it even a week later, we would have fallen on our faces.”

The plan is to have at least $5 million left in its coffers at the end of this year.

North Madsen
While Monument Bay is getting most of Mega’s capital, it isn’t the company’s only project.

The company also holds the North Madsen project in Ontario, which represents a claim on half of a deposit in the Red Lake mining district.

Mega has outlined measured and indicated resources of 23.4 million tonnes grading 1.24 grams gold for 937,167 oz., and inferred resources of 11.4 million tonnes grading 1.03 grams for 379,026 oz. gold — but Rogers believes the three companies that have parts of the deposit should get together and mine it as one.

The other two companies involved are Claude Resources (CRJ-T, CGR-X), through its ­ Madsen gold project, and Goldcorp.  

“Monument Bay will be big enough that a senior will be interested once they realize what we have,” he says. “And at Red Lake we’ll be a buyer or seller within five years — but one way or another, it will be a mine. The right way to mine it is together. You have to go big or go home.”