Nordgold raises stake in Northquest

As Canadian mining companies look inward, licking their wounds from the prolonged rout in commodity markets, a Russian gold producer with nine operating mines and heaps of cash has exercised warrants above market price to take a majority stake in a Canadian junior with a high-grade gold project in Nunavut.

Nordgold (LSE: NORD) increased its stake in Northquest (TSXV: NQ) to 52.3% from 42.9% in late November, writing a cheque for $5 million (US$3.8 million) that will cover all of the junior’s exploration costs next year at its Pistol Bay project, 80 km south of Agnico Eagle Mines’ (TSX:AEM; NYSE: AEM) high-grade Meliadine project.

“This is the greatest confirmation of credibility that you can get,” Jon North, Northquest’s president and CEO, says in an interview. “We have a million-ounce gold producer who just paid 30¢ a share, when the market says we’re worth 19¢ a share … there is no Canadian company that will do that.”

Continuing, the mining executive says that “we can’t get a meeting in Canada with an institutional fund, a mining company or a portfolio manager … $5 million is coffee money. Why didn’t a Canadian company do that?”

Whatever the reason, Nordgold spied an opportunity, making its first investment in Northquest in June 2014, before stepping in and taking majority control on Nov. 25. Nordgold made its move a day after Northquest released its second batch of drill results for the year, with intercepts from the project’s Vickers zone of 39 metres grading 2.57 grams gold per tonne; 30 metres grading 2.10 grams gold per tonne; 44.5 metres of 1.07 grams gold per tonne; and 50 metres of 2.13 grams gold per tonne. The results were released in January, with the best result returning 134.4 metres grading 1.36 grams gold.

Nikolai Zelenski, Nordgold’s president and CEO, stated that this year’s results from 36 drill holes “confirmed” Pistol Bay’s “potential of being a high-quality deposit of substantial scale with high-grade ore, a moderate stripping ratio and excellent metallurgy.”

Northquest acquired Pistol Bay, on the west coast of Hudson Bay in eastern Nunavut, in 2010. But the story dates to 1985, when Inco discovered the Vickers zone in the centre of the property after drilling 149.8 metres grading 2.55 grams gold. In 2012, Northquest twinned the Inco hole in the same stratigraphy and doubled the grade, with a 164.4-metre intercept grading 5.39 grams gold. The company attributes the better grade to a larger core sample and more comprehensive assay method to take into account the abundant coarse visible gold in the core samples.

The grade and thickness of the zone were good and Inco had only completed a nominal amount of exploration, and in a completely different gold price environment 30 years earlier, which was appealing to Northquest. Also appealing was the fact that Pistol Bay was on Crown land open for staking for more than a decade, meaning Northquest didn’t need to negotiate an exploration agreement with the territorial government.

Another surprising thing about the project, North says, is that companies involved in gold exploration in the region, with the exception of Agnico Eagle, seemed to have overlooked the mineral occurrences at Pistol Bay and the possibility that it was a linear trend parallel to Agnico’s Meliadine gold deposits, 25 km north of the hamlet of Rankin Inlet.

In 2010, Agnico Eagle and Northquest both claimed to have staked the ground covering the Vickers zone. The dispute was resolved two years later in Northquest’s favour, when the Mining Record awarded the claims to the person that Northquest had bought them from, after which the company began exploration work in earnest.

North knew the Meliadine deposit from when he worked for its previous owner, Western Mining, from 1994–95. Although he never worked directly on Meliadine, he was part of a committee that recommended Western Mining buy it from Comaplex Minerals.

Meliadine is Agnico’s largest development project. It has proven and probable reserves of 13.9 million tonnes grading 7.44 grams gold for 3.3 million oz. gold. Indicated resources measure 20.3 million tonnes at 5.06 grams gold for 3.29 million oz., and inferred are 14.1 million tonnes at 7.65 grams gold for 4.36 million oz. gold.

By September, Agnico had advanced the underground ramp at Meliadine by 1,960 metres.

Meliadine and Pistol Bay are on the opposite sides of a sterile, granitic gneiss block, and Northquest believes the Pistol Bay trend is a mirror image of the Meliadine trend.

The first exploration phase in 2011 validated this concept, and led to the trend’s recognition as a deformation corridor trending northwest, with a nominal width of at least 2 km containing gold occurrences within epizonal porphyries, gabbro–diorite intrusions, quartz veins and banded-iron formations, over at least 20 km of strike length.

Over the last five years, Northquest has completed three airborne geophysical surveys and 21,750 metres of diamond drilling in 100 holes, 65 of which were done in the Vickers zone.

The company recently announced that it had found a second gold-bearing intrusion at Vickers that is open to the east, and at depth.

This year the company will drill west and east of drill holes at the Vickers zone to explore a potential gold zone extension that has been intersected over a 350-metre strike length.

Pistol Bay is accessible by air or by sea, within 10 km of Whale Cove, which has a population of 350 people.

Whale Cove has a 1,200-metre airstrip with daily flights to Winnipeg, among other cities, and a port that accepts sea lifts from the rail head at Churchill, Man., and Montreal in the shipping season. There is also an all-season road from Whale Cove to the project.

The company says the surrounding infrastructure ensures that exploration costs at Pistol Bay, particularly for drilling, are half those of its peers working elsewhere in the Arctic.

“It’s an extremely robust project,” North says. “In the last press release, we had an intercept of 39 metres of 2.57 grams gold, and that’s what we call a narrow intersection at Pistol Bay — anywhere else that’s their discovery hole.”