Playing in the right sandbox

SITE VISIT

ELKO, NEV. — It was a dark day for Fronteer Development Group (FRG-T, FRG-X) on April 9, when the Nunatsiavut government of Labrador voted 8-7 in favour of a three-year moratorium on uranium development on Labrador Inuit land.

The Vancouver-based company owns 42.2% of Aurora Energy Resources (AXU-T, AUEGF-O), whose Michelin uranium project is the most advanced in Labrador’s Central Mineral Belt.

News that the ban had been passed sent Aurora, which has a pipeline of six growing uranium deposits there, down to$3.88 per share –a significant drop from its perch at $9.05 per share when the motion passed its first reading in the Nunatsiavut Assembly on March 5. (The stock had reached a high of $20.09 in May 2007.)

But Aurora’s 134 million lbs. of uranium oxide in the ground of Eastern Canada is just a small part of Fronteer Development Group’s story.

And for the whole story — which really is a gold story — one needs to turn from the deep-set bays and fast-flowing rivers of northern Labrador to the juniper and pinion-dotted plains and snowy peaks of Nevada, where Fronteer owns one of the largest mineral rights packages in the state.

That package of rocks includes 19 properties that are on every gold trend in the state, including Long Canyon, in the heart of the Pequop mountain range, that the company believes may define an entirely new gold trend.

“People think of Nevada as being a fairly mature mining jurisdiction and certainly along parts of the Carlin trend that might be true,” says Mark O’Dea, Fronteer’s president and chief executive. “But when you stop off-trend and start focusing on different tracts of ground, surprises can happen, and that’s still one of the beauties of Nevada.”

Currently, Fronteer trades at about $4.87 per share. It has a 52- week trading range of $3.57-13.87 and has about 83.2 million shares outstanding.

Cormark Securities has a buy on the stock with a 52-week target price of $8.50. “Fronteer boasts among the strongest balance sheets for a gold exploration junior and we think it is poised to report an exciting 2008,” Cormark wrote in an April report. “We see an opportunity for the gold assets, which are quite impressive, to break out of the shadow of Aurora and drive the stock price going forward.”

In a research note to clients in May, RBC Capital Markets, which has a 52-week target price on the stock of $9 per share, argued Fronteer’s assets “have been overshadowed by the events surrounding Aurora and that its value has been overlooked by investors.”

That’s certainly a view the company holds.

“These properties have been privately held and were underexplored,” says Bob Felder, Fronteer’s U. S. exploration manager. “At $4.87 a share, we are a huge bargain.”

Northumberland

To get to Fronteer’s gold properties you must first get to Elko — a mining services town 370 km west of Salt Lake City, Utah, and 475 km northeast of Reno, where gambling and prostitution are legal and personal and corporate income taxes are banned in the state constitution.

Despite that, you won’t want to linger. From Elko you drive 320 km southwest along Highway 50, also known as “America’s Loneliest Highway,” to Fronteer’s 100%- owned Northumberland property — a large Carlin-style gold deposit that the Nevada Bureau of Mines and Geology has ranked as one of the state’s top 10 exploration projects.

Northumberland is one of 19 Nevada gold projects Fronteer picked up when it acquired NewWest Gold in September 2007.

Fronteer’s acquisition of NewWest and its projects — many of which are on private lands — added 3.5 million oz. gold to its global National Instrument (NI) 43-101 resource base.

The Vancouver-based company has budgeted US$3.8 million for its exploration program at Northumberland this year and has two drills turning on the property, which lies along a north-northeast-trending alignment of large metal deposits in Nye Cty. that includes Round Mountain, Manhattan, and Tonopah.

Northumberland has an NI 43-101 measured and indicated resource estimate of 36.5 million tonnes grading 1.92 grams gold per tonne (for 2.25 million contained ounces gold) and 7.72 grams silver (for 9.06 million oz. silver).

In the inferred category, the deposit hosts 7.4 million tonnes grading 3.3 grams gold (786,000 contained ounces gold) and 6.11 grams silver (1.45 million oz. silver).

The open-pit, gold-equivalent measured and indicated resource of 2.41 million oz. was based on exploration data collected prior to Fronteer’s acquisition of the project last year.

Fronteer plans to incorporate drill results from this year and next into a new resource estimate that will be released before the end of 2009.

For the last 10 years, Northumberland has been on care and maintenance. But prior to that, it was in production under the Northumberland Mining Co. (1939-1942), Cyprus Mining (1981-1984) and Western States Minerals (1985-1990).

Cypress and Western States mined over 6.3 million tonnes of ore from several open pits and produced more than 230,000 oz. gold and 485,000 oz. silver by heap leaching oxidized and partially oxidized ore that was either crushed or run-of-mine.

Mineralization can be parsed into three categories: near-surface oxide, which is amenable to open-pit mining and heap leaching; a mixed oxide-sulphide zone, which can be mined by open pit, but is partially refractory and would require additional treatment to recover gold; and a deep sulphide zone, which will be mined by underground methods.

Currently, drilling is focused on expanding the near-surface resource, including areas under the original mine and pads, and the deeper resources at the Rockwell and Zanzibar zones, which are sparsely drilled and currently open in all directions.

The 100 by 200-metre main pit is “one of the most exceptional pits I’ve ever seen,” notes Moira Smith, Fronteer’s senior geoscientist. “You can readily pick out different geological units and structures, leading to a better interpretation of the controls on mineralization.”

Northumberland consists of a series of stacked, shallow-dipping, tabular, sheet-like deposits stretching 2.6 km long and up to 1.1 km wide. It is open for expansion in multiple directions.

“It’s a nicely behaved deposit,” says Smith, explaining that there is excellent continuity of mineralization and grade over hundreds of metres and that the mineralization extends in a predictable manner from one drill hole to the next.

“With the major controls on mineralization relatively well understood, we are now working on the finer controls so we will know where to find the hotspots and the most ounces.”

Gold occurs as micron-to submicron- size particles that are intimately associated with sulphides. The gold is disseminated primarily within sedimentary units, although intrusive rocks host a significant portion of the mineralization.

The deposit contains sediment-hosted gold mineralization that is found in a series of three, roughly parallel, closely spaced and to some extent interleaved low-angle thrust faults, Smith says.

The lowest zone of mineralization is hosted within the upper Hansen Creek Formation, the middle zone within the basal chert member of the Roberts Mountains formation, and the upper zone of mineralization at the top of the Roberts Mountains Formation, where it is in fault contact with a Jurassic granitoid body that has been thrust over it.

In addition to being localized along the thrust faults, known min- eralization occurs near the crest of ananticline, and down-plunge along one limb.

Newmont Mining (NMC-T, NEM-N) has granted Fronteer a licence for the use of its patented N2TEC flotation process technology (tests using Newmont’s technology achieved recoveries greater than 90% from Northumberland’s refractory sulphide mineralization).

In return, Fronteer has given Newmont preferential ore processing rights for
any non heap-leach ore developed from Northumberland on commercially competitive terms.

Long Canyon gold trend?

Northumberland may be Fronteer’s most significant project in terms of resource ounces, but it’s the Long Canyon project that has the most exciting exploration upside.

Fronteer’s geologists believe that Long Canyon, 120 km east of Elko in the Pequop Mountain range, may define a brand new gold trend, and the company is setting aside US$3.2 million this year in exploration funds for the project.

“If you look at the history of Nevada, it has developed along trends,” Smith explains. “As you move further out from this nucleus, you realize there is a lot of prospective ground out there that hasn’t been explored. . . We have a multikilometre- long gold anomaly here that is reflecting near-surface bonanza gold grades. They’re oxide and open in all directions.”

Drill highlights include 22.9 metres of 13.4 grams gold per tonne and 13.7 metres of 20 grams gold.

Mineralization is open in all directions with a strike length of 1,100 metres.

“If you look at all the diagnostics of a Carlin trend,” Smith says, “Long Canyon certainly looks like a multimillion- ounce system.”

Long Canyon shows near-surface mineralization similar to Carlinstyle gold deposits. The gold mineralization is strongly oxidized and occurs in stratabound zones and fault and collapse breccias, hosted in a sequence of lower Paleozoic shelf carbonates.

Plans for 2008 include an 11,500- metre drilling program to extend the deposit along strike to the northeast, southwest, and downdip, with the goal of producing a National Instrument 43-101 resource — a project first — before the end of the year.

In a research note to clients in October, Cormark Securities wrote that Long Canyon was “under-appreciated” and showed exciting potential.

“The fact that this promising project is totally off the radar screen for most gold and exploration investors is an extra opportunity for Fronteer,” analysts David Stein and Mike Kozak penned in their report.

“In fact, given the significant sums of money being invested in Nevada since it is considered to be geopolitically almost risk-less and highly geologically prospective, it is surprising to find such a successful program that has not become more renowned.”

For this year, Fronteer has budgeted 52 reverse-circulation (RC) holes and 35 diamond-drill holes — or roughly 7,600 metres of RC drilling and 4,500 metres of core. Early results are promising.

In January, diamond-drill hole LC-63C returned 30.1 grams gold per tonne over a true thickness of 7 metres within a broader zone that returned 13.4 grams gold over a true thickness of 22.9 metres.

Long Canyon is under option from AuEx Ventures (XAU-V, AUXVF-O). Under the terms of the agreement, Fronteer is the operator and may earn a majority interest of 51% by spending US$5 million over a five-year period. But Fronteer can earn an additional 14% by advancing Long Canyon through feasibility.

Warren Thompson, senior exploration geologist at Long Canyon, admits the area escaped notice for many, many years.

“The geology here is so different than the Carlin trend that people were saying: ‘Why explore the Pequop range,'” Thompson says. “It just opens up this entire corner of the state. . . You couldn’t ask for a nicer package of rocks.”

The big picture

Apart from Northumberland and Long Canyon, Fronteer is widely known for its Sandman deposit, where Newmont, its joint-venture partner, is expected to spend about US$3 million this year at no cost to Fronteer.

Located near Newmont’s Twin Creeks mill, Sandman includes a group of five closely spaced gold deposits, four of which contribute to a combined NI 43-101 resource estimate of 271,900 oz. gold (measured and indicated) and 38,000 oz. (inferred gold).

The deposits are near-surface and amenable to open-pit mining, with significant resource expansion and exploration upside potential, the company contends.

In the first phase, Newmont has the option to earn 51% in Sandman at a cost of US$14 million by advancing the property to a production decision within the next 3 years. Following the first phase, Newmont can earn an additional 9% by spending another US$9 million on the project. Newmont is also adding its own land to the Sandman joint venture, increasing the property’s size by 28%.

Fronteer also holds a 40% interest in three gold and copper-gold projects in western Turkey.

In total, Fronteer’s global measured and indicated resource is 4.01 million oz. gold equivalent and an inferred resource of 1.57 million oz. gold equivalent.

Now the company says it plans to double its global gold resource base to 10 million gold-equivalent oz. by the end of 2009 and advance key projects towards development.

And with US$95 million in cash in its treasury, Fronteer is well financed to do it.

Says O’Dea: “That’s enough financing to meet our goals over the next couple of years, easily.”