Premier’s Hardrock grows in quantity and quality

Another 86,500 metres of drilling and a deeper Whittle shell using steeper pit walls has increased the size of Premier Gold Mines’ (TSX: PG; US-OTC: PIRGF) flagship Hardrock deposit in northern Ontario, the company says.

The Thunder Bay-headquartered junior unveiled an updated mineral resource estimate for Hardrock, with the maximum depth of the open-pit resource based on an optimized Whittle pit 587 metres from surface — a 118-metre increase in depth, compared to the previous resource estimate tabled in October 2013.

This has boosted the open-pit indicated resource and open-pit inferred resources. Highlights of the updated resource estimate include an open-pit indicated resource of 3.97 million oz. gold for an increase of 1.62 million oz., or 69%.

Stephen McGibbon, Premier’s executive vice-president of corporate and project development, noted on a conference call that after the 2013 resource estimate, the company aimed to convert inferred resources to indicated and improve the confidence and quality of the resource estimate, which he says they’ve done “to a high degree of success.”

At a 0.5-gram-gold-per-tonne cut-off grade, the open-pit indicated resource stands at 83.9 million tonnes grading 1.47 grams gold per tonne for 3.97 million oz. gold, with the open-pit inferred resource at 10.2 million tonnes averaging 1.53 grams gold for 501,000 oz. gold.

At a 3-gram-gold-per-tonne cut-off grade underground, indicated resources are 5.2 million tonnes grading 5.40 grams gold for 898,000 oz. gold, with inferred resources of 12.9 million tonnes averaging 5.40 grams gold for 2.24 million oz. gold.

Hardrock’s total open-pit and underground resource stacks up to 89 million tonnes grading 1.70 grams gold for 4.87 million oz. gold in the indicated category, and 23.2 million tonnes grading 3.69 grams gold for 2.74 million oz. gold.

The latest resource estimate uses the same cut-off grades and (C$1,399 per oz.) gold price used in the 2013 resource estimate to ensure an apples-to-apples comparison, management said.

Premier acquired the project in December 2008 and began work in 2009. Since then the company has completed over 600,000 metres of drilling and extended the deposit down-plunge where it remains open.

“There’s been a lot of excitement building on the Hardrock deposit,” Premier chairman Ebe Scherkus said at the start of the conference call. “We’ve been busy on it during the last couple of years and the latest results will show that this deposit is certainly growing into a world-class deposit, with enormous upside potential.”  

Ewan Downie, Premiers’ president and CEO, remarked that he was “very happy” with the results and that Hardrock — the company’s core asset — could help the company “transition from explorer to producer.” He also noted that the company has a strong balance sheet with $55 million in cash and investments, and plans to drill another 35,000 metres at Hardrock this year to convert the last open-pit inferred ounces to the indicated category before the company finishes its feasibility study in the first half of 2015. It is also planning exploration drilling on new targets at Hardrock. “There continues to be significant regional exploration potential,” he added.

A preliminary economic assessment completed in March modelled a 15-year mine life, with 3 million oz. gold mined at a rate of 10,000 tonnes per day during initial operations, and rising to 18,000 tonnes per day in the third year of operations. Based on the new resource estimate and Hardrock’s larger in-pit gold resources, production throughput could reach more than 10,000 and 18,000 tonnes per day. The PEA estimated that metallurgical recoveries for gold over the mine’s life are expected to average 89.6%

The Hardrock deposit is one of four at Premier’s wholly owned Trans-Canada project, 3 km south of the town of Geraldton in the Beardmore–Geraldton greenstone belt. The project resides along the Trans-Canada Highway and is accessible year-round. The Trans-Canada natural gas pipeline passes close to the site. 

Management noted that several open-pit options have been identified that could increase project’s scale. “We have taken a capital restrained approach so we had picked a pit slope that would be similar to the capital we used in the January 2014 PEA,” Downie said. “But if you weren’t constrained by capital there are options to make a larger project than what we have envisioned.”

News of the expanded resource estimate sent Premier’s shares to a 52-week high of $3.17 per share, up 22¢, or 7.5%, with 3.3 million shares changing hands.

Rob Chang of Cantor Fitzgerald raised his target price to $4.15 per share from his previous $3.85 target price and describes Premier as “extremely undervalued,” and one of his “top picks.”

CIBC World Markets analyst Jeff Killeen raised his target price from $4 per share to $4.40 per share, and estimates a greater than 20% internal rate of return for the project based on spot gold prices, which he says “is a key hurdle rate.” He writes that “a combination of positive economics and proximity to infrastructure positions Hardrock as a candidate for development.”

But the Hardrock mine isn’t without its critics. The Aroland First Nation said it rejects the company’s plans for the open-pit mine because it “will cause significant adverse environmental effects, including the destruction of a lake and major alterations to the Trans-Canada highway.” Aroland First Nation Chief Sonny Gagnon stated in a May 30 press release that while his First Nation “is generally supportive of sustainable mining development, Premier Gold wants to destroy Begooch Zaagaigan, a lake that supports our aboriginal fishery. They just put a number on this lake — A-322 — and tell us they’re going to fill it in with mine waste. This is one of the worst project proposals I’ve ever seen.”

For its part Premier says it “regularly engages with local Aboriginal communities, and is proud of the relationship that has and continues to develop.”

In its July 18 press release announcing the updated resource estimate for Hardrock, the company added that “Premier utilizes personnel from local aboriginal communities on the Hardrock project, such as representatives from each community as part of the environmental-monitoring team.” It also noted that a formal environmental baseline work program has been ongoing since 2011, and that since 2013, the company has begun “more extensive regional monitoring and assessment work that was undertaken to gain a thorough understanding of the current environmental conditions in the region, including the impacts of the Trans-Canada highway on this former industrial site.”