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Minerals Policy and Business Development

Exploration and Development Highlights 2013

Base and precious metals by Chris Beaumont-Smith, Minerals Policy and Business Development; Specialty/Industrial Minerals by Jim Bamburak, Manitoba Geological Survey, Manitoba Mineral Resources

Current as of October 1, 2013

Overview

Challenging equity markets, low commodity prices, and limited venture capital availability, have contributed to a marked decline in exploration expenditures. The instability of global economies continues to have a negative impact on mineral investments. Junior exploration operations, in particular, have faced business crises. Companies have been forced to revise operational plans. Exploration and deposit appraisal expenditures decreased in 2012 to $93.9 million (M) – a 33-per-cent decline from 2011. A reappraisal of exploration programs is expected to impact negatively on exploration spending for 2013, currently estimated at $73.2M.

Content Links:
d Base Metals

d Precious Metals

d Specialty/Industrial Minerals

Capital investment delivers measure of growth to industry

In Manitoba, despite troubling market trends, the mineral production sector has experienced a measure of growth and success. Capital investments in expanded mines and new mine construction have helped offset negative impacts on base and precious-metal exploration expenditures. Once these projects have been completed, Manitoba’s mineral production is expected to rise significantly. The industry’s resilience and commitment to move forward by maintaining a healthy level of exploration activities continue to underscore the importance of the province’s considerable mineral potential. Exploration remains a key driver for sustainability in the sector.

 

Base Metals

Despite the impact of challenging economic conditions on low base metal prices, HudBay Minerals continues to deliver a historic level of capital investment in Manitoba, specifically with the construction of two new mines, the Lalor mine and the Reed mine, situated in the Snow Lake region.

The polymetallic Lalor mine project is proceeding on budget and on schedule, as it approaches the important milestone of main-shaft commissioning. The progress of the Lalor project will allow HudBay to increase production from the current 1,500 tonnes per day (tpd) to 2,700 tpd in the second quarter of 2014, contingent upon the environmental licensing process being completed on schedule.

In order to accommodate an increase in production, while preserving capital reserves, HudBay plans to delay the construction of a new 4,500 tpd concentrator on the Lalor site, and to focus on refitting the existing Snow Lake concentrator at a cost of $9M. Deferring the construction of the new Lalor concentrator, the company expects to conserve $325M in capital.

HudBay has invested approximately $365M in the Lalor project. The company has committed an additional $63M, and has plans to continue concentrator engineering and optimization. Hudbay will release a reassessment of the timing of concentrator construction following the completion of an updated Lalor mine plan in late 2013.

The Indicated base-metal Lalor resource stands at 13.3M tonnes, grading 8.87 per cent zinc, with an Inferred resource of 4.8M tonnes, grading 9.25 per cent zinc. The Gold Zone Inferred resource is 5.4M tonnes, grading 4.7 grams per tonne (gpt) gold.  Conceptual estimates indicate the potential for an additional 5.1 to 6.1M tonnes, grading between 4.3 and 5.1 gpt for the Gold Zone. The estimates also indicate an additional 1.8 to 2.2M tonnes grading 5.8 to 7.0 gpt gold and 3.2 per cent to 4.0 per cent copper for the Copper-Gold Zone. HudBay anticipates additional gold resources will be delineated with further exploration conducted from underground. The Copper-Gold Zone holds the greatest potential to add significant resources to the project.

HudBay’s 70-per-cent-owned Reed mine project, located 80 kilometres (km)  south of Snow Lake, is also on budget and scheduled to reach commercial production in the fourth quarter of 2013. The $71M copper-gold mine will produce 1,300 tpd at full production, with the ore trucked to Flin Flon for processing. Achieving full production is contingent upon the environmental licensing process ending on schedule. The Reed Lake deposit contains a National Instrument (NI) 43-101–compliant Indicated resource estimate of 2.5M tonnes, grading 4.55 per cent copper.

Cost-cutting measures planned by HudBay include operational efficiencies and deferred sustaining capital investments at its Flin Flon and Snow Lake production facilities. Hudbay is also planning a modest decrease in exploration spending in the Flin Flon-Snow Lake greenstone belt. In recognition of the mine-life estimate for HudBay’s 777 mine, the company plans to shift its exploration focus to the Flin Flon region in support of the company’s metallurgical complex in the area.

HudBay also partnered with Halo Resources Ltd. on the Lost Lake joint-venture project in the Sherridon area. The company continues to explore the deposit, and has started pre-feasibility engineering work. Terms of the joint-venture agreement have been modified to reflect the current economic conditions, and will provide more flexibility on the project’s timelines.

Vale’s business strategy in response to weak and uncertain nickel prices was to review and challenge all aspects of its Thompson operations, engaging Vale employees, contractors and suppliers to work together to achieve meaningful and significant operational savings of $100M. This decisive effort allowed Vale management to continue development activities at the Birchtree mine, and should ensure ongoing production. In keeping with cost-saving plans, Vale also deferred a capital commitment to the Thompson 1D deposit, which remains critical to the long-term sustainability of operations. Vale hopes to recommit to 1D in the near future.

Low nickel values had an impact on CaNickel Mining Ltd. (formerly Crowflight Minerals). It forced a temporary suspension of production on the Bucko Lake mine, which was placed on care and maintenance in June 2012, but CaNickel managed to increase the Proven and Probable reserves at Bucko by 145 per cent, to 3.71M tonnes. The company continues to explore its large portfolio of properties in the Thompson Nickel Belt area, and has experienced considerable exploration success at the nearby M11A and Bowden Lake deposits.
 
Intransigent and difficult equity markets led to challenges for Victory Nickel in the Thompson Nickel Belt area. Following the receipt in 2011 of an Environmental Act Licence, authorizing the construction and operation of the Minago project north of Grand Rapids, Victory was unable to secure financing for the initial development of a proposed $600M nickel and frac sand mine. As a result, the company has been revising development plans, and continues to focus on potential frac sand production at Minago. The company is also looking into opportunities for new market development for frac sand. In addition, Victory recently completed a feasibility study to develop and advance the Mel project, a small, high-grade nickel deposit, situated north of Thompson.

In southeastern Manitoba, Mustang Minerals Corp. is moving forward with exploration and development on its Makwa deposit near Lac du Bonnet, and is conducting exploration at the nearby Mayville property. Mustang is re-evaluating the feasibility of developing both deposits by commissioning a scoping study with processing infrastructure planned at the Mayville site. The Makwa deposit comprises a NI 43-101-compliant resource of 9.855M tonnes in the Probable category. The deposit contains 0.541 per cent nickel, 0.113 per cent copper, and 0.433 gpt platinum group metals (PGM). Mustang recently released a revised resource estimate for the Mayville deposit, increasing the resource to 24.3M Indicated tonnes grading 0.45 per cent copper and 0.19 per cent nickel (0.69 per cent copper equivalent).

Prophecy Resources Corp. and Corazon Mining Ltd. have nickel exploration projects underway. The companies are exploring past-producing nickel mines originally operated by Sherritt Gordon Mines in Lynn Lake. Using advanced exploration techniques and technology, both companies have discovered new mineralization and have expanded remaining resources at the past-producing Lynn Lake and El mines.

Exploration for volcanogenic-associated massive sulphide (VMS) deposits continues despite poor copper and zinc prices. VMS Ventures, a 30 per cent  joint venture partner with HudBay Minerals at the Reed mine, is aggressively exploring its numerous grassroots projects in the Snow Lake region. As well, HudBay’s success at Lalor has encouraged Callinex Mines to explore ongoing projects in the Chisel Basin, adjacent to HudBay’s holdings.

Beyond the Flin Flon–Snow Lake greenstone belt, the most advanced VMS exploration project in Manitoba is Rockcliff Resources Inc.’s Tower property, located north of Grand Rapids. The joint-venture project with partner, Pure Nickel, has outlined two zones of copper-gold mineralization (T1 and T2) within rocks of the Thompson Nickel Belt. An initial NI 43-101 compliant-resource estimate for the T1 zone contains 1.1M Indicated tonnes grading 3.73 per cent copper, 1.05 per cent zinc, 0.55 gpt gold, and 1.3M Indicated tonnes grading 2.0 per cent copper, 1.02 per cent zinc, and 0.27 gpt gold.

A deep-penetrating electromagnetic (DPEM) geophysical survey outlined a large down-plunge continuation of the T1 zone and identified two other untested anomalies (T2 and T3). The first followup test drill hole of the T2 anomaly returned 2.77 per cent copper over 4.0 metres. The relationship between the two mineralized zones is not yet well understood. However, the T1 zone is characterized by mineral textures consistent with remobilization and a lack of associated hostrock alteration, whereas the T2 zone is hosted within a well-developed alteration envelope.

A subsequent DPEM geophysical survey of the T1 deposit identified additional targets near the deposit, which are awaiting future drill testing.

Rockcliff was successful testing geophysical anomalies at the past-producing Dickstone mine, west of Snow Lake. Initial diamond-drill testing for potential deep mineralization returned 2.7 per cent copper over 2.5 metres. The followup downhole geophysics suggest the mineralization is associated with a large, untested anomaly below the existing mine workings.

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Precious Metals

Precious metals exploration and development activities experienced some level of slow-down recently due to a softening of gold prices, as well as continuing equity market challenges. As a result, Manitoba producer San Gold has continued gold exploration at reduced levels. However, the company has also improved operational performance due to exploration success at its Rice Lake and Hinge mines in Bissett. The development of high-grade, near-surface deposits, has allowed San Gold to embark on a multi-year production expansion, targeting sustainable annual production of more than 100,000 ounces of gold.

San Gold produced a record 85,000 ounces of gold in 2012, and the company remains on target to produce 100,000 ounces in 2013. The company has also continued to improve operational performance through a lowering of cash-production costs to $850 per ounce gold, and by increasing quarterly mill throughput. San Gold has consistently maintained an aggressive exploration program, completing over 220,000 metres of diamond drilling during the 2012 fiscal year. Mine site and region exploration will continue in 2013 at slightly reduced levels due to eroding operating margins, resulting from declining gold prices.

The Rice Lake belt remains Manitoba’s pre-eminent gold exploration camp, where efforts are dominated by junior explorers. Although financing remains problematic, a number of exploration companies are active in the region, including Bison Gold Resources Inc., (on its past-producing Central Manitoba property southeast of Bissett), as well as Wildcat Exploration Ltd, Strikepoint Gold and Harvest Gold.

The success of San Gold demonstrates the potential of past-producing gold mines to continue to yield impressive exploration results. To this end, a number of past-producing gold mines have become the focus of renewed exploration efforts. Two projects in the Trans Hudson Orogen are advancing towards feasibility studies and potential redevelopment.

QMX Gold (formerly Alexis Minerals Corp.) recently sold the former New Britannia mine to Liberty Mines Inc. The $20M purchase paves the way to re-open the mine, and Liberty has the financial capacity to assemble the required $50M in pre-production financing. Liberty is committed to re-starting pre-production activities as soon as possible. If successful, the Liberty Snow Lake mine will produce between 80,000 and 90,000 ounces of gold per year. A 2010 feasibility study outlined a five-year mine life. Exploration efforts by QMX have added significantly to the resource base, and a revised life-of-mine estimate is pending.

The New Britannia mine produced 858,000 ounces of gold between 1995 and 2005, and 760,000 ounces of gold between 1949 and 1958, as the Nor Acme mine. The current reserve estimate stands at 336,700 ounces of gold grading 4.43 gpt and total inferred resources are estimated at 451,000 ounces of gold, grading 4.04 gpt. Surface and underground infrastructure have been maintained since the closure of the New Britannia mine in 2002, making the potential re-starting of mine production possible.

The theme of re-opening past-producing gold mines is further demonstrated in Lynn Lake, with the advanced exploration activities of Carlisle Goldfields Ltd. Carlisle has assembled a portfolio of past-producing gold properties, previously operated by Blackhawk Mining. The company has also successfully explored the MacLellan, Burnt Timber and Farley Lake mine sites, as well as adjoining properties, to assemble a resource base of more than 4.8M ounces. The flagship MacLellan mine property contains measured and indicated resources of 2.7M ounces, and an inferred resource of 2.1M ounces. The bulk of the project is amenable to open-pit mining.

Carlisle has commissioned a Preliminary Economic Assessment (PEA) in advance of feasibility studies. The PEA will assess the economics of the construction of a central processing facility drawing feed from the MacLellan deposit, followed by satellite deposits under Carlisle’s control in the region. Carlisle holds a significant land position in the Lynn Lake greenstone belt, with rights to exploration drilling at the MacLellan Mine, (which operated between 1986 and 1987); the BT mine, (which operated between 1994 and 1996); the Farley Lake mine, (which operated between 1997 and 2000); and the Lasthope deposit. A number of other deposits along strike from past-producers are expected to return sufficient resources to proceed to a feasibility study.

Other past-producing gold mines in the Trans-Hudson Orogen that have been evaluated include Satori Resources’ Tartan mine, (east of Flin Flon), Auriga Gold Corp.’s Maverick gold project, (south of Sherridon), and Callinex Mines’ Gossan Hill project (near Cranberry Portage), which hosts the past-producing Gurney mine.

Interest in gold exploration in the Archean age northeast Superior province, east of Thompson, is fuelled by the success of Mega Precious Metals Inc. at the Monument Bay project, situated north of Red Sucker Lake.

The Monument Bay project includes the Twin Lakes gold deposit within a large regional exploration property. The Twin Lakes deposit is the focus of a research project at the University of Manitoba, which will aim to identify an association between gold and tungsten throughout the deposit. The close association led Mega to include tungsten in the resource estimate, significantly increasing the value proposition of the project. The revised resource estimate contains a pit- constrained, Measured and Indicated resource of 2.8M ounces of gold at 1.4 gpt, with an additional 300,000 ounces of Inferred resources grading 1.2 gpt. The inclusion of tungsten in the resource estimate will require additional data. Mega believes that the soon-to-be estimated tungsten resource is recoverable, due to the close association of scheelite and gold in the mineral paragenesis.

Mega continues with an aggressive infill and exploration drill program at Twin Lakes. A significant component of the exploration program is the sampling and analysis of drill core generated by previous project operators. Mega plans to assess more than 40,000 metres of core in advance of a revised resource estimate that will include tungsten. To facilitate this process the company has established an on-site sample preparation and analytical facility. Mega also reports that the gold-tungsten association persisting across the Monument Bay property provides optimism for additional regional exploration success.

The success of the Monument Bay project points to the favourable geology of the Archean northern Superior Province southeast of Thompson. The area has attracted a number of junior gold explorers, including Puma Exploration, Gossan Resources Limited, Alto Ventures Ltd., Callinex Mines, Canada Bay Resources, and Quantum Minerals Corp.

This under-explored, accretionary terrane represents the western strike-extension of proven gold-producing geology in Ontario, and is viewed by explorers as having the potential to host a number of gold deposits that forms a regional camp.

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Specialty/Industrial Minerals

In October 2012, Westcore Energy Ltd. announced the release of a National Instrument (NI) 43-101 coal resource evaluation for the Panther Coal Property, located in the Cretaceous Swan River Formation near The Pas, Manitoba. The property is jointly held by Westcore (60 per cent) and 49 North Resources Inc. (40 per cent). At the Quasar deposit, 14.2M tonnes of Measured, 4.3M tonnes of Indicated, and 9.1M tonnes of Inferred, sub-bituminous coal were delineated in 18 exploration holes.

To March 31, 2013, a total $1.9M had been expended on the Panther Coal Property. In November 2012, Westcore reported a NI 43-101 coal resource evaluation for the Black Diamond Coal Property (located immediately west of the Panther Coal Property). The Black Diamond Property, jointly held by Westcore (75 per cent) and Goldsource Mines Inc. (25 per cent), comprises the Discovery, Cyclops, Ambit, Athena and Calypso deposits. Total resources at these deposits are: 40.6M tonnes of Measured, 9.4M tonnes of Indicated, and 10.6M tonnes of Inferred, sub-bituminous coal, as delineated by 44 exploration holes. To March 31, 2013, a total $3.0M had been expended on the Black Diamond Coal Property.

Saturn Minerals Inc.’s wholly-owned Overflowing project lies immediately to the east of Westcore’s Panther Property. Saturn has made three coal discoveries along its eight-km-long, north-south, “Overflowing” geophysical trend. These discoveries are similar in size and shape to the deposits outlined by Westcore. They are also characterized by significantly low sulphur values, relatively low ash content, and moderate-to-high calorific values. Westcore and Saturn did not conduct drilling programs during the winter of 2012 or the spring of 2013.

In March 2013, Gossan Resources Limited announced it couldn’t reach an agreement with Dr. Douglas J. Zuliani to use his process in the production of magnesium metal. Raw material for Gossan’s proposed plant was to be obtained from a high-purity Silurian Fisher Branch Formation dolomite outcropping on 80 hectares, north of Inwood, Manitoba. At the proposed quarry site, a NI 43-101–compliant measured resource of 28 819 000 tonnes of dolomite was outlined by the company. The deposit, averaging 21.15 per cent magnesium oxide (MgO) and 30.91 per cent calcium oxide (CaO), to a depth of 12 to 15 m, had been determined from a 2006 drill program, and from 25 previously drilled, provincial government holes.

Claim Post Resources Inc. acquired 100 per cent interest in nine, contiguous, silica sand quarry leases (428 hectares) (ha), located southeast of Seymourville, Manitoba, from Char-Crete Limited.

The combined property will form the nucleus of Claim Post’s Seymourville Frac Sand Project. The company first intends to confirm the results of previous drilling by the Manitoba government and Gossan. The results had outlined two zones of silica sand, from five to 15 metres (m) thick and >400 m and >600 m long, in 41 of 60 drill holes. American Petroleum Institute (API) test work on the sand showed its suitability for the production of good quality white frac sand in the 8,000-to-10,000 pounds per square inch (psi) compressive strength range. Next, Claim Post plans to complete a NI 43-101 report and scoping study – Preliminary Economic Assessment (PEA); and then carry out discussions with Hollow Water First Nation, and the villages of Manigotogan and Seymourville.

Victory Silica Ltd. (a subsidiary of Victory Nickel Inc.) has drilled a NI 43-101–compliant, Indicated resource of 15M tonnes of Ordovician Winnipeg Formation silica sand (containing 84 per cent of marketable frac sand), located in the vicinity of the Minago River, south of Thompson, Manitoba. The deposit could produce up to 1.14M tonnes per year of premium frac sand. This would be a 20/40 sand product with a sphericity of 0.72; roundness of 0.78; acid solubility of 0.92 per cent; silt test (turbidity) of 24 Formazine Turbidity Units (ftu); and crush resistance of 11.5 per cent. It should be noted that the silica sand deposit is situated above Victory Nickel’s Minago Nose nickel deposit, and must be removed before the nickel can be open-pit mined.

In September 2011, Victory Nickel received an Environmental Act Licence for the Minago mine, and the development (including a frac sand component) was approved by its board of directors. In July 2013, Victory Silica acquired the Seven Persons frac sand processing facility, located southwest of Medicine Hat, Alberta. This the first phase of a multi-year process, which will culminate in the Phase 3 construction of a 1.1M tonnes-per-year frac sand plant in Winnipeg. The Winnipeg plant will process and distribute imported and domestic sand, including the sand mined as a co-product of the Minago nickel project.

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