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Minerals Policy and Business Development

Exploration and Development Highlights 2014

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 September 15, 2014

Manitoba’s mining and mineral exploration sector continues to contend with difficult equity markets and low commodity prices. These factors are contributing to significant declines in exploration expenditures and the deferral of development projects.

Exploration and deposit appraisal expenditures decreased in 2013 to $57.7 million – a 45 per cent decrease from 2012. Difficult financial markets and persisting low commodity prices have created uncertainty in mineral investment markets. The result has been a reappraisal of exploration programs, which is expected to have a negative impact on exploration spending for 2014, projected to decline a further 10% to an estimated $51.8 M.

Content Links:
d Base Metals

d Precious Metals

d Uranium and Specialty Minerals

Despite these factors, the sector continues to experience significant growth in mineral production. The impact of current economic conditions on base and precious metal exploration expenditures is being offset by major capital investments in expansion and new mine construction. Once these projects are completed, Manitoba’s mineral production is expected to increase significantly. The industry’s exploration success in the recent commodity cycle during the peak of exploration spending demonstrates the province’s considerable mineral potential, and the importance of maintaining a healthy level of ongoing exploration activities.

Base Metals

The continued period of low commodity prices has not prevented base metal producers from making significant capital expenditures. HudBay Minerals and Vale Canada are making major expenditures to ensure the health of base metal production going into the future.

Mineral development activities in Manitoba are highlighted by HudBay Minerals, which commissioned two new mines in the Snow Lake region. This is the culmination of a historic level of capital investment in HudBay’s Manitoba operations. The commissioning of the Lalor and Reed mines reflects their exploration successes and replaces base metal production lost through the recent closures of the Trout Lake and Chisel North mines.

Construction of the polymetallic Lalor mine is largely complete with over $400 million of the $441 million project budget having been expended. The mine development is taking place on schedule and on budget. Lalor is poised to become HudBay’s flagship mine with full production anticipated to reach 4500 tonnes per day (tpd) over a 15 year projected mine life.

In concert with the achieving production at Lalor, HudBay has completed a $9 million upgrade to their Snow Lake concentrator. The upgrade doubles its capacity to 2700 tpd accommodating commercial production from the Lalor mine.

The Lalor deposit represents the largest pre-development volcanogenic massive sulphide (VMS) deposit discovered in the Flin Flon greenstone belt. The Lalor National Instrument (NI) 43-101–compliant Indicated base-metal resource stands at 13.3 million tonnes grading 8.87 per cent zinc, with an Inferred resource of 4.8 million tonnes grading 9.25 per cent zinc.  The Gold Zone Inferred resource is 5.4 million tonnes grading 4.7 grams per tonne (gpt) gold.  Conceptual estimates indicate the potential for an additional 5.1 to 6.1 million tonnes, grading between 4.3 and 5.1 gpt gold for the Gold Zone. The estimates also indicate an additional 1.8 to 2.2 million 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 is embarking on the development of underground infrastructure in support of the exploration of the deeper gold and copper-gold zones.

HudBay’s second new mine is the 70 per cent-owned Reed mine project (30% VMS Ventures), located 80 kilometres (km) south of Snow Lake. The Reed mine achieved commercial production in the second quarter of 2014. The Reed mine development was completed on schedule and under the $71 million budget, with the budget surplus applied to underground development. The copper-gold mine will produce 1,300 tpd at full production, with the ore being trucked to Flin Flon for processing. The Reed Lake deposit contains a NI 43-101–compliant Indicated resource estimate of 2.5 million tonnes grading 4.55 per cent copper.

The completion of the Lalor and Reed mines will allow HudBay to increase base metal production in the near term and significantly increase precious metal production in the longer term with the eventual development of the gold and copper-gold zones at Lalor.

Exploration for VMS deposits continues despite poor copper and zinc prices. This exploration is largely focused on the Flin Flon–Snow Lake greenstone belt. HudBay, the dominant property holder in the belt is focusing on the underground exploration of the deeper gold and copper-gold zones at the Lalor mine and surface and underground exploration in and around its 777 mine in Flin Flon. VMS Ventures, joint venture partner with HudBay Minerals at the Reed mine, continues exploring its large stable of grassroots projects in the Snow Lake region. HudBay’s success at Lalor is encouraging Callinex Mines to explore its properties in the Chisel Basin, adjacent to HudBay’s Lalor mine, and their properties adjacent to HudBay’s 777 mine in Flin Flon.

South of Snow Lake, Rockcliff Resources Inc.’s is advancing the closely located Tower and Talbot properties north of Grand Rapids. Rockcliff has committed to earn a 70 per cent interest in the Tower project from joint venture partner Pure Nickel and has outlined two zones of copper-gold mineralization (T1 and T2). An initial NI 43-101 compliant-resource estimate for the T1 zone contains 1.1 million Indicated tonnes grading 3.73 per cent copper, 1.05 per cent zinc and 0.55 gpt gold, and 1.3 million 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 follow-up 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. These are awaiting drill testing.
 
Rockcliff has added to its property portfolio in the southern Snow Lake region with the acquisition of the Talbot project from HudBay Minerals. Rockcliff has committed to earning 51 per cent in the project over a six year period. The Talbot property is strategically located 35 km west of the Tower property and contains a historic Inferred resource of 1,434,000 tonnes grading 3.4 per cent copper, 2.9 per cent zinc, 1.9 gpt gold and 58.4 gpt silver contained in three zones of disseminated to massive sulphide. Rockcliff believes the Tower and Talbot properties represent a critical mass of base metal resources, creating an excellent development opportunity.

Manitoba’s other major base metal producer is nickel producer Vale Canada, with mining, milling and smelting operations located in Thompson. In response to weak nickel prices, Vale embarked on a challenge to improve all aspects of the Thompson operation to achieve $100M in operational savings. The co-ordinated efforts of Vale employees, contractors and suppliers successfully reached the targeted savings, allowing Vale management to continue development activities at the Birchtree mine and keep the mine open.

Notwithstanding poor nickel markets, Vale is proceeding with feasibility studies of the Thompson Footwall Deep project. The Footwall Deep project contains 11 million tonnes of nickel mineralization forming a deep, north plunging continuation of the Thompson deposit. The internal assessment of the Thompson Deep project has been successful and the current appraisal of the project involves detailed design, planning and scheduling work. The assessment will be conducted through 2015, and if successful, will result in the development of a new mine that will sustain the Thompson operation for up to 15 years.

Persistent low nickel prices have contributed to the continued suspension of mining operations at CaNickel Mining Ltd.’s (previously Crowflight Minerals Inc.)  Bucko Lake mine near Wabowden.  Production was suspended and the mine was placed on care and maintenance in June 2012. CaNickel continues to explore its large portfolio of properties in the Thompson Nickel Belt. It has successfully increased the Proven and Probable reserves at Bucko to 3.71 million tonnes of 1.45% nickel. The company is also having considerable exploration success on the nearby M11A and Bowden Lake deposits.
 
Elsewhere in the Thompson Nickel Belt, Victory Nickel Inc. has deferred the development of their Minago nickel and frac sand mine. Victory received an Environment Act licence in 2011, authorizing the construction and operation of the Minago project north of Grand Rapids. However, it hasn't been successful in securing financing for the initial development stages of the nearly $600 million mine. Therefore, the company is revising its development plans and focusing on potential frac sand production at Minago and new market development for frac sand. This change in focus reflects the commissioning of sister company Victory Silica Ltd.’s Seven Persons frac sand processing plant in Medicine Hat, Alberta and the development of a frac sand client base.

In southeastern Manitoba, Mustang Minerals Corp. continues exploration and development on its Makwa and Mayville deposits near Lac du Bonnet. Mustang released the results of a Preliminary Economic Assessment (PEA) outlining the co-development of the Makwa and Mayville deposits with processing infrastructure located at the Mayville site, 43 km from Makwa. The PEA estimates capital costs at $209 million and a pre-tax Internal Rate of Return of 17 per cent. Total Makwa and Mayville Indicated resources are estimated at 33.8 million tonnes grading 0.27 per cent nickel, 0.33 per cent copper, 0.6 gpt platinum and 0.19 gpt palladium.

Other nickel exploration projects include Corazon Mining Ltd.’s past producing El mine in Lynn Lake and Victory Nickel’s Mel project north of Thompson. Corazon is exploring the past-producing nickel mine originally operated by Sherritt Gordon Mines. Using advanced exploration techniques and technology, the companies have discovered new mineralization and expanded remaining resources at the Lynn Lake mine. Victory Nickel continues to advance the Mel project. It recently did a feasibility study on developing this small but high-grade nickel deposit.

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Precious Metals

Volatility in gold markets and the general deterioration on precious metal prices have contributed to the persistence of challenging equity markets. This has negatively impacted precious metals exploration and development activities and has contributed to a major restructuring of Manitoba’s only primary gold producer.

Declining operating margins at gold miner San Gold Corp. have resulted in a corporate and operational restructuring at its Rice Lake, 007 and Hinge mines in Bissett. From a corporate standpoint San Gold is merging with Kerr Mines Inc., a Canadian mineral exploration and development company with gold properties in the Abitibi region and Arizona.

From an operational standpoint, the restructuring at Rice Lake involves the development of a new mine plan that better reflects the geometry of the Rice Lake orebodies leading to better grade control. The initial operation changes have had an immediate impact on mine head grades. Once fully implemented, the new mine plan will result in lower annual gold production, at levels management believes are sustainable and profitable, and allow San Gold to capitalize on their considerable exploration success. Management is projecting annual gold production in the range of 50,000 to 55,000 ounces at cash costs between $700 to $800 per ounce of gold produced. The current resource base at Rice Lake is 55,000 ounces of gold grading 6.83 gpt in the Measured and Indicated category and 2,899,200 ounces of gold grading 6.24 gpt in the Inferred category.

The Rice Lake belt remains Manitoba’s most active gold exploration camp, where efforts are dominated by junior explorers. Although financing remains problematic, a number of exploration companies are active in the region. They include Bison Gold Resources Inc. on its past-producing Central Manitoba property southeast of Bissett, Strikepoint Gold, Canada Bay Resources and Tudale Exploration.

The success of the redevelopment of the San Antonio mine by 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 are the focus of renewed exploration efforts. Exploration of four past-producing mines in the Trans-Hudson Orogen are advancing towards feasibility studies and potential redevelopment.

QMX Gold Corp. (formerly Alexis Minerals Corp.) is proceeding towards the conclusion of the sale of the former New Britannia mine in Snow Lake to Northern Sun Mining Corp. (formerly Liberty Mines Inc.). The $20 million purchase paves the way to re-open the mine as Northern Sun attempts to finalize the purchase and secure the required $50 million in pre-production financing. Northern Sun is committed to re-starting pre-production activities as soon as possible. If successful, the former New Britannia 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. Carlisle has successfully explored the MacLellan, Burnt Timber and Farley Lake mine sites and adjoining properties to assemble a resource base of more than 4.8 million ounces. The flagship MacLellan mine property contains Measured and Indicated resources of 2.7 million ounces, and an inferred resource of 2.1 million ounces. The bulk of this is amenable to open- pit mining.

Carlisle recently released a Preliminary Economic Assessment. The PEA assessed the economics of the construction of a central processing facility drawing feed from the MacLellan and Farley Lake deposits, followed by satellite deposits under Carlisle’s control in the region. The PEA determined the annual production of 145,000 ounces of gold from the MacLellan and Farley Lake mines over a 14 year mine life at cash costs of $530 per ounce. Carlisle holds a significant land position in the Lynn Lake greenstone belt, including the past-producing BT mine. In advance of commissioning prefeasibility studies, Carlisle is undertaking a major drill program to upgrade the Farley Lake resource.

Efforts to re-opening the past-producing Puffy Lake mine near Sherridon by Minnova Corp. (previously Auriga Gold Corp.) are proceeding through final permitting in advance of the dewatering of the underground mine and the initiation of test mining. The recently released PEA for the Maverick project outlined robust economics to resume production of 48,000 ounces of gold per year over a 11 year mine life at a cash cost of $798 per ounce. The low capital costs of $18 million and relatively short 18 month payback period further demonstrate the robust economics of the Maverick project. Current project resources support the processing of 2.5 million tonnes at a grade of 6.53 gpt for a total 483,000 ounces of gold over the mine life.

Other past-producing gold mines in the Trans-Hudson orogen that have been re-evaluated include Satori Resources’ Tartan mine, east of Flin Flon and Callinex Mines’ Gossan Hill project near Cranberry Portage, which hosts the past-producing Gurney mine.

A major locus of gold exploration in the Archean northern Superior Province, southeast of Thompson, is fuelled by the success of Mega Precious Metals Inc. at their Monument Bay project, 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, 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 an open pit-constrained Measured and Indicated resource of 2.9 million ounces of gold at 1.3 gpt, with an additional 700,000 ounces of inferred resources grading 1.2 gpt. Mega is preparing a revised resources estimate that includes tungsten in advance of commissioning prefeasibility studies. Metallurgical testing confirms that the tungsten resource is recoverable, due to the close association of scheelite and gold in the mineral paragenesis. Mega believes the inclusion of tungsten in the resources is projected to add 30 per cent to the resource estimate.

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 Mega has established an on-site sample preparation and analytical facility. Mega also reported that the gold-tungsten association persists across the Monument Bay property, providing an important pathfinder for regional exploration and optimism for additional exploration success.

The success of the Monument Bay project points to the favourable geology of the northern Superior Province southeast of Thompson. This has attracted a number of junior gold explorers, including Puma Exploration, Gossan Resources Limited, Alto Ventures Ltd., Callinex Mines, Canada Bay Resources and QMC Quantum Minerals Corp. Most recently, Puma has significantly increased its property position in the Little Stull Lake area, adjacent to Mega’s Monument Bay project.

The northern Superior Province in Manitoba represents the western strike-extension of proven, gold-producing geology in Ontario. It is viewed by explorers as an under-explored, accretionary terrane having the potential to host a number of gold deposits that form a regional camp.

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Uranium and Specialty Minerals

Uranium exploration activity has been rekindled in far northwest Manitoba. The region hosts Wollaston Domain rocks that exploration companies believe were overlain by Athabasca Basin sediments prior to glaciation extending from Saskatchewan into Manitoba. This represents the same geological environment near-surface in Manitoba that hosts a number of significant, basement-hosted uranium deposits in neighbouring Saskatchewan.

CanAlaska Uranium, Northern Uranium and East Resources currently hold dispositions covering the known extent of the Wollaston Domain in northwest Manitoba. Northern Uranium has completed initial geochemical and geophysical surveys on their Northwest Manitoba project and is undertaking a major drill program to follow up on a number of significant anomalies. East Resources recently acquired their Kasmere project from CanAlaska and is planning an initial airborne geophysical survey in advance of an exploration program.

New to Manitoba exploration projects is the first graphite-focused project. Callinex Mines recently completed a 12 hole drill program at its Neuron project located west of Thompson. The geology of the project area is dominated by highly metamorphosed sedimentary rocks of the Paleoproterozoic Kisseynew Domain. The successful drilling program intercepted graphite in 10 of the 12 drill holes and returned intercepts up to 4.1 metres grading 60.38 per cent carbon within a larger 56.00 metre intersection grading 5.91 per cent carbon.

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