The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
Lack of news from a junior mining sector typically eager to share spells trouble for 2013 exploration in Alaska, around the globe
Following a rising chorus of junior companies touting impressive exploration programs on mineral prospects across Alaska that reached its crescendo in 2011, a deafening silence is resonating across the Far North expanse in 2013. And in the junior mining sector, no news is bad news.
Mineral exploration expenditures in Alaska, which were a meager US$23.8 million in 2001, climbed to US$347 million by 2008. The "Great Recession of 2008" tightened the equity markets, resulting in exploration spending retreating to US$180 million in 2009 only to redouble by US$365 million by 2011.
But since the million-dollar-a-day record set in 2011, mineral exploration in Alaska has been losing steam. Preliminary estimates of about US$275 million for exploration expenditures in 2012 and 2013 spending is shaping up to be closer to 2009 levels.
Alaska is not unique in this aspect, but serves as a microcosm of the drought of venture capital available to mineral exploration companies worldwide.
"Neither retail nor professional investors have the capacity, or appetite, to fund equity raisings, and so equity markets remain constrained," IntierraRMG, a global mining research firm, wrote in a May report. "With their share prices so low, most explorers can't realistically raise the necessary funds to bring themselves to the stage where they can generate cash flow from metals production."
Restraint in the equity markets, which resulted in many of the exploration companies losing more than 90 percent of their value since late 2010, is being exacerbated by a recent plummet in gold and other metals prices.
"The first quarter of 2013 has been extremely challenging for the international mining industry, with the problematic combination of rising operating costs, falling metals prices, lower ore grades and a continued scarcity in the availability of funds," wrote IntierraRMG.
ITH scales back
International Tower Hill Mines Ltd. is a prime example of an exploration company on a path to generating its own cash flow but has been hit hard by the uncertainty in the financial markets.
Since its formation in 2007, Tower Hill has outlined an all-inclusive resource of more than 20 million ounces for its Livengood gold project in Interior Alaska. Over the first three years, the company's value grew with the ounces added, with its stock peaking at more than C$10 per share at the end of 2010.
Despite having a measured and indicated resource of 16.5 million ounces of gold alongside a paved highway, International Tower Hill has watched its share price wither by 90 percent since the beginning of 2011. At May 22, an ITH share was worth C91 cents on the Toronto Stock Exchange.
The plummet in gold price, from nearly US$1,700 at the beginning of 2013 to below US$1,400 by mid-April, added to the woes of the company, which was putting finishing touches on a feasibility study for its gold project. As a result, Tower Hill said it would scale back its work program to activities essential to permitting a mine at Livengood.
"ITH has structured its budget and corporate initiatives to bring the highest value to its shareholders and we believe it still remains an attractive long-term investment," explained International Tower Hill President and CEO Don Ewigleben.
"The Livengood Project hosts a very large gold resource in a favorable mining jurisdiction.
Our current strategies remain the same with completing further development of the project while attracting a strategic alliance partner.
Despite the recent drop in gold price, the value of the long life Livengood asset will be judged by factors in addition to today's gold price, including the existing infrastructure, favorable geo-political setting and highly qualified development team."
At the end of March, International Tower Hill had US$23.14 million in working capital.
Heatherdale drops Delta
Heatherdale Resources Ltd., another company with an Alaska mineral project nearing the permitting phase, also is scaling back to the most essential programs this year.
Heatherdale's stock price, which peaked at C$1.32 at the end of 2010, had slid 95 percent to C6 cents per share in May.
At the end of 2012, Heatherdale closed a C$3 million private placement of a convertible debenture with Sino-Canada Natural Resources Fund I.
The principal amount of the debenture is convertible into common shares of the company at a price of C20 cents per share, and the interest is convertible at the higher of C20 cents per share or the market price of the shares on the date of such conversion. At the end of the two-year term of the debenture, any remaining principal and interest amounts will be redeemed, at the option of the company, in cash, by the issuance of shares, or a combination of both.
Conserving its resources for the Niblack volcanogenic massive sulfide deposit in Southeast Alaska, Heatherdale returned Delta, an earlier stage VMS project in the state's Interior, to Agnico Eagle Mines Ltd.
"Current market conditions have necessitated that Heatherdale prioritize its efforts on our flagship Niblack Project, the 100 percent owned high-grade mine development opportunity in southeastern Alaska," explained Heatherdale President and CEO Patrick Smith.
The Lookout deposit at Niblack has an indicated resource of 5.64 million metric tons averaging 1.75 grams per metric ton gold, 0.95 percent copper, 1.73 percent zinc and 29.52 g/t silver.
Lookout and the nearby Trio contain an additional inferred resource of 3.93 million metric tons averaging 1.32 g/t gold, 0.81 percent copper, 1.29 percent zinc and 20.1 g/t silver.
A US$50 net smelter return cut-off was used to calculate the resources.
Tucked within the lower reaches of the Lookout deposit, there is a zone of continuous high-grade mineralization that, at a US$150 NSR cut off, contains 1.16 million metric tons averaging 3.21 g/t gold, 1.71 percent copper, 3.83 percent zinc and 62.28 g/t silver.
While Heatherdale had hoped to have a prefeasibility study for Niblack by mid-2013, financial restraints will likely compel the junior to push back that date.
With C$2.8 million in cash at the end of January, Heatherdale is letting prudence guide its plans for advancing Niblack the final steps towards permitting. This careful approach includes continuing stakeholder engagement, meeting permitting requirements and continuing the collection of environmental baseline data.
In the meantime, the company is exploring strategic funding to expand the Trio and Lookout deposits, complete the prefeasibility and begin permitting.
Millrock positions for recovery
Millrock Resources Inc., which has become one of the one of the more prolific Alaska exploration companies since adopting the project generator model in 2009, is another junior tightening its belt in 2013.
Millrock's shares were trading at C11 cents on May 22, an 88 percent drop from their peak of C96 cents in November, 2010. The project generator, though, has had little need to go to the equity markets to finance its exploration.
A C$2.2 million private placement financing completed by Millrock in November 2012 is the first time the company went to the equity markets for money since August 2010.
As a project generator, Millrock relies on joint venture partners to do most of the heavy financial lifting on its properties. Not only does this greatly diminish the company's need to raise money in the markets, but it reduces exploration risk and exposes its shareholders to a large amount of exploration expenditure per dollar invested.
Partners such as Teck Resources Ltd., Kinross Gold Corp., Vale S.A. and Inmet Mining Corp. (which was recently acquired by First Quantum Minerals Ltd.) have funded roughly 87 percent of the C$36.7 of exploration spending on Millrock properties since the founding of the company in 2007.
During 2012, Millrock's exploration expenditures were C$9.1 million, of which some 95 percent was funded by partners on its projects in Alaska and Arizona. With junior exploration companies unable to raise funds and majors doing belt tightening of their own, Millrock is looking for its 2013 program to be about half of last year's.
"While 2013 is shaping up to be a year of reduced budgets in comparison with 2012, Millrock anticipates that its exploration expenditures will be about US$5 million, with US$3.8 million coming from its partners," Millrock informed investors in March.
Most of Millrock's Alaska properties, though, will see little or no exploration this year.
On May 10, Millrock said it had terminated its agreement with Bering Straits Native Corp. on two Seward Peninsula gold properties.
This does not mean the project generator's Alaska portfolio is shrinking.
Looking for opportunity during adversity, Millrock is positioning itself for the time when markets improve and more venture capital funding is available. With depressed prices, Millrock plans to continue building a portfolio of projects that will attract the attention of major to mid-tier mining companies and junior explorers.
On May 7 the company said it has entered an exploration and option to lease agreement with Bristol Bay Native Corp. on a 680,650-hectare (about 1.682 million acres) tract of Alaska Peninsula land that covers three known porphyry copper-gold occurrences on the Alaska Peninsula - Kawisgag, Mallard Duck Bay and Bee Creek.
"This agreement gives Millrock access to a very large, highly prospective land package that has barely been explored," said Millrock President and CEO Greg Beischer.
Millrock must incur exploration expenditures of US$5 million and pay US$725,000 before the end of 2019. The initial payment is US$25,000 and the first-year exploration expenditure requirement is US$200,000.
"We look forward to performing systematic regional-scale exploration and making great discoveries on these lands. We plan to share the risk of this exploration work by partnering with other exploration and mining companies," explains Beischer.
Hecla cuts exploration
While the share prices of producers have not been hammered as hard at their exploration counterparts, uneasy equity markets and lower metals prices have still taken their toll, causing miners such as Hecla Mining Co. to rethink how much cash it is willing to spend on exploration.
"There has been significant weakness in precious metals prices this spring, which we are watching closely, but I am pleased to note the increase in demand for the physical metal, particularly in the Middle East and in Asia, that has emerged as a result of these lower prices," Hecla President and CEO Phillips S. Baker, Jr. explained. "I believe that in these times of price volatility and uncertainty, those companies like Hecla with low costs, high margins and the flexibility to scale back or increase discretionary expenditures, such as exploration, pre-development, capital and investments, will fare the best."
Hecla has lowered full-year exploration and pre-development spending across all of its current projects to US$42 million, excluding Aurizon exploration programs, a US$9 million drop from earlier announced projections.
Hecla had previously budgeted US$6.6 million for exploration at Greens Creek in 2013, the company has not indicated whether cuts in its discretionary spending will dip into this.
Hecla said Greens Creek exploration made significant progress in defining high-grade extensions to mineralization along the Deep Southwest, 5250 and Gallagher ore trends.
Deep Southwest is a recently discovered zone which lies below and further west of the Southwest Zone. The geometry of this body is currently being defined but it is open down dip and to the southwest along strike. Significant Deep Southwest intersections include 27.1 oz/ton silver, 0.39 oz/ton gold, 13.3 percent zinc and 6.1 percent lead over 8.6 feet (2.6 meters); and 21.5 oz/ton silver, 0.31 oz/ton gold, 8.9 percent zinc and 4.1 percent lead over 10.5 feet (3.2 meters).
One hole drilled at the 5250 Zone cut 21.9 oz/ton silver, 0.05 oz/ton gold, 5.8 percent zinc and 2.8 percent lead over 24.6 feet (7.5 meters).
Drilling will continue in an effort to define and expand the Deep Southwest further southwest and the 5250 Zone to the south. The emphasis, though, is expected to shift to in-fill drilling of the 200 South in an effort to convert resources to reserves and exploration drilling to the south and west that could extend mineralization beyond the current high-grade resources.
Not all bad news
While mineral exploration spending is expected to continue its downward spiral in 2013, a handful of multimillion-dollar programs are expected to soften the plunge.
With the goal of applying for development permits by the end of the year, Pebble Limited Partnership's US$80 million budget is expected to be the largest contributor to Alaska's exploration expenditures in 2013.
This program is anticipated to include engineering studies to complete a project description and advance a prefeasibility study; continued environmental monitoring studies; site investigations, including exploration, geotechnical and metallurgical drilling, as well as geo-hydrological testing; and stakeholder engagement.
NovaCopper Inc. is planning to carry out a C$16 million program at its Upper Kobuk Mineral Project in the Ambler Mining District in Northwest Alaska.
Over the past two years, NovaCopper has outlined some 3.5 billion pounds of copper in two adjacent deposits at the Bornite region of the Upper Kobuk Mineral Project.
South Reef, with an inferred resource of 43.1 million metric tons of material averaging 2.54 percent copper, is the second billion-pound-plus copper deposit NovaCopper has delineated at the Bornite project since forging a long-term collaborative agreement NANA Regional Corp. in 2011.
Testing the continuity of these higher high-grade zones is one of the targets being contemplated as the NovaCopper team plans the 2013 drilling. Expanding the overall South Reef deposit is another potential target.
Contango ORE Inc., which raised US$14.2 million early in 2013, is planning to spend US$9-US$13 million to expand upon a high-tenor gold-copper-silver discovery made at its Tetlin project in eastern Alaska.
The Houston, Texas-based explorer plans to drill 60-85 holes aimed at establishing a maiden resource at Tetlin and exploring similar targets across the 726,600-acre (294,000 hectares) land package.
Freegold Ventures Ltd., which is working on a resource estimate for the oxide component of its 6-million-ounce (1.5 million indicated and 4.4 million inferred) Golden Summit project near Fairbanks, was amongst the first to contribute to mineral exploration spending in Alaska this year.
The company completed 3,472 meters of this drilling during a winter program that ran from February to April. The Vancouver, B.C.-based junior will resume drilling in the coming weeks.
Pure Nickel Inc. March 27 reported that Itochu Corp., its joint venture partner on the Man Alaska project, has confirmed funding of about US$3.5 million for the 2013 exploration season at the nickel-platinum group element project.
Exploration activities in 2013 will consist primarily of a roughly 2,200-meter drill program targeting the western part of the Alpha complex, where drilling in 2010 and 2012 intersected anomalous nickel-copper-PGE mineralization.
"The MAN project continues to hold great promise, and we look forward to working with our partner, Itochu, to unlock the potential of the property in this our sixth season of working together," said Pure Nickel President and CEO David McPherson.
Adding the producers with mines in Alaska - Coeur Mining (Kensington Gold Mine), Sumitomo Metal Mining (Pogo Gold Mine), Kinross (Fort Knox Gold Mine), Usibelli (Healy Coal Mine) and Teck Resources (Red Dog zinc-lead mine) - it is expected that exploration spending across the Far North state during 2013 should rival the US$180 million spent in 2009.
Time will tell whether metals prices stabilize and the drought in venture capital recovers in time for mineral explorers to refill their coffers and continue to unlock Alaska's vast mineral potential in 2014.
Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.
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