Back to Lynn Lake

It’s been a tough sell to institutional investors, but Independent Nickel (INI-V, INIFF-O) of Sudbury, Ont., has raised the money needed to proceed with an ambitious drill program at the Lynn Lake nickel project in Manitoba.

The goal of the 20,000-metre program scheduled to start in early March is to boost the Lynn Lake resource enough to justify undertaking a full feasibility on the old mine.

With $5 million in its treasury, the company is well financed to complete the drilling, establish which permits are needed for mining, and initiate engineering studies. The cash infusion is the result of two recent financings of flow-through and regular shares that raised a total of $4.6 million.

“(President) Richard Murphy and I spent a lot of time last year pounding the pavement,” says Guy Mahaffy, chief financial officer for Independent Nickel, which changed its name from Seymour Exploration last year. “We’ve been successful in bringing some institutional groups in.”

The financings attracted the attention of Pinetree Capital (PNP-V, PNPFF-O), a Toronto-based merchant banking firm, in particular. Pinetree and its associates now own about 3.5 million shares representing 10.1% of Independent. In turn, Pinetree’s involvement has raised Independent’s profile and helped push its share price from the 30-40 range in December to about $1.00 at presstime, when the first of two drill rigs was on its way to the property.

Part of the reason Lynn Lake has received a lukewarm reception from financial markets until recently is because it has much lower grades than deposits in other magmatic nickel camps in Canada, such as Sudbury and Thompson, where grades average 1.8% to 2% nickel.

Sherritt Gordon Mines mined about 20 million tonnes of ore grading 1.02% nickel and 0.54% copper before closing the mines as a result of low nickel prices in 1976, while the remaining resource is estimated to be 20.7 million tons grading 0.64% nickel and 0.33% copper at a cutoff of 0.6% nickel equivalent.

But even at these low grades, the economics of Lynn Lake become robust at current nickel prices, with a net present value (NPV) of more than $1 billion. More realistic long-term prices (US$6.95 per lb. nickel and US$1.74 per lb. copper) yield an NPV of $134 million based on 11.4 million tons of ore in the mine plan.

The goal of the current drilling campaign is to test potential new areas of mineralization and establish enough additional resources to justify moving the drilling underground to start the next phase of evaluation: a full feasibility study.

One of the first priorities will be to test the Golf zone and the highly conductive body lying above the known zone that could prove to be an updip extension of Golf. The new geophysical target has an area of about 1,000 by 1,000 ft.

“The last bit of drilling that Sherritt did was on the Golf zone,” Mahaffy says. “The chief mine geologist, Art deCarle, thought that Golf was where the future of the mine lay, but because they were shutting the mine down, he couldn’t get a renewal of his exploration budget.”

Last year, Independent drilled one hole into the Golf zone and intersected 10 ft. of 1.2% nickel and 0.3% copper 840 ft. below the lowest mine workings, at the 3,000-ft. level. The company will now drill wedge holes into Golf, which hosts historic intersects of up to 75 ft. of 1.2% nickel, 0.5% copper, followed by stepout drilling to test the updip conductor and other potential extensions.

The Hotel and M zones, which have the potential to boost resources at the property with minimal drilling, are also priorities.

The M zone, shallow and easy to drill, will be the first target. Although the historic logs and assays for the zone did not survive the 30-year lag in exploration, Independent was able to log and resample the drill core. Results such as an interval of 14.54 ft. grading 0.5% nickel and 0.2% copper at a depth of about 80 ft. indicate a potentially exploitable near-surface pocket of mineralization.

The Hotel zone benefited from a 2006 drilling campaign that intersected several wide intersections of nickel-copper mineralization, including 6.6 ft. grading 1% nickel and 0.2% copper at a vertical depth of about 1,600 ft. Independent believes that infill drilling on the deposit will allow the company to upgrade the Hotel mineralization to the resource category.

Finally, the Echo zone — which contains most of the historic resource, but remains open to surface and at depth — will be tested. The Echo target is a 1,200-ft.-long zone that was intersected by 13 holes between the 740-ft. level and the 3,180-ft. level with grades of up to 2.2% nickel and 1.06% copper. Grades increase at depth.

Another factor that could improve the economics at Lynn Lake is the cobalt content of the mineralization. The National Instrument 43-101-compliant preliminary economic assessment envisages a mine life of 9.6 years producing nearly 14 million lbs. nickel and 7.5 million lbs. copper per year, but ignores potential byproduct credits because of insufficient data.

“We know from historic sales records that Sherritt did get cobalt credits,” says Mahaffy. “We have the engineers working now to reassay the core to bring cobalt into the resource.”

According to the preliminary economic assessment, the capital cost of building the mine would be $192 million. One of the costs the company won’t have to factor in, however, is the liability for mine tailings remaining on the site.

Under a new strategy to rehabilitate the province’s former mine sites, the Manitoba government has agreed to spend more than $70 million to address safety and environmental health concerns associated with the abandoned mines.

The strategy includes a new agreement between the province and Viridian Inc. to share the cost of rehabilitating the East Tailings Management Area, which lies less than 1 km from the town of Lynn Lake. Millions of tonnes of tailings were left behind when Sherritt closed the mines 30 years ago and residents of the town have been demanding a cleanup ever since.

— The author is a freelance writer specializing in mining issues, and principal of Toronto-based GeoPen Communications (www.geopen.com).