Premier Leads Geraldton’s Hardrock Revival

SITE VISIT

GERALDTON, ONT. — The bright, cold winter light of a January morning intensifies the stark look of the snow-swept streets of Geraldton, Ont.

Built on the back of mining, and more recently the timber industry, this rugged town 100 km north of Lake Superior, has recently fallen into decline.

Mining was the first to go, back in the late 1960s, when low-cost bulk-tonnage ore had been mined out and a depressed gold price made the remaining mineralization uneconomic.

The town turned to the timber industry, but with the closing of its last operating mill in December and the recent announcement that woodland cutting operations would stop, too, some residents have been left with nowhere to turn.

But renewal may be on the horizon.

Premier Gold Mines (PG-T, PIRGF-O) is doing its part to breathe life back into the town. With one of the most extensive and expensive drill programs anywhere in the country, it plans to put Geraldton back on the map as one of the country’s key gold camps.

“Premier’s management has said that this could be the first time that they take a project to production themselves,” says Dina Quenneville, executive director of the Greenstone Economic Development Corp. “And if you follow their management team, they tend to do what they say they’re going to do, and that provides a lot of hope to people here.”

While the unemployment rate is officially at 13%, Quenneville says it is actually much higher. The closing of the mill and the woodlands project meant the loss of some 500 jobs, and in a town where the population is just 4,900 people, that number is devastating.

Although miners in the area are still in the less labour-intensive early stages of exploration, the mayor of Geraldton, Michael Power, estimates that the key players, Premier among them, have injected some $18 million of investment dollars.

“It has helped to hold up the economy in an area that has been devastated by the total downturn in forestry,” Power says.

He hastened to add that the town has more than enough able workers to satisfy the labour demands of any mines that come online in the next four to five years, and he is an adamant believer that the land around Geraldton is rich enough to host such projects.

“Gold never ran out in Geraldton,” Power says. “When the price of gold was at US$35 an ounce it was unprofitable. But that isn’t the case anymore, so I look at mining as being part of the bright new future of our area.”

For Premier’s president and chief executive, Ewan Downie, this part of Ontario offers business advantages on both the macro and micro level.

On the macro side of things, the project fits within the company’s corporate philosophy of operating only in politically stable regions, and on the micro side, Geraldton not only offers a pool of capable and eager workers but also fully developed infrastructure.

With the company’s core shack situated right in town, and its drills turning just minutes outside of town, the project benefits from access to the Trans-Canada Highway, the Trans-Canada pipeline and major power lines that run directly through the centre of the property.

Such a choice address, however, didn’t fall from the heavens into Premier’s lap.

The company’s arrival in town at its current scale comes at the end of a long courting process.

Indeed, Downie says he has had his eye on the Hardrock properties, recently acquired from Barrick Gold (ABX-T, ABX-N), for 10 years.

“It was just a case of knocking on their door regularly saying, ‘we’re still here and we’re still interested,'” says Stephen McGibbon, Premier’s vice-president and chief operating officer. “Eventually, they capitulated.”

The acquisition, which was sealed on Dec. 22 last year, saw Premier hand over 500,000 of its shares, make a cash payment of $1 million to Barrick, and commit another $1 million to an environmental reclamation trust fund. Barrick also retains a 3% net smelter return royalty on any future production.

And while Premier had already established a presence in Geraldton through a joint venture with Roxmark Mines (RMK-V, RMKMF-O), it’s the Hardrock acquisition that announced its arrival as the key player in the region.

The acquisition further solidifies Premier’s reputation for setting up shop in Ontario’s most noted gold camps.

“The best place to find gold is in the shadow of headframes,” Downey says. “Others say they are in a given gold camp, but then they are actually 15 km away from the centre. We sit right in the heart of many of these camps.”

Beyond Hardrock, Premier has the Rahill-Bonanza joint venture in the Red Lake district, which is considered the company’s most advanced asset. The joint venture is 49%-owned by Premier and 51% by Goldcorp (G-T, GG-N) on ground that covers the geology between the current high-grade producing mines owned by Goldcorp and the Bruce Channel discovery it acquired by taking over Gold Eagle last year.

Premier’s other key project is PQ North, which is made up of 11 contiguous claims within Goldcorp’s Musselwhite gold mine.

But being next to such big players is a double-edged sword when it comes to fair valuation from the market.

On the one hand, the company’s prime real estate and relationship with Goldcorp has garnered it much market attention, but on the other, such attention has remained focused only on Rahill-Bonanza.

“As far as our holdings at PQ North and Geraldton, we believe the value of those projects aren’t being recognized fully in our market cap and it is incumbent on us to deliver results that will shed light on those projects,” he says.

The company’s shares are currently trading in the $2.60 range and it has 78 million shares outstanding.

To help in the illumination process, Premier has launched one of the largest drill programs in Canada. At a cost of $15 million, the program is largely being financed by a private placement closed in the middle of November that saw it raise $14 million by issuing 7.8 million flow-through shares at $1.80 a share.

McGibbon says close to $10 million of its exploration budget for 2009 will go into drilling at Geraldton’s Hardrock project, with $2 million going towards exploration at the Red Lake joint venture, $1 million going to PQ North and $500,000 going to its recently acquired Lennie project, also at Red Lake.

At Hardrock, the plan is to drill 50,000 metres, largely targeting near-surface zones with the aim of proving up a National Instrument 43-101-compliant resource as quickly as possible– which Premier says will likely be by the end of the third quarter.

Hardrock sits in the heart of the Beardmore-Geraldton greenstone belt, which, although recognized as a high-grade gold district, has seen little exploration over the past decades.

Mines in the area that, together, produced more than 4 million oz. of gold, had been shuttered by the late 1960s, done in by low gold prices.

Barrick arrived on the scene more as an afterthought. It secured the Hardrock claims as part of its acquisition of Lac Minerals in 1994. Lac, which was a global company by the time Barrick acquired it, had built its name on the Little Long Lac mine, which sits on Premier and Roxmark’s claim.

The Little Long Lac mine produced more than 600,000 oz. gold before it shut down in 1968.

But the giant of the past-producing mines was the MacLeod-Cockshutt mine, situated on the Hardrock claims. That mine produced 1.5 million oz. with an average head grade of 4.9 grams per tonne, and when combined with other past-producers, Hardrock was home to mines that turned out more than 2 million oz. of gold — and only went down to the relatively shallow depth of 600 metres to get it.

That is significant not only because the past mines stopped in mineralization, but also because 600 metres is far shallower than other mesothermal gold deposits in northern Ontario.
Red Lake, for instance, has gone to a depth of nearly 2.1 km, while Kirkland Lake has dug as deep as 2.4 km.

Overall, Premier describes mineralization in the Geraldton area as similar to Musselwhite, as gold is associated with iron bands that begin at a depth of roughly 10 metres, with grades in the range of 5 to 6 grams gold per tonne over broad horizons, and then areas with narrow, very high-grade veins.

Such zones, Downey says, were previously ignored because efforts were focused on bulk mining.

Premier envisions constructing both an open-pit and an underground mine here and early results from its drill program at Hardrock show such a possibility to be well within its grasp.

The drill program at Hardrock began by targeting three zones, all of which sit in the folds of the iron formations on the property and all of which are the surface expression of known historic zones that have demonstrated long continuity underground.

Currently, the most promising zone is known as EP. It is a potential high-grade open-pit target near the historic North zone of the MacLeod-Cockshutt mine.

Premier divides EP into three sub-zones (south limb, north limb and high-grade vein) that make up a sideways V formation.

The first nine holes within the zones returned highlights of 11.83 grams gold over 11.4 metres in the south limb, 2.24 grams gold over 21 metres in the north limb, and 2,870 grams gold over 0.3 metre within the high-grade vein horizon.

The other two priority zones at Hardrock are Oreo, which lies directly south of EP, and the Tenacity zone, which lies farther east. Drilling at the two zones is ongoing and Tenacity has so far returned an intercept of 49.9 grams gold over 4.3 metres.

And while EP, Oreo and Tenacity all host open-pit-style mineralization, the company says they represent only one third of the story, as they don’t include the broader zones of mineralization with grades averaging over 5 grams gold per tonne and narrow vein zones with grades often higher than 7 grams gold per tonne.

Also likely to be included in the upcoming resource estimate will be zones lying north of the Hardrock claims, on the land originally held jointly with Roxmark.

Last year, before the Barrick deal was signed, Premier was focused on prospective ground near the Little Long Lac mine, at the Kailey zone.

The zone is a low-grade, potentially bulk-tonnage target that has yielded intersections of 1.32 grams gold across 191.2 metres and 1.47 grams gold across 162 metres.

The original deal with Roxmark lets Premier earn up to a 51% interest in the Geraldton claims over a four-year period — which ends in 2011 — by spending $7 million on exploration, issuing 250,000 shares to Roxmark and paying $500,000.

It can then move up to a 70% interest by paying Roxmark another $250,000 and 150,000 in shares, so long as it can bring the project to production by 2016. The joint-venture agreement extends to the Hardrock claims acquired from Barrick.

Steering development towards production is a seasoned management team headed by Downie, who has 20 years of experience in the exploration game. Downie is, however, best known as the man who shrewdly sold Wolfden and its Izok zinc deposit to Australia’s Zinifex (now OZ Minerals [OZL-A]) for $361 million in March 2007, when zinc prices were near a historic high.

As for chief operating officer Stephen McGibbon, he brought his 20 plus years of exploration experience to Premier after it was spun out of Wolfden Resources’ gold assets in 2006. McGibbon enjoyed a long career with Goldcorp at Red Lake, where he served as exploration manager.

Along with the solid management team comes solid backers. Premier boasts Inmet Mining (IMN-T, IEMMF-O), Goldcorp and Barrick as key shareholders, with Inmet and Goldcorp combining to hold roughly 25% of Premier’s shares.

It’s that type of pedigree and clout that has Mayor Power seeing the rays of hope for his town.

Power is a tireless proponent of the mining industry and companies like Premier, and he’s had several talks with the company about what the town can do to best complement exploration.

One idea was to sponsor a retraining program through a local college that took former timber workers and taught them to be diamond-drill helpers.

“There were forty-eight people that were enrolled and were trained,” Power says, “and I’m happy to say that they all found work.”

There promises to be many more such stories if Premier has its way.