Trelawney advances its Chester gold project

SITE VISIT

GOGAMA, ONT. — “You can hear the mine workings from here,” Greg Gibson, the president and CEO of Trelawney Mining and Exploration (TRR-V, RTW-F), tells our group of about 15 as we walk near the cabins used by the staff at the Chester gold project, one warm and humid August morning.

“Everything you see here is full,” says Gibson of the cabins that will shortly be winterized. He points ahead to the slightly inclined area and says we will be heading to see the rest of the mine camp before visiting the mine itself.

Trelawney’s Chester project is in Chester Township, about 20 km southwest of the town of Gogama, just west of Highway 144. (Gogama has a population of less than 500 and means “jumping fish” in Ojibway.) The project is between Sudbury (200 km by road) and Timmins (100 km).

When the company picked up the Chester property, most of the facilities were already there but dilapidated, says Gibson as we tour the mine camp.

He notes that the company has been busy fixing and building the camp and core facilities since fall 2009. “We’ve done a lot of work in the area. We have 48 beds now,” says Gibson, noting another bunkhouse would be arriving soon to accommodate the growing staff as it prepares for the eventful upcoming months.

Currently, at the Chester property, the Toronto-based company has a two-pronged focus: putting its Chester 1 gold mine into production and continuing exploration at its Cote Lake discovery, says Gary Nassif, Trelawney’s manager of exploration services.

In July, Trelawney started rehabilitating the ramp portal and underground workings at the Chester 1 mine. Once completed, the company will start stope preparation and mining activities. It also has two drill rigs defining the extent of the Cote Lake deposit, which straddles the Chester 2 property and Emerald Isle claims of the Chester 3 property.

The property

The Chester project area hosts at least 12 known gold mineralized structures and covers 8 by 4 km of Chester Township. The company describes the area as being underlain mainly by “felsic to intermediate intrusive rock. . . with felsic to intermediate metavolcanics to the north and mafic intrusive rocks to the south.”

The 17-sq.-km project is in the southeastern tip of the Swayze Archean greenstone belt and near what has been interpreted to be an extension of the Abitibi greenstone belt to the northwest. It is also near two major regional fault zones: the Cadillac-Larder Lake fault zone which runs through the Kirkland Lake area, and the Destor Porcupine fault zone which runs from the gold deposits in Timmins to the Quebec border.

The Chester property comprises the Chester 1, 2 and 3 deposits, which were historically known as the Murgold Chesbar, Young-Shannon and Jack Rabbit, respectively. All three deposits have historical gold resources but have not seen commercial production, which is something Trelawney is determined to change.

The company is aiming to pour gold by the end of the year, says Gibson back at the mine camp, while wrapping up a presentation on Trelawney’s mine development and exploration plans.

Brief history

The Chester project area has intrigued explorers since the early 1900s, with several companies exploring the property with little luck. A frequent problem that previous explorers ran into was the divided ownership of the property, which prevented proper exploration.

But in 2009, Trelawney inked deals to earn into three contiguous properties near the Chester mine.

“What Greg was able to do was take all these properties, these fragmented pieces,” explains David Reid, Trelawney’s manager of investor relations and business development, “and put them under one umbrella, and that is what’s gonna make it work.”

Trelawney finalized an option agreement with Treelawn Investment Corp. in August 2009 to acquire up to a 70% interest in two leased mining claims covering 1.51 sq. km of the Chester 1 property, which hosts the Chester mine. In the 1980s, the mine was developed to a depth of 550 ft. (167 metres), but was not put into production. Underground development includes a decline ramp, more than 2,300 ft. (700 metres) of lateral drifting on three levels, and 300 ft. (91 metres) of raises.

In October 2009, Trelawney finalized a mining claim acquisition agreement with Metallum Resources to obtain a 92.5% interest in the Chester 2 property for 5 million of its shares and a 1% net smelter return royalty payable when the monthly average gold price surpasses US$1,000 per oz. Chester 2 consists of 11 patented and 18 unpatented mining claims.

Two months later, the company entered another agreement with Treelawn, to acquire up to a 92.5% interest of Treelawn’s interest in certain mining claims on the Chester 3 property.

All three deposits have a historical National Instrument 43-101 noncompliant resource, but the company says it does have NI 43-101 technical reports for Chester 1, 2 and 3, and has successfully explored and hit grade on each deposit.

Chester 1, which also contains the No. 3 vein that has been traced by diamond drilling, has a historical resource of 159,000 measured tons grading 0.43 oz. per ton gold for 68,400 oz. gold.

Chester 2, which has seen substantial drilling and a shaft sunk to the 600-foot level, boasts a historical resource of 222,000 tons grading 0.35 oz. gold for 77,900 oz. gold.

Chester 3 has three mineralized zones and 342,000 historical tons grading 0.36 oz. gold for 123,000 oz. gold from its No. 1 and No. 3 zones, which has been calculated by James Wade Engineering.

Combined, the three deposits contain a historical measured and indicated resource of 721,000 tons averaging 0.37 oz. gold for 269,300 oz. gold. The Chester project has a further historical inferred resource of 1 million tons grading 0.19 oz. gold for 198,500 oz. gold.

Chester mine

The Chester underground mine is part of the company’s current focus. The strategy Trelawney is employing at the high-grade narrow-vein mine is to start small before moving into a large-scale production.

The historical grades at the Chester 1 mine range from 0.14 oz. to 2 oz. gold per ton. Channel sampling programs have been done to confirm the grades and continuity of the ore. The Chester mine has an average gold grade of 0.43 oz. gold per ton. To estimate its initial production at the mine, the company has used a cutoff grade of 0.4 oz. gold.

After dewatering is complete, the mine is set to produce an estimated 30,000 oz. gold a year from 250 tons of ore a day at an average grade of 0.4 oz. gold.

The total cash cost per ounce is projected at C$420, and the initial 30,000 oz. gold production should generate a cash flow of about C$16 million, says Gibson, adding if all goes as planned, the company can become cash flow positive within the next year.

The Chester 1 mine has roughly a 2-year mine life, and the company will use the money it generates from the mine to further develop the Chester 1 and 2 deposits.

Of the initial production figures Gibson says: “We are going to achieve the numbers that we say we’re going to achieve.” Although the initial numbers may not be huge, he maintains the figures could be increased.

“One of the things that people aren’t understanding. . . is the underground potential here,” he says. “What we have here is an access to produce and build a multi-million-ounce underground mine.”

To achieve that bigger produc- tion, Trelawney plans to gradually increase its throughput by mining ore from Chester 2 at a 250-ton-per- day rate in year two of production. It is currently planning to drive an exploration drift from the Chester 1 mine to the Chester 2 deposit.

“Trelawney plans to use (the) drift from the Chester 1 mine as a platform for further underground exploration and access to other high-grade mineralization on the property,” writes Nassif in an email to The Northern Miner.

And t
hen down the road, the company will look into mining ore from the Cote Lake and Chester 3 deposits.

And for the ore from Chester 1, the company plans to have it custom milled in Timmins, about a 1.5-hour drive from the mine.

The company is looking into using Lake Shore Gold’s (LSG-T) Bell Creek 1,500-tonne-per-day mill. The Bell Creek mill is a conventional gold mill circuit, followed by a carbon-in-pulp process for gold recovery. The mill has produced more than 112,000 oz. gold from 1986-1991, but has been on care and maintenance since 2002. The mill was later refurbished in late 2009 to its current capacity.

The company also said in August that it could potentially use St Andrew Goldfields’ (SAA-T, STADF-O) mill if necessary.

However, toll milling is something Trelawney expects to do only for a short period of time. When the company increases its tonnage to the 750-1,000-tonne-per-day range it anticipates building its own mill, which it estimates should cost roughly $5-$6 million. The building of a mill is something Gibson says he sees happening within the next 38 months.

In terms of a feasibility study, the company has decided that based on the wealth of historical data available on Chester 1, its own positive drill results and it already having the cash it needs to put the mine into production, it is more time efficient and economical to bypass the study.

As of August, the junior had $12 million in its bank, zero debt and everything on its mine site was paid for.

This good fortune came largely due to the three financings the company closed over the last year.

The most recent was in March 2010, when the company completed a private placement, which was led by Jennings Capital, with a syndicate including Raymond James and Stonecap Securities. Trelawney issued 14.2 million shares at $1.05 apiece to raise $14.9 million.

Not only does the company have the cash to put the Chester 1 mine into production, it also has the necessary permits in hand, and is waiting for a final certificate of approval, which would be the last thing it needs before it starts mining.

In July, Trelawney received the advanced exploration permits which allowed for the restoration of the Chester mine underground and taking of a first bulk sample. In February, Trelawney got its dewatering permit. In the same month, it also bought the equipment needed for the mine infrastructure, which included: surface and underground electrical distribution system, ventilation and mine air heating system, compressors and furnished warehouse, workshop and office.

Of the company’s steady progress over the year, Gibson says: “We hit every milestone we said we’ll hit and we’ll continue to do so.”

Cote Lake

Trelawney discovered the open-pit Cote Lake target a few months after it launched a small drill program in October 2009 to test the downdip extensions of previously known gold-bearing structures on the Chester property.

The first five holes punched below the Chester 1 mine workings totaled 1,261 metres and hit gold mineralization, extending the system from 200 metres depth to 300 metres. Notable intercepts included 0.7 metre of 36.67 grams gold and 1.3% copper and 0.4 metre of 54 grams gold and 0.21% copper.

The company then moved its focus to Chester 2, an area 1 km west of the historic Young-Shannon gold mine. After drilling an exploratory hole, it hit a long mineralized intercept of 136 metres grading 1.16 grams gold and 0.1% copper, starting from 78 metres depth. Pleased with the hit, the junior put together a drill program to test the new target, which it later labeled Cote Lake.

“Cote Lake is great,” says Gibson of the deposit that was discovered in the first quarter of 2010. “We can wave our arms now. Actually, we don’t have to wave our arms now; I think we can say, ‘you know what, we have a lot of ounces of gold sitting there.’ It’s seven months old, open pittable, still stepping out a 100 metres, and still open at depth and in all directions. That’s a wonderful thing and it gets everyone’s attention.”

So far the company has punched 34 holes, totaling more than 15,000 metres, on the Cote Lake deposit. Of the 34 holes, 27 have been released.

The latest being on Sept. 8, where the company announced drill highlights including hole 26 that cut 292 metres grading 0.88 gram gold per tonne, hole 27 that returned 5.33 grams gold from 137 metres depth, and an extension in hole 4 that hit 179 metres of 8.06 grams gold.

Hole 27 is 130 metres below the earlier released hole 14, which returned 1.62 grams gold over 65 metres, and near hole 4’s previously reported high-grade intercept of 8.20 grams gold over 107 metres.

Trelawney has now intersected mineralization on five sections spaced 100 metres apart and traced up to a depth of 500 metres. Mineralization occurs in disseminated and fracture-controlled sulphides, which often correlate to the gold values, says the company, noting the presence of visible gold is common. “The zones are bleached with the prevalent alteration being feldspathic and chloritic,” states the company.

Trelawney currently has two drill rigs defining the extent of the Cote Lake deposit, which remains open in nearly all directions. It also has one rig exploring other targets on the Chester property.

Gibson says the company may look into further developing the Cote Lake deposit with a partner. “We’ll look at it as a joint venture. We’re not open pit guys,” says Gibson. “We wouldn’t give it away. . . We would want someone to come in who has some expertise and deep pockets to help us out on it.”

When asked if Cote Lake would become a mine, Gibson replies: “Cote Lake is not an issue of, ‘is Cote Lake going to be a mine?’ It’s how big is the mine going to be?”

The company predicts it’ll become a mine in a few years.

Back at the mine camp, concluding the presentation, Gibson says: “The Chester mine is what it is. It’s a mine. It’s a bigger mine. We’re really good at building mines. We feel like we are. . . We don’t have a $3 stock or anything. But I think the rock will talk, and we’ll get there.”

The company’s shares recently closed at $1.01, trading within a 52- week range of 18¢-$1.35. As of August 6, Trelawney had 85.9 million shares outstanding or 108.3 million fully diluted.