Lake Shore Gold updates resource at Timmins West mine

Greater knowledge from mining and development work over the last year and a half, results from additional infill drilling and a reinterpretation of drill results have culminated in an updated resource estimate for Lake Shore Gold’s (LSG-T, LSG-X) Timmins West mine complex in northern Ontario.

The latest resource consists of updated resources for the Timmins deposit from previous estimates completed in Sept. 2009 and the initial resource estimate for the Thunder Creek deposit, which was first released on Nov. 16, 2011. (The Timmins West mine complex includes the Timmins deposit and the Thunder Creek deposit.)

The Timmins deposit now has indicated resources of 2.95 million tonnes grading 6.34 grams gold per tonne for 600,900 ounces of contained gold and 1.58 million tonnes grading 5.54 grams gold per tonne for 281,500 ounces of gold in the inferred category.

In total and at a cut-off grade of 1.5 grams gold per tonne, the Timmins West mine (including Thunder Creek) now adds up to 5.83 million tonnes grading 5.99 grams gold per tonne for 1.12 million ounces of gold in the indicated category and 4.27 million tonnes averaging 5.76 grams gold for 791,500 ounces of contained gold of inferred.

Lake Shore Gold expects to release an updated reserve estimate and a preliminary economic assessment before the end of the first quarter of 2012 and says there is potential for additional resources from extensions and new discoveries. Definition and expansion drilling is well underway.

The new resource for the Timmins deposit includes 445 holes of new underground drilling completed since September 2009 for 86,408 metres. Most of the new holes drilled into the Timmins deposit were designed as infill and definition drill holes to test areas above the 800-metre level and were drilled from platforms between the 260-metre level and the 650-metre level in the mine.

The company says it has already identified “significant gaps” within the overall structure of the Timmins deposit that lie “in close proximity” to existing resource blocks and have “excellent potential to host new resources with additional drilling.”  

Mineralization at the Timmins deposit is closely related to quartz vein swarms and stockworks with bulk mining potential.

On Jan. 12 the company said it is completing a mine engineering study, including capital and operating plans, for the integration of the Timmins and Thunder Creek deposits into a single Timmins West mine.

In other news, Lake Shore Gold entered into an agreement earlier this month with Franco-Nevada Corp. (FNV-T, FNV-N) in which Franco-Nevada will pay to Lake Shore Gold US$35 million for a 2.25% net smelter return royalty on the minerals sold from the Timmins West complex. Franco-Nevada also acquired 10.1 million shares of Lake Shore Gold in a private placement at $1.49 per share for proceeds of $15 million. The sale represented a 5% premium to Lake Shore Gold’s 10-day volume-weighted average trading price.

Kerry Smith, a mining analyst at Haywood Securities in Toronto has a sector outperform rating on the stock with a 12-month target price of $3.50 per share. His target price is based on a 0.9 times multiple to his net asset value per share of $3.92 at a long-term gold price of US$1,150 per oz.

 At presstime in Toronto Lake Shore Gold’s shares were trading at $1.51 within a 52-week range of $1.10-4.42 per share. The company has about 400 million shares outstanding.

“Our current model assumes production from a 4,000-tonne-per-day mill at Timmins West by 2015, a delay from company guidance of late 2013 to early 2014, and additional ounces from Timmins, Thunder Creek, Vogel, Schumacher, Marlhill, and Bell Creek mines, compared with the company’s current reported reserves,” Smith wrote in a research note to clients on Feb. 16. “The valuation for Lake Shore continues to be leveraged to exploration success.”

Smith added that in the first half of 2012 Lake Shore Gold will be focused on mine development (ore delineation and infrastructure) at all three mines to provide more underground working faces and increase tonnages available.

“This work will require processing lower grade development ore of approximately 3.5 grams per tonne gold, which will reduce production in the first part of 2012. We view this development work as a positive step, and Lake Shore’s target is to develop about 1.0 million tonnes at each of the Timmins, Thunder Creek and Bell Creek mines—which should be adequate to support an expanded mill at 3,000 tonnes per day (about 1.1 million tonnes per year milled).”

Commercial production at the Timmins mine began on Jan. 1 2011 and last year the company poured 86,565 ounces of gold. For the full year 83,585 ounces of gold were processed from milling 671,467 tonnes at an average grade of 4.03 grams gold per tonne. This year the company expects to produce between 85,000-100,000 ounces of gold with production weighted to the second half of the year.

Mine production is delivered to the company’s wholly owned mill on the Bell Creek property, east of Timmins. Currently the mill operates at a capacity of 2,000 tonnes per day but the company plans to boost that amount to 3,000 tonnes per day by late 2012.