Brigus’ Grey Fox scores a higher grade

VANCOUVER — Halifax-based producer Brigus Gold (TSX: BRD; NYSE-Amex: BRD) is expanding the footprint of its Grey Fox gold discovery in northern Ontario, with an updated resource estimate on July 3 pointing to potential for underground mining. Brigus’ biggest success, however, is rising average grades, with a 31% jump in its open-pit ounces and a 14% increase across its underground ounces.

Brigus discovered Grey Fox in December 2011, and released its previous resource estimate on the deposit back in September 2012. Likely the most important change under the new resource parameters is Brigus’ new constraining pit shell, which has classified more of Grey Fox’s resources as “underground.”

Brigus’ resource update includes Grey Fox’s 147, Contact and Grey Fox South (GFS) zones. The pit shell extends to 195 metres depth at 147 and 125 metres depth at Contact, and assumes a US$1,400 per oz. gold price. GFS will require more drilling before it’s ready for a pit-shell calculation, and as such all of its resources sit in the underground category. Brigus’ resource assumes cut-off grades at 0.72 gram gold per tonne for open-pit mining and 2.84 grams gold for underground mining.

Overall the company has added another 164,000 oz. gold at Grey Fox, with the global grade of the resource rising to 3.9 grams gold. The deposit hosts indicated resources of 4.3 million tonnes grading 3.7 grams gold for 507,000 contained oz. Roughly 3 million tonnes at a grade of 2.6 grams gold are classified as open-pittable, while 1.3 million tonnes at 6.2 grams gold will require underground mining.

“This new resource estimate is an important milestone for Brigus, and for our growth plans at the Black Fox mining camp,” says chairman and CEO Wade Dawe. “The potential for future economic extraction in both open-pit and underground development remains strong.”

Grey Fox boasts a smaller inferred resource, which totals 1.5 million tonnes grading 4.7 grams gold for 229,000 contained oz., though opportunities remain for further resource expansion since all three zones — 147, Contact and GFS — are open to varying degrees.

Zone 147 was discovered back in 2011, and has around 395 drill holes incorporated into its resource to date. The deposit runs 275 metres in a north–south direction, and dips 80 degrees to the east. Gold mineralization mostly occurs within multiple quartz-carbonate brecciated zones within bleached units of variolitic-mafic volcanics and other parallel hangingwall and footwall gold mineralized zones. Zone 147 remains open at depth with infill drilling below 250 vertical metres from surface ongoing.

Contact’s gold mineralization lies along 450 metres of strike length and consists of a steeply dipping mineralized fault contact between the north- to south-trending metasediments and mafic volcanic rocks. Contact remains open along strike to the north and downdip, with recent drilling having intersected gold mineralization at a vertical depth of 425 metres.

Brigus discovered GFS — which is a multiple-horizon gold zone around 400 metres east and running subparallel to 147 — in 2012. GFS is the company’s newest discovery, and it remains open in all directions. The deposit’s gold mineralization is similar to what is found at 147, and drilling has intersected the mineralized trend over 300 metres of strike length and from near surface to 320 metres vertical depth.

Brigus is planning on using Grey Fox to expand operations at its Black Fox mine with a mill upgrade that will nearly double throughput capacity to between 4,000 tonnes and 4,200 tonnes per day. BMO Capital Markets analyst Brian Quast doubts that the company can raise enough capital to expand in current markets, however, especially with a weakening gold price.

“The capital cost of this expansion is likely [around $125 million], which is beyond Brigus’ current financial resources and potential [cash from operations assuming spot gold], and would pose a challenge to finance externally in today’s market,” Quast writes in a research note. “Consequently, BMO Research is maintaining future mill throughput at [2,200 tonnes per day], with expansion capital limited to [$40 million] for Grey Fox’s underground development.”

Quast decreased his target price on Brigus from 85¢ to 70¢, commenting that “while the resource update is positive to [net present value], this is offset by the decline in the spot gold price.”

According to Brigus’ guidance, its Black Fox operation is slated to produce between 90,000 oz. and 100,000 oz. gold in 2013 at cash costs of around $650 and $700 per oz. The company generated $21.4 million in cash from its operations in the first quarter, and reported $31 million in cash at the end of March. Projected capital expenditures for 2013 clock in at $41.5 million, with another $10 million for exploration and possible underground development at Grey Fox.

The company’s shares declined 8.5% on July 3 following news of its updated resource at Grey Fox. Brigus shares have rebounded since then, and traded at 54¢ and US52¢ at press time.

The company maintains 232 ­million shares outstanding for a $125-million market capitalization.