Probe closes $41.6M land deal at Borden

December was a great month for Probe Mines (TSXV: PRB; US-OTC: PROBF) president and CEO David Palmer.

Palmer was announced as the winner of the Prospectors & Developers Association of Canada’s Bill Dennis Award for the Borden gold discovery — a find in an underexplored part of northern Ontario that could have district-scale potential. (Palmer also won the CIM’s A.O. Dufresne Exploration Achievement Award earlier this year, and Probe was recognized by the Ontario Prospectors Association in 2013.)

And now, Probe has delivered on a long-awaited milestone, closing a $41.6-million cash-and-share deal to consolidate the Borden land package near Chapleau on Dec. 10.

Buying forestry company Boises Landrienne, a subsidiary of Scierie Landrienne, gives the junior 100% of the Borden gold deposit, all the claims along its potential extension to the southeast, and consolidates its ownership of the 70 km long Borden gold belt.

Palmer sees the deal — which cost Probe $25 million in cash and 6 million shares (worth $16.6 million, based on a pre-deal closing share price of $2.76) — as a win-win after extensive negotiations over the past couple of years.

“We think we definitely got value for the money and shares,” Palmer said in an interview. “And ultimately, as we advance the project and start looking at a preliminary economic assessment, I think it will become apparent how valuable the transaction was for us.”

Scierie Landrienne now has a 6.6% stake in Probe. But as a big part of Borden’s High-Grade Zone (HGZ), discovered in late 2012, was on land owned by its subsidiary, the deal was crucial for development to proceed.

The agreement includes the “wedge claim,” which is owned by Boises Landrienne but located in the centre of the HGZ, and three patented mine claims that were part of a fifty-fifty joint venture between the two companies.

“The wedge itself probably represented about 200 metres of strike length within the deposit, but importantly, and where a lot of that value comes, it’s within the high-grade zone. It’s also within the higher-grade portion of the high-grade zone,” Palmer explains.

“And I guess the third value contribution is that it’s in what we foresee as the initial mining area, so those are considered early ounces in production. All those things add up to those being very key, very valuable assets.”

Probe has defined the southeast-trending HGZ on either side of the 200-metre wedge claim, and analysts estimate the wedge claim could hold between 200,000 and 500,000 oz. gold at high grades. The HGZ is also open to the southeast.

Now that it has access to the land, Probe will drill its first holes into the wedge area immediately.

Four to five holes into the wedge area will be enough to delineate an inferred resource, but Palmer says the company may drill 12 to 15 holes to bring it up to indicated status.

In addition to drilling on the wedge area, the HGZ will see 40,000 to 50,000 metres of infill and expansion drilling in the coming months. The campaign will start after freeze-up, in order to access parts of the zone that lie under Borden Lake.

Because the company expects to find lots of high-grade mineralization in the wedge claim area, it has pushed back a preliminary economic assessment that was expected before the end of 2014 to the first half of 2015. That will give Probe time to include the “wedge” ounces in an updated resource estimate, and then in the study.

The delay is likely to be worthwhile.

Drill holes straddling the wedge zone have returned excellent results, including 47 metres of 6.8 grams gold per tonne (including 8 metres of 32.7 grams gold) from 296 metres deep in hole 13-420; and 44.4 metres of 4 grams gold (including 5.1 metres of 20.7 grams gold) from 340 metres deep in hole 13-455.

“Given grades adjacent to the wedge to both the east and west are some of the strongest on the trend, we believe mineralization is likely to be consistent through the wedge and that drilling should be able to bolster contained metal by 10–15% at similar grades to the resource,” Raymond James mining analyst David Sadowski wrote in a client note.

Sadowski raised his target price on Probe to $3.20 from $2.90 on the news, which lifted Probe shares by 10% to end the day at $3.03. The company has 90.8 million shares outstanding.

Excluding the wedge, the HGZ hosts 2 million oz. gold over a 1.6 km strike length. (It holds 1.6 million indicated oz. contained in 9.3 million tonnes grading 5.39 grams gold, and 426,000 oz. contained in 3 million tonnes grading 4.37 grams gold at a 2.5-gram gold cut-off grade).

Euro Pacific mining analyst Ryan Walker, who recommends Probe as a “speculative buy,” lowered his share price target to $3.75 from $4. He now assumes development will be pushed out by one year, with start-up modelled for the first half of 2018. However, he also sees potential for more M&A activity down the line.

“We view the acquisition positively, as it simplifies ownership of the district, which may have acted as a hindrance to any eventual M&A activity involving Probe,” Walker wrote in a note. “It also removes any impediment in exploring the potential extensions of the HGZ, and more regional targets on lands previously not fully owned, but subject to negotiations.”

In terms of finances, Probe is in reasonably good shape, even after paying out $25 million in cash. The land deal leaves Probe with $15 million in the treasury. It also has a $10-million operating credit facility ($2 million of which is unused) that matures at the end of May 2015, and it should soon receive a $4-million production milestone payment from the previous sale of the Goldex royalty to Agnico Eagle Mines (TSX: AEM; NYSE: EM). It has 5.6 million in-the-money warrants (at $2.10 per share) expiring in May that could bring in $11.8 million.

Palmer says there’s no urgent need to raise more cash and that the funds should take the company through all the planned work.

The deal gives Probe a total land package of 786 sq. km in the Borden district, including extensive land that connects Borden to Probe’s East Limb project, 22 km to the east.