Auryn to buy North Country Gold

If the past is any guide, Shawn Wallace has a knack for spotting good projects. Last year, the mining executive sold a company that he co-founded called Cayden Resources to Agnico Eagle Mines (TSX: AEM; NYSE: AEM) for a tidy $205 million. And today, a second company he co-founded, called Asanko Gold (TSX: AKG; NYSE: AKG), is busy building a gold mine in Ghana.

So when Wallace says that North Country Gold ’s (TSXV: NCG) Committee Bay project in Nunavut is probably the most prospective land package he has ever come across in his 25-year career in the business, investors might want to sit up and take notice.

In March, Wallace’s Auryn Resources (TSXV: AUG; US-OTC: GGTCF) completed a joint-venture deal with North Country to earn a 51% interest in Committee Bay by spending $6 million by September 2017. Auryn recently announced it has entered into a letter of agreement to acquire all of the North Country shares it does not already own in an all-share deal worth $20 million.

The Committee Bay project in the eastern Arctic includes 662 sq. km along the Committee Bay Greenstone Belt, 180 km northeast of Agnico Eagle Mines’ producing Meadowbank gold mine, and 150 km north of Agnico’s Amaruq gold project.

“When we entered into the joint venture with them, we had done a bunch of due diligence to get to the point where we wanted to commit to that extent,” Wallace says in a telephone interview from Vancouver. “Since then we’ve done a whole prospectivity study … and as we got more into the data, and brought in a whole suite of experts, it was apparent to us that this belt was much more prolific than we had believed it was.”

“Most of us feel it’s probably the most prospective opportunity to find gold that most of us have had in our entire careers,” he continues. “The rationale for doing this is that we’re going to find multiple deposits here.”

North Country has defined a resource on its Three Bluffs deposit at the Committee Bay project with an indicated resource of 4.3 million tonnes grading 4.91 grams gold per tonne for 683,000 contained oz. gold, and an inferred resource of 5.5 million tonnes grading 5.43 grams gold for 965,000 contained oz. gold.

But Wallace says he’s more interested in exploring the four other targets on the property than adding incremental ounces at Three Bluffs.

“Outside the Three Bluffs deposit, which is where the bulk of the capital has been spent, there are only sixty drill holes outside of that on a 300 km belt. And what drew us to it was that almost every time they stepped out, they made another discovery. We haven’t spent a whole bunch of time analyzing Three Bluffs … our focus is going to be defining new deposits … we think the most value will come from getting this district-scale.”

Wallace adds that Auryn is taking a “full belt approach,” and the mid-year exploration program will focus on the southern third of the Committee Bay land package.

“Our crews are mobilizing up there right now,” he says. “The other thing we’ve done is we’ve staked some additional ground and will continue to do so.”

Wallace notes that part of the reason for acquiring all of North Country, rather than continuing under the joint-venture structure announced in March, was the limitation of working as a joint venture. In addition to the extra layers of bureaucracy a joint venture typically brings, he says, there also would be constraints in terms of work windows in the Arctic and the compressed nature of how one explores in the north.

More importantly, he says, in today’s depressed capital markets where raising money can be difficult, a joint-venture format introduces specific risk.

“There would be execution risk in a joint venture where two sides have to finance and in challenging markets, who knows, maybe they wouldn’t be able to finance or we wouldn’t be able to finance, and we couldn’t have this systematic approach,” he explains.

In the end, however, it all boiled down to being confident the project is better than every other project Auryn has looked at.

“Our review team was way down the road in terms of evaluating other assets, but this one was superior,” he says. “For us to make an acquisition, it has to be a district-scale opportunity, it has to have grade and it has to be in a good jurisdiction, and those are three difficult boxes to check, but this one checked all of them.

“It’s head and shoulders superior to anything we’ve reviewed at Auryn, taking into consider the location, the type of mineralization, the tenure system, the grade — all those variables.”

Under the deal, North Country shareholders will receive one Auryn share for each 10 North Country shares they own. The pricel represents a 65.5% premium to the volume weighted average price of North Country’s shares for the 20 trading days before June 30, and a 48% premium to North Country’s June 29 closing price.

“It’s challenging for any junior to raise money in this market, so as a company, we had to look at what is best for our shareholders,” North Country’s president Brian Budd says. “Over the last 24 months we were looking for partners who could add value to our shareholders in this market, and we believe we delivered on that.”

Budd notes that North Country has grown the resource significantly since 2010. The current resource is open along strike and at depth.

“We have high grade from surface to about 500 metres of depth,” he says. “We’ve always thought grade is king, and that the ounces will come, so we keep driving forward.”

Budd is pleased with the strides Agnico has made in the Eastern Arctic at Meadowbank, one of Agnico’s top-producing assets, along with its new discovery Amaruq and pre-production Meliadine projects, also in the region. These assets have generated more enthusiasm for projects in the Arctic, and Budd notes Agnico is directing at least $20 million towards making discoveries there this year.

“Auryn saw an opportunity,” Budd says. “This is a world-class asset. And in this market we believe we have delivered good value to our shareholders, and the story goes on.”