Canarc snags Relief Canyon

An 18-month search by Canarc Resource (ccm-t) for new acquisitions has culminated with the successful bid to buy a mostly built and permitted, open-pit, heap-leach gold mine in Nevada through a bankruptcy court auction.
Canarc has agreed to buy the Relief Canyon gold assets from Firstgold for US$11 million, subject to a due diligence period that expires Feb. 4, 2011.
“The Relief Canyon gold mine and related assets represent a turnkey gold mining opportunity for Canarc,” explains Bradford Cooke, chairman and chief executive of Canarc, during a conference call. “It really is a new lease on life for the company.”
“The financial risk associated with this acquisition is minimal for Canarc. We acquire a whole bunch of fixed assets as well as the resource itself, so there is very little risk to the company,” says Garry Biles, Canarc’s president.
As a condition of its winning bid, Canarc has paid a non-refundable US$300,000 deposit. To facilitate the mine purchase, the company has arranged a $12-million bridge loan with Effisolar, an investment company focused on the energy and mining sector.
Subject to Effisolar’s own due diligence and regulatory approval, the loan will mature in one year and bear an annual interest rate of 12%. Canarc will issue a closing bonus of 1 million shares to Effisolar and will have the right to repay the loan at any time after six months.
Located on the south end of the Humboldt gold trend, the Relief Canyon mine is 26 km east of Lovelock and 177 km northeast of Reno. The project covers 3.8 sq. km and is partly subject to a 4% net smelter return royalty.
First discovered in 1981 by Duval Corp., the property was explored by Santa Fe and Lacana Mining from 1982-84. It was put into production by Lacana in 1984 as an open-pit, heap-leach gold mine but was short-lived. It closed in 1985 due to poor gold recoveries. Lacana achieved recoveries of only 45-50% by leaching run-of-mine material without any crushing.
Pegasus Gold acquired the mine in 1986 and operated successfully from 1987 to 1989, when it closed due to the depletion of ore reserves. “It was obviously a different gold price environment than we are anticipating and so the bar has moved down quite a bit on what you need for grade to make it profitable now,” says Biles.
Pegasus was able to boost recoveries to 65-70% by crushing and agglomerating the ore. “Obviously we are going to go a little deeper and a little wider in the pits,” says Biles. “It looks like the oxidation levels are slightly less but very similar to what they were experiencing.”
Relief Canyon produced 135,000 oz. over its brief life. The old leach pads were rinsed and reclaimed in 1993-94 by J.D. Welsh & Associates.
Firstgold acquired the Relief Canyon mine in 2004 and spent a reported US$22 million on reviving the operation, including drilling, refurbishing the adsorption-desorption recovery plant and installing a new crusher system. The junior tried to reprocess 225,000 tonnes of newly crushed, old heap material on a newly built and permitted leach pad, but failed to produce any meaningful amount of gold.
Firstgold filed for bankruptcy protection in January 2010 after the U.S. government stepped in and objected to the proposed sale of a 51% controlling interest to a Chinese state-owned company due to national security reasons. Relief Canyon is about 80 km from the Fallon Air base, which is used by the Navy for tactical aviation training.
Upon closing the purchase of Relief Canyon, Canarc plans to carry out a 3-4 month, US$500,000 enhancement program of diamond drilling, metallurgical testing, resource estimation and mine planning in order to complete a prefeasibility economic study.
Canarc anticipates it will then be in a position to raise up to US$22 million through a gold convertible loan that would retire the $12-million bridge loan and fund US$7 million in remaining capital expenditures with the intention of putting Relief Canyon back into production at the rate of about 40,000 oz. per year.
“It’s too early to make any commitments with regards to the timing on the redevelopment of the project, but it is reasonable to say that within the next 12 or so months Relief Canyon has a chance to come back into commercial production,” argues Cooke. There is one last permit to acquire before mining can begin in the existing open-pit area.
A non-compliant resource estimate by an independent consulting firm suggests Relief Canyon could contain an indicated resource of 100,000 oz., based on 4.2 million tonnes grading 0.75 gram gold per tonne. Inferred resources hold a further 35,000 oz. in 1.5 million tonnes grading 0.72 gram gold.
“It has sufficient resources for the first four years of production, yet to be confirmed of course with our own drill program once we get our hands on the property in February,” says Biles.
The bulk of the historic database comprising 591 holes is reverse circulation (RC) drilling. Canarc plans to upgrade the resource by twinning five to 10 selected RC holes with core holes. “If those results come back as comparable then the whole database gets upgraded and we expect to come with a revised resource following that program,” explains Cooke.
The core drilling will also provide a new batch of samples for metallurgical testing. “We want to get some definitive column leach tests to clone the historic recoveries that Pegasus got back in the late 80s,” Cooke says.
“The initial discovery was drilled off at a very tight spacing without much attention paid to the potential of non-outcropping gold on the property, so there is very little exploration done on any distal targets to the initial discovery,” adds James Moors, vice-president of exploration.
“There is certainly lots of upside for additional resources on the property. There are some exciting drill targets available,” confirms Biles. Only 1.6 km north of the old pits, Firstgold pulled some significant intercepts from an area outside of the existing resource, including: 13.7 metres of 3.74 grams gold in hole 07-39; 85.4 metres of 1.95 grams in hole 07-72; 42.7 metres of 1.68 grams gold in hole 08-04; and 4.6 metres of 32 grams gold in hole 08-02.
“When a junior company pulls holes like Firstgold did, they have to be followed up, you can’t just leave them there,” says Cooke. “Clearly this is an area that is crying out for follow-up drilling. Once we finish our due diligence drilling in and around the pit, then it will be time to roll up our sleeves and get to work on unfolding what we believe to be a pretty interesting exploration potential to expand the resource.
“Because Relief Canyon is largely built and permitted, it is very much like taking a page out of the playbook of our sister company, Endeavour Silver (edr-t, exk-x), who did exactly that by acquiring fully built and permitted silver mines in Mexico, and who have had good success so far,” says Cooke. “We’re hoping that Canarc can follow in Endeavour’s footsteps on the fast track to production.
“Relief Canyon represents not only an attractive new acquisition for Canarc, it’s a great fit with our other main asset, the 1.1-million-ounce high-grade underground New Polaris gold mine project located in northwestern British Columbia,” he adds.
In December, Canarc raised just shy of $1.3 million in a non-brokered private placement of 8.5 million units priced at 15¢ apiece. Each unit was comprised of one share and a half warrant exercisable at 22¢ for a period of 18 months.
With the proposed acquisition of Relief Canyon, Canarc has hit a 52-week high of 30¢. The company has 90.5 million shares outstanding, or 98.8 million fully diluted.