Kinross invests in Entourage’s Hemlo play

Just 2.5 km from the edge of Barrick Gold‘s (ABX-T, ABX-N) famed Hemlo gold mine property in northern Ontario, newly listed explorer Entourage Metals (EMT-V) hopes to achieve what countless others have tried but failed to accomplish: to discover another major gold deposit in the Schreiber-Hemlo greenstone belt, and in the process turn the 60-km belt into something more than a one-hit wonder.

Though the Hemlo deposit was discovered in 1981 and has produced more than 20 million gold oz. from three closely spaced, competing mines, Entourage says it is the only substantial gold deposit found to date in the belt.

Fueling the dream, Entourage has signed an agreement with Barrick to explore a set of properties nearly adjacent to and along strike of the Hemlo mines. The junior has optioned a 100% interest in 210 mining claims totalling 38 sq. km from Barrick in exchange for a commitment to spend $5 million on exploration over five years.

Should an economic deposit be found, Entourage has agreed to pay Barrick $10 million and a 3% net smelter return royalty, as well as give it a right of first refusal at a 10% discount.

Entourage has even lured Barrick’s former senior geologist at Hemlo, John Florek, into become vice-president of exploration and a director of the company. Entourage describes Florek as having been extremely instrumental in developing and extending the mine life at Hemlo. 

Interesting, then, that Barrick rival Kinross Gold (K-T, KGC-N) has just agreed to buy 1.55 million Entourage shares in a private placement at 65¢ each, for about 6.9% of the company.

While Entourage’s management was not available for comment, it would appear Kinross’s involvement might partly stem from its past experiences with several Entourage directors.

Jeff Sundar (Entourage’s president), Adrian Fleming (its chief executive officer), Robert McLeod (chairman), Michael Williams (director) and Cale Moodie (chief financial officer) all played a part in the recent success of Underworld Resources, which Kinross acquired in early 2010 for $139 million, or $2.62 a share. Underworld’s first and only resource estimate for its flagship White Gold project in the Yukon shortly before it was taken over showed indicated and inferred resources totalling one million gold oz. and 407,000 gold oz. respectively, at average grades of 3.2 grams gold per tonne and 2.5 grams gold.

Most of this group is also involved with Full Metal Minerals (FMM-V), which is exploring for copper, gold and molybdenum in Alaska.

As for Entourage, the company’s name reflects its five-amigo share structure. Formed in 2010 as a partnership of sorts by five founding members – Sundar, Fleming, McLeod, Williams and Florek – all five hold roughly equal amounts of stock.   

Prior to Entourage’s initial public offering, Sundar, Fleming and Florek all acquired 425,000 escrow shares at 1¢ apiece, as well as 750,000 escrow shares at 5.5¢. Williams and McLeod bought a little more: 500,000 shares each at a penny and 800,000 shares at a nickel and a half.

After spending a year putting the company together, arranging the option agreement with Barrick, compiling historical information on the properties and advancing exploration efforts, the group completed Entourage’s IPO in February 2011, raising $5.75 million by issuing 11.5 million shares at 50¢ each. It now has roughly 22.2 million shares outstanding. At presstime, shares traded at 70¢.

Since listing, the company has added three more Hemlo gold belt properties to its property portfolio: Black Raven, Valley Lake and Spruce Bay.

Entourage’s initial 2011 exploration plan includes downhole induced-polarization and resistivity surveys, soil-gas surveys, a litho-geochemical sampling program, a gravity survey and drilling.

At its Toothpick West target, Entourage plans 2,000 to 5,000 metres of drilling, starting in late spring. And at its Rous Lake target, a 5,000-metre program is slated for the fall. A surface exploration program is also planned at Black Raven this spring and summer.

In all, the company hopes to complete at least eight holes in 2011 to a depth of around 1,500 metres each, at a cost of around $1.6 million, with another $300,000 spent on surveys and sampling. It had roughly $4.6 million in working capital as of early May, and expects to have another $1 million in the bank after closing the Kinross financing.

According to Entourage’s technical report for its Hemlo belt properties, the company’s exploration model is to search for deposits similar in type to the Hemlo deposit. Hemlo is located in major high-strain zones – the Lake Superior shear zone and the Moose Lake fault zone – and is spatially associated with an overall restraining bend in the belt. The 2.5-km-long deposit plunges to the west and is hosted by sedimentary (volcaniclastic and epiclastic) rocks dominated by wacke and sandstone, as well as felsic volcanic rocks of the Moose Lake volcanic complex.

According to its technical report, Entourage plans a series of deep-penetrating geophysical surveys to map out any potential mineralization located beneath the area’s abundant overburden, which can be as thick as 150 metres.

At Toothpick West, for example, historical drilling has defined a westerly plunge to the hanging wall contact of a porphyry zone. Entourage believes these plunge lines of mineralization are similar to what is seen in the Hemlo ore deposits farther east and along trend. It has been shown, says Entourage, that this plunge controls ore grade mineralization to depth at the Hemlo deposits.

The company further states much more is known about the belt and its mineralization than was available in the 1980s, when the bulk of exploration in the area was carried out. A majority of newly proposed targets lie below 300 metres depth, below which limited exploration has been completed.

And with 90% of Barrick’s Hemlo deposit below a depth of 500 metres, Entourage has a whole bunch left to explore.