Kinross invests in Hemlo area play

Vancouver – Just 2.5 km from the edge of Barrick‘s (abx-t, abx-n) famed Hemlo gold property in northwestern Ontario, a new explorer hopes to achieve what countless others have already tried but failed to accomplish: to discover another major gold deposit in the Schreiber-Hemlo greenstone belt.

Newly listed Entourage Metals (emt-v) has developed a theory, not a new one, perhaps, but one which has long been popular among the resource sector.

It goes like this. Barrick’s set of closely-spaced mines comprising the Hemlo property are located in the eastern half of a greenstone belt which extends for at least 60 km. Though the Hemlo deposit was discovered in 1981 and has already produced more than 20 million gold oz., Entourage says it is the only substantial gold deposit found to date in the belt. This greenstone belt is similar to other prolific greenstone belts in Canada, Australia and Africa that host multiple gold deposits across a large area. So, there might just be another major gold deposit that is waiting to be found in the Hemlo belt.

To that end, Entourage has signed an agreement with Barrick to explore a set of properties nearly adjacent to and along strike of the Hemlo mines. It has optioned a 100% interest in 210 mining claims totalling 3,808 hectares 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, and a key part of the team that received the 2008 Developer of the Year Award from the Northwestern Ontario Prospectors Association.

Interesting, then, that Barrick’s rival, Kinross Gold (k-t, kgc-n), has just agreed to buy 1.55 million shares of Entourage in a private placement at 65¢ each, for about 6.9% of the company. While Entourage’s management were not available for comment, it would appear Kinross’ involvement might stem more from its past experiences with several directors of the company than it is an opportunity to get in early on a promising project. Likely, it is a mix of both.

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 the group is also involved with Full Metal Minerals (fmm-v), which is exploring somewhat less successfully for copper, gold and molybdenum just across the border in Alaska.

As for Entourage, the company’s name reflects its unique 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.

Since listing, the company has added three more Hemlo gold belt properties to its property portfolio: Black Raven, Valley Lake and Spruce Bay. Its initial 2011 exploration plan includes downhole induced polarization/resistivity surveys, soil gas surveys, a lithogeochemistry sampling program, a gravity survey and, importantly, drilling.

At the Toothpick West target, Entourage plans 2,000 to 5,000 metres of drilling commencing sometime in late spring. And at the Rous Lake target, a 5,000-metre program is scheduled 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 May 4, 2011, and expects to have another $1 million in the bank after closing the recently announced financing with Kinross.

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 (dominantly wacke and sandstone), as well as felsic volcanic rocks of the Moose Lake Volcanic Complex.

Several historical drill programs on a number of Hemlo belt targets have returned relatively anomalous results, though a great deal of information from the exploration programs has been gathered, especially since 1975. 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 deep overburden, which can be as deep 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 very similar to what is seen in the Hemlo ore deposits further 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 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.

At presstime on May 10, shares of the company were up 5¢ to 75¢ on 20,000 shares traded.