Lake Shore boasts 6.4M oz. resource

Timmins-focused junior Lake Shore Gold (LSG-T, LSG-X) had been aiming for a 6-million to 8-million-oz. gold resource by early next year. But the company has already achieved this goal by tabling initial resources for its Thunder Creek and Fenn-Gib projects, bringing company-wide ounces to 6.4 million, with room for more. 

On Nov. 17, Lake Shore announced a National Instrument 43-101-compliant resource of 2.05 million oz. gold in 65.3 million tonnes grading 0.97 gram gold per tonne at its Fenn-Gib property, located 60 km east of Timmins, Ont. 

The figure breaks down to 1.3 million oz. gold from 40.8 million indicated tonnes at 0.99 gram gold, and 750,000 oz. from 24.5 million inferred tonnes at 0.95 gram. 

Tony Makuch, Lake Shore’s CEO and president, said Fenn-Gib’s initial resource matched
the company’s 2-million-oz. estimate, and could further grow. 

 “We believe the potential to add to the resource with further work is excellent, given that there is only limited drilling below three hundred metres and to the north, east and west of the Main zone,” Makuch explained in a press release. 

He said the company is already seeing intriguing drill results from its first four holes, which were not included in the initial resource. The results extend mineralization 200 metres to the north. 

Analyst Kerry Smith of Haywood Securities said in a Nov. 17 note that while the 2.05-million oz. resource is “on the low end” of the anticipated 2 million oz. to 3 million oz., he estimates that the total resource close to the optimized pit shell design equals 3.44 million oz. grading 0.79 gram, using a 0.35-gram cut-off. 

To derive the resource, Lake Shore used a 0.5-gram cut-off grade for in-pit resources and 1.5 grams for out-of-pit resources, along with a gold price of US$1,190 per oz. and a 10% dilution. 

The resource is based on 319 holes totalling 86,017 metres, to a depth of 300 metres over a 1.3-km strike length. Most of these holes were drilled between 1986 and 1999 on the Main zone by the project’s previous owners, Pangea Goldfields and Barrick Gold (ABX-T, ABX-N). Lake Shore bought the 29-sq.-km property from Barrick in May for 14.9 million shares, or $60 million.

Supporting a conceptual annual production of more than 150,000 oz., Fenn-Gib is stepping closer to becoming the company’s third significant production source, Smith reckons. 

He predicts that if the new drilling lowers the [3.7-for-1] strip ratio and bumps gold grades above 1.1 grams, it could possibly transform Fenn-Gib “into a decent gold project with a large bulk-mineable deposit with high-grade potential, as well – which is typical of the Timmins camp.” 

A day before releasing Fenn-Gib’s estimate, Lake Shore posted an initial resource for the Thunder Creek property, also in Timmins. The project hosts 1.03 million oz. gold in 5.6 million tonnes grading 5.76 grams gold. It contains 521,600 oz. gold in 2.9 million indicated tonnes at 5.64 grams gold, and 510,000 oz. gold in 2.7 million inferred tonnes at 5.89 grams. 

 “We are off to a good start at Thunder Creek in establishing a resource base to support long-life, profitable mining,” Makuch states. 

The resource is based on 440 new holes for 131,431 metres, starting from 250 metres to a depth of 900 metres over a 300-metre horizontal strike. The resource is contained in 11 distinct zones, with mining widths reaching 24 metres. More than 75% of the resource exists in two key zones within the 600-metre and the 800-metre level, mostly within a 200-metre vertical interval. 

The 200-metre interval around the 730 level contains 650,000 oz. averaging 6 grams gold, and over 3,250 oz. per vertical metre. 

 This level will provide several years of productive mining, Makuch says, adding it could supplement ore at the company’s Bell Creek mill. Located on the Bell Creek property east of Timmins, the mill is undergoing expansion to process 3,000 tonnes per day by late next year, before ramping up to 5,500 tonnes per day. 

Lake Shore has initiated detailed engineering studies on the 200-metre interval and is working on a scoping study at the Thunder Creek and Timmins mine deposits, which it plans to combine into a single mining operation. The company recently intersected mineralization 1.9 km below the Timmins mine reserve. “That is one hell of a stretch!” Makuch commented, later adding there may be a similar opportunity to extend the adjacent Thunder Creek deposit to depth. 

Thunder Creek’s resource estimate assumes a long-term gold price of US$1,200 per oz. and a cut-off grade of 1.50 grams per tonne, which considers a 10% internal dilution at 1.75 grams gold.

Smith of Haywood Securities says that the company’s 6.4-million-oz. resource is expected to grow, with reserve and resource updates from the Timmins mine, Bell Creek and Gold River trend in early 2012. 

Lake Shore has 27 rigs turning on its properties as part of its $30-million drill program. 

Smith notes that while the company continues to deliver on the exploration side, it needs to work on its operational front to receive a better valuation. Smith has a price target of $3.50 with a sector outperform rating. Similarly, Bart Jaworski of Raymond James has an outperform rating on Lake Shore and a $3.10 target. 

At presstime, Lake Shore Gold closed at $1.47 within a 52-week range of $1.27 to $4.42.