Lake Shore Consolidates Around Timmins

Lake Shore Gold (LSG-T, LSGGF-O) has moved into the fast lane in its drive to go from junior explorer to gold producer.

The Vancouver-based company has 60 days to do its due diligence on the Bell Creek mine, in the Timmins, Ont., gold camp, after which it can take over possession from the Porcupine joint venture — which is managed by Goldcorp (G-T, GG-N) and includes Kinross Gold (K-T, KGC-N).

Lake Shore will pay $6 million in cash and $4 million worth of its shares for assets that include a hoist, a headframe, underground mine infrastructure, a mill, tailings facilities, and all existing surface infrastructure including office buildings and hydro access. The facility has been on care and maintenance since 2002.

Additionally, Lake Shore gets the rights to the ore in the ground, which has an indicated resource of 191,000 tonnes grading 8.25 grams gold per tonne for roughly 51,000 oz. and an inferred resource of 347,000 tonnes grading 7.7 grams gold for 86,000 oz.

Importantly, Bell Creek sits adjacent to Lake Shore’s Vogel- Schumacher property, and is roughly 40 km from its Timmins West project.

“We have three potential mines that can provide feed to the mill,” says Lake Shore’s head of investor relations, Meghan Brown. “There’s now Bell Creek itself, Timmins West — which is our most advanced project with feasibility getting under way by (mid-year) — and Vogel-Schumacher, which we can fast-track now.”

The potential for Vogel-Schumacher to move ahead of Timmins West in the pipeline is due to differing underground access: an exploration shaft would have to be sunk at Timmins West to allow underground exploration, while the underground workings at Bell Creek allow for underground drilling at neighbouring Vogel-Schumacher.

“This removes a lot of risk from the company,” Brown says of the acquisition. “We’re now in the position where we can make our own decisions as to where to go with the properties. And we’re not at the mercy of any major companies in terms of needing their mills.”

In addition to the $10 million in cash and stock, Lake Shore will pay Goldcorp and Kinross a royalty equal to 2% of net smelter returns from any production at Bell Creek.

The Bell Creek mill can process up to 1,500 tonnes of ore per day by way of gravity concentration, cyanide leaching and carbon-in-pulp gold absorption processes.

Brown says that while the mill has been on care and maintenance, it has been processing water, so its parts have been moving. Lake Shore estimates that it can have the mill back in working order within a year.

As for Lake Shore’s current leading project, Timmins West, a prefeasibility study and advanced underground exploration permit application are being revised to include processing at the Bell Creek mill. Results of the study are expected in the second quarter of 2007.

And while Brown says modifications would have to be made to the Bell Creek mill to process ore from Timmins West, the cost savings associated with the acquisition will more than make up for the extra capital spending.

“What we got for ten million dollars was a mill, which to build can cost fifty million. . . a tailings component, which could cost ten million. . . a headframe, which would be two million. . . and a hoist, which would cost half a million,” Brown says. “Plus, there’s the ore in the ground, which we think is worth around $6 million.”

Lake Shore’s shares were up over 12% or 19 to $1.73 on news of the deal with roughly 1.7 million shares traded.