Noront Expands Eagle One With Polymetallic Finds

SITE VISIT

MCFAULD’S LAKE, ONT. — The story of the Ring of Fire, one of the hottest exploration camps in Canada, started in August 2007, when Noront Resources (NOT-V, NOSOF-O) made a surprise discovery of high-grade nickel-copper-platinum group element (PGE) mineralization on the Double Eagle project, which covers 1,100 sq. km in the James Bay lowlands of northern Ontario.

That fateful discovery, named Eagle One, drew explorers’ attention to the remote region and sparked a staking rush focusing on a crescent-shaped horizon of silicate iron formation, overlain to the outside by metasediments and metavolcanics, and underlain on the inside by older arc rocks, including some metasediments, metavolcanics, and abundant felsicto- intermediate intrusions. (This geology is similar to that of the Shaw Dome near Timmins, Ont.)

The initial find was followed last year by the discovery of a new nickel deposit, named Eagle Two, and two chromite deposits, Blackbird One and Two. The deposits all occur within 5 km of each other.

And in April, the company announced yet another new zone, Thunderbird, with vanadium, titanium and iron, located 14 km northeast of Eagle One.

But as promising as Noront’s discoveries look, Double Eagle is still an early-stage project. And if Noront and other explorers were to find more resources, there is one essential ingredient missing that would allow the Ring of Fire to become a mining district — infrastructure.

“It’s obvious to us that without high-grade nickel in this belt, the belt is probably not going to get developed. We are the only company in this belt which has the high-grade nickel,” says Joseph Hamilton, Noront’s co-president and CEO. “If you don’t have nickel, copper and PGE in this belt to support the development and pay for the infrastructure, you are never going to have economic chromite as far as I am concerned, because it is going to be really hard to get enough market share to be able to pay back the capital you need to develop the belt.”

The multiple distinct mineralized zones, lying close together, suggest a unique geology. A technical report on Eagle One describes it as a magmatic sulphide deposit. A mantle-derived, highly magnetic ultramafic intrusion has been emplaced along the margin of a regional-scale granodiorite pluton that had been intruded into, causing a doming of the host Sachigo greenstone belt rocks.

The intrusion is situated between the granodiorite footwall and the surrounding Sachigo greenstone belt hangingwall. A series of conduits cutting across the granodiorite have acted as feeders to the main intrusion. Eagle One is well within such a conduit feeder, at some distance from the main intrusion.

Jim Mungall, Noront’s chief geologist, says that Eagle One was formed by the assimilation of iron formation by komatiitic magma (basaltic magma with more than 18% magnesium oxide). The deposit was formed in a magmatic conduit.

The mineralization on Eagle One occurs as sulphides. Copper mineralization is in chalcopyrite, and nickel mineralization is in pyrrhotite and pentlandite. The geological setting is magmatic peridotite with pyrrhotite and chalcopyrite.

Two styles of mineralization have been found in Eagle One: massive and disseminated. Indicated resources for Eagle One include 230,000 tonnes of massive mineralization grading 6.5% nickel, 3.5% copper, 9.8 grams silver per tonne, 1.9 gram platinum and 12.2 grams palladium, for 33 million lbs. nickel, 18 million lbs. copper, 73,000 oz. silver, 14,500 oz. platinum and 91,000 oz. palladium.

Eagle One’s indicated resources also include 1.6 million tonnes of disseminated mineralization grading 1.3% nickel, 0.85% copper, 2.9 grams silver, 1 gram platinum and 2.7 grams palladium, for 46 million lbs. nickel, 30 million lbs. copper, 152,000 oz. silver, 52,000 oz. platinum and 139,000 oz. palladium.

Eagle One’s inferred resources include 220,000 tonnes of massive mineralization grading 7% nickel, 2.9% copper, 8.7 grams silver, 3 grams platinum and 11.8 grams palladium, for 34 million lbs. nickel, 14 million lbs. copper, 61,000 oz. silver, 21,000 oz. platinum and 82,000 oz. palladium.

Eagle One’s inferred resources also include 870,000 tonnes of disseminated mineralization grading 1.2% nickel, 0.9% copper, 3.1 grams silver, 1 gram platinum and 2.7 grams palladium, for 24 million lbs. nickel, 17 million lbs. copper, 86,000 oz. silver, 27,000 oz. platinum and 75,000 oz. palladium.

The company has intersected more mineralization in holes drilled after the cutoff date for the resource estimate.

A scoping study for the combined indicated and inferred resources was released in October. Examining a direct-shipping scenario, the study was based on the assumption that the higher-grade massive mineralization would be mined first over a period of two years, at a rate of 1,000 tonnes per day, for 480,000 tonnes. That would be followed by 4.75 years of mining the lower-grade disseminated mineralization at a rate of 1,500 tonnes per day, for 2.5 million tonnes.

The grade of the massive mineralization is high enough to warrant direct shipment, but the lower-grade disseminated portion would require a mill to produce a concentrate.

The study estimated recoveries in the nickel concentrate at 80% for nickel, 50% for platinum and 60% for palladium. Recovery in the copper concentrate is estimated at 92% for copper. Total nickel production is estimated at 92 million lbs.

Mining and milling costs were pegged at about $118 per tonne, with subsequent costs (treatment, refining, freight etc.) at $446 per tonne nickel concentrate and $346 per tonne copper concentrate.

Assuming metal prices of US$11 per lb. nickel, US$2.75 per lb. copper, US$11.50 per oz. silver, US$1,225 per oz. platinum, and US$300 per oz. palladium, and based on an exchange rate of US90¢, net smelter return is projected at $1,400 per tonne of resource of massive mineralization, and $276 per tonne of resource of disseminated mineralization. Preproduction capital costs were estimated at $173 million, and sustaining capital at $113 million.

Noront estimates that, together with about $70 million for a road, it would need about $250 million to build a mine that would direct-ship the massive sulphide mineralization. The company would use the cash flow from this operation to build a mill for the disseminated mineralization.

Projections show an internal rate of return (IRR) of 160%. At a discount rate of 10%, the project’s net present value (NPV) is $465 million. The payback period is 2.2 years, and the break-even nickel price is US$3.93 per lb., net of byproduct credits. These are pretax projections, and do not take into account royalties, financing costs, depreciation and head-office overheads.

The projections are sensitive to metal prices, particularly nickel. For example, using US$4.68 per lb. nickel, US$2.13 per lb. copper, US$9.56 per oz. silver, US$856 per oz. platinum and US$172 per oz. palladium (spot prices from October), and at an exchange rate of US84¢, the IRR collapses to 7%, and the NPV at a 10% discount rate swings to a negative $6 million. At these prices, the break-even nickel price increases to US$4.50 per lb., net of byproduct credits.

“What it has told us is we need more nickel, obviously,” Hamilton says. “We need more massive nickel.”

Blackbird, Thunderbird

Drilling this year and last at Blackbird returned highlights including: 75 metres of 38% Cr₂O₃ and 15% iron from 338 metres depth in hole 31; 35 metres of 33% Cr₂O₃ and 15% iron from 462 metres in hole 43; 48 metres of 51% Cr₂O₃ and 17% iron from 365 metres in hole 28; and 30 metres of 39% Cr₂O₃ and 13% iron from 180 metres depth in hole 95.

The company has conducted metallurgical tests on high-grade massive chromite mineralization, as well as lower-grade disseminated mineralization. The tests showed t
hat massive chromite is amenable to dense media separation (DMS) at sizes below 2 millimetres. Benchscale tests produced 87% chrome recovery on massive chromite. Further testing is planned for small lump and chip-size material.

The tests also showed that the lower-grade, disseminated chromite can produce high-quality concentrate using gravity separation. Chrome recovery in tests on disseminated mineralization was 80%. Gravity concentrates grade 52-53% Cr₂O₃, with a chrome-to-iron ratio of between 2.2 and 2.4:1 and silica levels below 3%. Noront says that these concentrates, which are in the high end of the chromite concentrate spectrum, would be a suitable feedstock for ferrochrome production.

“The metallurgical results on the chromite certainly show that we are able to produce a marketable concentrate from chromite,” Hamilton says. “The discovery itself is very high quality and we get excellent recoveries from that.”

Results from the discovery hole for Thunderbird, the newest find, were released in April. Hole 21 at Thunderbird intersected two mineralized zones, including 178 metres grading 0.36% V₂O₅, 3.8% TiO₂ and 25% Fe₃O₄ from a depth of 133 metres in the shallow zone, and another 100 metres grading 0.36% V₂O₅, 2.7% TiO₂ and 24% Fe₃O₄ from 397 metres depth in the deeper zone.

Noront characterizes the mineralization as disseminated to semi-massive vanadium-rich magnetite with titanium. Assays from four other holes from Thunderbird are pending, and the company is planning a preliminary metallurgical study.

Jim Atkinson, Noront’s exploration manager, says drilling is currently under way on the Blackbird targets using one drill. Noront anticipates that, when drilling wraps up, it will be in a position to compile an inferred resource estimate for the chromite, although it has not decided whether it will go ahead with an estimate.

While continuing to explore Blackbird, Noront is turning its attention back to Eagle One, with more drilling anticipated for this area, and for a new target known as AT12, located 9 km northeast of Eagle One, as well as other targets. So far, about 75,000 metres of drilling have been completed on Double Eagle, and the company plans to drill another 15,000 metres this year.

The type of target Noront is looking for is feeder dykes “slamming” into the sill, which is the main intrusive body. The feeder dykes are typically detected using magnetics. Noront says there are a number of further copper-nickel targets within this prospective geology.

“There is about a twenty-kilometre strike extent, which is all prospective for nickel along the footwall contact, and to date, most of our exploration for nickel has been right around Eagle One, so there is still lots of work to do in this belt,” Hamilton says.

Since most of the potential for increasing the resource at Eagle One is at depth, the company is planning a deep-penetrating magneto-telluric geophysics survey to test depth extension.

One scenario for the Blackbird deposits is to mine and ship the chromite ore to China via Vancouver. The other possibility is to produce ferrochrome.

This would reduce shipping costs, but increase capital costs and require an ample electricity supply. Possible locations for a ferrochrome plant are Nakina or McFauld’s Lake. Nakina has road, rail and electric power. If a ferrochrome plant were built at McFauld’s Lake, it would require a 300-km power line. A rough estimate puts capital costs for a plant at US$50 million, excluding a power line.

Ferrochrome has the advantage of far higher margins than chromite ore, and, beside China, also has a market in Western Europe. But it would take time to build up market share, which would probably have to be taken from South African suppliers. Hamilton acknowledges that this is not a straightforward exercise, and could lead to a price war (as could shipping chromite).

In 2007, 22 million tonnes of chromite ore and concentrate were produced worldwide. At presstime, high-carbon ferrochrome with 60% chrome was trading in China at about US65¢ per lb. Typical chromite ore prices are US$100-250 per tonne lump ore, depending on grade.

“So our outlook on the development of this belt right now is . . . we have this high-grade nickel-copper,” Hamilton says. “We are going to start looking for more. If we can double our resources in nickel and copper, we are going to be very close to being able to support all the infrastructure necessary to start extracting this resource (chromite). But this resource by itself, on a standalone basis, I think it is going to be hard to make it work.”

Double Eagle is about 300 km north of Nakina, and McFauld’s Lake itself is 12 km northeast of Eagle One. The First Nation community of Webequie is 60 km west, and the First Nation community of Marten Falls/Ogoki, 140 km southeast.

There is a 140-km winter road from Nakina to Marten Falls. To upgrade the road to an all-weather road from Marten Falls to McFauld’s Lake would cost $70 million, Noront estimates.

A part of Double Eagle falls within traditional lands of the Marten Falls community. Noront has signed an agreement, under which it pays Marten Falls for drilling and land disturbance in the area.

The Northern Miner’s recent visit to Double Eagle included a tour of Marten Falls. The local school was decorated for the occasion with posters welcoming Noront. Clearly, the company is doing its homework in community relations, and the community is interested in the economic possibilities that the Ring of Fire could generate.

In winter, Noront uses an airstrip on the nearby Cooper Lake, and in summer a floatplane. It uses heli- copters to move people and supplies from there to Eagle One. Marten Falls is planning to build an airstrip for year-round use, which should help lower exploration costs.

Noront is led by two interim co- CEOs — Joseph Hamilton and Paul Parisotto — and a board of directors whose composition was decided in October in a compromise deal between Rosseau Asset Management, which is one of the largest shareholders in Noront, and the previous management, led by then-president and CEO Richard Nemis.

At the time, Rosseau sought to oust Nemis and his board in a proxy battle, alleging that they squandered their first-mover advantage in the Ring of Fire. But the two sides managed to reach a deal on the composition of the board, and Nemis stepped down in favour of Parisotto and Hamilton. Noront is now looking for a permanent CEO.

Eagle One is subject to a 1% net smelter return royalty, which can be bought for $500,000.

The company has about 155 million shares outstanding, or 161 million shares fully diluted. On Jan. 31, the treasury held about $34 million in working capital. At current burn rates ($1.75 million per month), Noront estimates that about $10 million in working capital will remain at year-end.

At presstime, Noront shares traded at 72¢ apiece in a 12-month range of 43.5¢-$4.65. Genuity Capital analyst Michael Gray rates Noront a buy, with a 12-month target of $1.20.