Trelawney slides on Ct Lake’s resource update

Trelawney Mining and Exploration’s (TRR-V) share price continued to sag following a Feb. 24 resource update at its Côté Lake gold deposit on the Chester property, 20 km southwest of the town of Gogama, Ont. 

Based on a 0.3-gram gold cut-off, the project hosts global resources of 6.87 million oz. gold averaging 0.90 gram gold per tonne. It has 35 million tonnes grading 0.82 gram gold for 930,000 oz. gold in indicated, plus another 204 million tonnes at 0.91 gram gold for 5.94 million oz. gold in inferred. 

The resource update represents a 63% increase in total gold ounces compared to last year’s 4.2-million-oz. initial inferred resource estimate from 31 million tonnes grading 1 gram gold. The deposit’s overall strike length has grown from 700 metres to 1,200 metres since the previous estimate, and the grade has dropped by 10%. 

“We were expecting a lower grade, but not this low,” says Desjardins Capital Markets’ analyst Adam Melnyk. 

Melnyk anticipated a grade of 0.94 gram gold, and has adjusted his model to reflect the actual grade of 0.90 gram gold, adding that all other assumptions relating to Côté Lake are unchanged. 

“We still see the deposit as a large-scale mining operation producing over 500,000 oz. gold per year. Infrastructure at the project is excellent, which should translate into reasonable capital and operating costs.” 

Melnyk maintains a “buy” rating on the stock, but has reduced his target to $5 from $5.65 per share. 

Investors who were expecting bigger numbers from Côté Lake were left unimpressed. 

Following the update, shareholders drove the company’s stock down 16% to close Feb. 27 at $2.49 apiece as 4.2 million shares changed hands. The next day the stock touched a new 52-week low of $2.05, before ending at $2.36 a share.  

The junior has nine drills turning to expand and define the deposit. It has budgeted over $26 million for exploration this year. 

“The increase in confidence from the drilling and the upgrading of almost a million ounces into the indicated category is a significant step forward for the project,” Greg Gibson, the company’s president and CEO, says in a press release.

 “With our current aggressive diamond drill program we look forward to upgrading the remaining inferred resources, and rapidly advancing the project to the next step.”

 The resource estimate is based on 129 holes, or 65,900 metres, drilled between December 2009 and last September. 

Trelawney expects to complete a scoping study for Côté Lake during the second half of 2012.