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Eldorado Invests In Integra

The most active junior explorer on the Venture exchange just got a major endorsement: Eldorado Gold (TSX: ELD) is buying 15% of Integra Gold (TSXV: ICG) through a private placement that will put $14.6 million into ICG’s bank account.

The financing will leave Integra with $27 million on hand, a solid stack of cash to continue exploring its Lamaque project in Quebec. The company has five drills turning already but will boost that to ten rigs for a fall/winter program, with the aim of completing 100,000 metres of drilling this year.

I cannot think of another junior company doing 100,000 metres of drilling. Then again, I can’t think of another junior that has convinced a major miner to pick up a stack of shares at a premium to market recently.

But being distinctive is part of Integra’s plan.

The company has raised $47 million since 2012, through the throes of a bear market. It has drilled more than 90,000 metres in the last 18 months, while so many explorers pulled back on spending. Sliding markets or not, Integra inked a key deal to buy an adjacent and permitted mill and tailings facility. It launched a crowd-sourcing challenge, offering $1 million to whoever can turn 6 terabytes of historic data into the best targets to find more gold on its lands.

And now the company has a stakeholder in Eldorado Gold, a successful gold miner with a track record of taking over the companies it invests in. In late 2013 Eldorado took over Glory Resources after acquiring a 19.9% stake. In 2009 Eldorado acquired Sino Gold, six months after buying 19.8% of Sino in a private placement.

Eldorado has also taken over two companies without investing ahead of time: it bought European Goldfields in late 2011 and Brazuaro Resources in mid-2010. The point is (1) Eldorado grows by acquisition and (2) when ELD buys a chunk of a company, there’s a good chance the miner is pretty darn interested in owning the rest.

Why is Eldorado interested in Integra? For Lamaque, its gold project beside the mining-based city of Val d’Or in the Abitibi Greenstone belt.

The Abitibi earned a reputation as one of the most prolific gold mining districts in the world by spitting out more than 156 million oz. gold since the 1930s. Nine million of those ounces came from the Sigma and Lamaque mines, which sit a few kilometres north of Integra’s main resources.

The area has been explored for decades but for much of that time it was very divided. Competing companies refused to share data on what they had figured out on their side of the property line, which stymied efforts to find the next big zone.

Then the price of gold fell and labour unrest came to Quebec. The Sigma and Lamaque mines were shuttered because of economics and politics, not lack of gold.

Over time the area ended up divided in two: Lamaque North and Lamaque South. Integra earned full ownership of Lamaque South in 2009. Late last year the company inked a deal for Lamaque North, consolidating the area for the first time and adding the historic Lamaque and Sigma mines to its holdings.

The Lamaque North deal was a game changer for Integra from several reasons. First, it gave Integra a permitted mill and tailings facility that are literally adjacent to its deposits (more on that later). Second, it added defined resources. Third, it increased the potential scale of a new Lamaque mine by adding a long list of exploration targets.

Integra has not yet had time to touch those targets because it has remained focused on its original Lamaque South property, where it has delineated 811,010 oz. of indicated gold at an average grade of 9.5 grams gold plus 276,030 oz. of inferred gold at 10.9 grams gold.

Most of those ounces are in the Triangle and Parallel zones. The No. 4 Plug is also significant.

Each zone is a ‘plug’ of mineralization, a steeply dipping intermediate to mafic intrusion. The Lamaque mine pulled 3.7 million oz. from one such plug. Integra has identified 15 plugs on Lamaque South and has outlined ounces in six.

Finding mineralization is one thing. Outlining mineralized bodies that could be mined economically is another. After proving that Lamaque still hosts gold, Integra moved on to that second challenge.

The work has already paid off. Triangle is a steep plug cut across with mineralized veins. Last year, Integra’s understanding of the zone looked like this:

That’s ok, but there were two problems. The first was a lack of detail. The second was that 40% of the known veins were near horizontal. That’s not good. Mining near horizontal veins is hard work simply because you have to pull the ore out along flat drifts.

Much easier is to have veins that dip enough for gravity to do the work for you. To that, check out Integra’s improved understanding of Triangle:

The key change is a much more detailed understanding of the vein system, including recognition of a set of C Shear Veins that dip more steeply, carry better grades, and extend not only all the way across the intrusive plug but also into the surrounding volcanic rock.

In other words, they’re longer, thicker, higher grade, and easier to mine than the rest of so-called T Veins. The latest results from some of these Triangle zone C veins include 39 grams gold over 2 metres and 22 grams gold over 4 metres within the intrusive plug, plus 7.5 grams gold over 5 metres in the volcanics 150 metres away.

Integra is currently pummeling the Triangle zone with drill holes to inform a high-confidence resource due out before the end of the year. With that resource in hand, Integra will be able to start really planning how to mine this thing.

The company is also drilling at Parallel to increase the resource confidence and recently reported several strong intercepts, including 60 grams gold over 2 metres, 41 grams gold over 2 metres, and 99 grams gold over 2.5 metres.

The work at Parallel and Triangle is predominantly infill and near-resource expansion. The rest of Lamaque, however, offers another universe of potential.

Take depth extent. At the moment the resources at Triangle and Parallel extend to roughly 600 metres depth. They remain open below – and that is significant. The Lamaque mine extended to 1,100 metres depth while Sigma went 2,200 metres underground. This is an area that knows deep underground mining. Odds are good that Integra’s known deposits continue at depth and even that mineralization continues below the bottom of the old Lamaque mine.

Then there are the 13 other mineralized intrusive plugs on Integra’s initial South Lamaque property, as well as a raft of other targets on North Lamaque.

In other words, there are a whack of targets. Figuring out which ones to prioritize is not easy – which is why Integra is looking externally for answers.

The Integra Gold Rush Challenge is allowing open access to 6 terabytes of data from 70 years of exploration and mining across the Lamaque North property. A million dollars of prize money is awaiting the individuals or teams who turn that data into the best targets for Integra to test in its hunt for another major gold deposit.

It’s an innovative way to take advantage of a pile of data that Integra’s team would not have had time to assess for many years. The contest officially launches next month and winners will be announced at PDAC in the spring.

But I digress. Back to the project.

Exploration was going well for Integra, enough that in March 2014 the company completed a preliminary economic assessment (PEA) based on toll milling. The numbers were good: more than 110,000 oz. annual gold production at an all-in sustaining cost of $805 per oz., at a mine that could be built for $69 million and would generate a 38% after-tax internal rate of return.

Great – but the market wanted more. There was a permitted 2,200-tonne-per-day mill and tailings facility sitting unused next door to the project. Surely that offered advantages?

It certainly did if Integra could secure a deal to buy Lamaque North, which it did in November. For $8 million the company bought a property with infrastructure worth $100 million (replacement value).

Not surprisingly, adding a permitted and operational mill and tailings facility into the mix enhanced Lamaque considerably.

A new PEA boosted the project’s post-tax NPV to $113.5 million (from $88.5 million) and its post-tax IRR to 59% from 38%, despite using a lower gold price (US$1,175 per oz. versus US$1,275). Capital costs fell to $62 million, including refurbishing the mill, and all-in sustaining costs fell almost 10% to $731 per oz.

Those numbers put Integra in a pretty enviable position. Lamaque offers one of the highest IRRs of any development-stage gold project, while also offering one of the lowest capital costs. And once built the mine should be able to produce gold almost as cheaply as any of its development-stage peers.

As bonus, the permits that came with Lamaque North simplify the regulatory process significantly. Federal and provincial environmental impact assessments are not required and most mining permits are already in place for the Triangle and Parallel zones, the mill, and the tailings facility.

As another bonus, the updated PEA incorporated the mill but it did not consider the resources that Integra defined between late 2013 and early 2015. The company is drilling like mad right now and will produce a new resource estimate before the end of the year.

I think the grade and level of confidence in that resource will attract renewed attention to this story. This is an asset showing increasing potential to become a high grade mine with well-controlled costs in one of the best mining jurisdictions in the world, right beside a town full of experienced underground miners wanting to work.

Eldorado sees those attributes. ELD is a well-run miner financially, but one that I am sure would love to have just one asset in an easy jurisdiction. Just today ELD shares fell 10% after the Greek government suspended approval of a technical study for the under-development Skouries mine in northern Greece.

The Skouries mine has faced local opposition since 2011, when approval to develop the mine was granted. Popular protests clashed directly with a government that held the project up as an example of why foreign companies should invest in Greece. Amidst that mixed message Eldorado has spent more than $450 million building Skouries and the nearby Olympias mines. Recently the Greek government confirmed Eldorado’s right to proceed…and then this.

Eldorado operates two mines in Turkey, one in Greece, three in China, and one in Brazil. The company has faced challenges at each site.

More than 10,000 people took to the streets of Thessaloniki, Greece, on March 9, 2013, to protest against Eldorado's planned and permitted gold mine. (Nikolas Giakoumidis/Associated Press)

It is no surprise that the miner is eyeing up pro-mining Quebec for its next potential operation.

To me this partnership looks like a win-win. Eldorado gets a stake in a company it likely wants to buy down the road. Integra gets a topped up bank account to fund its aggressive drill program, access to Eldorado’s underground mining expertise, and a shot of credibility for attracting such a strong partner.

Gold gained nicely today, even besting US$1,135 at one point, after ‘leaked’ Federal Reserve meeting minutes made a September rate hike slightly less likely. Talk of a US market correction or crash is rising. China devalued its currency after a series of weak economic results (and after being told “Sorry, no, you are not allowed to join the exclusive club of reserve status currencies also known as the SDR Basket”). Base metals continue to slide.

All told, the metals and mining world remains a confusing place. Within the confusion, however, select companies are clearing one milestone after another.

Integra Gold is the busiest junior explorer out there. It has shown it can raise significant funds regardless of the state of the sector. It has grown its resource and greatly improved its asset in the last few years, not letting uncertainty stop its progress. Its asset is just the kind that today’s markets want: a brownfields project in a supportive jurisdiction with high grades, low costs, and lots of expansion potential.

And now it has attracted a $14.6-million investment from a gold miner that may well be setting up for a takeover down the road.

Man it feels good to talk about positive news!

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Thanks Gwen. Always enjoy your views. Tough market to read short term. Long term metals / energy look very strong.

-NH (October 2022)

Your "Maven Letter" has totally blown me away! I was thinking one of your letters would be a 2 or maybe 3 page letter about one or two mining companies. Instead, each one is a detailed report. Bravo to you for such great detail.

-CY (February 2021)