Orex Hits High Grade
Everyone loves to ask: What is it going to take to bring the junior resource sector back to life? I always have the same answer: investors need to make some money.
I think there is good potential for that this year. Select stocks will advance. Certain discoveries will make waves. And we saw one example this week.
Orex Minerals’ (TSXV: REX) share price nearly doubled on news it drilled into 61 metres grading 359 g/t silver, essentially from surface, at a new target on its Sandra Escobar project in Mexico. Orex is optioning the property from Canasil Resources (TSXV: CLZ), which saw its share price triple.
Orex has sampled the target, work that outlined a zone 150 metres wide and some 750 metres long. It was narrow, high-grade veinlets that drew the team to the area, but it’s hard to cobble together a viable deposit from scattered sets of narrow veins.
Deposits take volume, which means either lots of veins or mineralized host rock.
So Orex tested the host rock. Expectations were low as it did not look great, but samples returned significant silver, in the 100 to 200 g/t range.
So they drilled. Results are only out on the first hole of the 12-hole program.
Those are some nice grades. It was also nice to see Orex release meter-by-meter assays for the entire intercept, which shows consistent mineralization, most of it better than 100 g/t silver. Orex figures the true thickness is more like 43 metres.
The structure here is a rhyolite volcanic dome, a load of altered rock that hosts silver minerals and stockwork veinlets. At this point Orex believes a rhyolite unit acted as an impermeable cap, focusing fluids within the dome.
There is much yet to figure out, starting with the next 11 holes. The property is in Durango, near some of the world’s largest silver mines. Orex is earning a 55% stake by spending $2 million on exploration over three years and paying Canasil $500,000. Orex could then boost its stake to 65% through another $2 million of exploration and another $500,000 payment.
A week after the news, Canasil and Orex have held on to their gains. Anyone new to the story is up nicely now – triples are not exactly common these days. It will be very interesting to see how this story plays out. If the discovery is real and grows with each drill hole, we will be looking at a prototypical example of what this beaten down sector can generate. When a stock worth just pennies makes a discovery, multi-baggers are the name of the game.
Then again…Ivanhoe Mines (TSX: IVN) can announce a fantastic new discovery at one project and a ridiculously high-grade resource at another, and still see its share price slide.
The discovery was at its Kamoa property in the Democratic Republic of Congo. The discovery – a high grade, flat-lying stratiform body of copper mineralization 5 km southwest of the defined resource – returned some of the best intercepts ever from the property. And Kamoa is the highest-grade undeveloped copper project in the world, so that’s saying something.
The best hole into the new zone, hole 996, cut 24.2 metres grading 3.48% copper, while hole 997 returned 18.8 metres of 4.64% copper.
Ivanhoe already knew this area, called Kakula, hosted high-grade copper. A wide-spaced drill program in 2014 returned significant copper in six of 21 holes, including 13.5 metres grading 4.15% copper. That work outlined three areas of interest, with Kakula Discovery sitting in the middle. That is where the new holes are located, though they sit a significant 400 metres north and east of the earlier intercept.
Now Ivanhoe is testing the zone with a 10,000-metre grid drill program, while also testing the other two areas of interest with 9,000 metres of drilling.
Kamoa is already a very impressive project. Smack in the middle of the Central African Copperbelt, Kamoa is home to 739 million indicated tonnes grading 2.67% copper and 227 million inferred tonnes at 1.96% copper. Mineralization sits in flat-lying bodies that are 2.5 to 18 metres thick.
Ivanhoe owns 49.5% of 95% of the project, after having sold an equal stake to Zijin mining for US$412 million. The DRC government owns 5% of the asset, a stake that will increase as Ivanhoe and Zijin negotiate project development.
Development would not be cheap. The first part of a two-phase plan would produce 100,000 tonnes of copper per year in concentrate; developing that operation would cost US$1.4 billion. Phase two would triple production and include a smelter to produce blister copper.
Those plans come from the 2013 preliminary economic assessment. A prefeasibility study is due out shortly.
Two days after it announced those drill results, Ivanhoe announced what is possibly the highest-grade zinc deposit ever. The deposit is part of Kipushi, an old copper-zinc mine in the DRC in which Ivanhoe bought a 68% stake in 2011.
The resource is insane.
Mineralization is divided between Big Zinc, the zinc-rich zone, and three areas that carry high copper grades: Fault Zone, Fault Zone Splay, and Serie Recurrente.
Big Zinc is home to 10.2 million measured and indicated tonnes grading 34.9% zinc, 0.65% copper, 19 g/t silver, and 51 g/t germanium. If that seems a crazy zinc grade, it is. It is more than twice the grade of the world’s next richest zinc development project.
The copper-rich zones offer 1.63 million measured and indicated tonnes grading 4% copper, 2.87% zinc, and 22 g/t silver, plus 1.6 million inferred tonnes at similar grades.
The market was expecting the grades. What the market was not expecting was the size. In its few years of drilling Ivanhoe has doubled Big Zinc and its news release made clear that the zone remains very open for expansion, with high-grade intercepts outside of the defined resource.
Kipushi operated as a mine between 1924 and 1993. In early 2011 the lower levels of the underground mine flooded because the DRC mining company that owned the asset failed to maintain pumps sufficiently. Ivanhoe bought into the asset in late 2011 and has been working to dewater since. Water is now below the 1,210-meter level.
To complete the story, Ivanhoe’s other key asset is Platreef, the massive platinum-palladium project in South Africa. This would be an underground mine tapping into reefs of mineralization, but a pre-feasibility study pegged development costs at US$1.2 billion.
Three of the highest-grade projects in the world, but Ivanhoe’s share price is struggling.
The two biggest problems are that its assets are in the DRC and South Africa, jurisdictions investors are wary of, and all demand huge capital costs. On its side is its leader: Robert Friedland, one of the best mine financiers and developers in the world.
Friedland’s prowess was clear when he announced the Kamoa deal. Selling half an asset to the Chinese for cash at a 196% premium compared to market cap – that counts as a coup. And the deal means Ivanhoe has cash. At the end of 2015 it received the initial Kamoa payment from Zijin, of $206 million, and for the next 18 months it will get US$41 million every 3.5 months.
Part of the share price problem has been a series of escrowed shares. Every quarter since the company listed in 2012, 30 million shares have been released from escrow. It has been a major overhang; the share price has been hammered every time a new batch of shares came free trading. The last set came out on January 23, just before the Kamoa discovery and Kipushi resource were announced.
Later in the week IVN managed to work its way up to $0.68 from $0.54. With the escrow curse cleared and three astounding – if challenging – assets, the stock has a chance.
Sierra Metals Finds Better Stuff at Yauricocha
Exploration drills working underground at the operating Yauricocha mine in Peru have tagged into a strong new zone, according to owner Sierra Metals (TSX: SMT).
Yauricocha taps into resources bearing average grades of 0.76 g/t gold, 55 g/t silver, 0.83% copper, 1.73% zinc, and 0.85% lead. The new zone, situated about 400 metres north of current operations, looks to offer notably better grades. The best results look like this:
For now the zone is about 240 metres long, but it remains open in most directions, in particular to the north and at depth. It is also thicker than the zones normally mined at Yaurcocha.
It all adds up to an area Sierra wants to get at asap. The company is working to access the new zone by the third quarter of the year. If that happens, the mine’s economics should get a nice lift because of higher head grades.
The market liked the news, lifting SMT 19% in a day. That being said, SMC shares are a volatile lot, so such moves are not uncommon.
Aston Bay Attracts BHP
Amidst a slug of releases about majors dropping joint venture deals (Kinross walked away from Revelo Resources’ Las Pampas project and First Quantum abandoned Millrock Resources’ Alaska Peninsula project, among others), Aston Bay Holdings (TSXV: BAY) managed to attract BHP Billiton into a joint venture on its Storm copper project.
Storm is on Somerset Island in Nunavut, northern Canada. Its stratabound copper showings have attracted major attention before: Teck drilled some 97 holes on the property in the late 1990s and outlined four areas of mineralization.
The work produced some great results, including 110 metres grading 2.45% copper from surface and 56 metres of 3.07% copper from 12 metres depth. However, thousands of metres of core were never sampled and a list of target areas were never tested.
Now BHP wants to see what some of those targets offer. The major signed a letter of intent to earn a 75% stake in Storm by spending $40 million on the property within nine years. The earn-in requires that BHP spend at least $2.5 million in the next two years, an important requirement for the junior partner Aston Bay that will want to see its asset advanced. Aston also gets a $325,000 payment once the definitive deal is signed.
Kudos to Aston Bay for attracting BHP, a feat that required Aston to take over 100% of Storm from Commander Resources, from whom Aston Bay had been earning into the asset. It’s impossible to attract a major to a project when ownership is fragmented, so BAY’s mid-December announcement of a deal gaining 100% of Storm from Commander was pivotal
In her letter, Resource Maven explains what she is buying and selling, and why. Maven has bought into several of the markets best - performing stocks well ahead of the curve. She regularly identifies exciting new exploration opportunities and manages the inherent risk by selling some into speculative gains. And the mine builder and operator stocks that form the basis of the portfolio give strong, ongoing leverage to the rising prices of gold and silver. She has your precious metal bases covered.
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