At the Metals Investor Forum in May, 2016, I had a chance to interview Mr. Tom Meredith, Executive Chairman of West Red Lake Gold Mines. I have known about the company for a while, but this was the first time that I was able to get the story from the company directly and I was impressed by what he told me.
Provided below is a transcript of my conversation with Mr. Meredith. Please note that this transcript contains forward-looking statements and is provided for general information about the company. I hold shares in the company, and was compensated to prepare and disseminate this material.
West Red Lake Gold Mines (CSE:RLG) is a gold exploration and development company focused on the prolific Red Lake Gold District of Northwest Ontario. They own a 3,100-hectare property that contains three former gold mines in west Red Lake. The company has 107M shares outstanding and approximately $20M market cap. As of December, 2016, they had $1.5M cash. You can find more info on their website.
PB: Hello Tom, thanks for joining me today.
TM: You're welcome, Peter.
PB: To start off, let's talk about the structural intersection that people are excited about at your property.
TM: We are focused on a target area where three large structures intersect. The east–west trending structure is called the PBS Zone and it hosts three former gold mines on our property called the Rowan Mine, Red Summit Mine, and Mount Jamie Mine.
PB: And with all these existing mines, has there been much exploration drilling done in the area?
TM: There was extensive drilling done at Rowan, which we were able to incorporate into a resource estimate in February 2016. That estimate contained an inferred resource of approximately 4.5M tonnes at an average grade of 7.5 g/t gold. We believe that we have room to expand on that by going deeper.
PB: And do the historical workings at Rowan get anywhere near this structural intersection?
TM: No, I'm afraid the Rowan workings are about 1.5KM to the west.
PB: Well, what's the old saying -- "the best place to find a new mine is right beside an old one."
TM: That's right.
TM: This area of Red Lake has a long history of gold mining. You typically find gold deposits in this area at the contact between the mafic rocks with the ultramafic rocks. The mafics are very brittle, so they shatter like glass when there is movement. The metavolcanics are soft, almost like plastic and act like a seal. After the mafics shatter, they are good hosts for mineralization because the fluids come up from below and the ultramafics cap them. The Rowan Mine and Mount Jamie Mine both fit this geological model and are located along the same east-west trending structure. The structural intersection is also located on this east-west structure.
PB: And have you found anything with prospecting over the area of the structural intersection?
TM: Yes, the records indicate the structural intersection has gold occurrences over much of its area.
PB: Do you have a sense for the orientation of things at this intersection?
TM: The structural intersection covers a surface area of roughly 2KM by 1KM where east-west trending PBS Zone intersects with north-east trending NT Zone and the Golden Arm Zone. From what we know, the gold zones in the area are steeply dipping.
TM: The structural intersection is an important area for us to explore, but we're also busy developing the Rowan deposit and planning to advance Mount Jamie as well. We believe Mount Jamie looks very similar to the Rowan mine.
TM: As I said before, we put out a resource estimate for 1M ounces at the Rowan mine last year. We think we can expand that by drilling deeper.
TM: You can see a diagram of the current resource in the presentation and get a sense for much is included in it now versus what we believe is present at depth. Based on other similar gold deposits in the Red Lake area, our theory is that these mineralized zones go straight down for quite some distance. So far, we've drilled holes down to depths of 400-450 meters. We believe we can expand the deposit significantly by drilling down further between 400 and 900 meters. That is an important target for us.
PB: Great, thank you Tom. I will stay tuned for that drilling. Are you working on a resource on Mount Jamie yet?
TM: Not yet. When we did the resource for Rowan, we uploaded all the data from Mount Jamie and asked the resource engineer to have a look at it. The impression was that it looks like Rowan, which actually surprised me because no one has focused on Mount Jamie before.
PB: It would seem fair that Rowan and Mount Jamie would be similar, given that they are both located on the same east-west structure.
TM: That's right, Peter. Keep in mind that this company was in the hands of another management team for around 7 years and they never put out the resource estimate for Rowan Mine. They drilled in a variety of places, but didn't really seem to have an area of focus.
PB: Well, your property is quite large -- around 3,000 hectares. I would imagine that you could spin your wheels trying to cover all of it.
TM: When I came in to lead the company, I looked at the prior work and said, “let's focus on the best part”. Since then, we have created a resource out of it and it continues to look good. And we have three additional good target areas on the property.
PB: Were you able to use any historical information from drilling or production at Mount Jamie?
TM: There are a lot of old drill-holes and with more work a resource estimate is possible. We consider Mount Jamie to be relatively low-hanging fruit for us.
PB: That similarity between Rowan and Mount Jamie sounds reasonable, given that this is a well-known geological model in the area.
TM: The east-west trending structure on our property is called the PBS Zone and it actually runs all the way to the town of Red Lake. Along that, you often get repeats of the same type of deposit. It would not be uncommon to find two deposits like Mount Jamie and Rowan with such similarities and proximity to each other along this structure.
TM: We have 1M ounces of gold in the inferred category at the Rowan deposit and we believe we can expand on it. We believe we can do something similar at Mount Jamie. We want to try to make a discovery at this structural intersection. Even if we don't make that new discovery, we can still build the project up based on the two mines that we have here and the Red Summit mine to the east.
TM: With all of that, we believe we could become an attractive target for a major mining company to buy us. We have a $20M market capitalization right now, but we could be worth multiples of that in an acquisition scenario once we make significant advances on these various projects. Our goal is to make money for the shareholders.
TM: We are doing a lot of work, behind the scenes, to prepare ourselves to be a good acquisition target. That includes some internal mining planning, preliminary metallurgy work, and all the kinds of things that have to be done to make the company attractive for acquisition.
PB: Great to hear that you have those several projects to work on. Can you help me get a sense for how much work you did to get the current resource at Rowan?
TM: We did one program after I joined the company and were able to use around 50 holes that had been drilled prior to that time. The previous management drilled quite a few holes there. I think they should have focused all their drilling in that area, but they didn't. We went ahead and focused on Rowan. Now we're starting to focus on the other areas on the property.
PB: It is a nice land package, overall. It covers that east-west structure well, and it is large and contiguous.
TM: The fact that they were mining there in the past tells you something. They wouldn't have done that if there wasn't any gold in the area.
PB: Are there royalties on any of the area?
TM: There are some royalties in the 2-3% range. Goldcorp is a 40% partner at the Rowan Mine site.
PB: And what is the history behind having Goldcorp as a partner at Rowan?
TM: It goes back to 2007, actually. I had an associate who had worked at Goldcorp and I recommended that he join the Board of this company. He did and he brought that project along with him. In late 2013, the large shareholders asked to develop the company.
PB: And what do we know publicly about the large shareholders?
TM: One institution owns about 25% of the shares and another has close to 10%. The management team and their families have another 10%. A former Director, who is now an officer of a major mining company, has about 4%. All together, we can connect with about 50% of the stock in about 4 phone calls.
PB: Have those people been involved with the company for a long period of time?
TM: Yes, they are long-term shareholders. They see the value here. They believe that, if you develop the project successfully and are able to be in synch with the gold market coming off the bottom, then you can realize a good return. We believe we have the potential to develop this as we head towards another upswing in the gold markets.
TM: I was Vice President of Operations for a mine before, but mining is a headache and a cost. I believe the value is created in doing exploration and development work.
PB: It would seem to be the case, eh? Operations are very different from exploration.
TM: Yes, it is different and that's why the big mining companies tend to focus on their mining operations. They allow the juniors to develop projects and if they see a project they like, then they can come and buy it. We’re trying to create a product here.
PB: That's an interesting way to put it.
TM: As I mentioned earlier, we have a $20M market cap but if we do our job right by expanding the resource, upgrading the resource, doing background development work, and generally getting it ready for a gold mining as a product, then we think that this company could sell for multiples of our current market cap with the market timing on our side. If we make an exploration discovery, then that would make things better. We’re not counting on that, but we’re hoping that we get lucky there.
PB: Fingers crossed!
TM: We’ve also started to conduct some of the environmental studies that are necessary for making formal permit applications.
PB: And you mentioned that you have a background in the operational side.
TM: Yes, at a mine in the Kirkland Lake area.
PB: How much exploration experience do you have?
TM: I’ve been in the industry for 30 years and most of my experience has been on the exploration and development side. When I first got involved, I’d actually been in the construction-contracting industry. I first got involved in the mining industry as VP Operations for a company that was bringing a mine into production, which fit very well with my experience in construction.
PB: Right, it seems to me that bringing a mine into production is very much a construction project. That seems like a good fit.
TM: Yes. I came into the mining industry with an understanding for how to get a job done. That’s one part of how I got started and the other part is that my family was in mining finance for two generations before me. I grew up with exposure to the world of capital markets, as well.
PB: That is an interesting combination of experiences that seems to fit well with the plan you're describing for the company. The focus on development of Rowan and Mount Jamie fits with your operational experience, and the timing in the development plan fits with your markets experience.
TM: We think we have a good set of assets and can use the right recipe to bake the cake at the right time.
PB: Just sitting there on the window sill.
TM: We have talked to one or two producers who are active in the area who are looking for projects. Their response has generally been that if we can do what we say we're going to do over the next three years, then it may be at the stage that they may like to buy.
PB: And that emphasis on doing what you said you were going to do is very important.
TM: Certainly. There is some uncertainty around the results of exploration over that timeline but there is also some certainty around what is there with the existing resource and historical mines. They want to see us deliver on new exploration results, but mining companies generally have a shortage of new projects in their pipeline. We want to position this as a product that will be available to mining companies when they are out there looking to secure new sources of supply in the area.
PB: And you’re in Ontario, which is a good area for gold mining.
TM: That's right. Red Lake is a mining town in northwestern Ontario. All the infrastructure is there already. There are big mines operating there already. We are not pioneering in the wilderness.
PB: Is the land pretty staked up around you?
TM: Yes, the property in the area is pretty well-controlled by various different entities. Goldcorp has some land nearby and two mines 20KM to the east. Premier Gold is in the area. Pure Gold Mining is working in the area. Rubicon is back in business, as well. The former CEO of Kirkland Lake Gold is now running Rubicon. People are certainly active in the area.
PB: I wonder about accessibility for your project. The regional infrastructure is well-developed, but what about your specific property?
TM: Certainly, there’s good infrastructure overall in the Red Lake area with several mines either in operation or in development. All the supplies are coming in, the services are there, and there’s a skilled workforce there as well. Red Lake has been an active mining area since the 1930s.
TM: And we have a road that comes right into our property. You can drive to our site from the airport.
PB: Great. And the majors wouldn’t have gotten involved in it all those years ago if they didn’t see the potential.
TM: Goldcorp is our partner at the Rowan Mine property -- they own the project and we earned-in. The interesting about Goldcorp here is that it was a regional project for them. They are focused on their main mine operations in the area, like the Red Lake Mine, and these other projects tend to be orphans. They end up ignoring regional projects like this because they have to focus on feeding the mill.
TM: That created an opportunity for us, through one of our directors who used to be with Goldcorp, to make the original option agreement with them for the Rowan Mine property. That deal evolved into a joint venture, with us acting as the operating partner and them as the funding partner.
PB: That sounds like a well-executed deal.
TM: It worked out well. When I first became involved about three years ago, Goldcorp told us that they saw significant potential at the structural intersection. Goldcorp told us that they would like us to focus our spending at that structural intersection because they wanted us to find something big there. We choose to develop the resource at the Rowan Mine site first because it allowed us to establish a resource of 1M ounces with fairly limited drilling. It was relatively low-hanging fruit, in terms of exploration expenditures.
TM: Establishing a resource of 1M ounces of inferred resources at the Rowan Mine was significant for a little junior like us, but Goldcorp wanted something a lot bigger. We've kept that in mind and now we are trying to find the elephant next door.
PB: And I guess there is the potential for that. Did those old mines stop from low prices, or exhausting the resource?
TM: Well, all three of those mines were running in the 1930s.
PB: That was a tough time for metals prices, as I understand it.
TM: Indeed, it was. And then WWII came along. If you look in the historical records, then you'll see that almost all of the gold mines in Canada closed down during WWII because gold mining was not considered an essential industry. The war was. A lot of gold mines just stopped operating.
TM: I don’t know exactly what stopped these mines, but I do know that there were three mines operating on the property in the 1930s and they didn’t do exploration back in those days. They just found gold veins on the surface and started mining them. It was all hand labour. They weren’t doing it for sport. They worked hard to make these things work. They were out there doing hard work getting gold out of the ground, which is a good indicator that you may find something significant if you use modern exploration techniques in the area.
PB: I wonder about the geological model with these veins showing at surface. Has there been much erosion that would have brought them to surface?
TM: These rocks are a couple billion years old, so there will have been some erosion over that time but the reality is that’s the surface today. That’s where we have to set up our drill. I don't believe that significant amounts of these deposits have been removed by erosion because these deposits typically go more or less straight down.
PB: I get the sense that they can be quite large as well.
TM: There have certainly been some large deposits in the Red Lake area. There have been around 30 million ounces of gold produced in total, so far.
TM: The Red Lake Mine is a very important example from the history of the area for us. It had an area where two structures intersected and was known as the High Grade Zone of the Red Lake Mine. That mine was very critical to the success of Goldcorp.
TM: These structural intersections create a dilation in the rock so that, instead of having the rocks cracking and mineralization of 2-4 meters in width, you end up with mineralization across a much wider area. In other words, instead of being the shape of a razorblade, the mineralization is more shaped like a cigar. That creates an area of high-grade mineralization that is much thicker, which dramatically increases the value of the rock in a much wider gold zone.
TM: Goldcorp found one of those structural intersections at the Red Lake Mine. It's called the High Grade Zone and it helped drive the value of Goldcorp from $15M to $8B. They would like us to find something similar to that on our partnership project.
PB: Great, thanks for explaining about the structural intersection. The change from veins that are shaped like a razor blade to more of a cigar shape is very interesting.
TM: Indeed. At that area where the east-west and north-south corridors intersect on our property, we believe the rocks could dilate and create more space for bigger zones of mineralization in the same way.
PB: I’m always a bit concerned with the high-grade veins and the potential for the waste:ore ratio to get very high and things to get expensive.
TM: The key thing that you look for with these high-grade veins is good continuity of the zones. We can see, on surface, that there is good continuity along strike at the Rowan Mine deposit, but things change a bit at depth. You typically encounter chutes that may have a strike length of 50 meters and widths of 2-3 meters on average, but they can go down 1,000 meters. That is typical in these Archean greenstone belts and our drilling indicates that is probably the case at the Rowan deposit.
PB: And are there generally multiple layers of these veins?
TM: We’ve got four principal ones in the Rowan deposit, but there are seven zones in total. In our presentation, we have labelled the principal ones: 101A, 102B, 103C, and 104D. The other three are not labelled because they don’t have significant volumes of gold in them. Almost all of the gold in the deposit is in those four zones.
PB: And the orientation of this…
TM: It’s basically straight down. The strike is east-west, along the structure, and they basically dip straight down. The image from our presentation shows a plan view, looking down from a bird’s eye view.
PB: And would describe this new area of structural intersection as a step-out from Rowan or something different?
TM: The structural intersection is something different. It is located between the Rowan Mine and the Red Summit Mine, but it has its own geological features that make it prospective as a separate exploration area.
TM: There were several holes drilled on the NT Zone, which merges in with the Golden Arm structure. Both these structures are trending north-south and they actually merge together right where they intersect with the PBS Zone, which trends east-west. There are three structures coming in at that structural intersection, one east-west, and two trending north-east with a tilt to the northeast. When we say structural intersection, we mean the area where three regional structures intersect in one location, which is geologically exciting.
PB: I didn't realize that there were two structures trending north-south there.
TM: Yes, and NT Zone is full of gold veins, too. There’s a deposit nearby, just south of our property, and we’ve drilled the NT Zone on our property. There’s a lot of gold there. This area of the property has a lot of gold in it and we believe we can put all of the property’s deposits together into something that is attractive to a mining company.
PB: One hole is obviously not going to be enough for that.
TM: Yes, Peter. Exploration takes time and persistence.
PB: And coming back to this image of these veins. They seem to be fairly continuous, as you said.
TM: They’re continuous along strike and depth within a certain envelope. At the Rowan Mine, the strike length where you have potentially economic values of gold is roughly 1-1.2 KM long. Once you go beyond that, you will see mineralized zones, but the amount of gold that you find in them is much lower. In our most recent drill program, we drilled a couple of zones to depth at Rowan and our best hole was 72 grams over 3 meters.
PB: Sounds like a vein!
TM: As we keep going deeper and find more, it should give us an ability to increase the size of the deposit. It should be pretty straightforward to project the mineralization to depth because that’s how these deposits are typically shaped. The gold came from below, up to surface, and we just follow it back down again.
PB: Sometimes I hear that the grades increase as you go deeper and I wonder about that.
TM: Well, I hear that too. I’d rather just drill it and see what the drill tells us. At the Red Lake Mine that Goldcorp actually found their High Grade Zone at significant depth.
TM: My personal take on that is that, in general, miners typically mine more higher grade material at depth and leave the lower grade material behind. At near surface you can economically mine stuff that has a lower grade. The mining history may indicate that grade is higher when you go to depth, but there may be a bias in that because you have to mine higher-grade material as you go deeper.
PB: Thank you -- that makes sense. Was the last drill program you mentioned at Rowan included in the resource estimate?
TM: No, it wasn’t. That drilling was to start to try to expand the area of the gold deposit. We pushed a little bit to the east and a little to the west to see how the zones looked. We were trying to expand along strike. In some cases, we hit mineralized zones but the grades were low.
TM: We’ve always felt comfortable that the zones went to depth. We have drilled deeper in the center of the deposit and had good results. So, in that press release we said that we are going to focus on drilling deeper at Rowan.
PB: And are these deeper holes getting down past the 450-meter level yet?
TM: Not yet. The holes were around 450 meters long, but they are drilled at an angle.
TM: At the Rowan deposit, we have different zones and are hitting each of them at different depths. Depending on which angle we drill from, some holes will end up going deeper than others. We will drill at some of the zones from a different direction to try and make them deeper. In a sense, we are just picking away at them.
PB: And the vertical orientation of the veins would seem to suggest that you can come at it from a few different directions.
TM: Well, we either drill at them from the north to south, or south to north so that the holes are drilled at 90 degrees or perpendicular to the veins. A lot of the holes have been from south to north but, in the last program, we drilled two from north to south and picked up a couple of zones. We encountered nice high-grade results at deeper levels than in prior drilling.
PB: That's good to hear. I understand that the geological model of the deposit can be pretty straightforward, but weird things can still happen.
TM: Once you’ve identified where you want to go, you have to have a program that’s very purposeful in following those zones to greater depth. That’s why we intend to drill Rowan between 400 and 900 meters deep, as I mentioned earlier. If we can double the depth of the existing gold mineralization, then we believe we will have a good chance to significantly increase the size of the deposit overall. We would love to be able to double the size of the deposit at Rowan. The indications are that it goes straight down, so that is our basic plan.
PB: Those are going to be long holes, maybe 1200-1500 meters long.
TM: That's right. If you’re drilling to 400 meters of depth on a sixty-degree angle, then you are looking at a 600-meter hole. If you are drilling 900 meters down, then you're drilling something like a 1,300-meter hole.
PB: Do we have a sense of the cost for those holes and who’s funding them?
TM: As we go deeper, they do get more expensive. Over the next couple of years, we will be looking to continuously push those holes deeper. That increase in cost is one of the reasons we’re going to Mount Jamie. As I mentioned, our sense is that Mount Jamie looks like another Rowan but there is no modern-day resource estimate there. There are a lot of holes in it and it was mined historically, so we believe we have a good chance for outlining a gold deposit there. That would get us to a position where we could have two deposits that are only a couple kilometers apart on the same structure.
PB: That sounds like a good position for a junior. The phrase "pearls on a necklace" comes to mind, with them being so close and related to the same structure.
TM: All three of the former mines on our property are on the same structure. Rowan and Mount Jamie look very similar. The Red Summit is a little different because there’s an intrusive plug in it. There are a few of these plugs in the broader area, such as Premier Gold’s Hasaga Project. Premier Gold is currently drilling an intrusive plug on their property and are getting great results. They recently reported a hole with something like 10 grams over 54 meters in one drill hole into the intrusion.
TM: On our property, an intrusion is located right at the old Red Summit Mine and that makes it a different style of deposit. There was high-grade gold present when they were mining it historically and that makes us keen to explore it sometime in the future. Right now, Rowan and Mount Jamie appear fairly simple to explore and we are going to focus our work there.
PB: All of that opens up a can of worms for me in terms of processing. The similarities between Rowan and Mount Jamie may allow them to go to the same mill in the future, but things may be different for Red Summit.
TM: The mineralization at Rowan and Mount Jamie are fairly easy to understand, but the intrusion at Red Summit is a little bit more complicated. We’re going to stick with the easy stuff first.
TM: In terms of metallurgy, we do have some historical information. We are going to do some of our own metallurgical testing, as I mentioned before, but the fact that all three of these mines were operational in the past gives us some historical information. It looks like it was free milling, which is pretty straightforward and can provide fairly high recoveries.
PB: And it seems like there may be some tension between your focus on Rowan and Mount Jamie as low-hanging fruit and Goldcorp's preference for you to take a swing at the bigger exploration potential of the structural intersection.
TM: That is an interesting comment, Peter. The Goldcorp people certainly guided us to focus on the area of the structural intersection, which is between Rowan and Red Summit. As we discussed, the geology at that structural intersection could create a larger zone of mineralization than could be found elsewhere. However, you have to understand their motivations.
TM: Goldcorp wants something that’s really significant -- something that will move the needle for them. Making Rowan bigger and trying to establish something at Mount Jamie moves the needle for us, but they want something that moves the needle for them. In that sense, we do have different goals but we are ultimately working together on this. If we find something at the structural intersection that moves the needle for them, then it will really move the needle for us.
PB: (Laughs) Yes, that makes sense. How does that JV work in terms of who chooses where to put the holes and who pays for them?
TM: Again, it's an interesting question. In the three years that I’ve been running this company, we have worked with three management teams at Goldcorp. Things have moved around a bit on their side.
TM: When I first got involved, Goldcorp had an exploration management team for Red Lake and they were very clear about what they wanted: they wanted us to drill the structural intersection.
TM: We presented them with the holes that we were going to drill and they would discuss them with us. They would offer small changes and then give us the green light to go drill. We are not as sure about what the most recent management team are going to want us to do because they are new. We know, at least, what we were originally asked to do and that’s what we are continuing to do.
PB: Well, that sounds like the right thing to do. I gather that it can be challenging to deal with changes in technical people based on subtle differences in their geological interpretation of a project and priorities. Does Goldcorp reimburse you after you make the exploration expenses?
TM: Yes, that’s been the practice since I’ve been there. We spend the money and they send us a cheque for their share at the end of the year.
PB: And how much of the exploration work that has been done on the property was completed by yourselves?
TM: There is a fair amount of historic information on the property from previous drill programs. We’re just trying to make sense of it in such a way that we can create a product that another mining company will want to buy for a significantly higher price than what we’re valued at right now today in the market.
TM: Our approach is all about upgrading the overall product to something that a mining company wants to buy. We have to build the project and wrap it up in a nice bow so that it is ready to sell. That’s the work that we’re doing.
TM: In another 2-3 years, we believe that we’ll be much closer to a having a product that a mining company would be willing to pay for. We’re currently valued at a little less than $30 an ounce right now. Once you can advance a development project like this significantly, you often see them sell at a much higher price per ounce. If the gold market goes in the right direction over the next three to five years, then we could be in the right place at the right time. That timeline gives us a chance to develop these targets, work with the market, and hopefully see a much higher valuation per ounce in the ground down the road.
PB: And to add more ounces.
TM: Right, we certainly intend to add more ounces in the various resources categories. We aim to get the math working for us on both sides -- create more ounces and get better valuation per ounce. When you can upgrade the ounces to higher categories and make a development plan, you really have a chance to create a product that appeals to a mining company. We believe all of that is how you create value in the junior mining space.
PB: Do you have a pretty clear sense of your work plan for this season?
TM: Yes, we have a pretty clear sense of a work plan for this season and over the next 2-3 years down the road where we can create a product that someone else is going to want to buy. There’s a clear work program in place and we’re working on a lot of these things behind the scenes.
PB: I imagine that it is hard for people to understand all the various things you are working on now and what you could work on next. How do you prioritize all the different things that you could work on?
TM: We do what we can to articulate our exploration plans. There are some constraints on what information we can disclose, but the market rightly sees that we are doing the things necessary to create value as a junior mining company. In order to crystallize the value for your shareholders, you have to do a lot of work behind the scenes so that any company who acquires us can see all the necessary work that has been done.
PB: And I see that John Kontak is here at the conference with you. You two seem like a good team.
TM: Yes, we work well together. John and I are the public face of the company, but we have a number of other essential people in the company. Ken Guy is our Exploration Manager and we also have consultants, including a mining engineer and a resource engineer. We have various people who do different things in developing the project, overall.
PB: Are you contracting-out the drilling work?
TM: Yes, we use a drilling contractor that has an operation in Red Lake. They are well-known in the industry as a very capable drilling operator. Their company is drilling for others in the area, such as Premier Gold at their property on the south shore of Red Lake. They’ve done work for Goldcorp, as well. They drilled the Gold Eagle deposit, which was a complex deposit that they did a good job drilling off. They can do challenging drilling work. At Gold Eagle, they would drill a mother-hole down a couple thousand meters and then drill up to 50 wedges-holes off that mother-hole. They can do that type of work and have a good reputation for very high-quality drilling.
PB: Wow, that is very interesting to hear. I always wonder about the future of drilling, whether they will be able to go in and reorient the drilling.
TM: They do that to some degree with Navi drills, already. If you drill a really deep hole, then you want to use that mother hole as much as possible. One thing you can do is to drill wedge-holes off it. As you work your way back up the hole, you fire off new holes into the structure. If you identify a structure that’s going straight down, which is the kind of structures we think we have, then you can do that type of work. Our driller’s capable of doing that type of drilling. If we go really deep at some point, then we could do that kind of drilling.
PB: Well, that fits well with what you've told me about the vertical dip of the Rowan deposit, the current depth of the resource estimate, and the plans to go deeper. I'm not familiar with that type of drilling. Do you have a sense for how long that kind of drilling has been going on in the area?
TM: The first time I encountered that type of drilling was back in 2005-2007, I believe. Back when it was done at the Gold Eagle Mine, which is probably about 15KM east of our property. Goldcorp acquired that company for approximately $1.25B and much of the value was unlocked because they were able to drill successfully at depth using those drilling techniques.
PB: Great. That little tidbit is just the kind of thing I am looking for in these conversations.
TM: And we’ve already got that drilling company on our site. If we determine that it is appropriate to do that type of drilling at some point in time, then we are capable of doing that.
PB: Thank you for that, Tom. If you'll let me flip through the presentation briefly here to close out. How about this slide with the resource estimate?
TM: Yes, I would point out that our resource was done at a 3-gram cutoff. With that cutoff, we had a 7.57 grade. If you go to a 5-gram cutoff, then you get a grade of over 10 grams per tonne gold and you don’t lose very much of the total resource size. That is very important because it allows us to develop a more conservative scenario in our internal mine planning exercises.
PB: You mentioned that the deposit starts from surface, is that mined-out at this point?
TM: Goldcorp’s predecessor had done a bit of test mining at Rowan but they already had a source for similar type of material back at the Dickinson Mine, which was some distance away. They stuck with what they had in their front yard rather than driving around the other side of Red Lake to get similar material.
TM: Again, that’s why regional projects like Rowan often get orphaned. If they have enough ore at their main operation, then they stay focused on filling their mill and do not need to focus on exploration on the other side of the lake.
PB: Is that mine that you mentioned still in operation now?
TM: Yes, it was historically known as the Dickinson mine and became the Goldcorp's Red Lake Mine. That mine was responsible for a lot of Goldcorp's success and was where they discovered the High-Grade Zone.
PB: Has that been going for 20+ years now?
TM: Yes, the High Grade Zone was discovered in 1995. They were mining the Dickinson deposit for probably 40-50 years before they found the High-Grade Zone.
PB: How far down did they get?
TM: The bottom level of the mine was 4,500 feet deep and the top of the High Grade Zone was actually found at the bottom level of the mine. It went from about 4,200 feet down to about 7,000 feet.
PB: Oh, wow. We are talking about kilometers down.
TM: Yes, the bottom of the mine is a couple kilometers deep. At our Rowan deposit, we have 1M ounces over the first 500 meters and we would like to double the depth of the resource to 1 KM. At the Red Lake Mine, they mined down to 2 KM.
PB: That comes back to our discussion about how grades change at depth -- the High Grade Zone would seem to provide an instance where grade did actually increase at depth!
TM: Yes, it was in that case. As they say, gold is where you find it.
PB: And sometimes it’s at the bottom of an old mine. That's a fascinating story.
TM: If they’d found that material at surface, then it would have been mined-out a long time ago. All of that is a good example of why exploration is so important -- you want to have tools and insight that can help you find deposits that are not right at surface. There may be significant mineralization at depth. And that’s what Goldcorp wants us to look for.
PB: I gather that the amount of gold that comes out of Ontario is significant on a global basis, but it's great to hear about the history there. Looking at your exploration progress, I see that you drilled 5,000 meters in 2016. When was that done 2016?
TM: We did a summer program and a fall program. This year we did a winter program and we are going to continue to drill through the spring and summer. This year we drilled approximately 3,000 meters in the first program and plan something similar in the next program.
PB: Are the results out from that winter program yet?
TM: Yes, we put them out at the start of May. The best result was 72.6 grams over 3 meters, which were from a bit deeper down at one of the zones at Rowan.
PB: Was that approximately 500 meters down?
TM: No, that one wasn’t. It was from one of the zones that hadn’t been drilled to depth. Some of the zones have been drilled deeper than others. We went to an area of one zone that hadn't been drilled as deep and put a deeper hole there.
PB: OK, I can get a sense for that from the long section of the Rowan deposit in the presentation.
TM: Yes, that image shows the deepest extent of the resource. Some of the parallel zones within that resource are much shallower than others. That outline shows the maximum extent of the resource estimate. There are zones that don’t come that far down, which provide us with some other low-hanging fruit. Ultimately, we plan to drill the whole thing down to 1,000 meters.
PB: And who knows what you’ll find down there!
TM: We believe we have a chance of finding more gold.
PB: Indeed, that would be the desired outcome. You said you are planning a spring campaign and a summer one, as well?
TM: Yes, we plan to drill in the summer. We started drilling at the beginning of June and will drill into July and then take a break while we wait for the results to come back.
PB: Will all of that be focused on Rowan?
TM: No, we are going to do a few other things. For one, we are going to test a target at the structural intersection. We’re also doing some work at Mount Jamie, which appears to be similar to Rowan.
PB: The combination of deeper holes and relatively shallow holes at Rowan seems like a good way to expand the resource there.
TM: Yes, and it’s nice for us to have some low-hanging fruit at Mount Jamie that we can drill at low cost. That’s the way to capture value for shareholders, with the greatest impact for minimal expenditures.
PB: And the timeline, as well. It is important to get it done quickly.
TM: Yes, we can drill a lot of shallow holes pretty fast. We can go a bit deeper at Rowan and hopefully expand that gold deposit. Then, we can attempt to make a discovery in the structural intersection area.
PB: Sounds like you could get into a situation where you are firing on all cylinders here.
TM: We’ve got four good targets on the property: three old mines and the structural intersection. There is no shortage of targets to drill.
PB: Great to hear. Thank you very much for walking me through it all here today, Tom.
TM: You’re welcome, Peter.
