Quebec Is Back, Ready for Renaissance: Eric Lemieux

Quebec Is Back, Ready for Renaissance: Eric Lemieux
The Gold Report www.TheAUReport.com
COMPANIES MENTIONED
Adventure Gold Inc.
Alexandria Minerals
Corp.
Altius Minerals Corp.
Balmoral Resources
Ltd.
Cartier Resources Inc.
Detour Gold Corp.
Eastmain Resources Inc.
Falco Resources Ltd.
Integra Gold Corp.
Midland Exploration Inc.
Northern Shield
Resources Inc.
Osisko Gold Royalties
Ltd.
Premier Gold Mines Ltd.
Sphinx Resources Ltd.
Stornoway Diamond
Corp.
Teck Resources Ltd.
Virginia Mines Inc.
Visible Gold Mines Inc.
Xmet Inc.
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THE ENERGY REPORT
THE GOLD REPORT
THE LIFE SCIENCES REPORT
THE MINING REPORT
03/18/2015
During the period when Parti Québécois controlled Québec, the province's
attractiveness as a mining jurisdiction fell from #1 to #21 in the Frasier
Institute's Annual Survey of Mining Companies. But when Philippe Couillard's
Liberal government won a majority in April 2014, the market got the message.
Eric Lemieux, consulting technical adviser to Toronto-based Peartree
Securities, says that the Osisko Mining bidding war showed that companies
were willing to pay a premium for Québec-based assets. Since then other
takeovers have happened. In this interview with The Gold Report , Lemieux
discusses some promising projects in Québec and other stable jurisdictions.
Source: Brian Sylvester of The Gold Report
The Gold Report : The Canadian Mining Association reports that mineral
exploration and deposit appraisal spending in Québec dropped from about $621
million ($621M) in 2012 to about $328M in 2013. That number is expected to rise
again once the 2014 numbers are added up. What are some other signs that mining
equity investors are regaining confidence in Québec?
Eric Lemieux: The political climate for mineral exploration and mining is somewhat
more friendly under the Philippe Couillard Liberal government. If you recall, Martine
Ouellet of the previous Parti Québécois government made headlines by ostracizing
the Québec mining industry. The higher royalties and aggressive amendments to
the Mining Act that she helped impose put a lot of pressure on the Québec mineral
exploration industry. Québec was one of the first jurisdictions to passer sous le
tordeur —gone through the wringer, as we say in French. Now things look more
favorable. For example, in the Frasier Institute's Annual Survey of Mining
Companies, Québec went from #21 on the Investment Attractiveness Index in 2013
to #6 in 2014. That's a positive sign.
TGR: How are Québec-based companies handling the downturn?
EL: The tough times have forced a lot of the Québec mineral exploration companies
to focus on quality projects and be thrifty and nimble with their spending. But
sometimes when you're obligated to spend wisely, that's when the greatest
discoveries are made. For example, Voisey's Bay was discovered during a
downturn in the late 1990s, as well as the Éléonore deposit by Virginia Gold Mines
Inc. in 2004.
TGR: Québec would seem to fit comfortably into the thesis that the broad market is
rewarding companies operating in safe jurisdictions. How is that playing out?
EL: Québec is once again considered a
safe jurisdiction under the new Liberal
government. Goldcorp Inc. (G:TSX;
GG:NYSE) signaled that in early 2014
when it attempted to acquire Osisko Mining
Corp. and the Canadian Malartic gold mine
in the Abitibi. The ensuing takeover fight
between Goldcorp and Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE)/Yamana
" Balmoral Resources Ltd.
received the 2014 AEMQ
Prospector of the Year
Award for its Grasset
nickel-PGE discovery."
between Goldcorp and Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE)/Yamana
Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE) showed that companies were willing to
pay a premium for Québec-based assets.
TGR: The biggest story in Québec this year is Osisko Gold Royalties Ltd.
(OR:TSX), the company that was spun out of the Agnico/Yamana takeover of
Osisko, taking over Virginia Mines. What are some takeaways from that deal?
EL: The transaction puts two Québec powerhouses together and it makes for a
stronger company. Virginia was certainly a success story when you consider the
wealth that André Gaumond and his team were able to create—he essentially sold
the company twice for a combined CA$1 billion. Osisko 3.0, my nickname for the
company, will be based in Montreal and will have an exploration office in Québec
City. The company has two world-class royalties: a 5% net smelter royalty (NSR) on
Canadian Malartic and a 2.2–3.5% sliding scale NSR on Goldcorp's Éléonore mine
in the James Bay region of northwestern Québec. Osisko has the capacity to
advance and develop more gold projects and other opportunities. I see this as a
win/win situation.
TGR: Gaumond and Sean Roosen, Osisko's chairman and CEO, are big names in
Québec mining and big personalities. Can those two successfully coexist at
Osisko?
EL: These are two dynamic visionaries and, yes, stubborn people, but I think they
can work together. There are lots of growth opportunities and both can contribute.
They both have the capacity to surround themselves with good people, they have
and they will.
TGR: In the middle of this deal Goldcorp published a revised resource estimate for
its Éléonore mine. What do you value Osisko's Éléonore royalty at now?
EL: Éléonore is in preproduction and should reach commercial production in Q2/15.
The total reserves and resources increased about 9% to 8.83 million ounces (8.83
Moz) from 8.13 Moz. The mineral reserves increased by about 23% to 4.97 Moz
from 4.03 Moz. But Goldcorp is just scratching the surface. The current resource
goes down to about 1,200 meters but the deposit is wide open at depth and there
are some lateral openings. It's an underground vertical gold mine. I feel comfortable
with what I previously modeled, which is a 15.1 Moz gold deposit. The Éléonore
royalty will ultimately perhaps be worth the price that Goldcorp initially paid for it
back in 2005–2006, about CA$500M. But with further exploration and development
it could be worth even more.
TGR: And the Canadian Malartic royalty is
5%. Most NSR royalties are in the 2–3%
range.
" Integra Gold Corp.'s
acquisition last fall of the
Sigma-Lamaque milling
facility and mine assets
was astute."
EL: It is a sexy royalty. I see it as a cash
cow and a great plus for the Osisko 3.0
story. The Éléonore royalty will take time to
ramp up. Goldcorp is forecasting between 290,000 and 330,000 oz gold in 2015,
which is subject to a 2.2% NSR initially, ramping up to a maximum of 3.5% by 2028.
TGR: Osisko is going to be generating a lot of cash flow. How do Roosen and
Gaumond grow the business?
EL: I expect more acquisitions and Osisko will have the war chest to do that. The
company will probably focus on North America and Mexico. After that, it will explore
aggressively and possibly develop some discoveries.
TGR: Do you see further Québec-focused mergers and acquisitions?
EL: We could see some but there hasn't been a flurry of recent important new
mineral discoveries. There have been some small discoveries, but no home runs.
There is some quality food on the table, per se, but it's not a huge banquet. That
could change but there are lingering effects from the Parti Québécois regime.
TGR: What acquisitions have there been?
EL: Alexandria Minerals Corp. (AZX:TSX.V) recently acquired Murgor Resources
Inc. through bankruptcy courts. That was relatively surprising. It amounts to about
$4/oz gold equivalent for the Murgor assets, which are relatively small polymetallic
volcanogenic massive sulfide (VMS) deposits in Manitoba. Murgor didn't have the
capacity to move them forward in this tough market. It's a transaction that shows that
some strategic little acquisitions can be made inexpensively. Alexandria took
advantage of an opportunity and now a new management and technical team can
look at these polymetallic deposits perhaps a little differently and with an updating
of the price deck.
Conversely, Integra Gold Corp.'s (ICG:TSX.V; ICGQF:OTCQX) acquisition last fall
of the Sigma-Lamaque milling facility and mine assets adjacent to Integra's
Lamaque South project from Samson Bélair/Deloitte & Touche Inc., the courtappointed receiver of the assets of Century Mining Corp., is testament to an astute
acquisition.
TGR: Plan Nord was once the infrastructure project that several mining projects
needed in order to receive a development decision, but it stalled. Now it's back.
Please give us an update on Plan Nord and the equities likely to see the biggest
impact as a result of the renewed plan.
EL: Plan Nord 2 is back on track as much as it can be in light of the austerity
program going on in Québec as part of the government's plan to put its finances in
order. Plan Nord extended Route 167, a 240-kilometer all-season extension that
benefits north-central Québec. One positive impact of Plan Nord has been the go
ahead for Stornoway Diamond Corp.'s (SWY:TSX) Renard diamond mine that is
under construction; meanwhile, Eastmain Resources Inc.'s (ER:TSX) Eastmain
Mine-Ruby Hill project was once only accessible by winter road but is now
accessible year round. And within the last six months a little staking rush has been
going on along Route 167. A small company called Visible Gold Mines Inc.
(VGD:TSX.V) out of Rouyn-Noranda found some gold-bearing boulders along the
road. It's an area that hasn't been well explored. This is a direct impact of the new
access.
TGR: Stornoway plans to enter production at its flagship Renard diamond mine in
late 2017. What is the plan?
EL: My understanding is that construction is going smoothly. Stornoway is building
a mine complex that will house about 350 workers. I estimate that commercial
production will start in 2018, which is coming quickly. This project also has the
stamp of approval from the Cree Nation of Mistissini. I think it will be a success. The
beauty of these types of deposits is that while there is an existing mineral resource
and reserve, the upside potential at depth could turn this into a 30–40 year mining
operation.
TGR: Eastmain continues to drill the Clovis Lake property as part of an effort to
build resources at its 100%-owned Eau Claire deposit in northwestern Québec.
What has happened so far at Clovis Lake and is it enough to bring investors back to
that name?
EL: Clovis Lake looks to be Eau Claire No. 2. It seems to have the same quartz
porphyry geology and similar geometry. Hopefully, Eastmain will be able to deliver
in 2015 a much needed updated mineral resource estimate. If Clovis Lake can
materialize and add ounces, that would only benefit a mine plan and show that Eau
Claire could become a relatively high-grade standalone gold producer. Eastmain
has committed to a preliminary economic assessment for 2015. That should give us
some insight in how to go about mining this deposit economically.
TGR: What do you think is the hottest region in Québec for mining exploration and
development?
EL: One of the emerging hot spots is Québec's Detour Trend. It's located in the
northwestern end of the prolific Abitibi Greenstone Belt. On the other side of the
border in Ontario is Detour Gold Corp.'s (DGC:TSX) flagship operation, the Detour
mine. It is still in the ramp-up phase, but it is an open pit with a 15-Moz reserve.
On the Québec side, others players have garnered attention. Balmoral Resources
Ltd. (BAR:TSX; BAMLF:OTCQX) received the 2014 Association de l'Exploration
Minière du Québec (AEMQ) Prospector of the Year Award for its Grasset nickelPGE discovery. In 2013, Balmoral received the same AEMQ award for the
Martiniere gold zone. Maybe the company will win the award again in 2015
because it remains very active in the area. Balmoral has three drill rigs working, one
on the Martiniere extension and two on Grasset. The company could deliver the first
mineral resource estimate for the Grasset nickel-copper-PGE project by the end of
2015, which is tremendous.
TGR: Would you be willing to say that Grasset is now its top asset?
EL: I discussed that with Balmoral CEO Darin Wagner. What is attracting the
market right now? In early 2014 it was gold but then gold dipped and now the
market seems more excited by a nickel discovery, so he's put the emphasis on that.
Right now the momentum is with Grasset, but Balmoral has the financial strength to
work on Grasset and Martiniere. That's a testament to good management and a
strong exploration team.
TGR: Do you think that Grasset will get spun out?
EL: Good question. If I'm using André Gaumond's playbook, he'd sell the Grasset
project to a major for a sizeable price but retain an NSR. Mr. Wagner is an astute
manager so he'll negotiate, if need be, something positive for shareholders.
TGR: What other companies are exploring in the Québec Detour Trend?
EL: Midland Exploration Inc. (MD:TSX.V) has several properties in that region with
partners like SOQUEM Inc., a Québec government-owned mining company, and a
small company called Sphinx Resources Ltd. (SFX:TSX.V). Midland and Sphinx
have started a 2,000-meter (2,000m) drill program on their Samson property, which
is just south of Balmoral's Grasset discovery. Midland also has three drills turning
on Casault and Jouvex with SOQUEM and one on Patris with Teck Resources Ltd.
(TCK:TSX; TCK:NYSE) along a splay of the Destor-Porcupine fault zone. Teck was
an iconic gold producer in Québec back in the late 1960s and then left. Midland
attracted Teck back to Québec in 2013. This winter this Detour Trend area might
see about 18,000m of drilling, mostly by Balmoral (over 8,000m), but also Midland
with its partners (6,000m) and Adventure Gold Inc. (AGE:TSX.V) (1,500m). And
recently I noticed that Xmet Inc. (XME:TSX.V), a little junior, has a property at the
eastern end of Grasset and is drilling a 2,200m program. The area seems to be a
polymetallic hot spot.
TGR: Midland has a 10,000m drill program planned for 2015, which is a lot for a
company that size. Where should investors focus?
EL: Midland generates projects that attract partners and those partners earn an
interest by funding exploration work. When you have four or five partners, each
committing exploration dollars on a property, it doesn't take long to reach 10,000m.
What I appreciate about Midland is that it is diversified. Any one of its projects could
be a home run. We might see some new players come into the Detour Camp
because of the attraction.
Midland is also exploring in the Labrador Trough with its Pallas and Willbob
projects. The trough is generally associated with iron ore, but there are platinum
group metals and gold prospects there, too. Before the takeover, Virginia was
working with Altius Minerals Corp. (ALS:TSX.V) in that general area. Northern
Shield Resources Inc. (NRN:TSX.V) is there, too with its Idefix property. This could
become another hot spot on the Québec side.
TGR: Adventure Gold continues to explore the Abitibi Greenstone Belt. Which
property stands out?
EL: Adventure Gold is more in the southern part of the Detour Trend, but Detour
Gold has hit some high-grade intersections to the southeast of the Detour mine
within the Lower Detour Deformation Zone. That's an area that has garnered
renewed exploration interest. Adventure Gold has a huge land package all along
that Lower Detour Deformation Zone. It also has some properties along the Casa
Berardi-Cameron gold break, which is the southern part of another important fault
system in the Abitibi. That is where Adventure Gold has a sizeable land package
and has partnered with a small junior, GFK Resources Inc. (GFK:TSX.V). Its most
advanced project is Pascalis, about 20 kilometers east of Val-d'Or and Adventure
has a 0.77 Moz Inferred gold resource on the property.
TGR: Are there any other stories you're following?
EL: Closer to home in the Rouyn-Val d'Or Camp, two names come to mind. One is
Falco Resources Ltd. (FPC:TSX.V). Sean Roosen recently became chairman and
he replaced the CEO with a former Osisko gentleman named Luc Lessard, a mining
engineer. This project sits below Xstrata's Horne base metals smelter, but the
Horne No. 5 deposit may have been overlooked for gold. I see some similarities
between this story and Osisko's Canadian Malartic. Roosen and his team have the
capacity to do something with that asset.
Cartier Resources Inc. (ECR:TSX.V) is another name in the Val-d'Or Camp. For
about CA$15,000, Cartier acquired the old Chimo mine that was mined by Cambior
in the 1990s. At the time, companies were moving to South America. That is when
the likes of Lac Minerals, Barrick Gold Corp. (ABX:TSX; ABX;NYSE), Newmont
Mining Corp. (NEM:NYSE) and others generated these big projects in Chile and
Peru. Cambior followed suit and left behind some of its thrifty gold operations in the
Val-d'Or area, and some of these past-producers still have some juice. Only time
will tell but these little overlooked projects might attract attention.
TGR: Perhaps one more?
EL: Ontario is also a very good mining jurisdiction. I've been following Premier Gold
Mines Ltd. (PG:TSX) for a long time and in early February it signed a $300M
agreement with Centerra Gold Inc. (CG:TSX; CADGF:OTCPK) to develop the 7.8
Moz Hardrock gold project in northern Ontario. A feasibility study is going to come
out in 2015 that may really open up some eyes. Premier is conducting an
engineering study now. Recently Premier did a deal with Goldcorp where they
engineering study now. Recently Premier did a deal with Goldcorp where they
swapped properties. Premier now owns a 100% interest on the Hasaga gold
property in Red Lake, Ontario. The company has a good exploration and
development team that will advance this asset. It also has the Cove-McCoy project
in Nevada.
TGR: Is Premier going to become a miner at Hardrock?
EL: It has built a development team that should have the capacity to be a miner if it
so chooses. President and CEO Ewan Downie will certainly play his cards well. He
will always give himself options.
TGR: Which commodity in Québec are you most bullish on in 2015 and why?
EL: I am mildly bullish on gold. On the production side, it has become increasingly
challenging to mine gold. When we take into account social responsibility,
environmental considerations, permitting obligations, mining royalty regimes,
declining grades and the remoteness of projects, the supply is tightening. The lowlying fruit has been found. I think gold will be the commodity in 2015 as I see,
currently, more upside than downside.
TGR: Thank you for your insights into the Quebec mining scene, Eric.
Eric Lemieux is a consulting technical adviser to Peartree Securities Inc. of
Toronto. Previously he was a mining analyst with Laurentian Bank Securities. He
worked for nine years as a consultant responsible for applying Regulation NI 43101. He has worked at the Montreal Exchange, and prior to that managed
exploration projects for Cambior, Noranda and SOQUEM. He holds two master's
degrees, in mineral economics from the Colorado School of Mines and in
metamorphic-structural geology from Laval University.
Read what other experts are saying about:
Balmoral Resources Ltd.
Integra Gold Corp.
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IMPORTANT DISCLOSURES
1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report
and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the
following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Balmoral Resources Ltd., Integra Gold Corp. and
Midland Exploration Inc. Goldcorp Inc. is not associated with Streetwise Reports. The companies mentioned in this interview were not involved in
any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does
not accept stock in exchange for its services.
3) Eric Lemieux: I own, or my family owns, shares of the following companies mentioned in this interview: Adventure Gold Inc., Alexandria Minerals
Corp., Balmoral Resources Ltd., Cartier Resources Inc., Eastmain Resources Inc., Goldcorp Inc., Midland Exploration Inc., Northern Shield
Resources Inc., Stornoway Diamond Corp., Osisko Gold Royalties Ltd., Premier Gold Mines Ltd., Sphinx Resources Ltd., Teck Resources Ltd. and
Xmet Inc. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial
relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.
Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included
in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as
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