Integra Gold – Site Visit

Integra Gold Corp owns 100% of the 1459ha Lamaque property which is located right next to the city limits of the town of Val D’Or in Québec, Canada. We visited the Lamaque project in January of this year and will share our findings in this site visit report.

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Introduction

Integra Gold Corp (ICG.V) owns 100% of the 1459ha Lamaque property which is located right next to the city limits of the town of Val D’Or in Québec, Canada. The town is easily reachable as it has an airport with direct flights to Montréal (which is approximately 550km away) several times per day. We visited the Lamaque project in January of this year and will share our findings in this site visit report.

History of the Project and current situation

Gold mineralization at the Lamaque project was first discovered in 1923 and in 1932 Teck Resources (TCK.TO, NYSE:TCK) acquired the asset after it confirmed the gold mineralization by drilling 1700 feet on the property. Teck moved very fast as in January 1933 it already started to sink a shaft into the mineralized zone and a 250tpd mill started operating in 1935 (and was expanded to 500tpd later that year).

In 1985, all production at the Lamaque mine was suspended, and the mill was placed on care and maintenance. In those 50 years of production, approximately 4.5 million ounces of gold were recovered at an average grade of approximately 5.3g/t. This means that the average production over 50 years was approximately 90,000 ounces per year and shows the long mine life of assets in this part of Québec.

Early in the new Millennium, Kalahari earned Teck’s interest in the Lamaque properties and subsequently secured 100% of the project by buying out Teck’s minority joint venture partners through a share swap in 2010. Kalahari changed its name to Integra Gold and continued to advance the project.

Continuous drilling by Integra Gold has resulted in a current resource estimate containing 1.05Moz ounces of gold when using a cutoff grade of 3g/t and 828,000 ounces of gold using a cutoff grade of 5g/t.
As more than two thirds of the resource estimate is part of the indicated category, this resource estimate is very robust. There’s still a lot of exploration potential, as a magnetic survey has outlined several more drill targets which will explored with follow up exploration and drill programs. This will only happen at a later stage, as Integra is 100% focused on bringing the Lamaque project back to production.

The cash flow from this production will very likely be used for further exploration on the project, as we firmly believe more gold is to be found at those new zones or at depth at the current mineralized zones (as most drilling was limited to just 300 meters).

Infrastructure surrounding the Lamaque Project

The infrastructure at Integra’s Lamaque Project is phenomenal, as there’s an airport at less than 10 kilometers away, and Highway 117 actually crosses the northern part of the project. Power will also be available and the nearby city of Val D’Or offers a pool of highly-skilled mine workers who would like to work close to home instead of rotating on a two weeks on, two weeks off schedule at another mine a few hundred kilometers away.
Besides this, the area around the Lamaque property has a lot of mills which are either running inefficiently because of the lack of sufficient ore or are put on care and maintenance because they weren’t profitable.

This has led Integra Gold to believe in a toll milling model. As there’s plenty of excess mill capacity, the company is quite sure it will not have to build its own mill but will be able to use the excess capacity of one of the nearby mills.
More specifically, the most recently completed metallurgical test work was aimed at deciding which mills would be capable of processing the ore coming from the Lamaque project and it sounds like Agnico-Eagle Mining’s (AEM.TO, NYSE:AEM) Goldex mill or Richmont Mines’ (RIC.TO, RIC) Camflo mill are in the pole positions based on capacity and average recovery. (see image in pdf for mill locations)

We think Agnico’s Goldex mill might be the most logical choice as Agnico actually needs to process more ore to increase the efficiency at its mill. On top of that, Agnico has been on an acquisition spree lately where it bought strategic stakes in several junior mining companies, and we think Integra might be the next one on Agnico’s list as the Lamaque project is just 8 kilometers away from the Goldex Mine and as there would be a lot of synergies by processing the Lamaque ore at the Goldex mill. That being said, obviously no decision has been made, and the Integra team will obviously choose the mill that fits best in the operational plan.

The next catalysts

Integra Gold is still drilling at a rate of approximately 30 meters per rig per day with 3 rigs for an expected drill rate of 3,000 meters per month. This should be sufficient to complete the planned 40,000 meter drill program before the end of this year. The majority of this 40,000 meter drill program will be definition drilling to increase the indicated resources which will be used as the basis for a pre-feasibility study which is expected next year.

Of the 40,000 meters, approximately 20,000 meters will be drilled at the Triangle Zone with the balance being drilled at the Fortune Zone and the Numbers 3 and 5 plug in the Northern Cluster of the Lamaque Project. Thanks to the lower demand for drill rigs during this downturn, Integra Gold was able to immediately contract three drill rigs from Orbit Garant Drilling (OGD.TO). The cost of drilling is relatively low, as senior VP Hervé Thiboutot estimates the direct cost to be approximately $55-75 per drilled meter and the all-in cost to be roughly $160-170/meter. This means that the current cash position of the company should almost cover the entire 40,000 meter drill program, so Integra Gold is in no rush to return to the capital markets to raise additional funds. The new drill intercepts at the Triangle Zone are very promising, as during our site visit we were able to detect visible gold in the fresh drill core.

The most important upcoming catalyst will obviously be the release of a Preliminary Economic Assessment on the Lamaque property. However, investors shouldn’t expect a huge Net Present Value, as the PEA will very likely be based on a mine life of just 5-7 years. This is perfectly normal for an almost vertical vein deposit as it would be extremely expensive to drill a lot of deep holes with a narrow spacing to comply with the requirements to end up with an indicated resource estimate.

Instead, investors should focus on the very likely low capital expenditures and cash cost. The low capital expenditures will be caused by the fact that Integra won’t have to build its own mill, and because the ore which will be processed first is very close to surface, so no shafts will be needed at this point. The cash costs will be low (as low as $800-900/oz on an AISC basis) because the average grade of the project is quite high (using a 3g/t cutoff grade the current average grade is 7.1g/t in the indicated category and 10.8 g/t in the inferred category) and the metallurgy is quite simple. The combination of these two factors should result in a very high internal rate of return and short payback period for Integra Gold which are two parameters on which investors are focusing most these days.

Integra’s base case plan will be a production rate of approximately 1500 tonnes per day, which should result in an annual output of in excess of 100,000 ounces of gold.

The people behind Integra Gold

One of the most important factors in the mining sector is the team that is trying to advance a project. Even an excellent project can go down in flames because of mismanagement issues.
This doesn’t seem to be the case with Integra Gold, as CEO Stephen de Jong has built an exceptional team around him with several decades of relevant experience.

Hervé Thiboutot is senior vice president of Integra and has extensive experience in all aspects of mining as he was a Vice President Exploration for Alamos Gold (AGI.TO) before, as well as the project manager for Goldcorp’s (G.TO, NYSE:GG) Eleonore project in Québec. Mr. Thiboutot has only worked for major companies, and we think it says a lot about the prospects of the Lamaque project if someone with a track record like his decides to join a junior mining company.

François Chabot is the current manager of operations and engineering, and has almost 20 years of local experience as he used to work for Golder Associates in Val D’Or. More recently, he was a a director for the Beaufor Mine and Monique project at Richmont Mines (RIC.TO, RIC) which are within walking distance from the Lamaque project. He has an excellent hands-on approach on the operational side of things.

Conclusion

Nowadays everybody is looking for high-grade and low-cost projects, and it’s very likely Integra Gold will fit this bill after it releases the results of a Preliminary Economic Assessment. Integra’s Lamaque property is quite unique as it is located in a proven district (with the Century Mining mill literally being located across the street) and has shown that more mineralization remains to be found, even though the project already produced 4.5 million ounces of gold in the past.

The first catalyst will be the release of the PEA which should show a low-capex and low-opex operation with a short payback period. Investors should not be fooled by the short mine life as it would just be too expensive to drill-test the mineralized zones at depth.
Integra will fast-track the Lamaque project towards production and will use the operational cash flow to continue drilling at the property to increase the resource estimate so it would support a longer mine life.

Long story short, Integra Gold has the right people and what seems to be the right project. In an era where most junior exploration companies shut down completely, Integra was able to raise C$4.5M in a flow through financing late last year so it can continue to advance the Lamaque project.
We are convinced Integra Gold will be viable as a standalone project, but it might also position itself on the radar screens of companies like Agnico Eagle who might be interested to just outright buy the property or company and truck the ore to its Goldex mill.