It has been a while since we released an in-depth overview of Integra Gold (ICG.V) and its flagship Lamaque gold project in Québec and now we have seen some more drill results from the company’s substantial summer drill program, we feel it’s the right time to re-visit the value proposition here.
The current market capitalization (based on almost 350 million outstanding shares) is almost C$125M.
Explaining the most recent drill results and the importance of the C-structures
In this report we will predominantly focus on the Triangle zone of the Lamaque project where roughly half of the total amount of drilling has taken place. Right now, no less than five drill rigs are actively drilling the Triangle Zone where Integra Gold wants to complete an additional 25,000 meters of drilling by the end of this year which will bring the total amount of drilling in 2015 to 90,000 meters. And Integra isn’t showing any signs of slowing down as after our discussions with the senior management team, it became clear Integra is planning to drill an additional 100,000 meters in 2016.
We have reported on all exploration results on the Caesars-blog throughout the entire year, but the more results Integra made available, the more the so-called C-structures were impressing us. As you might remember, the company discovered these mineralized structures during a drill program last winter, and these steeply dipping zones seem to have a higher average grade as well and this could make these zones easier (and more importantly, cheaper) to mine.
Since discovering the very first C-structure, Integra has added additional structures and has now confirmed there are at least 5 C-structures. The fifth one actually looks pretty impressive and even though the development of this structure will take a while considering it’s located at a depth of 650-750 meters, the few drill results we have seen on this zone are pretty impressive with 8 meters of almost 20 g/t gold. This C-Zone is still open in all directions.
Not only are these C-Zones a real eye-opener in terms of developing the geological model at Lamaque, we dare to bet the resource estimate at the Triangle Zone will be expanded after the current drill program. Keep in mind The C structures were not included in the currently known resource estimate, and we have literally no doubt at all these zones will add several hundred thousand ounces to the current 594,000 ounce resource.
Developing a mining portal at Triangle was the logical next step
The 2015 drill results have removed any doubt from the Triangle Zone being the most important zone of the project and Integra Gold has applied for (and received) all necessary permits to construct a drift to be able to get some underground exploration done.
The surface work at the portal will be done before the end of this quarter at a relatively low capex of C$5M (which has been paid for with Integra’s access to flow-through funds, as the underground drift is part of the company’s exploration program).
Integra Gold expects to release an updated resource estimate before the underground exploration program will start, and we are expecting the total resources at Lamaque to increase to 1.6-1.7 million ounces gold. The resource update should be published in November but don’t be alarmed if it takes a little bit longer.
Does Eldorado Gold want to gain exposure to Canadian projects?
We were quite surprised to learn Eldorado Gold (ELD.TO, EGO) was willing to inject almost C$15M in Integra Gold to obtain a 15% stake in Integra. We are not surprised to see Eldorado diversifying away from Greece and China, but are positively surprised to see the company picked Integra Gold as its first large investment outside the riskier countries.
Granted, we expected Agnico Eagle Mines (AEM.TO, AEM) to be the first strategic investor in Integra Gold, but word on the street after the strategic stakes in Pershimco Resources (PRO.V) and Belo Sun Mining (BSX.TO) is that Agnico is quite reluctant to invest in more junior mining companies. However, their hand might have been forced now a direct competitor has taken a sizeable stake in Integra Gold.
Another potentially interested party could be Centerra Gold (CG.TO) which has been aggressively eyeing projects outside of Kyrgyzstan. It will be very interesting to see if Eldorado Gold will remain the only senior producer on Integra Gold’s shareholder list.
The new PEA should see a substantial increase in the NPV at Lamaque
In a previous blog post we expressed our hope the new mine plan at Lamaque would be based on a more recent resource estimate and as the company has now officially confirmed to complete an updated PEA by the end of the first semester of 2016 based on the November resource estimate, we are expecting a substantial increase.
Using a gold price of C$1430/oz, we expected to see an after-tax NPV5% of C$220-260M based on a total production of 1 million ounces. As this still excludes the C-structures, we would now be aiming for a total amount of recoverable ounces of 1.3 million ounces. This should further improve the economics at Lamaque and we would now be aiming for an after-tax NPV5% of approximately C$300M on the condition the new mine plan contains in excess of 1.3 million recoverable ounces of gold.
Some of our readers were surprised Integra would first release yet another PEA (the third one) instead of completing a pre-feasibility study. We discussed this with Integra’s management and the company first wants to complete an underground exploration program before moving to either a pre-feasibility study or fast-tracking the project to a feasibility study. We consider this to be a wise decision as it’s extremely important to gather all information of a high-grade underground gold system before encountering surprises during the production phase.
We understand investors can be impatient, but it’s important to de-risk the project as much as possible. As the Triangle Zone has proven to be much larger than we (and Integra’s management team) originally anticipated, there’s a good chance some of the parameters of the previous PEA will have to be moved back to the drawing board. Should the production rate be increased on the back of a larger-than-expected Triangle zone, Integra might be able to use the entire capacity of the Sigma-Lamaque mill without having to downsize the capacity of the mill.
Conclusion
Integra is by far the most active exploration company in Québec as it will complete almost 200,000 meters of drilling in 2015 and 2016. Integra is executing its plans to start an underground drill program in 2016 and this should increase the confidence in the geological model at the Lamaque project.
A new PEA will be released in the first half of 2016 and as this will be the very first study to incorporate the C-structures at Lamaque, we expect the after-tax NPV5% to more than double to C$300M using the current gold spot price.
Disclosure: Integra Gold is a sponsor of the website, We also hold a long position.
