Darnley Bay Resources is acquiring 42 known zinc-lead deposits over a strike length of 68 km in the Northwest Territories that the junior explorer’s management team believe provide a clear path towards production.
The assets—collectively known as the Pine Point project— consist of an underground deposit (R-190), an open-pit deposit (N-204), and a cluster of smaller open-pit deposits, about 10 km south of Great Slave Lake and 42 km from Hay River.
They are part of the larger Pine Point district, where Cominco mined 64 million tonnes of ore grading 7% zinc and 3.1% lead from 50 open pits and two underground deposits between 1964 and 1987.
“We’re after the 48 million tonnes of ore that we know of that Cominco left behind,” says Jamie Levy, the junior’s president and CEO. “This acquisition is a game-changer for Darnley Bay. It is rare in the mining business that the opportunity to acquire an entire mining district presents itself.”
Before the project’s previous owner, Tamerlane Ventures, went bankrupt, it prepared a technical report that outlined reserves for the project’s assets. (Previous drilling on the property by Tamerlane, Westmin and Cominco totaled 1.3 million metres in 18,422 holes.)
According to the Mar. 14 2014 report, the R-190 underground deposit contains proven reserves of 647,308 tonnes grading 12.47% zinc and 6.10% lead and probable reserves of 357,311 tonnes grading 8.27% zinc and 3.79% lead.
The N-204 open-pit deposit has probable reserves of 12.83 million tonnes average 2.6% zinc and 0.7% lead, while the remaining cluster of open pits contain a mixture of proven and probable reserves totaling 10.40 million tonnes grading 3.54% zinc and 1.49% lead.
The technical report also estimated that the project would yield an after-tax internal rate of return of 32% based on a base case of US$1.03 per lb. zinc and US$0.92 per lb. lead.
The Pine Point property belongs to a class of carbonate hosted lead-zinc sulphide deposits known as Mississippi Valley Type (MVT) deposits, which include the Nanisivik and Polaris deposits in Canada. The deposits are known for moderate to high grades, non-complex metallurgy, and processing and beneficiation characteristics that yield high-quality concentrates.
Cominco shut down its mining operation in the Pine Point area in the late 1980s due to a combination of lower zinc prices, the expense of maintaining a mining town at Pine Point, and because they had bigger zinc projects coming on line (Polaris in Nunavut and Red Dog in Alaska).
Levy and Kerry Knoll, the company’s chairman, are convinced the property offers good exploration upside, with 34 untested geophysical anomalies and 15 km of strike length that has never been drilled.
“There is a deposit on that trend, on average, every kilometer and a half, and yet you have 15 km that has never been tested,” says Knoll. “The reason Cominco didn’t drill it was because it was too far from their mill, so it’s very, very prospective ground.”
“This looks like—with very little exploration—that it could be a mine,” adds Knoll, who over the last thirty-five years has built four mines and co-founded several successful mining companies, including Blue Pearl Mining (now Thompson Creek Metals); Glencairn Gold Corp. (now B2Gold Corp.); and Wheaton River (now Goldcorp). Last month, Thompson Creek Metals was acquired by Centerra Gold in a deal worth about US$1.1 billion.
Levy notes that the project has the five key factors that he looks for in a project.
“Pine Point has historic size, it’s got grade, which is economic at today’s prices, it’s got phenomenal infrastructure, a good jurisdiction in Canada, and exploration upside,” he says. “I’m sure there are other favorable things as well but they were very important in our decision making process.”
In terms of infrastructure, the project can be reached by an all-weather, year-round highway from Hay River, which has an airport with flights to Edmonton and Yellowknife, a rail terminal and a port from which all barge traffic travels down the Mackenzie River. There is also a power line going right over the property.
“You have a rail head there so you could get the concentrate out,” Knoll says. “A lot of these zinc deposits are isolated and unless you’re near tide water or a rail head you’re probably going to struggle, so there are a lot of things lined up here that make it look like a mine to me.”
“We want to stay in Canada,” he adds. “We know the laws and permitting requirements and we know we’re allowed to build mines here, where you’re not in some other places.”
In addition, most analysts agree that the fundamentals look strong for zinc.
“Given what’s happened to zinc I think our timing is really, really good,” says Knoll. “Zinc was at a five-year high yesterday.” The benchmark zinc contract on the LME reached US$2,485 per tonne on Nov. 1, its highest since August 2011, according to Reuters.
Knoll also notes that Pine Point is “every bit as good a deposit,” (and larger in terms of in situ pounds in the ground), as the company’s Davidson molybdenum-tungsten project near Smithers, British Colombia.
Last month the company updated the Davidson project’s resource estimate based on drilling dating all the way back to the 1950s. The latest resource was based on 72,815 metres in 218 holes, 23 of which were drilled by the project’s previous operator.
Davidson’s measured and indicated resource, at a cut-off grade of 0.20% molybdenum sulfide, now tally 90.10 million tonnes grading 0.286% molybdenum sulfide (MoS2) and 0.034% tungsten trioxide (WO3) for 340.5 million pounds of molybdenum and 67.53 million pounds of tungsten.
At a higher cut-off of 0.28% MoS2, measured and indicated resources stand at 34.42 million tonnes grading 0.374% MoS2 and 0.036% WO3 for 170.14 million pounds of molybdenum and 27.32 million pounds of WO3.
“The numbers are good, the grade is slightly higher, and tungsten adds a really nice kicker,” Knoll says. “On top of that, we have more pounds, so it’s all good.”
At some point, when the company has the funds, it will proceed with a preliminary economic assessment in order to determine what price is necessary to make a go of a mine there, Knoll says. “We don’t know that number yet until the work is done; interestingly, a lot of engineering work has been done. It was done on a shipping scenario, but we would look at building our own mill.”
Thompson Creek Metals completed a feasibility study on Davidson in 2008, but never filed it on Sedar. That study envisioned trucking ore to a privately owned mill, Endako, but the trip accounted for about half of the project’s production costs of US$9.46 per lb.
Thompson Creek Metals disposed of Davidson in 2013 when the company retreated from the molybdenum business.
In addition to Davidson and now Pine Point, Darnley Bay also holds in its property portfolio a huge gravity anomaly in the NWT near Paulatuk, a hamlet along the shores of Darnley Bay in the Inuvialuit Settlement Region. Early exploration programs there failed because none of the holes were drilled deep enough to test key targets. The company eventually plans to undertake more work on the anomaly.