Investors know that junior exploration companies are risky; what they often don’t know is that many juniors are not risky enough.
Finding gold ounces is a matter of knowing the geology of the area you are looking in and sticking close to existing or past producing mines, or as the old adage has it “exploring in the shadow of a headframe”. In the Abitibi gold belt, literally looking under old mines is a very good bet.
With it’s November 27 Press Release Cartier Resources (V.ECR) introduces a “gamechanger” for its flagship Chimo Mine project. The press release reports results from two, deep, holes in what the company calls its 6N1 target. The mineralized zone starts at surface and now is clearly shown to extend down to 1,100 meters. Cloutier, CEO at Cartier says “our team has just been rewarded for taking a risk that others thought would “kill the target”.”
Let’s back up a bit. Cartier has a dual strategy when it comes to drilling its flagship Chimo Mine project. Drilling deep along the historically profitable Mine trend, and, drilling deeper on known but lesser explored gold zones accessible laterally from current Mine infrastructure. The company’s challenge is managing the risk to reward of its ongoing robust brownfields drill program. Here is part of the issue: deep ounces are expensive. Going down several hundred meters from an existing shaft piles up the CAPEX of a potential mine. That up-front cost is often hard to justify for deep ounces even if the drill absolutely confirms the ounces are there. However, drilling deep into known structures can be attractive and represents what looks like a low-risk drilling strategy. So, Cartier thought they would balance that approach with an appropriate amount of higher risk – higher reward targeting.
A much higher risk drilling strategy is to drill where your historical data and geological model suggests there are more accessible ounces. For Philippe Cloutier, CEO of Cartier Resources, finding unmined ounces in the Chimo mine was a beginning. Drilling structures below the 900 meter shaft of the mine followed up that beginning and confirmed the logic of the known geological structure. Cartier could have continued to drill at depth in the same structure for years and added more and more deep ounces to its inventory.
Unfortunately, that sort of “safe”, quite predictable, program is not likely to bring significant returns to investors. Because investing in junior explorers is about discovery, not confirmation. And discovery means finding new ounces which can be mined near term with a relatively low CAPEX. Those are the ounces which will add shareholder value.
Which brings us to the concept of “drill to kill”. If a company believes that a particular target has new ounces there is only one way to find out: drill the target. Of course, the problem here is that the company may be wrong. For cautious managements, the potential impact of a “miss” on the company’s ability to raise next year’s funding makes drilling for fresh discovery seem too risky. But this caution is a great disservice to an exploration company’s shareholders.
The opposite strategy, drilling to prove or disprove a geological hypothesis, creates a much higher risk profile but it also creates a much more significant upside potential. And that is why the new deep 6N1 drill results changes the game for the Chimo Mine project.
The great advantage of the 6N1 target is that it is a mineralized structure which is only 80 meters away from the old Chimo mine workings. Drifting 80 meters is, relatively speaking, cheap. Which means that the ounces in 6N1 are both a new discovery and the sort of ounces which will warm the heart of even the most sceptical of mining accountants.
In principle, every ounce of gold in a deposit has a value, but some are worth much more than others.
With the strong results at depth from the 6N1 target, Cloutier might be permitted an “I told you so.” In fact, however, the company believe they have a secured bet with the ongoing Phase II drilling program which is testing 7 zones even further away from known mineralization including the furthest of all, 5M4.
Cloutier is expecting the results from further drilling in the 6N1 structure and in the more distant target areas in the next couple of months.
“This is the tipping point,” said Cloutier. “Now mining companies should “think Cartier” when they are looking for good gold ounces in an established mining camp.”
While Cloutier has to wait for the actual assays from the drill program, he likes what he sees coming from the two drills on site.
When you “drill to kill” and hit what you are looking for, you are creating real value for shareholders. You are confirming the new, mineralized, structures which make an old mine all the more attractive.