British Columbia's Golden Triangle Monday September 24, 2012 15:47
A corner of Canada's western-most province hosts one of the richest mineral belts in the world.
Few investors yet appreciate the enormous value of that region.
British Columbia, long recognized for its exceptional mineral wealth, is regaining prominence among mining investors. Canada in general is looking increasingly attractive as the mining industry faces mounting challenges in many jurisdictions around the globe.
Many parts of the province are highly prospective for minerals, but one region stands out: An area of northwestern British Columbia referred to as the Golden Triangle has produced enormous precious and base metal wealth over the past century. Rich gold and silver mines near the port city of Stewart established the potential of the region. The rich Eskay Creek mine 90 kilometers north of Stewart demonstrated the much larger potential of the region. Red Chris, another 100 kilometers north, is now in development.
An enormous amount of exploration work over several decades outlined numerous large precious and base metal deposits. For a host of reasons, the area went quiet before those mines could be developed. BC’s Golden Triangle has come alive again, with at least five world-class mining projects headed toward production.
Having already delivered millions of ounces of gold and tens of millions of ounces of silver, the region ranks as an important mineral district. Yet, that production represents only a tiny fraction of the metal now known to be hosted in the district.
Two exploration companies, with adjacent claims, have outlined an astonishing 130 million ounces of gold, 800 million ounces of silver and 20 billion pounds of copper. Both of those companies are now working toward feasibility studies. Combined production from those two proposed mines is projected to exceed a million ounces annually, with a nearly equivalent value of silver, copper and other metals.
While those advanced-stage projects have generated valuations at the billion dollar levels, other companies sitting on similar geology still trade for pennies a share. A couple of those companies are on the track of important discoveries.
A Long History of Mining
Northwestern British Columbia was first explored in the late 1890s by prospectors on their way to the great Yukon-Alaska gold rush. High-grade gold and silver discoveries were made and exploited on a small scale over the next several decades. The town of Stewart, a seaport, became the focal point for exploration in the region. A number of exceptionally high-grade discoveries were made just inland from that town.
Many of the major mining companies explored that region for base metals from the 1950s into the early 1970s. The Granduc copper mine was developed by Newmont in the 1970s and then acquired by the minerals division of Esso, the Canadian unit of Exxon.
Numerous other discoveries were made, but the remoteness of the region at that time hampered mine development. In the mid-1970s, a left-leaning provincial government scared off the mining industry. At exactly that time, discoveries in other parts of the world attracted mining companies to what seemed friendlier places. Big new mines were developed in Chile, Peru, Indonesia and other places. British Columbia was put on the back burner for the mining industry as vast amounts of money were applied to developing mines in other parts of the world.
The 1980s saw a resurgence of exploration in the Golden Triangle with a focus on gold and silver. This time, the exploration efforts were driven by junior exploration companies. Vancouver had become an international center for mineral exploration financing. One of the companies working in the region, Calpine, had generated some interesting results but was having trouble raising money to continue their work.
The Calpine results attracted the attention of legendary mining promoter Murray Pezim. The Pez, as he was affectionately known, had played an important role in funding the discovery of the Hemlo district in Ontario, which became one of the most important gold districts in the country.
With a strong financial backer, Calpine was able to carry out a comprehensive exploration program. They drilled more than 100 holes that were geologically encouraging, but which would not have attracted the attention of most investors. It was hole number 109 that convinced investors of the significance of the Eskay Creek discovery. That hole, one of the most impressive drill holes of all time, encountered an extraordinary 208 meters that assayed 27 grams per tonne gold and 30 g/t silver.
In short order, the Eskay Creek mine became the fifth largest silver producer in the world, turning out 15 million ounces annually for much of its 14 year mine life. The mine also produced 250,000 ounces of gold annually along with substantial values of base metals, becoming an important part of the growth story that made Barrick the world’s largest gold company.
Needless to say, hole 109 kicked off a frenzy of activity in the district. The staking rush saw the district broken into literally thousands of small claims, with numerous companies each pursuing targets within the bounds of their property. There was a great deal more geological encouragement reported over the next several years. Most of the companies, working on small parcels and with limited budgets, only scratched the surface. Then, the exploration industry ground to a halt in 1997 without another discovery on the scale of Eskay. For several years, the district was quiet.
Re-Activating Past Discoveries
One of the first projects to resurface was Galore Creek, which had been explored by two major companies in the 1960s and 1970s. The modest-sized deposit they outlined was seen to have little value in that remote location. After the project sat idle for years, NovaGold (NG-TSX) bought Galore Creek for $20 million. Further drilling outlined a massive deposit with 12 million ounces of gold, 200 million ounces of silver and 12.7 billion pounds of copper.
Another huge success was the Red Chris copper-gold deposit, located east of Highway 37. Imperial Metals bought the Red Chris deposit in 2006 for $69 million, intending to develop a mine on the modest-sized porphyry copper-gold deposit that had been outlined up to that time. Earlier exploration on that deposit, as with many of the BC deposits which had been explored in prior decades, had tested only the top couple of hundred meters – material within reach of open pit mining as it was then practiced.
Imperial Metals probed beneath the previous drilling, with one of those deeper holes (RC09-350) encountered 152 meters that assayed 4.1% copper and 8.8 g/t gold. That hole completely changed the project and added a billion dollars to the value of Imperial Metals. That mine is now permitted and is under construction. Start-up is expected in 2014, following completion of a power line that will connect Red Chris to the provincial power grid.
That power line is a huge benefit to mine development throughout the region, as BC electric power, generated mainly from hydro-electric facilities, is among the least costly electric power in the world. For many mines, energy is the single biggest cost item.
Over the past few years, there has been a great deal of infrastructure improvement in the area. Paved Highway 37 provides good access into the district. The Eskay Creek access road opened up a big area, as did roads to Snip and Bronson, two other mines that operated briefly. The Galore Creek access road, now more than half finished, is another important aspect of regional infrastructure.
Other discoveries made in earlier decades by major mining companies are now being advanced by smaller exploration companies. Copper Fox (CUU-TSXV) optioned the Schaft Creek copper-gold deposit from major mining company Teck. The deposit was explored in the 1960s and early 1970s. The junior has now earned a controlling interest in the project and is within months of completing a feasibility study on a deposit that is several times larger than before the junior began working on it.
Seabridge (SEA-TSX) and Pretium (PVG-TSX) are both working on deposits that were explored by major companies in decades gone by. The adjacent claims of those two companies host a combined 130 million ounces of gold plus vast amounts of silver, copper and other metals. The combined contained metal value on those two properties, valued at today’s prices, is worth an astounding $300 billion. That incredible metal value is hosted within a 12 kilometers circle, representing one of the greatest concentrations of metal value on the planet.
Geology Unlike Any Other
The geological understanding of the Golden Triangle is still unfolding. Geologists are scrambling to understand what created the phenomenal concentrations of gold at the Valley of the Kings discovery of Pretium. Recent drill results include 0.5 meters that carried 41,582 grams per tonne gold (1.6 feet at 1,213 ounces per ton of gold). Another hole hit 2,393 g/t gold 1,605 g/t silver over 10.7 meters (70 ounces gold and 47 ounces of silver per ton over 35 feet). Numerous intersections have exceeded 1,000 g/t, grades rarely seen in gold deposits.
The broad picture, in simplest terms, is that most of British Columbia is made up of blocks of crustal material (terranes) that have been accreted to the coast over a period of hundreds of millions of years. Those terranes include a wide variety of rock types, including metal-rich material derived from the depths of the crust.
Most metal deposits are derived from hydrothermal systems. That is, superheated water, circulating kilometers deep in the crust, gathers metal atoms and then deposits them in particular zones, creating concentrations of metals. Typically, such a system would remain active for hundreds of thousands of years to as much as perhaps a couple of million years. For reasons not yet well understood, the hydrothermal processes in the Golden Triangle were active for much longer, in some areas for perhaps 10 million years. Few areas on the planet have seen such long-lived geological conditions.
That long period of stable mineralizing systems played an important role in creating the high concentrations of metals at Eskay Creek and Valley of the Kings. It is also the reason for the very large and well mineralized systems at Red Chris, KSM, Galore and other porphyry deposits in the region.
Historic work throughout the region in almost every instance started with recognition of metals at surface and then tracked the deposit beneath the surface. Only in retrospect are the geologists putting together the bigger picture and probing what were the geological conditions that created such immense mineral wealth. The next step in this evolving exploration story is to start with the bigger geological story and begin to look for metal deposits that do not stick out of the ground. There is every reason to believe that there are numerous similar deposits that are hidden beneath the surface.
One interesting point to ponder is that many of the discoveries have been made at high elevation, above the tree line, where the rocks are well exposed. In fact, many of the deposits were found where glaciers have only recently retreated, leaving the rocks completely uncovered. It is more than probable that there are additional discoveries waiting to be made under the thick forests that cloak the valleys and lower slopes of the mountains.
As the geological understanding builds, geologists, guided by the regional features, will use geophysics and other tools to probe untested areas. That process is just getting underway and could add enormous value to companies that hold large land positions in this region.
Overcoming the Legacy of Bad Politics
The unease created by the leftist provincial government in the 1970s still hangs over British Columbia. The current business-oriented government is totally supportive of the mining industry, but that message has been slow to reach the mining and investment communities.
In the course of an investment conference last year, at a large dinner table dominated by mining industry professionals, somebody asked what I saw as the most attractive place in the world for mining investment. I replied that British Columbia was at the top of the list.
One of the mining industry people from Toronto guffawed: “When was the last time a mining company got a permit in BC?” he asked. “Last year” I said, and reminded him that the Mt. Milligan project got a permit for a grassroots development without a hitch and is now in development. Copper Mountain was also permitted quickly and is already in production. Since then, the Red Chris project has also been permitted.
Over the past few years, two permit applications were turned down, which attracted a lot of media attention. One of those was actually approved by the province, but then turned down at the Federal level. Both of those mine plans are being revamped to address local issues that created opposition.
The provincial political situation is again causing concern for some investors, with the left-of-center New Democratic Party now leading in the polls and a provincial election coming up. It is now abundantly clear that mining is an integral part of the BC economy. Messing with this job creating industry would be political suicide for any party. The provincial treasury is in good shape, lessening the need for new royalties. The biggest priority is in generating jobs. In fact, the NDP have criticized the present government for not moving quickly enough to grant permits for mine developments which would create much-needed jobs.
Regardless of the attitude of Toronto-based mining analysts, the major mining companies see BC as an attractive place to invest. Xstrata, Freeport-McMoRan, Newmont, Goldfields, Antofagasta and Teck are among the majors actively exploring in the province. Importantly, all are exploring by way of joint ventures with juniors, an approach which has become the norm globally. All of those majors have their eyes on very large deposits which they know the province can produce.
Many jurisdictions around the world are getting crazier by the moment, with expropriations, increased taxes and royalty rates, corruption, civil strife and a host of other problems. BC is looking ever more favorable on so many fronts.
The Golden Triangle and Beyond
One of the most promising area plays is the Golden Triangle of northwest BC, and specifically the region to the west of Highway 37 and beginning about 20 kilometers north of Stewart. There is also enormous mineral wealth east of the highway and closer to Stewart, but that is a story for another day. We are also looking at other areas in the province that are generating important discoveries and expect to be reporting on those companies in the near future.
Valuations for exploration companies are generally at dismally low levels and BC companies are no exception. In spite of concerns over the situation in Europe and the host of other bad news that preoccupies the headline writers, the fundamental story for metals has never looked better. The most important factor is that the larger mining companies are continuing to acquire exploration and development companies, and they are willing to pay much more than the values applied by investors. It is worth paying attention to these companies, which can generate huge rewards in a short time.
By Lawrence Roulston
www.resourceopportunities.com
Resource Opportunities
1510-800 W. Pender St
Vancouver, BC
V6C2V6 Canada
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