November 2009

Looking north for prosperity

A century on, the gold fields of Northern Ontario continue to fuel growth

By B. O’Hara

Exploration drillling at Northgate’s Young Davidson project

According to the town’s mayor, Bill Enouy, “Kirkland Lake is back on the map.” Families are moving to the area and he estimates that the town population has increased from 8,300 to about 9,000. He adds that in the past year, housing prices have increased from the $80,000 range to around $110,000 for a standard three bedroom dwelling. Enouy’s optimism is certainly warranted. Northgate Minerals recently raised $100 million in equity to help finance the development of its Young-Davidson Project. They began ramp development and shaft dewatering in October and plan to commission the mine in 2010.

Meanwhile, Timmins is celebrating a series of 100-year milestones over the next four years, beginning this year with the anniversary of the discovery of the Hollinger, McIntyre and Dome mines. In a sign of the times, the region faces mine closures as it welcomes new projects. The area’s miners and suppliers are busy with the development of the Apollo Gold-owned Timmins West and Black Fox operations, the St. Andrew Goldfields’ (SAS) Holloway, Hislop and Holt projects, as well as numerous junior exploration ventures in the region.

The Midas touch

Ontario is the number one provincial gold producer in Canada, mining over half of the country’s gold in 2008. According to Natural Resources Canada (NRCan), Ontario produced 27.6 million grams of the total Canadian production of 52.6 million grams. In addition, Ontario is the leading provincial gold explorer, accounting for $260 million of the $579 million in precious metals (primarily gold) exploration and deposit appraisal expenditures in Canada for 2008, according to statistics released in March 2009.

“Ontario ranks among the top 10 jurisdictions for exploration spending in the world because of the quality of its infrastructure, the diverse and unexplored geology, accessible and reliable geoscience information, stable regulatory environment and favourable tax policies, including a permanent flow-through share program for exploration,” says Ontario Minister of Northern Development and Mines Michael Gravelle. “We are looking forward to continued growth in the mining sector, particularly in Northern Ontario, where numerous new and exciting mineral development projects are being advanced.”

Ontario gold miners and developers are utilizing innovative ideas and methods to increase current and future gold production. Goldcorp is going deeper at its Red Lake complex in order to develop the High Grade Zone below the 57 level and developing the deep DC ore at the Campbell complex.

Aggressive drilling campaigns by Kirkland Lake Gold are exploring new targets quite a distance away from well-known historic gold production zones. Detour Gold is developing a low-grade, high-tonnage open pit operation near the workings of a closed underground mine. Closed mines are also being redeveloped, as is the case with SAS’s Holloway, Hislop and Holt gold projects and Goldcorp’s Cochenor project.

Flexibility on the financing front

After a difficult year in the markets, Canadian mine equity financing has returned, rising 33 per cent to $11 billion in the first seven months of 2009, compared to the $8.3 billion raised in all of 2008. These impressive capital numbers did not include the recent US$4 billion blockbuster equity raised by Barrick Gold Corporation this past September. Two days earlier, the company had announced they would be buying back three million ounces of fixed-price hedges and 6.5 million ounces of gold in floating gold contracts. This decision will provide Barrick with full leverage to the gold price.

“Mine development capital is currently being financed by a large component of equity augmented by debt,” according to Catherine Gignac, managing director, mining research of Sandfire Securities. “Canada has the highest diversity of mining companies, the largest variety of investment opportunities and is the primary location for mining industry financing.”

It is “very difficult” for a junior gold miner to obtain conventional bank project financing this year, according to Ben Au, CFO and vice-president, finance and administration of St. Andrew Goldfields Ltd., which is developing the Holloway Mine and the Hislop Project. SAS closed a mezzanine financing of senior gold notes in April 2009 for US$16.2 million, of which $1 million was purchased by a director and family members.

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