Golden Opportunities Abound Way Up in North Quebec: Eric
Source: Zig Lambo of
The Gold Report
As a former exploration geologist and now a mining analyst for
Laurentian Bank Securities, Eric Lemieux likes to walk the ground
and see for himself the companies he researches. In this
exclusive interview with
The Gold Report
, Lemieux brings us up-to-date on exploration activities in the
James Bay and Northern Quebec areas of Canada. He also gives us a
rundown on his latest picks for companies that hold good upside
potential in this exciting exploration area.
The Gold Report:
When you last spoke to
The Gold Report
this past July, you were preparing to head up north to visit some
of the companies you follow in James Bay and Northern Quebec.
What did you learn on that trip?
Indeed, at the end of last July, I went to Nunavik in Quebec,
north of the 56th parallel, to visit Azimut Exploration Inc.'s
(AZM:TSX.V) and Aurizon Mines Ltd.'s (ARZ:TSX; AZK:NYSE.A) Rex
and Rex South polymetallic projects. I learned that the area
could perhaps host a potentially huge hidden iron ore-copper-gold
deposit, possibly similar to the Ernest Henry deposit in
Australia. Obviously, these projects are still grassroots and
remote, but they are pure blue-sky exploration potential
projects, searching for elephants that could, with time, pay out
huge discovery payoffs.
Also in early August, I visited Midland Exploration Inc.'s
(MD:TSX.V) Ytterby project in the Strange Lake rare earths area
and observed Midland's and partner Japan Oil, Gas and Metals
National Corporation's phase 1 exploration drilling program.
Later in August, I was able to go and see Balmoral Resources'
(BAR:TSX.V) Fenelon project, which is on the Quebec side of the
Detour Lake deformation zone on the border of the James Bay
I also visited the Stornoway Diamond Corp. (SWY:TSX) Renard
project and saw the kimberlite both in outcrop and drill core
with my own eyes. I think it's important to do site visits where
you can learn a lot by interacting with management and the
Basically, you're doing your own follow-up grassroots research,
so to speak.
Yes. I'm an exploration geologist and I have a predisposition to
look at early plays where there is tremendous potential or
leverage to discovery. I like to look at these projects to better
understand the geology, see the geological models and get a
better sense of the potential size of an eventual deposit. There
is value in grassroots projects when you have good teams working
on them and sound geological models.
Before we get into more specifics on these companies you visited,
can you give us your general thoughts on what's going on with
precious metals and the mining shares? After a bad year last
year, what are you expecting this year?
I hope that 2012 will be a much better year for the commodity
explorers and developers in general. I expect that there will be
tighter supply, compounded by the fact that we have inflamed
costs in the mining industry. There are also dwindling reserves
and resources, social constraints and a tighter specialized labor
force for mining. All of this is creating increased costs and
eventually tighter supply. I think that should provide support to
the commodity prices and should eventually trickle down to the
shares, which haven't seen appreciation in line with the rise of
commodity prices. So I'm enthusiastic or at least hopeful for a
You just put out a book-length research report this past January
on the James Bay mining area. What makes this region so
attractive at this point?
I did put out a 167-page research report that covers seven names
and a lot of material. I believe that the James Bay region in
Northern Quebec remains attractive because of four main reasons:
infrastructure, social stability and acceptance, increasing
knowledge of the geological potential and the growing Éléonore
deposit of Goldcorp Inc. (G:TSX; GG:NYSE).
The planned Plan Nord infrastructure will provide road access,
which opens up possibilities to explore at lower costs than
having to fly in by helicopter or float plane. There is also
relatively cheap and available electrical power.
In terms of social stability and acceptance, that area is
inhabited by the Cree or the Inuit in the north, and there is now
a track record of mutual respect and cooperation. Goldcorp signed
an agreement last year with the Cree people that is beneficial
for all parties and creates a very strong template for
development in an environmentally friendly and respectful
There is also an increasing knowledge of the geology there
compared to 15 or 20 years ago as a result of geological survey
work done by the Quebec government and the Geological Survey of
Canada. That allows companies to work there with new geological
models, which help to uncover its mineral potential.
Finally, the Éléonore deposit of Goldcorp is advancing and is
showing that there is an emerging mining camp that is about to
put Northern Quebec and the James Bay area into the
In your research, you list about 25 companies that are active in
this region. Their share prices are all over the map from about
$0.05/share to up to nearly $10/share. What do you use for
selection criteria for deciding what companies you want to
I don't cover all of those 25 names per se. There are seven names
I actually initiated on. I mentioned the others because I wanted
to highlight the evolution of the share structure. Two elements I
find key are tight share structure and quality management; some
of these companies were able to minimize their share increases,
which permits tremendous leverage to discovery. Also, showing
that more companies are working in that area indicates that
there's greater probability of discovery.
So, how did you decide to choose these seven companies?
Again, it's the quality of management and tight share structure.
When I talk about quality of management, it involves the upper
management, their track record, their reputation and the
technical team. I always find it important to bring my fresh eyes
on site visits and talk with the people who are working on the
ground. So, when I selected my companies, it was because I was
able to get to better know their management and technical teams,
their history and their plans.
Can you give us a brief review on each of these new companies and
what you're expecting from them in the next year or two?
My seven companies-Adventure Gold Inc. (AGE:TSX.V), Virginia
Mines Inc. (VGQ:TSX), Eastmain Resources Inc. (ER:TSX), Balmoral,
Azimut, Midland and Stornoway-are pretty much all active in the
James Bay region or Northern Quebec, which is vast,
under-explored and also well positioned with the Plan Nord.
I have a "Speculative Buy" on Adventure Gold, with a
$1.20/share target price. Adventure is a focused gold explorer
and project generator with an extensive, well-positioned
portfolio of projects within the Abitibi mining camp, including
the Cadillac-Larder fault, the Casa-Berardi-Cameron fault and the
Detour/Sunday Lake fault. Adventure has strong management and
staked most of these projects itself. I always appreciate
companies that are able to generate their projects cheaply and
don't make expensive option deals or things like that.
Adventure's key project in 2012 is the Pascalis-Colombière,
about 30 kilometers (km) east of Val d'Or. It has started a 15km
drill program, which should lead to its first resource estimate
on this well-located project with very sizable potential. It is
also active on the Lapaska project, about 40km east of Val d'Or,
which could be an open-pit target. Adventure has a strong
portfolio with five or six early stage projects to the east on
the Quebec side of the Detour gold deposit. It may start drilling
there by the end of the year. There are other players in that
area that we'll discuss later and, if any of those has success in
drilling, I think it will gravitate to the other ones that
control some of the land package in that area.
The next company is Virginia Mines, which is my top pick. I
have a target price of $17/share, essentially based on the value
of the royalty it has on the Éléonore deposit. It's a 2.2-3.5%
royalty based on gold production from Goldcorp's Éléonore
project. My thesis is that royalty is gaining value because
Goldcorp is now building a world-class mine with a $1.4 billion (
) investment. As the project grows and is derisked, Virginia's
royalty is gaining value.
Virginia also has a very aggressive 2012 exploration program
on several projects, spending about $20 million (
) in the first part of the year. It has quality partners
including Anglo American Plc (AAUK:NASDAQ), Quadra FNX Mining
Ltd. (QUX:TSX) and IAMGOLD Corp. (IMG:TSX; IAG:NYSE) funding
about half of it. I consider Virginia "la référence" (the
reference) for mineral exploration in Quebec. It has a very
strong pipeline of projects and a great exploration team. André
Gaumond, the president, has always focused on social
responsibility and good community relations with the Cree and the
Inuit and with the different communities.
I have also Eastmain Resources as a "Speculative Buy" with a
$2.80/share target price. I believe Eastmain is very well
positioned with three key projects: the Clearwater project, the
Eastmain mine and the Éléonore South project, which is a joint
venture with Azimut and Goldcorp. Eastmain's flagship project is
the Eau Claire deposit of the Clearwater project, which you can
almost drive to in a pickup. Last year, it brought in a 1.6
million ounce (Moz) global gold resource, drilled more than 20 km
and expanded the deposit. Eastmain will have a 40 km drill
program in 2012 on the Eau Claire. It will be very active, with
more than 50km of drilling in 2012, and it will be interesting to
see how it advances its three to four key projects.
Another company I cover is Balmoral Resources, which was
created in 2010, and has an extensive land position on the Quebec
side of the Detour Lake/Sunday Lake deformation zone, east of
Detour Gold Corp.'s (DGC:TSX) huge Detour gold deposit. Balmoral
was one of the first ones to option properties there and increase
its land position by staking. It has a very strong footprint of
properties along that belt, which has not had as much exploration
as the Ontario side, due to the depth of the overburden, which
makes exploration very difficult. On Balmoral, I have a
"Speculative Buy" with a $1.50/share target price that's based on
its very aggressive drilling program planned for 2012 on its
Detour Lake properties and the quality of its management team led
by Darin Wagner. I think the key projects are the Martiniere and
Fenelon. I expect that in 2012 it will have positive results on
increasing the zones highlighted with its 2011 drilling.
So you also have Azimut Exploration. What's the story on that
On Azimut, I have a "Speculative Buy" rating and a target price
of $1.40/share. Azimut is a project generator using innovative
targeting methodologies and has amassed a huge land position in
remote Northern Quebec. This was based on compiling government
geochemical surveys of the lake sediments showing some
interesting anomalies of gold, copper, rare earth and other
Azimut believes this area could possibly host a world-class
deposit in the iron ore-copper-gold spectrum similar to
Australia's Ernest Henry deposit or the Olympic Dam. It's very
grassroots, but its geological model is finding interesting
targets. It did do a rotary air blast drilling program last
summer (29 drill holes totaling 2,136 meters) without much
success, but, when you realize that the area is huge, there is
room to hide a huge deposit. So Azimut's strength really is to be
able to look for and hopefully generate world-class deposits in
areas that have not been thought to be able to contain these.
It's a wild card, but it's one that I think is interesting to
have in one's portfolio if there is a discovery that could yield
a humongous payout.
Other than Virginia, these are all fairly low-priced
opportunities and if they score, they can really score. There's
also Midland. What's going on there?
On Midland, I have, again, a "Speculative Buy" and a target price
of $2.75/share. Midland is an active project generator and has a
diversified portfolio of projects focused only in Quebec. It has
a growing exploration program for 2012 and a lot of quality
partnerships. So, for 2012, Midland is reaping the benefits of
being very proactive in 2011, generating new projects and getting
One of Midland's key projects now is the Casault project,
which is a joint venture with Osisko Mining Corp. (OSK:TSX).
Casault is to the east of the Detour Lake deposit and Midland and
Osisko are now drilling there. Midland also has a strategic
partnership with Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE)
drilling the Maritime Cadillac project, east of Agnico's Lapa
mine. Midland is also drilling on its Laflamme property, a
partnership with North American Palladium Ltd. (PDL:TSX;
PAL:NYSE). This was a gold project, but last year it hit
nickel-copper-PGE intersections and was able to find this unkownn
massive sulphide. So, again, Midland's way of doing things is to
generate projects in an area that perhaps has been overlooked and
then attract quality partners. It has about a 20km drill program
for 2012 and I expect some good results that should help it hit
my target price of $2.75/share.
Then you have Stornoway Diamond, which is in a different
This is obviously a new oddball for me, in the sense that I'm not
a diamond specialist, but, as a geologist, I understand the
process and I did do my due diligence. Stornoway has a very
strong team that's been building a quality asset over the last 10
years. This deposit has a lot of potential with a positive
feasibility study that was completed at the end of 2011 showing a
robust diamond project. Diamond quality appears interesting.
Stornoway has completed a mining plan that could potentially
incorporate pipe extensions where drilling has shown geological
continuity, but limited sampling-bulk sampling-has precluded them
in a resource estimate. A potential mineral deposit, which it
can't be qualified or quantified in an economic analysis, is the
hidden card of this project. With diamonds, not only are tonnage
and grade important, but also quality. That means that you have
to do a lot of work through bulk sampling and diamond
I do believe that Stornoway's project is well positioned. The
167 Ext road will be there by the time it is able to start
construction. Obviously, there are some big risks, the biggest
one being the financing risk. Overall, however, the supply and
demand equation for diamonds is favorable in the coming years. In
China and India, the populations, growing both in numbers and in
size of the middle classes, believe diamonds are a store of
wealth and a sign of prosperity. I think there should be better
days ahead for the diamond industry and the Stornoway project
could be a very strategic first diamond mine for Quebec.
A few years ago, there must have been a couple hundred companies
in this business. What do you think the prospects are for others
to come up with something significant?
A few years ago, there were a lot of diamond explorers, but
diamond exploration is not a simple endeavor. It takes a lot of
patience and work to bring it to a certain level and only the
strongest players are surviving.
I still think that there is great diamond exploration
potential in Canada, The Ekati and Lac de Gras discoveries are
world-class mines that show there is potential. I think there are
probably other projects in Canada that will be able to go near or
above that threshold.
To summarize, what general thoughts would you like to share with
our readers as far as precious metals, the mining share markets
and what they should be doing and looking for at this point to
try to make the most of current opportunities?
I still believe that the price of gold is set to go higher. There
is persistent global economic turmoil in Europe and in the U.S,
ongoing debt problems and I believe inflation could be around the
corner. All of those support the price of gold and
I like to highlight the fact that if you can't grow it, you
have to mine it. People don't realize that a lot of the products
we use every day and a lot of the infrastructure we have comes
from the earth and has to be mined. Yes, I think we have to mine
it responsibly, but people have to realize that there's a price
to this. Mining is a complex business. We see it every day. There
are incidents and challenges that are very hard to control-rock
mechanics, weather issues, social unrest, regulatory challenges
and government greed-but this is, again, testament to me that
there are some notions of supply where it's not a done deal.
There are challenges to the supply aspects, which will provide
strength to commodity prices. In general, I'm bullish on
commodity prices because the fundamentals are good.
I think that pretty well summarizes things. We appreciate your
time today and look forward to talking again later in the
Eric Lemieux is a mining analyst who joined Laurentian Bank
Securities in 2008. He worked for nine years as a consultant
responsible for applying Regulation NI 43-101. He has worked at
the Montreal Exchange, and prior to that managed exploration
projects for Cambior, Noranda and Soquem. He holds two master's
degrees, in mineral economics from Colorado School of Mines and
in metamorphic-structural geology from Laval University.
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1) Zig Lambo of
The Gold Report
conducted this interview. He personally and/or his family own
shares of the following companies mentioned in this interview:
2) The following companies mentioned in the interview are
The Gold Report:
Aurizon Mines Ltd., Midland Exploration Inc., Adventure Gold
Inc., Detour Gold Corp., Goldcorp Inc. Streetwise Reports does
not accept stock in exchange for services.
3) Eric Lemieux: I personally and/or my family own shares of the
following companies mentioned in this interview: Agnico-Eagle
Mines Ltd., Adventure Gold Inc., Aurizon Mines Ltd., Azimut
Exploration Inc., Goldcorp Inc., IAMGOLD Corp., Midland
Exploration Inc., Eastmain Resources Inc., Stornoway Diamond
Corp., Virginia Mines Inc. I personally and/or my family am paid
by the following companies mentioned in this interview: None. I
was not paid by Streetwise Reports for participating in this
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