Éric Lemieux: No Gold Bubble
Source: Zig Lambo of
The Gold Report
Laurentian Securities Analyst Eric Lemieux was headed out into
the field a few days after this interview to check out the latest
progress on some of his favorite exploration plays in the James
Bay area of eastern Canada. In this exclusive interview
The Gold Report,
he shared his latest insights on the gold market, and his current
thinking on some of his favorite plays in the vast untapped areas
of Quebec and Ontario now being opened up to expanded exploration
efforts by both juniors and majors.
: ADVENTURE GOLD INC. - BALMORAL RESOURCES LTD. -
DETOUR GOLD CORP.
- EASTMAIN RESOURCES INC. -
MIDLAND EXPLORATION INC.
PC GOLD INC.
PREMIER GOLD MINES LTD.
- VIRGINIA MINES INC.
The Gold Report:
When you last spoke with
The Gold Report
May of 2010
, you gave Laurentian Securities' price forecasts for gold that
turned out to be pretty conservative pretty quickly. What are you
predicting for gold prices now?
I was quite conservative, and obviously, I underestimated
gold's momentum. I think right now the price of $1,600/oz. is set
to go even higher in light of the increasing global economic
turmoil. The U.S. debt ceiling and credit rating will fuel gold's
price rise to even greater heights. Add in the European
bankruptcy threats and you have the catalysts to justify gold's
further appreciation. Demand is largely based upon the view that
gold is effectively a monetary instrument and a "valeur refuge"
(store of value). Together, I think they explain the gold price
action in the last year, which has been quite remarkable, but
based on good fundamentals.
So, you must have higher target prices for gold now?
Yes, those have been revised and our range is now between
$1,650 and $1,750/oz. until 2015. I set a very long-term price of
$1,000/oz., which I think is still conservative, but I think it's
justifiable since this is probably the marginal cost for
producers. Gold still has some great upside, but I may not be the
one who says it's going to go up to $5,000/oz. I see price
stability, less downside risk and I think the $1,500/oz. range is
probably something that we can envision in the long term.
Is gold in a bubble?
I think not at all. Right now, if you look at the
fundamentals, there are reasons for the precious metals'
strength. On the supply side, there are still some challenges.
Mine production has pretty much stayed constant, and the best
deposits have been mined. We're now going to lower grade
deposits. There are more jurisdiction and social challenges to
mine gold. So, from the supply side, these are elements that
provide some support to the price of gold.
Laurentian is based in Quebec and your focus is mainly on
opportunities in Eastern Canada, from where most of the gold
produced in Canada has come. As far as the recent changes in
Quebec's tax regulations, what effect do you envision that might
have on exploration and the mining industry in general,
especially for the junior companies that rely on certain tax
Obviously, I think there has been an impact. The government
has made some questionable changes to mine legislation in line
with the "resource nationalism" going on in the world.
Governments have been pressed to increase royalties and tariffs
on mining operations. The legislation in Quebec has tried to
address this and an increase is probably acceptable to a certain
However, one thing that is really frightening in Quebec now is
that some municipalities can have a say on claims and project
status. That explains in part why Quebec has gone down in the
Fraser Institute ranking because of the uncertainty that has been
created in some aspects of the mining legislation.
The fact that they're increasing the royalties is perhaps fair
in light of the strong commodity prices. There's a bit of give
and take and the industry eventually has to give a little. At the
same time, I think the government has perhaps been very
aggressive about raking in even more profits and caving into
special interest groups. What is really dangerous right now in
Quebec is this trend of wanting to control the claims and what
can be done in terms of development and even
Do you think there might be any re-thought or reversal here
if they end up seeing opposition from the mining industry?
I think so. The metaphor we use is "Balkanization" of the
mining resources, which is very dangerous. Once people are aware
of the adverse impact that is having on the economy, I think they
will realize that perhaps the government has gone too far,
resulting in a readjustment. The pendulum swings from one side to
the other, and now that we're really going to one end, hopefully
we'll be able to eventually find a balance.
Historically, most mining in Eastern Canada has been
underground mining when gold prices were relatively low and you
had to have fairly high grades to justify the costs of doing so.
With $1,500/oz. gold, we seem to be seeing a lot more talk about
companies doing open-pit mining in much lower grade areas with
much larger tonnages. Is this something that is going to be
happening more in the future?
This is definitely the wave of the future. Improvements in
mining methods and economies of scale allow for bigger open-pit
operations. The other thing that I think we will probably see
also is bigger underground bulk mining scenarios such as
Agnico-Eagle Mines Ltd. (TSX:AEM; NYSE:AEM) Goldex mine near Val
d'Or. So, I think that will be another wave of the future where
you will have these bulk mining operations. In the Abitibi
Greenstone Belt, open-pit operations are fully justifiable. I
think the fact that you saw Osisko Mining Corporation's (
) Canadian Malartic project go ahead and perhaps be a success
story is a catalyst for more of these operations.
We will see these done in a sustainable manner in the sense
that they will have to get community and First Nations acceptance
with minimal impact on the environment. When you say an open pit,
people think of an eyesore, but once they see the benefits that
can be reaped for the local population in general, I think people
will be more open to this sort of operation. In the long term,
these big open pits can actually be transformed into lakes and
it's not necessarily a big eyesore after operations end.
When you talked with us last year, you discussed a number
of companies you liked, and
Premier Gold Mines Ltd. (
was one of them. They just announced this deal to acquire
Goldstone Resources Inc. Can you update us on what's going on
Premier has been very active on several fronts. The company
has four key sector area plays located in safe jurisdictions and
offering excellent infrastructures. In Nevada, the company
acquired the Saddle gold project in 2010. In the
Beardmore-Geraldton area, it is owns the Hardrock project and has
reported a new, growing 3.6 million ounce (Moz.) global gold
resource. Premier also has two projects in the Red Lake District,
and the PQ North project in the Musselwhite District of Ontario.
Premier just acquired Goldstone Resources and expanded its land
package considerably in the Beardmore-Geraldton area. It now
controls a strike of about 50 km., consolidating a mining camp
district-which could be interesting for any major that wants to
position itself there. So Premier has set itself up for discovery
and it is ready to do some very good project development.
Another one you talked about was
PC Gold Inc. (TSX:PKL)
and it is still quite active up there. What's going on with
I have to say I don't follow PC Gold closely; it's not a
company that I have actually covered, but I think the company
just provided an update to its mineral resource, which now stands
at 1.26 Moz. This, again, is a recipe of revisiting old mining
camps with a new set of eyes and advanced geological concepts.
It's one that is interesting because it has an open-pit scenario
with an underground component that, with time, may allow the
company to play with different mining methods.
The James Bay region has turned into a hotbed of
exploration and a lot of companies are looking at things up
there. One that you talked about in the past was
Eastmain Resources Inc. (TSX:ER)
. What's going on with that situation?
The James Bay region is a hot area that is vast and
underexplored. It will become even hotter as
Goldcorp Inc.'s (TSX:G; NYSE:GG)
Eleonore Project gets its permits for full blast
construction toward the end of this summer.
What I find interesting for the James Bay area and Northern
Quebec is the fact that the Quebec Government has just announced
the Quebec Plan-Nord that will provide even better road, power
and communication infrastructure to the area. Although there is
some amazing infrastructure right now in the James Bay area,
potential expansion, on a sustainable development basis, should
provide a competitive advantage.
The Cree Nation, Inuit and Innu people are participating more
and more, which opens up to sustainable development in that area
and bodes well for social acceptability.
Eastmain has three very good positions-the Eastmain Mine,
Clearwater and Eleonore South projects. The last one is a joint
venture with Azimut Exploration Inc. (TSX.V:AZM) and Goldcorp.
Eastmain released a new global resource estimate of 1.6 Moz. in
April on the Eau Claire deposit. There was a substantial increase
in the measured component of the mineral resource estimate. The
project includes both an open pit and an underground target. The
open-pit component has about 4.1 million tons grading 4.7
grams/ton, which is at the higher end of grade for open-pit mined
gold deposits. So that is a positive.
Eastmain is currently drilling toward the west of the 450 West
Zone in a new zone called the 850 West Zone that wasn't part of
the mineral resource estimate in April. There is a lot of upside
to increase that mineral resource, both for the underground
potential and the open pit scenarios. I expect that for the Eau
Claire Project some news will emerge in the course of the year. I
think some interesting things will come from the Eau Claire as
the company has the advantage of good infrastructure and
Eastmain also has the Eastmain Mine Project, which was quite
remote. It's going toward Stornoway Diamond Corp.'s project where
the Quebec government will soon extend Route 167, the Otish
Mountain Route. Eventually, it will be accessible via a hard
surface road rather than an old winter road. The Eastmain Mine
Project has now started to drill and has about 15,000m planned.
Again, this is a gold project with a known mineral resource that
is open for expansion.
The Eleonore South Project is a joint venture with Goldcorp
and Azimut Exploration located to the southeast of the Eleonore
deposit. Goldcorp is working very aggressively on the Eleonore
project, and building a world-class mine there, but I know it is
also active on the exploration front in areas further from the
mine site. I believe the Eleonore South project will eventually
be re-worked by the partners and could become an interesting
development project in the long term.
Another one up there is
Virginia Mines Inc. (TSX:VGQ)
, which is also active. What's been going on with that company
since the last time we talked about them?
They're very active. Virginia will have about a $17M
exploration budget for 2011, of which $9M will be partner funded.
New, high-quality partnerships include IAMGold Corporation
(TSX:IMG; NYSE:IAG), Quadra FNX Mining Ltd. (TSX:QUX) and
Anglo-American PLC (LSE:AAL).
The key for Virginia is its strategic acreage in James Bay and
northern Quebec, where the company has been able to develop
expertise that continues to be recognized. Virginia has a lot of
projects going on right now. It is very aggressive. It is manned
by explorationists who are able to generate and advance projects.
I think it is just a matter of time before the company makes more
discoveries. With a $17M budget, we can expect a lot of important
news from Virginia.
Remember that Virginia discovered and holds a 2.2-3.5% NSR
royalty on the Eleonore deposit, now going into production for
Goldcorp by 2015. As the Eleonore project continues to grow, the
project is being de-risked with the on-going exploration shaft
and ramp sinking.
That sounds pretty positive. How about
Midland Exploration Inc. (TSX.V:MD)
? You also talked about them last time and that company has some
interesting things going on.
Yes, I always like to say that Midland is like a smaller
version of Virginia in that it has the same sort of quality
management and the same sort of explorationist business model.
Midland also eventually farms out projects to quality
The company is active on several fronts. In the course of
2010-2011, it acquired new projects by staking. I always
appreciate the fact that a company is able to acquire projects by
itself through staking rather than acquiring a property with a
partner or from someone for shares and money. I believe it is
good when you can do a thorough geological assessment of an area,
pinpoint areas that haven't been staked, then go and get them for
cheap. Here in Quebec, it's not very expensive to acquire claims
through map staking. I think it's very positive that Midland can
generate and acquire projects relatively inexpensively.
Midland is active on several fronts-gold, base metals, rare
earths. It is exploring for gold with Osisko Mining Corp. (
), Aurizon Mines Ltd. (TSX:ARZ; NYSE.A:AZK), North American
Palladium Ltd. (TSX:PDL; NYSE:PAL) and Agnico-Eagle Mines Ltd.
So, we can expect lots of news as projects are drilled. Midland
just announced a gold and nickel discovery on the Laflamme
property, which is a partnership with North American Palladium.
Midland also has a project called Casault, which is east of
Detour Lake on the Quebec side. It's an area that I think will
become a hot spot because of the size of the Detour deposit and
the focus on possible satellite deposits. The Quebec side it
hasn't been explored much because it's very swampy land, but a
few companies are very well positioned in that area,
Balmoral Resources Ltd. (TSX.V:BAR)
Adventure Gold Inc. (TXS.V:AGE)
. Certainly the Detour/Sunday Lake Deformation Zone will be the
most interesting revived gold belt to watch evolve and is well
worth continuing to explore. So Balmoral, Midland, and Adventure
Gold are well-positioned. The key words for Midland are
diversification, partnerships and exploration.
Another interesting one is
Detour Gold Corp. (
, which is building the largest gold mine in Canada. You talked
about this company last time. What is the update there?
I would summarize by saying: On track, on schedule and room
to grow. I think it's a 14.9 Moz. reserve with more room to grow
and perform. The company is building a world-class mine with a
strong operating team north of Cochrane in Northeast Ontario. The
pieces are coming together and that's very positive. The project
is being de-risked in a very good and sustainable gold price
environment. I think this project should be on a lot of people's
Are there any other thoughts that you would like to leave
us with at this point?
The Quebec Plan-Nord should put a spotlight on northern
Quebec. The Ungava Peninsula, even higher up than the James Bay
area, is perhaps the next frontier for Quebec exploration. Toward
the east, near Labrador, the iron ore is a hot spot. There is
even talk about expanding the railways in that area.
Up in northern Quebec, a number of companies are working
toward discovery and advancing some huge deposits in rare earth
), uranium, gold and copper. These are very early stage, but I
think there are some good elements for long-term development.
Global warming might even result in year-round shipping lanes.
Virginia is probably the beacon. I wouldn't be surprised if
someday world-class deposits are developed up there.
So we'll have to stay tuned. Thanks for taking the time to
bringing us up to date on these opportunities.
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 (Colorado School of Mines) and in
metamorphic-structural geology (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:
Premier Gold Mines, PC Gold, Midland Exploration., Aurizon
Mines Ltd., Detour Gold Corp., Goldcorp Inc.
3) Éric Lemieux: I personally and/or my family own shares of the
following companies mentioned in this interview: Agnico-Eagle
Mines Ltd., PC Gold Inc., Eastmain Resources Inc., Azimut
Exploration Inc., Virginia Mines Inc., IAMGold Corporation,
Midland Exploration Inc., Aurizon Mines Ltd., Adventure Gold. I
personally and/or my family am paid by the following companies
mentioned in this interview: None.
The Gold Report
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