Tuesday, June 17, 2014

Shore Gold plans more drilling


Shore Gold Inc. (TSX-SGF) plans to drill 12 new holes into its Orion South kimberlite property in east-central Saskatchewan “soon” at a cost of $3 to $6 million, the company’s annual general meeting heard in Saskatoon Tuesday.

The drilling plan still requires funding, likely via flow-through shares, and will take approximately five months to complete including analysis, the company said.

Shore Gold owns a considerable stake at Fort a la Corne, an area of Saskatchewan with a large number of kimberlites -- the geological “pipes” that contain diamonds. Shore has been working toward opening a diamond mine at its Star-Orion project for years, but has faced underfunding and delays.

George Read, the company’s senior vice-president of exploration and development, said the search for drill funding has not yet begun, but he expects it to happen soon, once the necessary amount is determined. The company is receiving quotes on the work.

The drill and its outcome is intended to make “the project more attractive and stronger,” said Read.

Shareholders in attendance at the AGM were concerned that flow-through share funding would further dilute the shares outstanding, and board chair Brian Menell agreed that was a concern.

The company is taking care to ensure the appropriate funding model will be used, he said.

Shareholders asked a considerable number of questions, but the atmosphere at the AGM was less fraught with tension than last year. One shareholder suggested that was because the diamond market was looking stronger than a year or two ago.

It didn’t stop shareholders from making several suggestions to drive the delayed diamond mine project forward. With varying degrees of seriousness, they suggested approaching governments for partnership funding, asking Apple Corp. to come in, or getting out their own shovels to start removing the huge overburden on the kimberlites.

Shore Gold’s diamond mine project has been languishing most particularly since the financial crisis of 2008. Shareholders have been expressing considerable frustration for most of that time, and the share price has not offered much consolation, now trading in the 22 cent range.

However, board directors said opportunities for investment were looking up somewhat.  

“The diamond market as a whole remains reasonably buoyant,” said Menell, adding that the outlook for diamonds also remains positive.

However, there continues to be a lot of risk aversion built into the equity market, which means junior exploration companies are still struggling to raise capital.

Menell said he hoped and believed the coming year “will be an interesting one,” and that Shore will be able to unlock and create value that shareholders “have been patient in waiting for.”

The company pointed to a report from Dundee Capital’s Matt O’Keefe, which said that diamond supply is limited and set to decrease in the medium to long term.  Bain & Co. predicts diamond production will begin to decline by 2019.

Diamond prices are up seven percent this year. Some forecasts suggest prices will continue to rise five to seven percent annually over the next several years.

Menell said the market is starting to see more appetite from sources of capital that have not been historically involved in mining or diamonds.

Still, global risk aversion could continue for up to 10 years, although the situation is considerably better today than it was over the last few years.

The Star and Orion South projects at Fort a la Corne in east-central Saskatchewan hold estimated reserves of 34.4 million carats valued at $242 US per carat. Inferred reserves total 9.1 million carats.

The most daunting part of the mine development process is removing the colossal 100 metre overburden from the kimberlite zone. Just that part of the project would take four years. Asked if it would require another 10 years to get the mine operational, Read said he did not think it would take that long.

Overburden aside, the future mine site has several advantages, including proximity to Saskatoon and Prince Albert, access to electricity, and a “world class resource,” said the company.

The company also quoted Mackie Research’s Barry Allan as saying “it is clear there is a large and robust diamond mine in Saskatchewan, and that there is deep underlying value in Shore Gold’s share price.”

The Canadian Environmental Assessment Agency has recently completed its technical review of Shore’s environmental impact statement, which was submitted in August, 2012.



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