Balmoral sets out to prove lower Canada’s upper hand in prolific belt

Balmoral has nestled itself in a favourable position, capitalizing on “closeology” with respect to Detour Lake, and raising eyebrows from potential takeover suitors along the way. This is management’s follow-up foray after successfully converting its last project West Timmins into a deal valued at $424 million through a sale to Lake Shore Gold [LSG:CA] in 2009, following the discovery of the high-grade Thunder Creek deposit in Timmins, Ontario.

QUEBEC VS ONTARIO

While the eyes of the mining world gaze upon the final stages of Detour’s road towards production, it’s no secret that Detour’s management laments being only 10km from the Quebec border. In a clear case of the grass being greener on the other side, Detour has had to march onward with its 16.4 million ounce resource, knowing that its costs would’ve been considerably less had the provincial border been moved 10km to the west.

It’s been this geography lesson that’s allowed Detour’s competitor Osisko Mining Corporation [OSK:CA] to attract a premium, despite the fact that Detour’s deposit is actually bigger. Both Osisko and Detour have very similar deposits, but on a per ounce basis, Osisko has always seemed to attract a $50-$100 premium, based principally on their location within “La Belle Province”.

Why is Quebec that much more favourable? For every dollar spent into the ground in the area of Quebec in which Balmoral is working , the government returns a cheque for $0.35 (the rate varies from region to region, getting as high as 45% in the North). A more apt mathematic example in the case of Balmoral, if the company raises $10 million and puts that into the ground, a cheque is returned for $3.5 million. With those funds, the company can turn around and spin them back into the ground again, and get another cheque for $1.225 million, and so on and so on. This $10 million investment has already turned into $14.725 million, thanks to the government’s benefits to explorers. On the Ontario side, that $10 million is just $10 million. In Detour’s case, with the amount of holes its has had to drill, that number is more like $100 million to get back $35 million. Alas, they received no Quebec bonus.

Another often-overlooked factor is that of power. Both provinces provide hydro, but not all hydro is created equal. Hydro rates on the Quebec side are around 1/3 of the price of that on the Ontario side. Because Detour Lake is operating in Ontario, the company is forced to use Ontario’s more expensive power, even though the cheaper infrastructure is just over 35km away on the Quebec side. To make matters worse, Detour’s closest Ontario power source had to come from Cochrane, Ont, which is over 180km away. Detour is already well aware of these unfortunate provincial circumstances, but is now more than 60% done its construction completion.

Detour’s property stretches right to the border, after which the trend continues into Quebec, and into Balmoral’s Detour East property. To unite the properties would require the cooperation of Osisko, which separates Balmoral’s Detour East from the company’s La Martiniere, Fenelon and Grasset properties.

SUNDAY/DETOUR LAKE DEFORMATION ZONE

Balmoral stealthily acquired positions in the region from two sellers who were unaware of each other’s dealings. Through simultaneous acquisitions with American Bonanza Gold Corp. [BZA:CA] and Radisson Mining Resources [RDS:CA], and actively staking the land in between, Balmoral and its management was back on the map in a big way, with 82 km along the trend, and an added 935,000 historic ounces as a bonus.

The BAR team initially went to market looking for $15 million to complete its objectives in the beginning, and the market responded in a big way, by offering $64 million to work with. Eventually the company settled on accepting $18 million, and by the beginning of 2011, drilling commenced.

The drills haven’t stopped since, as the company can’t seem to find their way out of the gold system. Of the properties in the acquisition, Martiniere has emerged as the lead project, with testing of 1.5 km of a newly defined gold trend yielding 6 zones of high-grade gold mineralization in the process. At the close of the most recent winter program, their western most hole delivered 161 g/t gold over 0.78 metres. Ridiculously high grade, not great width, but huge potential surrounding it.

The eastern most hole on that same trend brought back 9.33 metres of 12.93 g/t gold, thus showing that they’re wide open on either side and to depth. It’s worth noting that most of this is really shallowly drilled, which could become a factor as the whole thing continues to grow. Even management can’t say just yet whether they are in the best part of the trend yet, because they don’t know. The southern most hole has 70 metres of 1 g/t, and the northern most hole had notable intervals, such as 70 metres of 1.5 g/t and 5 m of 5 g/t. The drills haven’t found the outer reaches yet.

There’s still plenty of drilling to do, as the area is what one would consider still very underexplored. While it’s not virgin territory compared to everywhere else in the Abitibi it is significantly underexplored, it’s clearly providing a tremendous amount of blue sky. Nominally speaking, the company has only explored about 5% of its land position to date and made several exciting discoveries.

From the first 100 holes Balmoral has already unearthed 8 high-grade gold discoveries, and a couple lower grade ones too. They also have a brand new copper-nickel-PGE discovery, and all this has come within the first 18 months of drilling.

PREVIOUS SUCCESS IN THE MIRROR

For those who followed their previous story with West Timmins, the fact that Balmoral is primed for a future takeover is no surprise. But it’s the stubbornness of the team that truly gives them a more accurate “finder” label.

Back when they were looking at the West Timmins property, the assumption made by the major players in the Timmins area who had explored the property previously was that there was nothing of interest in the west end of the camp. Now between discoveries made by the BAR team and Lake Shore Gold who acquired West Timmins, there are over 3 million ounces at grade in the emerging West Timmins camp. What was being missed was that the original drilling attempts were too close to the surface. The combined work of the Lake Shore and Balmoral/West Timmins crews provided the paradigm shift that was necessary. Within their 5 km stretch, they ended up finding a high-grade deposit at Thunder Creek which went from discovery to production in record time and is now the back-bone of Lake Shore Gold.

President and CEO Darin Wagner refuses to take on projects that you can kill with a single drill hole. Thus the size and scale of this current endeavor makes sense. When acquired, there were fewer drill holes in the companies current 82 km stretch than there were in the 5 km stretch held within the West Timmins camp. If the potential of the Detour Trend Project mirrors that of the West Timmins project BAR shareholders are in for an exciting ride.

With most drill programs, typically a team must re-ask the question of whether the company should stop, pause, or keep going. With this land package and this team, the answer will invariably be to always continue drilling until a successor takes the ball from their hands.

BOTTOM LINE

Unless your company is named Barrick, Newmont or Goldcorp, it’s pretty much impossible to put together a land package of Balmoral’s size within a prolific area with known discoveries. When looking at the world’s most prolific gold regions, such as Nevada, South Africa and within the Abitibi, it’s remarkable that a company the size of Balmoral has assembled this kind of land position.

The team knows how to make new discoveries, while also being completely aware of the potential for takeout/partnership offers that will most certainly come as this story flushes out. While it’s the dream of many explorers to cut the ribbon on one of their discoveries, there are far too many possible companies with potential to swoop in for Balmoral to be left standing at the end of the day.

This should not be a distraction, however, as these are truly explorers who enjoy the journey as much as the destination. In their first 6 months the BAR team went from a concept that said “there should be more gold out there!” to being in the enviable position of starting to answer the question “How much gold is out there?” It clear the answer is a lot more than what’s been recognized in the past; now it’s their job to drill it out. With the all the advantages Quebec has to offer, their track record, recent discoveries and attentive corporate audience the BAR team is grooming their properties at a nice pace that’s worth your attention.

G. Joel Chury
for the Bottom Line Report

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