DAILY NEWS Sep 3, 2014 6:44 PM - 0 comments

Kaminak discovers new gold zone at Coffee

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2014-09-03

It’s been a brutal year for many companies in the mining sector, but 2014 is turning out to be pretty good for debt-free junior explorer Kaminak Gold (TSXV: KAM).

In June, a preliminary economic assessment of its Coffee gold project in the Yukon, about 130 km south of Dawson City, modeled a $305 million heap-leach gold mine that would operate at 5 million tonnes per day and produce an average of 167,000 ounces of gold annually over 11 years at all-in sustaining costs of US$688 per oz.

In July the company’s shares surged more than 30% after Kaminak announced that Ross Beaty and Zebra Holdings (the trust of the late Adolf H. Lundin) became significant shareholders. Beaty and Zebra Holdings and Investments S.a.r.l. Luxembourg each made a $6.8 million investment through non-brokered private placements for a total cash infusion of $13.5 million.

The company then kicked off a feasibility study at the end of July and this week released positive results from its recently completed $3.5 million Phase I exploration drill campaign, which included the discovery of a new gold zone called Kona North.

The objective was to drill test priority gold-in-soil anomalies near the current resource that have the potential to contribute open-pit oxide resources to the existing mine plan.

Not only did the program’s 27 drill holes successfully identify shallow, predominantly oxidized gold-bearing structures within the Kona North zone, but it also extended mineralization 900 metres along strike on the Supremo T3 trend and intersected high-grade gold mineralization at the Cappucino zone.

Targeted zones within the Phase I program were all within 1-2 km of the existing resource and included Kona North, T3 North, Macchiato, Cappucino, Arabica and Latte West.

The board has already approved a $2 million Phase II exploration program, which has already begun. Phase II will primarily target the Kona North zone, but will also investigate other priority gold-in-soil anomalies near the current resource.

Four diamond core drills and two RC percussion drills are turning on the property, undertaking resource delineation infill, condemnation, geotechnical, hydrological and metallurgical drilling.

Kona North, a 1.5 km by 0.5 km gold-in-soil anomaly, straddles the contact between Permian gneisses and schists (host rocks to the Latte-Supremo zones at Coffee) and the Cretaceous Coffee Creek Granite.

Drill hole CFD 376 at Kona North intersected 3.55 grams gold per tonne over 28 metres from 14 metres downhole and 2.66 grams gold over 9 metres from 53 metres downhole. Hole CFD379 cut 4.05 grams gold over 8 metres from 38 metres downhole and 3.79 grams gold over 8 metres from 51 metres downhole.

The Phase I program extended the Supremo T3 zone northwards to at least a strike length of 3.5 km with the best drill results coming from the intersection of the T3 and Macchiato trends. Highlights included 1.95 grams gold over 14 metres from a depth of 81 metres and 2.21 grams gold over 9 metres from a depth of 128 metres. The T3 structure remains open to the north along strike and to depth.

The Coffee project has an indicated resource of 14 million tonnes grading 1.56 grams gold for 719,000 oz. of contained gold and inferred resources of 79 million tonnes grading 1.36 grams gold for 3.43 million oz. of contained metal. The resource was based on a cut-off grade of 0.5 gram gold for oxide transitional material and 1 gram gold for sulphide material.

According to the PEA released in June, Coffee would produce 231,000 oz. gold in its first year of commercial operation, and the project would generate total gross revenue of $2.4 billion and operating cash flow of $1.2 billion.

At US$1,250 per oz. gold, Coffee would carry a $330-million after-tax net present value (NPV) at a 5% discount rate, and a 26% internal rate of return (IRR). At a US$1,400 per oz. gold price, the NPV and IRR rise to $465 million and 33%. The project has an after-tax payback of two years.

David Sadowski of Raymond James reasons in a research note that the company “should garner a premium multiple reflective of the project’s high quality, low technical risk and excellent jurisdiction.”

He estimates that with about $25 million in cash, Kaminak “is fully funded well into next year,” and says the feasibility study remains on track for late 2015.

Sadowski has a $1.90 per share price target on Kaminak.

Over the last year Kaminak’s stock has ranged from 45.5 cents to $1.19 per share. At press time it was trading at 97 cents.