NioGold, An Attractive Proposition

Richard (Rick) Mills

Ahead of the Herd

 

As a general rule, the most successful man in life is the man who has the best information

 

McWatters Mines acquired two major assets in the Val-d’Or/Malartic area from Placer Dome - the Sigma Mine and the Kiena Mine Complex.

 

In 2004 McWatters went bankrupt - all their land became open for acquisition.

 

Osisko Mining purchased the Canadian Malartic Project, Wesdome Gold Mines purchased the Kiena Mine Complex, and NioGold Mining Corp. TSX.V – NOX purchased (for $10,000 and right in the heart of the Val-d’Or/Malartic mining camp), three large claim blocks that were relatively underexplored compared to the rest of the area.

 

Then, in early 2006, NioGold signed a deal with Aur Resources to acquire the other 50% interest in Marban it did not already own, and 100% interest in two other properties (First Canadian and Norlartic). Between these three properties (which include three past producing mines) there were 585,000 ounces of past gold production and a lot of upside according to NOX’s due diligence.

 

Over a period of several years NioGold managed to consolidate a large 130 square kilometer land package right in the heart of the Malartic and Val-d’Or gold mining camps – an impressive feat. Since the 1930s the Cadillac, Malartic, and Val d’Or (French for - “valley of gold”) camps have produced upwards of 45 million ounces of gold.

 

Click for larger imageNioGold Mining and Aurizon Mines Ltd. (ARZ is earning an initial 50 percent interest into the 10 square kilometer project – eight percent of NioGold’s land holdings -  by spending $20 million and making a resource payment of $40 per ounce for M+I and $30 for Inferred for half of the identified gold) have just announced, based on results from a $6m Marban deposit drill program (41,270 meters in 146 holes) an updated mineral resource estimate.

 

The new resource estimation boosts their previously published resource from 960,000 ozs to 2,069,000 ozs of gold - 1,559,000 ozs measured & indicated & 510,000 ozs inferred – over 75 percent of those ounces are in the M&I category (which bodes well for overall resource quality) and the size of the resource is sufficient to support 150k+ oz’s of gold production over a ten year mine life.

 

New Resource Estimate

 

Based on a cut-off grade of 0.35 grams of gold per tonne and a high value capping of 25 grams of gold per tonne, the in-pit mineral resource is estimated at:

  • Measured & Indicated (M&I) - 20,700,000 tonnes at 1.58 grams of gold per tonne or 1,053,000 ounces of gold
  • Inferred (I) - 3,780,000 tonnes at 1.60 grams of gold per tonne or 194,000 ounces of gold in the inferred category

The underground resource, using a cut-off grade of 2.0 grams of gold per tonne, and a high value capping of 25 grams, is estimated at:

  • Measured & Indicated (M&I) - 980,000 tonnes at 2.82 grams of gold per tonne or 89,000 ounces of gold
  • Inferred (I) - 800,000 tonnes at 2.68 grams of gold per tonne or 69,000 ounces of gold

A capping of 25 g/t was applied to the resource estimate and the effect was to reduce ounces and grade for the Marban deposit by 31 percent or 650k ounces. The capping of assays is required when high grade outliers (for example, 906 grams gold over 2.9 meters) may have a disproportionate influence on the average gold grade.

 

A 25 g/t top-cut may be conservative:

  • Aurizon’s Joanna project had a 15 g/t Au top-cut which reduced the resource by 5-6 percent
  • Osisko Mining 15 km to the northwest recently opened their new Canadian Malartic mine hosting a reported 10.7 million ozs of gold. Osisko used various caps reducing the resource by an estimated 2.35 percent
  • Agnico Eagle’s Goldex did not have a top-cut
  • Alexdandria Minerals’ Akasaba deposit also did not have a top-cut

The 2011 Phase 1 drill program demonstrated the continuity of the mineralization between surface and -250 meters vertical depth and led to the recognition of the Western High Grade Zone. On surface and to the west side of the old Marban mine shaft there had been very limited mining development. NOX recognized, and drilled, some very high-grade structures – one of the intersections returned 906 grams of gold over 2.9 meters. This kind of near surface high grade mineralization could improve the overall grade of the gold mineralization for an open pit resource.

 

During Phase 2 the Eastern Down Dip Zone was well investigated. It is located below -250 meters vertical depth and remains open at depth and laterally. The Eastern Down Dip Zone is under the old mine workings. Previous mining on the Marban deposit was very shallow, between 150-250 meters vertical depth. NioGold drilled several very good intersections between the 250 meter level and the 500 meter level vertical below the old mine.

 

Metallurgy

 

Preliminary metallurgical test work at Marban indicates a favorable recovery of between 95.4% and 97.6% for the ore cyanidation test.

 

“Two gold-bearing composite samples were examined at the SGS Mineral Services Lakefield site. The #1 composite containing an assay grade of 1.24 g/t gold was designed to study the metallurgical response of a low grade envelope. The #2 composite containing an assay grade of 4.59 g/t gold and was designed to represent the high grade envelope. After 48 hours, gold recoveries ranged from 95.4% to 97.6% for composite #1 and 95.7% to 97.3% for composite #2. Finer grinding typically increased the gold recovery at the cost of higher cyanide consumption.

Gravity separation testing on the #1 composite showed a 41.3% Gravity Recoverable Gold (GRG). Gravity separation testing on the #2 composite showed a 56.5% GRG. The combination of gravity recovery and cyanidation of the gravity tail did not increase the overall gold recovery. This demonstrates that while this concept could be beneficial from a plant design perspective, gravity recovery is not essential to obtaining good recoveries from these two composites.”
NioGold news release April 24, 2012

 

There is nothing complex about the ore, it’s basically gold associated with pyrite iron sulfides - no arsenic or antimony and very limited silver, it’s nearly all gold in pretty simple form.

 

The Bond ball mill testing indicated the ore fell in the medium-soft to medium range (10.1-1.9 kWh/t) of hardness which should make ore fairly straight forward to process.

 

Phase 2

 

"We made a new discovery between the Marban and Norlartic deposits. We extended the Eastern Down Dip Zone with wide, high-grade intervals, while in-fill drilling in the Western High Grade Zone continued to deliver high grade values over small widths and lower grade intervals over larger widths. We look forward to the Phase Three program." Mike Iverson, NioGold's Chairman and CEO

 

The $5m Phase 2 drilling program (34,658 meters in 90 holes - 27,590 meters on Marban of which 50 percent were infill) targeted the Marban deposit along strike, in particular the Western High Grade zone and the Eastern Down Dip zone.

 

The recently completed Phase 2 program was not included in the new resource update.

 

Phase 2 Highlights

 

Western high-grade zone (WHGZ) - mineralization exists from surface to a depth of

250 m:

  • MB-07-019ext - 36.7 g/t Au over 1.1 m at depth of 155 m
  • MB-12-284 - 4.67 g/t Au over 13.0 m at depth of 140 m
  • MB-12-297 - 7.28 g/t Au over 7.2 m at depth of 125 m
  • MB-12-306 - 45.8 g/t Au over 1 m at depth of 75 m
  • MB-12-252 - 29.8 g/t Au over 1 m at depth of 65 m
  • MB-12-314 - 1.3 g/t Au over 35 m at depth of 35 m
  • MB-12-327 - 21.4 g/t Au over 0.9 m at depth of 30 m

Eastern down-dip zone – below vertical depth of 200 m, open at depth and laterally:

  • MB-12-317 - 3.7 g/t Au over 6.4 m at depth of 245 m
  • MB-12-319 - 4.5 g/t Au over 6.0 m at depth of 375 m
  • MB-12-272 - 7.6 g/t Au over 5 m at depth of 360 m, 6.4 g/t Au over 8.9 m at depth of 380 m
  • MB-07-024ext – 196.5 g/t Au over 1.2 m at depth of 415 m

New Gold Zone - 500 m north of Marban deposit two holes, both on Section 3,600, intersected:

  • MB-12-323 – 19.4 g/t Au over 1.2 m at 92 m depth
  • MB-12-324 – 19.21 g/t Au over 5.6 m at 215 m

Option and JV with Aurizon  

 

In July 2010 NioGold entered into an option and joint venture agreement with Aurizon Mines Ltd who may earn a 50 percent interest into the Marban Block property (eight percent of NioGold’s land package in the Val d’Or-Malartic area) by spending $20 million and at the conclusion of the three year current deal prepare and publish an updated resource and then proceed to make a “resource payment” for 50 percent of total estimated gold ounces as follows:

  • C$30.00/oz in the Measured and Indicated categories (C$40/oz if gold +US $1,560 oz)
  • C$20.00/oz in the Inferred category (C$30/oz if gold +US$1,560 oz)

As it presently stands that would be a $38.8m payment with at least Phase 2 results to be added into another resource estimate. Aurizon has indicated they plan another resource update is to be released before the July 2013 third anniversary date incorporating Phase 2 drilling. Analysts reports have the next resource estimate estimated between 2.5 to 3m ozs.

 

Aurizon has spent about $11 million leaving $9 million to be spent in a Phase 3 program by the third anniversary (July 2013) to earn their initial 50 percent.

 

Aurizon may increase their interest to 60 percent by delivering a feasibility study and to a 65 percent interest by arranging mine financing.

 

Property ownership dilution versus share dilution

 

Without internally generated positive cash flow our juniors are money-eating machines constantly having to go to the market to raise capital through equity offerings. But for an investor the resulting share dilution means your return is diluted down with each financing.

 

NioGold decided to do things a little different than the mainstream TSX.V listed junior. NioGold negotiated a joint venture (JV) deal with deep pocketed miner Aurizon Mines. Aurizon has developed and re-started, and are in their 6th year operating, the Casa Berardi Mine in the NW Abitibi mineral district – in 2011 they produced 163,000 ozs of gold at $550 per oz cash cost.

 

Yes NOX’s shareholder’s eventual ownership of a potential mine will be diluted, BUT, shareholder’s ownership of NioGold is not diluted because there is very little dilution of the NioGold’s outstanding shares. This is because exploration and development expenses (including a feasibility study and arranging mine construction financing) are paid for by the partner, not NioGold.

 

Unfortunately most junior sector investors tend to believe that a company is selling the farm and giving away the chance of a multi times return on their investment when a company takes this approach. A property ownership dilution business model is not as well liked as the much more common share dilution model.

 

In the ideal situation (advancement of the property down the development path towards building a mine), Aurizon will earn an increased interest by completing certain milestones within the negotiated timeframe laid out in the JV deal. Niogold will have a 35 percent interest in a defined resource and be carried to production.

 

This 35 percent has cost investors relatively little in terms of share dilution and the bang for their buck is greater than if their company had repeatedly gone to the market for equity financings.

 

In addition there’s considerable exploration left to do on the remaining 92 percent of NioGold’s land holdings in the Val d’Or-Malartic camps, mostly 100% owned. Included in this package are high priority targets and discoveries  like the Ludovick, Audet and H zones on the Malartic Block property, the Malartic Hygrade mine zones and the Camflo mine extension at depth which is also on the Malartic Block property. Bluesky exploration potential also exists on the Siscoe East property, a Joint Venture with Alexandria Minerals in the vicinity of the Sullivan Mine.

 

Conclusion

 

Investors in NioGold can take a business-like approach to maximizing their upside exposure while travelling down the development path towards the development of a mine. All the while preserving close to their original ownership interest.

 

There is the potential of an extremely large lump sum payment totaling tens and tens of millions of dollars – exploration of present properties and acquisition of future properties with no dilution – and eventual cash flow from the Marban Block Property if they successfully negotiate the path to mine development.

 

That’s an attractive proposition!

 

Attractive propositions should be on all our radar screens, is NioGold on yours?

 

If not, maybe it should be.

 

Richard (Rick) Mills

rick@aheadoftheherd.com

www.aheadoftheherd.com

 

Richard is the owner of Aheadoftheherd.com and invests in the junior resource/bio-tech sectors. His articles have been published on over 400 websites, including:

 

WallStreetJournal, SafeHaven, MarketOracle, USAToday, NationalPost, Stockhouse, Lewrockwell, Pinnacledigest, UraniumMiner, Beforeitsnews, SeekingAlpha, MontrealGazette, CaseyResearch, 24hgold, VancouverSun, CBSnews, SilverBearCafe, Infomine, HuffingtonPost, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Wealthwire, CalgaryHerald, ResourceInvestor, Mining.com, Forbes, FNArena, Uraniumseek, FinancialSense, Goldseek, Dallasnews, SGTReport, Vantagewire, Resourceclips, Indiatimes, ninemsn, ibtimes and the Association of Mining Analysts.

 

If you're interested in learning more about the junior resource and bio-med sectors, and quality individual company’s within these sectors, please come and visit us at www.aheadoftheherd.com

 

***

 

Legal Notice / Disclaimer

 

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

 

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

 

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

 

Richard does not own shares of NioGold Mining Corp. TSX.V – NOX

 

NioGold Mining Corp. is a paid sponsor of Richard’s site aheadoftheherd.com

 



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