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almamor
Fronteer Gold is a gold explorer with the goal to become a significant producer. Their business model is discover and advance big deposits with strong production potential, investing only in projects located in stable geopolitical regions. Their main focus is on Nevada, but they also have a few interesting prospects in Turkey.
Long Canyon, Sandman and Northumberland comprise Fronteer Gold's future production platform in Nevada. The company also has an interest in Halilaga, a world-class copper-gold porphyry system located in northwestern Turkey, and 100% ownership of Aurora Energy Resources, developer of one of the world's largest primary deposits of uranium in Canada.
Long Canyon
Long Canyon is Fronteer's flagship project. It's a shallow, open pit deposit that contains high grade gold. An updated resource estimate, announced May 2010 and quoted at a cut-off grade of 0.20 grams per tonne gold, consists of:
- A Measured and Indicated (M&I) resource of 672,000 ounces at an average grade of 1.71 g/t gold (12,240,000 tonnes) and,
- An additional Inferred resource of 552,000 ounces at an average grade of 1.65 g/t gold (10,394,000 tonnes).
However, using higher cut-off grades dramatically increases the average grade of the resource but only modestly reduces the number of contained ounces. Specifically, at a 1.0 g/t gold cut-off, 83% of the total resource ounces remain while the grade increases by more than 100% as follows:
- An M&I resource of 558,000 ounces at an average grade of 3.67 g/t gold (4,729,000 tonnes)
- An additional Inferred resource of 456,000 ounces at an average grade of 3.97 g/t gold (3,571,000 tonnes)
Long Canyon also has very solid gold recoveries, averaging as high as 90.1%. Suggesting that the project can become a low-cost, conventional, heap-leach mine.
The project's first Preliminary Economic Assessment (PEA) estimated production of almost 100,000 oz of gold per year over 6 years at a very low cash cost. However, an updated resource and PEA will be completed in early 2011 and the size of the project should increase by a large amount. The previous PEA only used resources up to early 2009, 2010 drilling identified a much larger resource base. It seems that Fronteer thinks Long Canyon can turn into a 300,000 oz per year mine.
The map below shows the grade and thickness are increasing to the northeast. These new resources should greatly improve the yearly production and mine life of the project.
Fronteer Gold is efficiently advancing the project toward production. A $20-$25 million development and exploration program is planned for 2011, including near-term goals of:
- an updated resource and Preliminary Economic Assessment in early 2011;
- 75,000 metres of exploration and development drilling;
- initiating permitting;
- an additional resource update near year-end 2011; and,
- commencing feasibility stage.
Fronteer also has a joint venture with Agnico Eagle on land just to the west of Long Canyon. It shares similar characteristics as Long Canyon, but it hasn't been explored as heavily. I don't really want to comment on the potential because nobody really knows. But with Agnico as a partner you can be sure the project is of interest.
Northumberland
Fronteer Gold's Northumberland Project is one of the largest, undeveloped Carlin-style gold deposits in Nevada and is located just north of Barricks and Kinross's Round Mountain gold mine. Northumberland is a past producing gold mine, gold production ceased in 1991 due to low gold prices.
Currently, Northumberland has an indicated resource 2.2 million ounces of gold grading 1.92 g/t, and an additional inferred resource of 776,000 ounces of gold grading 3.49 g/t. Approximately 20% of the gold ounces are oxide, with the balance comprising transitional or sulfide material.
Northumberland is a deposit that has long been recognized as having the potential for a significant component of high-grade mineralization. However, aside from the rich silver veins mined from this deposit in the late 1800s, the majority of exploration to date has focused on the near-surface oxide and mixed oxide/sulfide mineralization. As such, large areas in the western portion of the deposit are underrepresented.
Since 2009, Fronteer Gold has been drilling new target areas in the western portion of the deposit and has intersected multiple intervals of high-grade gold.
Drilling in 2009 highlighted a large, high-grade zone approximately 200 metres long by up to 200 metres in width, and starting within 150 metres of surface. Mineralization can be up to 30 metres in thickness and remains open to the northwest. Drilling in 2010 highlighted a second high-grade zone with some of the highest-grade intervals ever intersected at the project, including 7.10 g/t gold over 37.4 metres.
Since the bulk of the mineralization is focused in the 200 meter by 200 meter zone, Fronteer plans to construct a 280-metre long decline to access this high-grade mineralization within the deposit. Construction has begun with completion of the decline targeted for Q1 2011.
Sandman
Sandman is a joint venture between Fronteer and Newmont. The Sandman Project has five identified gold deposits that are near-surface and potentially amenable to open-pit mining. Infrastructure surrounding Fronteer's Sandman project is considered excellent. The property is within trucking distance to Newmont's Twin Creeks mine, so the construction of a mill on site as well as other significant capital expenditures might not be necessary. Fronteer and Newmont can just haul the ore to Twin Creeks and process it all there. Although capacity at Twin Creeks might need to be expanded.
Fronteer Gold has an option and joint-venture agreement with Newmont to rapidly advance Sandman to a production decision by June 2011. Newmont may earn up to a 60% interest in Sandman by investing $23 million in advancing the project.
Under the terms of the two-phase agreement, Newmont may earn an initial 51% interest in Sandman by:
- spending an initial US$14 million on exploration ($3 million, $5 million and $6 million spent in years one, two and three, respectively);
- making a production decision supported by a bankable feasibility study;
- making a commitment to fund and construct a mine; and
- reporting reserves.
As part of Phase 2, Newmont may then earn an additional 9% interest in Sandman by spending a further US$9 million on development.
Newmont is focused on:
- Confirming the character of near surface gold mineralization;
- Obtaining bulk metallurgical material for mill grade and potential heap leach metallurgical tests; and,
- Improving the understanding of the geology and controls on gold mineralization.
Halilaga
Fronteer Gold and 60% joint venture partner Teck Resources own the Halilaga project in Turkey. It's a copper-gold system that has the potential to be a company maker.
Drilling in Halilaga's Central Zone has returned significant widths of copper-gold mineralization that have extended mineralization over a strike length of 1,200 metres and a width of 750 metres, with thicknesses ranging over 600 metres. Halilaga provides Fronteer Gold with considerable upside exposure to a significant copper-gold deposit in a district with excellent infrastructure and favourable mining laws. A resource estimate on this very promising property is expected by the end of the year, assuming sufficient drilling has been completed.
Financials and Production
$126 million in cash and no debt
150 million shares outstanding
Conclusion
Fronteer Gold's main asset is their Long Canyon project. This high grade deposit is still actively being explored. As of right now it could produce 100,000 oz of gold per year economically. But with the recent drill results that uncovered new mineralized zones in the northeast, the project could end up producing substantially more than that. It seems reasonable that the resource base could easily double at Long Canyon, and that could equate to 200,000-300,000 oz of gold production per year just from that mine alone. This is also high grade ore, so cash cost should be well under the the industry average.
Northumberland is also an interesting project, but this is a little more complicated since Fronteer is looking to go underground to mine the ore. A ramp leading down to the deposit is currently being constructed.
Fronteer also has a few prospects in Turkey that could substantially boost shareholder value, and the company also owns one of the largest uranium deposits. So as you can see it has many prospects. However, they won't have any attributable gold production for at least a few years. Long Canyon won't come online until late 2013. Sandman could be brought into production sooner, but it won't be as big of an operation and Newmont will own the majority of the project. Northumberland could be a nice size mine, but it is still many years off.
Really though, this story is all about Long Canyon, as well as the surrounding property. This could become a new region of gold production. As mentioned above, Agnico-Eagle has a joint venture with Fronteer for the property right next to Long Canyon. If they start hitting the same type of holes, then this could turn into a huge project. So keep an eye on drill results from Agnico.
As far as valuation goes, well the shares aren't cheap. At a market value of $1.4 billion a lot is being priced in already. But there is a lot of potential with Long Canyon, and the surrounding area. The drill results that Fronteer is releasing are very encouraging, and the deposit keeps expanding. It's still early in the game though, and we will just have to see if Long Canyon can really transform the company into a major producer.
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