Rob Chang Comments: Premier Delivers 7.8M oz. Trans-Canada Gold Resource

January 4, 2013, Northern Miner Online

Premier Gold Mines (PG-T) has completed a much-anticipated resource estimate on the Trans-Canada project in the Beardmore-Geraldton greenstone belt. The resource estimate represents the first consolidated results of the four gold deposits – Hardrock, Brookbank, Kailey and Key Lake – that make up the project.

On a consolidated basis, the measured and indicated resource at Trans-Canada now stands at 4.12 million oz. gold from open pit and underground, and another 3.65 million oz. gold in the inferred category from open pit and underground, a global increase in size of 81% over the resource estimate completed in April 2011.

But the increase partially owed to a reduction in the open-pit cut-off grade from 0.83 gram gold per tonne to 0.50 gram gold per tonne, and markets were negative on the stock. Premier announced the resource update after markets closed on Dec. 19, and when trading resumed the next day, its shares closed down 1.5%, or 6¢, at $4.04, within a 52-week trading range of $3.51 to $6.79.

Rob Chang of Cantor Fitzgerald in Toronto argues that traders misinterpreted the resource increase because they focused on the grade reduction. He points out that if the cut-off grade is held constant, the resource at the Hardrock deposit shows a sizeable increase of 2.5 million oz. gold, or 70%. Chang holds a "buy" rating on the stock and has increased his target price from $7.15 to $7.25 per share.

The Hardrock deposit represents 77% of the Trans-Canada project’s total measured and indicated ounces, and 93% of its inferred ounces.

Stephen McGibbon, Premier’s executive vice-president of corporate and project development, emphasized on a conference call that the company wants to be conservative in its definition of measured and indicated resources, and that the reduction in the resource was really a transfer of ounces from the measured and indicated category back into the inferred category.

"We believe this new resource better represents the data and continuity we’re beginning to see in the orebody as a whole," he said. "When you look at inferred, there is an increase of about 183% in ounces, not just from measured and indicated, but also from organic growth, and an increase in grade of about 9.5%."

For the four combined deposits, Trans-Canada has open-pit measured and indicated resources of 60.5 million tonnes grading 1.44 grams gold for 2.79 million contained oz. gold, and 11.8 million tonnes grading 1.46 grams gold for 554,000 contained oz. gold in the inferred category. Underground, the four deposits have total measured and indicated resources of 6.93 million tonnes grading 5.94 grams gold for 1.32 million contained oz. gold, with an additional 16.5 million tonnes of 5.85 grams gold for 3.1 million contained oz. gold in the inferred category.

Breaking down the new resource estimate into its parts, the Hardrock deposit, 3 km south of the town of Geraldton, has open pit measured and indicated resources of 46.7 million tonnes grading 1.51 grams gold for 2.26 million oz. gold, and inferred resources of 6.62 million tonnes grading 1.74 grams gold for 370,000 oz. gold. The underground resource at Hardrock contains measured and indicated resources of 5.05 million tonnes at an average grade of 5.48 grams gold for 889,000 oz. gold, and 16 million tonnes grading 5.91 grams gold for 3.04 million inferred oz. gold.

Premier has identified open-pit mineralization at Hardrock where historic gold mining comes to surface, with underground mineralization consisting of new horizons parallel to the historic mine, and extensions of the main zones historically mined, the company says.

At the Brookbank deposit, 77 km west of Hardrock along the Trans-Canada Highway, open-pit measured and indicated resources stand at 2.64 million tonnes grading 2.02 grams gold for 171,000 oz. gold, with 0.71 million tonnes inferred grading 2.38 grams gold for 13,000 oz. gold. Underground, Brookbank’s measured and indicated resources tally 1.85 million tonnes grading 7.21 grams gold for 429,000 oz. gold, with inferred at 0.40 million tonnes averaging 4.02 grams gold for 53,000 oz. gold.

Premier views Brookbank as an underground opportunity, although the current resource, the company says, suggests that a small portion of the deposit may be amenable to evaluation as an open-pit mining resource. Because it is close to the Northern Empire mill, Brookbank could be a stand-alone project or a satellite deposit for Hardrock.

About 2.5 km away from Hardrock, the Kailey deposit has measured and indicated open-pit resources of 8.63 million tonnes grading 0.95 gram gold for 265,000 oz. gold, and inferred resources of 3.69 million tonnes grading 0.97 gram gold for 115,000 oz. gold.

The Key Lake deposit – 11 km west of Hardrock, and open at depth – has open-pit measured and indicated resources of 2.57 million tonnes grading 1.17 grams gold for 97,000 contained oz. gold, and inferred resources of 1.35 million tonnes of 1.29 grams gold for 56,000 oz. gold. Key Lake’s underground resource stands at 0.03 million tonnes grading 6.48 grams gold for 6,000 contained oz. gold in the measured and indicated category, and 0.06 million tonnes of 3.57 grams gold for 7,000 contained oz. gold.

In a research note, Eric Lemieux of Laurentian Bank Securities points out that the Hardrock deposit remains open for growth, and that ongoing drilling and recently discovered new gold zones offer further upside for expansion. "The next warranted course of work would be a preliminary economic assessment to qualify and quantify the merits of the mining operations and a central mill complex," he says. Lemieux has a "speculative buy" rating on Premier, and a target price of $7.50 per share.

Premier Gold Mines chairperson Ebe Scherkus said on the conference call that the company expects to complete a preliminary economic assessment on Trans-Canada in the latter half of 2013, noting that the company has bulked up its team with the addition of Paul Girard, an experienced mining engineer previously with Agnico-Eagle Mines (AEM-T, AEM-N), to help guide development.