“Clarity, diligence, perseverance” are the words that still greet visitors to the website of exploration junior Diamonds North Resources (DDN-V). But after a decade of dealing with the logistic complications, short seasons and increasingly expensive reality of exploration in the north, the company’s new motto could well be “simpler, faster, cheaper.”
That’s because the company is heading south – just south of the B.C. border, to northeast Washington state to search for gold. While Diamonds North has long diversified out of diamond exploration, leveraging its vast northern land holdings for gold, copper and other more fashionable commodities, it’s become more and more difficult to wring capital out of the markets for northern exploration of any sort.
“Going into the north to do a drill program, you’d have to raise $3 million to do it, and at these prices, that’s just far too dilutive,” the company’s president and CEO, Mark Kolebaba, said during an interview at the Toronto Resource Investment conference at the end of September.
The company, which is trading at under 5¢, also needed a way to extend its exploration season.
“We thought, we’re too quiet in the off season and it’s tough on shareholders,” Kolebaba says.
While the company originally expected to pick up just one project in Washington state, it’s now got 10.
“It was one of these things — we got in, it looked interesting, and we kept going further, expecting to get a fatal flaw and that just didn’t happen,” Kolebaba explains.
Now the company, with sister company Uranium North Resources (UNR-V), has redirected all its efforts to Washington under a 50/50 joint venture private company called Minerals North, formed earlier this year.
The companies’ new focus on Washington — where Kolebaba estimates exploration costs are roughly 80% lower than in the north — may have been “almost purely accidental,” but Kolebaba has a very clear strategy built around the one producing operation in Washington state, Kinross Gold’s (K-T, KGC-N) Buckhorn mine and Kettle River mill.
“Our strategy is going into Washington state, exploring within a hundred kilometres of that mill and hopefully finding something that will benefit both us and say Kinross,” Kolebaba says, noting that Buckhorn only has three and half years of reserves left and that the Kettle River mill is operating at half capacity.
Minerals North has identified four of its 10 projects as high-priority. Two of them, Poland China and Golden Reward, are drill ready after initial programs of sampling and surveying this summer, and Poland China could see drilling as soon as December.
A shallow target at roughly100 metres depth (just under overburden), a drill program at Poland China would only cost around $250,000 — compared with well over $1 million for a similar program in the north. In total, the joint venture has so far spent $500,000 on its Washington projects.
Poland China, a sedimentary-hosted gold vein deposit that was last mined in 1940, lies within the same geological formation as the Buckhorn mine and is 75 km from Kinross’s Kettle Horn mill. The main Kismet vein at Poland China averages 2.1 metres in width and has returned grades historically of 8.2 grams grams gold per tonne to 12.7 grams gold. Kismet has been traced on surface for 750 metres, and one of three other veins on the property that have been partially developed, was traced for 1,500 metres.
Minerals North completed an initial $50,000 program at Poland China this summer, including geological mapping, soil sampling and geophysical surveys, designed to map the known veins and generate drill targets.
Kinross is also exploring in the area for more ore, and talking about reopening a small existing mine called K2, which hosts around 500,000 oz. gold — to feed the mill.
While Washington state has essentially the same geology as British Columbia, and Minerals North’s area of focus is a historic mining district that’s well served by existing infrastructure, it’s been largely neglected by explorers.
“I think a lot of people went into B.C. because it’s so easy to acquire land in British Columbia,” Kolebaba says, noting that the province has online staking. “Washington state, it’s been a somewhat forgotten locality. A lot of people think it’s a tough place to permit.”
That perception comes from the history of Kinross’s Buckhorn mine. Under previous owners, who, in times of tepid gold prices, envisioned Buckhorn as an open-pit mine, the operation spent nearly 20 years mired in the permitting process.
But Kinross bought the project in 2006, reworked the mine plan as an underground operation targeting 1 million oz. of gold at an average grade of 11.3 grams gold per tonne, and started mining just two years later, trucking the ore to its pre-existing Kettle River mill, 75 km away. The operation cost US$100 million to build and Kinross’s production costs are just US$420 per oz. gold.
“Kinross being there is a big deal for us — we’ve modelled our targets after that, the fact that we’re looking for high grade, underground minable,” Kolebaba says. “We’re not going to go in and try to do a low-grade, open-pit deposit there.”
Minerals North’s approach also serves to reduce permitting risk by focusing on feeding an existing mill.
Kolebaba says Kinross is aware of Diamonds North’s plans and expects to meet with the major soon to get a better idea of its plans for the area and what kind of deposits might interest it.
While both Diamonds North and Uranium North are trading at 5¢ or less and have market caps of under $5 million, Kolebaba is confident he can find the financing for a drill program at Poland North. He estimates the cost of a 1,000-metre drill program at around $250,000.
“I think when you look at the risk-reward, we’re say a five-cent company, but with a small amount of money we have a chance of making a discovery.”
Diamonds North, which currently has about $500,000 in its
treasury, would have to do a small financing to fund its share of costs. Uranium North, however, is sitting on $2 million. Both companies last raised funds in 2011.
Kolebaba’s strategy is also practical in that it sets the discovery bar at a lower, more realistic level.
“If you find something in the north, it has to be high grade because the costs are high. You have to build everything — all the infrastructure, roads, everything, and there’s no consolation prize. If you find a million ounces, it’s probably not enough,” Kolebaba says. “If you go to Washington state, Buckhorn’s a million-ounce deposit and that’s making Kinross a lot of money. But even if we were to find a quarter-million-oz. deposit as a consolation prize, you’re still going to get something for that. If you found that in the north, big deal — nobody wants it.”
The company is also enjoying another difference of working out of the north: the opportunity to create momentum. While the short work season in the north meant that Diamonds North would have to wait nearly a year just to go back out and follow up on interesting sampling results, a promising project in Washington could see much faster progress with several programs in one year.
Both Poland China and Golden Reward, an epithermal deposit, are on private land, meaning Diamonds North won’t need a drill permit unless it plans a large program. A third project, Empire Creek, is on U.S. forestry land, the most difficult to permit. But planning ahead, Minerals North applied for a drill permit earlier this year and got it in three months.
“I’m not sure if we could do that in Canada anymore,” Kolebaba says.
The permit is for a small, focused program, as opposed to a blanket permit, but he says that while the company is testing its prospects, that quick turnaround will allow it to assess projects faster.
Northeast Washington has a long mining history dating to the 1890s, but over the past 20 years it has received little attention, Kolebaba says. “I think for us, that’s the real opportunity. In the last twenty years, geological models have come a long way for deposits and we can go into these areas, take a slightly different approach, and see if we can make some of these ideas work.”
Upcoming news from the company includes results from its initial program at Poland China, plans for a drill program and a financing for Diamonds North. Further ahead, a name change could be part of a rebranding effort for the company if the venture into Washington is successful, as could a consolidation of Diamonds North and Uranium North.
Meanwhile, the vast northern land position held by the sister companies is in good stead for the next decade, and will be there when the markets turn in favour of diamond and northern exploration.
Diamonds North recently traded at 4¢ a share in a 52-week window of 3-9.5¢. The company has 94.7 million shares outstanding. Uranium North traded at 4.5¢ in a 52-week window of 3.5-18¢, and has 85.6 million shares outstanding.