Tag: Rob McLeod

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5 Reasons IDM Mining is Worth a Look at This Valuation

by James Kwantes
Resource Opportunities

IDM Mining is a Resource Opportunities sponsor company.

In the summer of 2016 I visited IDM Mining’s Red Mountain high-grade gold project in northwestern British Columbia for the first time, and most of the underground workings were still flooded with water. The conditions were a testament to the project’s mothballed status before IDM took over. To the weather, as well: the mountains outside of Stewart get plenty of precipitation in the form of both rain and snow. Some fell during that mid-summer visit.

When I returned recently, most of the water in the two kilometres of underground workings had been pumped out. Our group of analysts and investment bankers was able to hike deep inside the mountain. We crossed the portal and CEO Rob McLeod walked us through a damp, dark world, past several crosscuts accessing mineralized zones as well as sites where the underground drill was turning.

The gold grades have to be rich to make a mine economic in such an environment, and Red Mountain ore is. IDM’s latest intercepts, announced Sept. 5, are the highest-grade ever recorded at Red Mountain: 4.9 metres of 149.2 g/t gold and 59 g/t silver in the Marc Zone, the first mineralized area to be mined. The hit included 0.5 metres of 1,400 g/t Au and 437 g/t Ag. Average grades of reserves at Red Mountain are 7.53 g/t Au and 21.86 g/t Ag – multiples of global grades being mined.

Underground drilling

Majors including Lac Minerals and Royal Oak Mines spent several million dollars blasting out the portal and underground decline before abandoning the project, which IDM CEO Rob McLeod had worked on as a junior geologist. IDM optioned the 17,125-hectare project in 2014 and has systematically advanced it to the permitting stage. A recently published Feasibility Study shows an after-tax NPV of $104 million with an IRR of 32% and a 1.9-year payback, at a 5% discount. That’s based on US$1,250/oz gold and a 76-cent Canadian dollar. Average life-of-mine head grades are 7.53 g/t Au and 21.86 g/t Ag. By comparison, the average gold grade of producing mines, globally, is about 1 g/t Au.

Red Mountain is located in a beautiful corner of the world populated by snowy mountain peaks, glaciers and scenic vistas. We hiked to the top of a ridge as CEO McLeod gave us a tour that was equal parts geology and history. The bird’s-eye view included Bromley Humps, the area that will host the mill and the tailings area (we later visited by helicopter).

IDM Mining CEO Rob McLeod points toward the mill/tailings facility location in the Bitter Creek Valley.

The Golden Triangle’s history of high-grade gold mining points to its potential. Pretium’s Brucejack is just the latest in a region with a long list of past producing high-grade mines, including Snip, Eskay Creek, Premier and Granduc. And IDM’s development is part of a Golden Triangle revival that is driving some incredible share price gains among area drill plays. The most notable is GT Gold Corp., whose shares started 2017 at 25 cents and have rocketed above $2.50 on drill results. The stellar initial intercepts included 6.95 metres grading 51.53 g/t gold and 117.38 g/t silver. The stock surge has vaulted GT Gold to a market capitalization of almost $200 million. That compares to about $50 million for IDM, whose Red Mountain is an FS-stage advanced development project with a defined deposit and lots of upside.

Proven and probable reserves at Red Mountain contain 1.953 million tonnes at an average grade of 7.53 g/t Au, for 473,000 gold ounces, and 21.86 g/t Ag, for 1.373 million silver ounces. Most of the ore is found in three mineralized zones: the Marc, AV and JW Zones. Underground step-out drill results released by IDM this summer hint at the upside potential at Red Mountain. Intercepts have included:

  • 4.9 metres of 149.2 g/t Au & 59.9 g/t Ag, incl. 1,400 g/t over 0.5m (U17-1289, Marc Zone)
  • 8 metres of 12.28 g/t Au & 27.07 g/t Ag (U17-1274, SF Zone step-out)
  • 14 metres of 10.65 g/t Au & 17.37 g/t Ag (U17-1262, JW Zone step-out)
  • 8.6 metres of 12.33 g/t Au & 70.9 g/t Ag (U17-1245, JW Zone step-out).

 

Other high-grade Canadian gold plays are being picked off by majors, one by one. Recent projects that have been purchased include Lake Shore Gold ($945 million by Tahoe), Kaminak ($520 million by Goldcorp) and Integra ($590 million by Eldorado). The latest to be snapped up was Richmont Mines, a high-grade underground producer recently acquired by Alamos Gold for $933 million. Richmont produces gold at two underground mines in Ontario and Quebec.

In USD terms, the price of gold has increased about 15% this year, from $1,150 to the current $1,325. Yet IDM shares have remained at the 14-cent range, after hitting 21 cents about a year ago. Here are five reasons IDM shares are worth a closer look at these levels:

1. GRADE

The global gold mining industry is facing a supply crunch. Demand remains strong, driven primarily by the Asian appetite, ETF inflows and central bank buying. But on the supply side, gold mining companies are struggling to keep pace. It’s primarily due to a lack of new discoveries, a trend that is forcing miners to process lower-grade ore as they deplete existing ore bodies. The average grade at producing gold mines, globally, is about 1 g/t Au. It’s a worrying industry trend since grade remains king, as well as being a key determinant of the profitability of gold mining companies. That puts a target on IDM Mining’s Red Mountain, which has gold grades multiples of the global average. Cash costs net of silver credits for the Red Mountain project would be US$492/oz, according to IDM’s recent Feasibility Study.

2. INFRASTRUCTURE

Smart management teams purchase unloved, unwanted assets for pennies on the dollar during bear markets, then turn them into viable economic projects in time for the commodity upcycle. That’s the playbook for IDM and the timing looks good, especially with gold’s push above $1,300/oz. IDM leveraged millions of dollars of prior development, including almost 2,000 metres of underground tunnels. The infrastructure advantage extends to road access from Stewart, as well as plentiful and cheap power. British Columbia has some of the least-expensive industrial power rates of any jurisdiction in the world.

3. TEAM

Stewart is Rob McLeod’s hometown and he has deep family roots there, which makes construction of a mine at Red Mountain personal. The town of Stewart used to be a thriving mining hub but is heavily exposed to the cyclicality of the sector. For example, Stewart’s 1910 population of 10,000 dropped as low as 17 people less than a decade later, during the First World War years. Rob’s father Ian McLeod and his uncle Don (after whom IDM is named) prospected mountains in the region for gold – including the property that now hosts Pretium’s high-grade Brucejack mine. Stewart boomed again with the opening of the Premier mine, which operated from the 1920s to 1952 and was North America’s largest gold mine.

How deep are the CEO’s ties to Stewart? Rob’s father was born in Stewart in 1927 and served as mayor for 15 years. He also owned the King Edward Hotel in Stewart from 1952 to 2001. IDM’s Executive Chairman is Mike McPhie, a mining veteran who was CEO of Curis Resources (bought by Taseko Mines) and a director of Silver Quest Resources (bought by New Gold). Another third-generation miner, engineer Ryan Weymark, joined IDM Mining in the spring. His father and grandfather were also mining engineers and spent their careers at Teck Cominco.

4. RESOURCE UPSIDE

IDM’s high-grade stepout hits at Red Mountain mean the 5.4-year mine life outlined by the Feasibility Study is likely to be extended, perhaps considerably. Infrastructure costs for a mine would be fixed, so finding additional ounces is highly accretive to mine economics. And the upside goes beyond defining additional ounces at Red Mountain. Glacial melt has uncovered areas of mineralization that have never been drilled or explored, such as Lost Valley. A resource update is expected in the first quarter of 2018.

 

Lost Valley gold mineralization

5. STRIKEPOINT GOLD STAKE

A deal IDM announced in late 2016 has given the company a call option on a promising portfolio in the Yukon, one of the world’s hottest exploration jurisdictions. The company sold its Yukon projects (formerly owned by Ryan Gold) to Strikepoint Gold (SKP-V) for $4 million, most of it in StrikePoint shares. As a result IDM holds 18% of StrikePoint’s outstanding shares, joining other major shareholder Eric Sprott, who owns a 12% stake. StrikePoint’s VP Exploration is Yukon veteran Andy Randall, who was chief geologist for Ryan Gold when that Shawn Ryan vehicle spent $25 million to advance the Yukon projects. StrikePoint is spending $2.5 million this year to explore three properties: Mahtin, Pluto and Golden-Oly. The fledgling company, helmed by Shawn Khunkhun, has about $8 million in the treasury and is fully funded through 2018. IDM’s stake is worth about $2.9 million at StrikePoint’s current share price.

Disclosure: IDM Mining is a Resource Opportunities sponsor and the author is long IDM Mining shares, which makes him biased. This article is for informational purposes only. All investors are responsible for their own trades and need to do their own research and due diligence.

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Building a miner in the Golden Triangle

Originally published Sept. 16 for Resource Opportunities subscribers. Join us as we uncover the best investment ideas in the junior mining universe! Only $299 for 1 year and $449 for 2 years.

IDM Mining (IDM-V) site visit
By James Kwantes
Editor, Resource Opportunities

Getting to IDM Mining’s Red Mountain gold project in northwestern British Columbia wasn’t quite “planes, trains and automobiles,” but it was close. First I flew from Vancouver into Smithers. There’s some family history in the neighbourhood — down the road is Houston, where my grandfather settled with his family after emigrating from the Netherlands. There’s some family history for IDM CEO Rob McLeod, as well.

From Smithers it was into a rental car for the 330-kilometre trek to Stewart, nestled beside the Alaska panhandle. Jagged mountain peaks and tall waterfalls make the final approach beautiful.

A helicopter picked me up for the last leg to Red Mountain, 15 kilometres northeast of Stewart. It was a cloudy day, so the pilot had to take the “long way,” threading his machine through the Bitter Creek Valley to the site. It’s the same route the road will take from Stewart — in the helicopter, it was still only about 10 minutes.

The Bitter Creek Valley

Red Mountain mine workers would have an easier commute — a 45-minute trip by road to the mine site. IDM is working on a feasibility study as it plans a small, scalable high-grade gold mine at Red Mountain. Previous owners have sunk more than $45 million into the project, including construction of a portal and ramp into the mountain to access mineralized zones.

IDM Mining is named for Rob’s father Ian and his uncle Don McLeod, underground miners who explored and mined some of the most well-known deposits in northwestern British Columbia and beyond — including Pretium’s Brucejack. Stewart, Rob’s hometown, was a mining hub for much of the 1900s. Now, its decline is reflected in abandoned storefronts and empty houses.

But “the times, they are a-changin.” IDM’s Red Mountain is part of a mining revival backed by the pro-mining provincial government. One of the visible indicators of the shift is the 287-kilovolt Northwest Transmission Line, parts of which hug Highway 37 as it snakes its way north.

The $500-million power line was built by the B.C. government to open up the remote northwest of the province to mining and industrial development. The first operation to tap into it is Imperial Metals’ Red Chris open-pit copper mine, which began mining in early 2015. IDM’s operation won’t tie directly into the line. But the implications of the power boost are far-reaching for all of the juniors and development companies operating in the heavily mineralized region.

And if you pay attention on the drive to Stewart, there are also signposts — literally — highlighting IDM Mining’s advantage. Those are the signs advertising the King Edward Hotel in Stewart, which Rob’s father Ian owned and operated for many years. The family sold the hotel a few years back, but it speaks to McLeod family roots in Stewart.

For McLeod, Red Mountain is personal. As he put it to me in a conversation some time ago, “This is our turf.” An operating mine near Stewart would mean work close to home for friends in the industry who have been navigating the bear market by flying wherever there is work. It’s an intangible that doesn’t factor into financial or economic models, but I believe it’s significant.

It takes a team to build a mine, and another key component is IDM’s executive chairman, Michael McPhie. He’s a veteran operator who has served as CEO of the Mining Association of B.C. and chairman of industry group AME BC. He’s currently managing director of JDS Gold. They say a photo is worth 1,000 words. The one on IDM Mining’s home page features McLeod, McPhie and Jeff Stibbard, who runs JDS Energy & Mining (currently working on IDM’s Red Mountain FS).

As I approached Stewart in the rental truck, the bugs arrived, and their pitter-patter on the window almost sounded like drizzle. Soon enough the rains came, and then the mountains — towering giants casting off waterfalls and glaciers. Just outside the port of Stewart, another sign of changing times. The highway closed temporarily to northbound travellers to allow through a convoy of trucks transporting giant wind turbine parts to a large wind farm project outside of Tumbler Ridge, in northeastern B.C.

It was near nightfall when the helicopter pilot and I arrived at the Red Mountain camp. I stayed in one of the comfortable pods, complete with heater.

 

My visit wasn’t long but we covered a lot of ground, after a geological briefing at the camp’s nerve centre. The first foray was up the mountain (in a helicopter) and underground, into the access ramp. Haul trucks will transport ore between the underground workings and the mill, located below the camp in an area called Bromley Humps.

The tunnel was in good shape, with little evidence of rock fall, despite being largely abandoned for most of the 20 years since it was blasted out by LAC Minerals. In addition to the portal and underground workings, IDM inherited mining equipment including some of the haul trucks that will go underground.

During the visit, IDM was dewatering in the two kilometres of existing underground workings. The company was also drilling underground — a step-out from the Marc Zone that was outside the resource envelope. The geo in charge of that hole was so enthusiastic about the rocks she stayed up the mountain late that night to collect more core. Subsequent assays, reported Sept. 6, backed up her optimism.

Hole U16-1185 intercepted 14.19 metres (true width) of 5.78 g/t gold and 24.15 g/t silver. Another Marc Zone step-out hit 13.77 metres (true width) of 5.72 g/t Au and 34.89 g/t Ag. There was also a discovery hole of 6 metres grading 7.43 g/t Au and 12.51 g/t Ag. The latter was a step-out hole below the Marc Zone and 70 metres outside the resource as currently defined. The area has been dubbed the NK Zone (after assistant project manager Natalie King).

Underground drilling at Red Mountain

It was gusty and raining atop Red Mountain before we descended into the darkness of the access ramp, offering a glimpse at what winter must look like when the white stuff is blowing. It’s why IDM plans to mine for 8 months and shut down during the worst 4 months of the year, stockpiling the rest of the ore at a mill further down the mountain that will operate year-round (The initial plan called for the entire operation to be shut down for 4 months). The mill is several kilometres closer to Stewart than the main ore body.

In July IDM released an updated PEA with better economics than the 2014 iteration as well as a new tailings location. IDM now plans to process 1,000 tonnes per day year-round based on underground mining rate of 1,500 tpd for 8 months annually. That change increases the amount of gold produced over the 5-year mine life — from 277,000 Au oz to 348,000 oz and 852,000 Ag oz to 965,000 oz.

But it also increases capital costs both at the mill and the underground workings, where the company will be accessing more remote mineable resources. Pre-production capex is pegged at C$111.2 million, compared to $76.1 million in the previous study. After-tax IRR remains above 30%, helped in part by the weaker Canadian dollar (80-cent exchange rate, compared to 95 cents in 2014).

The past five years have been a grim time for mining companies, which may allow IDM to further reduce capex through the purchase of mothballed equipment. Victoria Gold (VIT-V) in the Yukon illustrated the potential earlier this year when it purchased a 100-person all-season mining camp for $275,000, saving millions of dollars. Victoria’s feasibility study was completed by JDS, the same company doing IDM’s (the FS is slated to land in the first quarter of 2017).

Lost and Found

Glacial retreat left boulders atop cliffs at Lost Valley

Glacial retreat is an important part of the IDM story. And a helicopter trip into nearby Lost Valley, IDM’s recent high-grade discovery, shed some light on why McLeod believes the 5-year mine life could be just the start for Red Mountain, a 17,000-hectare property.

IDM had announced the new Lost Valley discovery a few days before my visit. Through surface mapping and sampling, geologists discovered a zone of veining and shearing hosting high-grade gold-silver-molybdenum mineralization. Of 66 samples, 22 assayed above 3 g/t gold, averaging 30.45 g/t Au. High grades of silver and molybdenum were also assayed, as well as rhenium.

Mineralization in Lost Valley has been exposed by the rapid melt of the Cambria icefield, which left behind boulders atop cliffs and strewn across the valley bed when it retreated. The glacier covered the area just 20 years ago when McLeod was a junior geologist on the project. It’s about 4 kilometres southwest of the main Red Mountain mineralization and 800 metres lower.

The pilot dropped off the two of us and McLeod’s Vizsla companion, Petal, on the rugged terrain and we hiked up to some outcrops. The mineralization was impressive, with the dull shine of pyrite (“fool’s gold”) and the blue hues of molybdenite hinting at the geological potential (there’s a major moly deposit, Kitsault, 55 kilometres to the south).

News has flowed fast and furious since my site visit, for both Lost Valley and the main Red Mountain ore body.

Aug. 24 – IDM released assays from surface trenching at Lost Valley that revealed a high-grade structure, confirming earlier grab sample results. The new high-grade zone was dubbed Anda’adala’a Lo’op zone, Nisga’a for “money rock.” Seven channel samples taken along a 33-metre trench averaged 18.7 g/t gold and 61.2 g/t silver over an average width of 0.84 metres. Mineralization in Lost Valley has been traced over a 1-kilometre by 1.2-kilometre area.

Sept. 6 – Assays from 13 Red Mountain underground core holes mentioned above, including 14.19 metres of 5.78 g/t Au and 24.15 g/t Ag.

Pyrite and molybdenite mineralization at Lost Valley

Sept. 12 – IDM announced the discovery of another zone 100 metres south of the Anda’adala’a Lo’op zone. This one was dubbed the Randell Zone after geologist Andy Randell, who had just arrived to prospect at Lost Valley as I was leaving. A 9.35-metre channel sample returned an average of 22.2 g/t Au and 81.3 g/t Ag, including .85 metres of 133.25 g/t Au and 378 g/t Ag. Very impressive grades, even after removing the .85-metre intercept.

Sept. 29 – On the regulatory front, the public consultation period for environmental assessment of the Red Mountain underground project will run from Oct. 5 to Nov. 4. IDM plans to file a project application report with both the B.C. Environmental Assessment Office and the Canadian Environmental Assessment Agency in early 2017. Feasibility-level engineering work is also underway at the site, led by JDS Energy and Mining Ltd.

Oct. 4 – IDM closes an upsized private-placement financing for $8,994,707, consisting of 17-cent hard-dollar units and 21-cent flow-through shares. Proceeds will be used for additional resource expansion drilling, exploration and permitting at Red Mountain, including feasibility study work.

Drilling, dewatering, development, permitting and a feasibility study expected in the first quarter of 2017 — it all requires money, and that means more dilution. IDM has shown there is demand for their shares — the recent private placement started at “up to $5 million” and finished at almost $9 million. Those shares take IDM’s already high share count to about 270 million. But crucially, the financing also allows IDM to pay for permitting and development as well as exploration at Lost Valley.

In its latest NR, IDM announced that drills will be turning at Lost Valley within the month. If the company can drill high-grade there in a rising gold price environment, the share price should take care of itself despite the amount of paper out. Longer-term, Lost Valley is shaping up to be a potentially significant source of ounces for a mine at Red Mountain. A final investment decision is slated for the end of 2017, with commercial production targeted for the end of 2018.

The next key step is the feasibility study, and a producing gold mine is the goal. If IDM can execute on exploration while navigating the development path to a gold mine, the company will capture the two sweet spots of the “Lassonde curve” — the life cycle of a junior mining share (pictured). Shareholders make the most money during discovery and, beyond the development stage, production.

IDM currently trades at a market capitalization just over $50 million. Despite recent gold price weakness, we’re into the kind of market where those types of valuations are being assigned to promising drill plays. Red Mountain is delivering both with the drill bit and on the development front. I like the company’s odds of delivering a small, high-grade gold mining operation with a five-year mine life that is extended as more ounces are discovered elsewhere on the property.

McLeod and McPhie launched the company during the depths of the bear market and the upturn has given them the leverage to build a near-term production story. There aren’t many of those in the gold sector. At these levels, the stock is an attractive call option on IDM growing a gold business and making additional discoveries.

Price: .19
Shares outstanding: 270 million (380M fully diluted)
Market cap: $51.3 million
Treasury: $15 million

IDM Mining CEO Rob McLeod will speak more about plans for Red Mountain and Lost Valley at the free Subscriber Investment Summit today at the Pan Pacific Hotel in Vancouver. If you’re attending, stop by and say hello!

Disclosure: Author is long IDM Mining shares and the company became a Resource Opportunities sponsor subsequent to this site visit. This article is presented for informational purposes only and should not be considered investment advice. Junior mining investments are speculative and not suitable for many investors. Always do your own due diligence. Nothing contained herein constitutes a representation by the publisher, nor a solicitation for the purchase or sale of securities. The information contained herein is based on sources which the publisher believes to be reliable, but is not guaranteed to be accurate, and does not purport to be a complete statement or summary of the available data. Any opinions expressed are subject to change without notice. The author and their associates are not responsible for errors or omissions.