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Mining Explorers 2012: Millrock thrives in tough markets Majors invest C$11M to explore gold-copper projects generated by junior Shane Lasley Mining News
Millrock Resources Inc.’s skillful execution of the project generator model is allowing it to flourish in an equity market that has not been kind to junior exploration companies.
Capitalizing on its exploration expertise and first-hand geological knowledge of Alaska and southeastern Arizona, Millrock pulled together some C$11 million for exploration in 2012. Some 93 percent of this spending was funded by global miners Teck Resources Ltd., Kinross Gold Corp., Vale S.A. and Inmet Mining Corp. — leaving only about C$800,000 to be shouldered by the project generator.
Some C$6.5 million of the 2012 budget was invested in an array of Millrock’s gold and gold-copper projects in Alaska.
By allowing a third party to do the heavy lifting the project generator is reducing exploration risk, limiting dilution and exposing its shareholders to a large amount of exploration spending for their investment.
An added bonus is the larger portion of the explorer’s overhead is covered through the collection of management fees.
“We are the operator of all the agreements we have with other companies — they let us do the exploration and we charge a modest fee meant to cover our overhead costs. Additionally, we get option payments,” Millrock Resources President and CEO Beischer explained to Mining News. “At present it is not completely enough to offset our overhead costs.”
Regardless of market conditions Millrock has a loyal group of investors that like what the project generator is doing, giving management confidence that when the time comes to raise money the funds will be there.
“They see we are executing our model, doing what we said we are going to do and sticking to it really rigorously,” added Beischer.
Millrock last needed to raise money in 2010 — closing a C$1.65 million financing in June and a C$1 million financing in August — yet the project generator’s properties were subjected to some $C27 million of exploration in 2011 and 2012. At the end of August, Millrock had about C$2 million in the bank and won’t need to consider going to the market for additional funds until after the Alaska field season.
“By the end of the year we will still have a pretty good cushion but it is going to be too thin for real comfort,” Beischer said.
Strategic alliances In 2011, Millrock further mitigated its risk by entering into a strategic alliance with Vale in which the mining giant agreed to front an initial US$1 million for the project generator to seek out a world-class porphyry deposit in Alaska.
This deal goes beyond the typical agreement in that Millrock has yet to generate a project. Instead, the funds are to be used to probe the prolific Alaska Range and Alaska Peninsula porphyry belts for deposits worthy of the Brazil-based mining behemoth.
“The idea is that they would provide funding for us to do research and reconnaissance exploration work for porphyry coppers,” Beischer explained. “They would love to find another Pebble — as would we.”
Millrock co-founder and Chief Exploration Officer Phil St. George has a track record of doing just that. He is credited with discovering Pebble while with Cominco in the 1980s before continuing on to expand Donlin Gold to 20 million ounces during his tenure as vice president of exploration for NovaGold Resource Inc.
In early June Millrock announced that it has entered into an option agreement with Vale on the Audn project, a promising porphyry copper-gold target situated some 100 kilometers (62 miles) southwest of the Pebble deposit.
Audn and any other interesting prospects turned up under the strategic alliance may be deemed designated projects and Vale will have the option to earn an initial 65 percent interest by spending US$3.5 million on exploration and paying Millrock US$200,000.
Beischer said that while Vale’s earn-in requirements are minimal, the risk to Millrock and its shareholders is also minute.
Initial investigations that led to the discovery of Audn were carried out by Millrock in 2010. This reconnaissance work was funded under a separate strategic alliance with Altius Minerals Corp. By virtue of that agreement, Altius is entitled to a royalty on any mineral production that occurs from most of the Audn claims.
Vale budgeted US$830,000 for surface surveys of Audn in 2012.
Millrock feels that with US$830,000 of surface surveys Vale funded for Audn this year is enough to ready the porphyry copper-gold prospect for drilling in 2013.
Return to Oxide Ridge When Teck Resources Inc. expressed an interest in funding exploration at Estelle in 2010, Millrock management was presented with the option of keeping sole ownership of expansive project situated about 160 kilometers (100 miles) northwest of Anchorage or fully embracing the project generator model. After some deliberation, the Vancouver, B.C.-based junior chose to partner with the diversified miner.
Though Estelle lies in the heart of the Kahiltna Terrane — an assemblage that hosts enormous copper-gold deposits such as Northern Dynasty Ltd. and Anglo American’s Pebble project and Kiska Metal Corp.’s Whistler property — the primary metal here seems to be gold.
“There is a lot of gold there — there are a lot of showings from one end of that claim block to the other,” Beischer told Mining News.
A four-hole, 1,500-meter drill program carried out in 2011 provided for the first drilling at Estelle since Millrock acquired the expansive property in 2008.
The most exciting intercept came in hole SE11-01, drilled at the Oxide prospect.
The discovery hole cut 450.7 meters averaging 0.38 g/t gold.
“We have intersected intrusion-related gold mineralization over a significant interval that includes some higher grade intercepts. The challenge now is to find the center of the system that has the grade needed for an economic deposit,” said St. George.
SE12-04, drilled to the southeast of the discovery hole, cut 41.5 meters averaging 1.1 g/t gold, indicating the partners are narrowing in on the higher grade zone they are seeking. A strong geophysical anomaly further southeast is the planned focus of drilling in 2013.
The 2012 program also tested a geochemical anomaly at the RPM showing, located about 25 kilometers (15 miles) south of Oxide.
SE12-008 – the discovery hole at RPM – cut 21.9 meters averaging 2.07 grams per ton gold over 21.94 meters within a 102.1-meter interval averaging 1.04 g/t gold from 26.52 to 128.63 meters. Millrock said this discovery is considered a priority target for follow-up.
Drilling at West Wing, located about midway between Oxide and RPM, also cut promising gold. SE12-007 cut 7 meters averaging 1.01 g/t gold. Elevated copper values are also present in core from this prospect and range between 1,000 and 4,580 ppm copper.
In April, Millrock announced Teck had earned an initial 55 percent joint venture interest in Estelle.
Mutually beneficial partnership While Kinross partners with many junior companies around the globe, Millrock tops a short list of “mutually beneficial partnerships” featured on the Toronto-based miner’s website.
In 2012 Kinross spent some US$1.2 million to explore the Humble property in Southwest Alaska and another US$1 million at the Council gold project on the Seward Peninsula.
Humble, formerly known as the Kemuk prospect, is similar in size, age and orientation to the Pebble deposit located about 80 miles (130 kilometers) to the east.
In 2010, Kinross and Millrock struck a deal in which the major has the option to earn a 60 percent interest in an area of interest, including the Humble claim group by spending US$4 million on exploration by the end of 2013, paying the project generator US$200,000 and reimbursing the costs for staking the claims. Kinross has the option to increase its ownership of the copper-gold prospect by incurring an additional US$6 million in exploration expenditures by the end of 2016.
Core from drilling conducted by Humble Oil Co. in the 1950s — stored in a facility in Southcentral Alaska — has provided Millrock geologists with a peek at what lies below the surface at Humble.
Targeting coincidental geochemical and geophysical anomalies, Millrock and Kinross conducted an initial drill program at Humble late in 2011. While the earlier surface work at the porphyry copper-gold prospect went well, drilling proved to be problematic, producing little core for analysis.
The partners had better results when they returned in April to complete a four-hole program.
Following the Humble program, Kinross and Millrock turned their focus on Council, a 900-square-mile land package that blankets a region that has produced more than 300,000 ounces of placer gold.
The 1,242-meter program targeted a 7,000-meter-long gold-arsenic soil anomaly that overlies a northwest trending fault at the Elkhorn Creek zone.
COU12-023, the discovery hole at Elkhorn, cut 7.01 meters averaging 2.58 grams per metric ton gold occurring within a 14.02-meter interval averaging 1.45 g/t.
Kinross — which joined Millrock at Council in 2010 — agreed to spend up to US$6 million to earn a 75 percent interest in this gold project situated about 60 miles (100 kilometers) northeast of the legendary mining town of Nome.
Sustainable over time While Millrock has been able to secure exploration funds from global firms, partnerships with junior explorers are virtually non-existent this year.
As a project generator, Millrock has a deep pipeline of projects in various stages of readiness — including five that have drill targets and one that is optioned out to a junior but is in a holding pattern for 2012.
The only junior maintaining a partnership on a project Millrock generated is Crescent Resources Corp., which has an option to earn a 100 percent interest in the Uncle Sam gold project about 40 miles (65 kilometers) southeast of Fairbanks.
Some 1,950 meters of core drilling at Uncle Sam in 2011 tested two targets, Lone Tree and Wolf.
The most exciting results came from Wolf, which appears to be on strike with the Naosi zone of Sumitomo Metal Mining Co. Ltd.’s Stone Boy project located approximately 2,000 meters to the southeast.
WLF-001 cut 2.74 meters averaging 3.63 g/t gold, WLF-002 cut 11.46 meters averaging 4.86 g/t gold, WLf-003 cut 3.05 meters averaging 3.27 g/t gold and WLF-004 cut 2.13 meters averaging 1.81 g/t gold.
Despite these encouraging results, Crescent wasn’t able to raise the funds to mount a follow-up program in 2012. In September, Crescent merged with Coventry Resources Ltd., an Australia-based explorer that is advancing the Cameron gold project in Ontario, Canada.
Bluff— located about 22 miles (35 miles) southwest of Council — is another promising gold project in Millrock’s portfolio that is suffering from the lack of venture capital.
Based on the drilling completed by BHP Billiton plc in the 1980s, Bluff has a historical resource of 500,000 ounces of gold, with grades of approximately 3.5 g/t gold.
“Here is an example of this very tight market,” Beischer said. “Bluff is a great project — there is a resource of gold in the ground there, and you could go in and expand it — but no one has the money.”
When Millrock’s contemporaries do have money the project generator will be ready.
“The whole idea is to build a company that is sustainable over time. We have got the staff here and even though there might be a lull in the activity, they are still employed — dreaming up new ideas for Millrock to pursue,” the Millrock CEO said.
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