Williams Creek Explorations Ltd., a Vancouver, B.C.-based junior, and its investment advisor, Interinvest, have purchased significant equity positions in Tyhee Development Corp., a junior focused on developing the Yellowknife Gold Project in Northwest Territories. Moreover, Williams Creek Chairman and CEO Michael Sonnenreich joined Tyhee’s board of directors.
Williams Creek, which owns 28 Crown-granted mineral claims in its Westport gold project in the Barkerville gold camp of the Cariboo Mining Division and three Crown-granted mineral claims in its Kamloops gold project near the Afton mine in the Kamloops Mining Division of southern British Columbia as well as a 30 percent interest in the ATW diamond property in the MacKenzie Mining District of the Northwest Territories, has set its mission as participating broadly in the natural resources sector, with an emphasis on the gold sub-sector, through exploration, joint ventures or other equity investments.
Flush with more than C$5 million in cash and modest liabilities, Williams Creek subscribed to 10 million newly issued common shares of Tyhee at a cost of C10 cents a share, or C$1 million, plus 5 million warrants entitling Williams Creek to purchase an additional 5 million newly issued shares in Tyhee at a price of C12.5 cents per share within the next 24 months.
Interinvest, an asset management company with offices in Boston and Montreal, purchased another 20 million units offered in the same private placement. Sonnenreich and Interinvest chairman Hans P. Black participated directly in the Interinvest portion of the private placement as individuals.
If the warrants are exercised, the purchases would represent about 17.5 percent of Tyhee’s 256.8 million outstanding fully diluted common shares. The investments are part of an initial C$5 million private placement that Tyhee reported in September before increasing its size to C$6.5 million and revising its terms in late October. Tyhee reported closing an initial C$4.76 million of the financing Nov. 1.
“Williams Creek has made a meaningful investment in Tyhee, and I intend to work with Tyhee’s management and board to advance our mutual interest in the success of Tyhee,” Sonnenreich said in a statement Nov. 4.
Tyhee Chairman Denis Taschuk said Sonnenreich’s experience in law, finance and in corporate governance will assist the board and management of Tyhee to move the Yellowknife gold project forward towards production.
Development update
The show of confidence in Tyhee’s future by another junior reflects the size, quality and extent of the measured, indicated and inferred gold resources in the Yellowknife project, said Sonnenreich. “Tyhee has discovered substantial amounts of gold, which can be economically mined in an accessible and geopolitically stable location.”
Tyhee’s most recent estimates for the Yellowknife gold project include 1.95 million ounces of gold in measured and indicated resources, which are in part inclusive of 811,200 ounces of gold in proven and probable reserves. The project also hosts 269,000 ounces of inferred gold and is located in the historic Yellowknife gold camp, which has produced over 14.5 million ounces of gold in the past.
Resources at the Yellowknife project occur in five gold zones, which are all open to depth, two of which are also open along strike.
Engineering and permitting work for the project is ongoing. A preliminary feasibility study completed this summer shows the project to have a positive net present value and internal rate of return under base case conditions (US$950 gold). Initial capital costs are estimated to total C$170 million with a C$20 million contingency to construct a 3,000 metric-ton-per-day mine and mill complex producing an average of 108,000 ounces per year at cash costs of US$541 per ounce.
The preliminary feasibility study recommended initiating a feasibility study of the Yellowknife project to examine in detail the resource, and recommend mining methods, metallurgical processing, site infrastructure including power needs, tailings containment, and environmental considerations. A financial model would be developed using this information, including engineered operating costs and capital costs based on new equipment. Power costs will focus on discussions with the utility company operating in the Yellowknife Gold Project area.
Mine developments in the Northwest Territories are governed by the Mackenzie Valley Land and Water Act. This act saw the development of two boards that oversee Tyhee’s activities: the Mackenzie Valley Land and Water Board, which is charged with reviewing all developments, and the Mackenzie Valley Environmental Impact Review Board, which is charged with reviewing developments that have been determined by the MVLWB to have the potential to have a significant impact on the environment. Tyhee said it submitted a project description report to the Mackenzie Valley Land and Water Board in July 2008, which was referred to the Mackenzie Valley Environmental Impact Review Board in September 2008. The company received its final terms of reference and work plan in May 2009, and a developer’s assessment report is currently be prepared for submission in early 2011. It will be followed by a technical review of the report by the MVEIRB.
New gold discoveries
Ongoing exploration has enabled Tyhee to expand known mineralization and identify new areas of mineralization. The Clan Lake Main Zone was expanded to the southeast by nearly 400 meters during the 2010 campaign of 20 diamond drill holes. In addition, two new gold zones, the bear and Spud zones, were discovered, one on either side of the Main zone.
The Yellowknife project had a pre-tax internal rate of return of 16.2 percent and a net present value of C$71.3 million. All cost estimates were at +/- 30 percent for accuracy. Minor changes in the capital and operating costs may occur prior to filing.
The Ormsby open pit mine will produce 5.2 million metric tons of ore grading 3.20 grams per metric ton with an overall strip ratio of 14.2:1. The Nicholas Lake underground mine will produce 975,000 metric tons grading 4.36 grams per metric ton concurrent with the Ormsby open pit. Underground operations at the Ormsby Zone will produce 976,000 metric tons grading 5.60 g/t and commence upon completion of the Nicholas Lake component. Mining at Clan Lake will produce 441,000 metric tons of ore grading 2.95 g/t from an open pit and commence near to the completion of the Ormsby open pit.
All ores are non-refractory and will be processed at a conventional crusher and grinding mill with separation utilizing gravity, flotation of the gravity tails, regrind of the flotation concentrate and cyanidation with Merrill Crowe recovery enabling doré bars to be poured on site. Gold recoveries of 92 percent for Ormsby and Clan Lake ores and 90 percent for Nicholas Lake ores were established.
Diamond drill results from the Clan Lake Main zone have extended the Main zone laterally to the southeast. Further drilling will be planned based upon these results. Additionally, the new Spud and Bear zones were identified by prospectors and subsequently confirmed by mapping and sampling. The new zones are close to and parallel to both the Main zone and the 330 zone.
Tyhee said it is significant that, if warranted, pits modeled on these zones are so close together that waste from one pit could affect the economics of an adjacent pit, thereby potentially reducing the effective strip ratios and permitting deeper mining of these adjacent zones. It is conceivable that a series of pits could coalesce into a single “super pit” under this scenario.
Tyhee said in August that it intended to spend the next few months improving aspects of the project. This included refining some of the input costs, optimizing some of the mining plans, as well as adding resources to the project that can be quickly and easily accessed.
In November, the junior said future diamond drilling will initially focus on the newly discovered Spud zone which is located 200 meters west of Clan Lake’s Main zone. Drilling should start by mid-November and will continue until the Christmas break. The Spud zone has been traced on surface for 600 meters and has returned significant gold values from grab samples. Tyhee also proposes additional drilling on the 330, Bear and Morel zones as well as the strike extensions of the Main zone.
A gold bargain
Tyhee President and CEO Dave Webb told Mining News Nov. 12 that Williams Creek’s investment reflects that junior’s belief that there are opportunities to participate in undervalued, advanced stage precious metals properties.
“They identified Tyhee as a company where they could acquire measured and indicated resources of gold in a safe political jurisdiction for a price of around $10 per ounce. This is one of the least expensive gold projects in Canada,” Webb said.
Sonnenreich observed that the purchase of equity interest in Tyhee and the accompanying warrants is a good example of the second component of Williams Creek’s three-part strategy of exploring existing holdings, participating in equity and joint venture agreements, and engaging in royalty and finance agreements.
“Williams Creek’s rationale in helping to capitalize Tyhee is to facilitate Tyhee’s continuing exploration and development of its Yellowknife project,” added Sonnenreich. “As well, we intend for the capital to be used for Tyhee to proceed with its ongoing demonstration of the economic viability of that project.”
For Tyhee, the investments provide additional funds to advance the Yellowknife project, one which has seen more than C$50 million in investment to date, Webb said.
“The next steps to start production are well laid out and do not require exploration success or wishes or dreams. The plan is defined and engineered. It would be very profitable under today’s price environment, Webb said.
“Williams Creek shares this vision and can participate further through their warrants to see further progress,” he said “Michael Sonnenreich understands risk, and understands project finance and development. His contributions are well received.”
