Eagle Hill Exploration

In a previous post, I said I'd move on to more profitable areas of the market -- and I will -- but I just attended a presentation by a junior explorerco and I thought I'd share it.

Reminder: Just because I talk about a company is not an endorsement. I really started this blog as a way for me to think things out.

Anyway, I went to a presentation by Eagle Hill Exploration yesterday. They're working on a project in the Abitibi Gold Belt, in Quebec, a spot on the map called Windfall Lake. Sure it's remote. Way remote. The thing about this project is the grade ...

• Indicated resource is 538,000 ounces grading at 10.05 grams per tonne of gold
• Inferred resource of 822,000 ounces grading at 8.76 grams per tonne of gold.

Some of the individual holes are quite extraordinary, including 12.4 meters grading 288.5 g/t gold. That's practically hip-hop-grill grade.

The IR rep making the presentation says that this high grade puts Windfall Lake in the top 7% (in terms of grade) of development-stage gold projects worldwide.

Eagle Hill is one of those stories where somebody ran out of money and another company picked it up for cheap. The purchasing company is Southern Arc Minerals, which has a deposit in Indonesia.

Do you want to invest in Indonesian mining right now? Neither does anyone else. Southern Arc was trading for less than cash, so it used its cash to leverage into 26% ownership of Eagle Hill in August.  Dundee Corporation owns another 26%.

Anyway, Southern Arc fired everybody at Eagle Hill except the chief geologist, who has worked in this area for years.  And they're keeping him busy with a 25,000 meter drill program that should be completed by the end of this year.

Eagle Hill expects to put out an updated resource estimate in early 2014 that will incorporate 55,000 meters of drilling.

And longer-term the company hopes to have a resource of 2 million ounces by the end of NEXT year.

The gold is contained in a pyrite sulphide system. Gold is found around grains of pyrite (fools' gold), in the cracks, or as free grains. This makes the core samples look very shiny indeed. 

OOOH! AHHHH!

Now, the property is accessible by logging roads. Still, it's remote enough that the crew lives onsite at a camp. If and when this ever becomes a mine, they'll have to string in a 100-kilometer (62-mile) power line.  The company ballpark estimates that as costing $1 million per kilometer. Since mining companies are staffed by optimists, let's say $1.5 million per kilometer for the power line, or a nice round $150 million for the whole electrified spaghetti string.

Still, not only is the grade at the deposit high-grade, the metallurgy is very friendly indeed. Preliminary tests have shown 91.7% gold recovery using simple gravity, flotation circuit and cyanide.

For this reason, the company reckons that building the project would cost in the LOW hundreds of millions of dollars, not a billion dollars.

Of course, it's a long way to a preliminary economic assessment, pre-feasibility study, bankable feasibility study, you name it. Let's not get ahead of ourselves.

Problems and Hurdles

So far, I've painted a nice picture of the project. Here are some things that concern me ...

• There are 493,383,396 fully diluted shares outstanding.  Obviously, there needs to be some 4-to-1 or 5-to-1 rollback or reverse split. Anticipation of this rollback is obviously weighing on the share price, or should be.  So, the sooner that is done, the better.
• The company is projecting that Windfall Lake will be an underground mine. That brings with it a host of potential complications, not least of which is that part of Canada is known for its underground rivers. 
• The company needs money. It raised $12 million in a private placement, but after paying off debts and funding its current drill program, it is down to "about" $1 million in the bank.

If I owned the company, I'd be doing a 5-for-1 rollback followed by a private placement. But that's me.

Management says they're open to all sorts of possibilities -- selling the project, developing it, and so on. I think the obvious goal for them would be to drill and drill until they build up that resource AND show blue-sky potential, then sell it to one of the majors.

But will the majors be in a buying mood? I've stood on perfectly good projects right next door to major miners, while the guy running it dropped elephant-sized hints that he was in talks with "interested parties."  You know what those elephant-sized hints are worth in the real world? A bunch of bull-elephant-sized fertilizer.

That's not to say that Windfall Lake doesn't have potential. Of course it does. And the management is not dropping any hints, or doing anything that would make me roll my eyes.  They seem to be seizing on an opportunity, now let's see if they can make something of it.

Eagle Hill is going on my watch list. But that's as far as it goes now. 

Eagle Hill will be presenting at the Mineral Exploration Roundup in Vancouver in January of next year.  We'll see if that helps the stock.

What do you think?