Eric Lemieux, metals and mining analyst with Laurentian Bank Securities, focuses on the emerging mineral wealth of the James Bay area of Quebec and discusses his favorite explorers in this exclusive interview with The Gold Report. Despite producers being more in favor, he believes the James Bay area with its exploration plays and favorable geological, geographic, and social fundamentals retains its advantages.
The Gold Report: Eric, when we last spoke (October 2008), you were focusing on mining companies in the James Bay area. You liked the area because it provided good infrastructure, a skilled workforce and promising geography. Do these advantages hold true today?
Eric Lemieux: Many things have happened since last fall that have made long-term focus and exploration plays much less attractive. Cash (the U.S. dollar) is said to be king and with gold's rebound in December 2008, quality gold producers have been more in favor as opposed to speculative plays. However, despite producers being more in favor, I believe the James Bay with its exploration plays retains its advantages. When people wonder what's next in the pipeline of the producers, exploration plays will garner favor and interest. Plays with great geographics may attract attention anew.
TGR: In October, you thought there were prospects for another discovery the size of the Éléonore deposit. What progress/drill results have been released that make you continue to feel a substantial discovery is possible?
EL: Activities in the James Bay have considerably subsided with Goldcorp’s (TSX:G) (NYSE:GG) decision in January 2009 to defer development costs on the Éléonore project and preserve its cash position (which is probably sound judgment in these turbulent times). This has had some impact upon the perception of the James Bay play. However, I do believe this is a short-term step back for a larger step forward as geological, geographical, and social fundamentals remain robust and tantalizing.
Infrastructure continues to improve in James Bay with Hydro-Quebec beginning the Rupert Diversion, the Quebec Government commitment to completing the Route 167 Extension from Temagamie (north of Chibougamau) to the Renard diamond project of Stornaway, etc. The essential fact that the area is an emerging mining camp has not changed. It's important to note that Goldcorp's total resources for Éléonore as of December 31, 2008 are 5.3 million oz. with substantial grade increase.
The Eastmain Resources Inc. (TSX:ER) results on Eau Claire continue to suggest an expanding gold resource as well, Virginia Mines Inc. (TSX:VGQ) remains very active and is generating new targets and projects, and finally Midland Exploration Inc. (TSX.V:MD) has partnered with Agnico-Eagle Mines (TSX:AEM) to explore the eastern James Bay. All this confirms that the pack leaders are advancing.
TGR: You are following just a few of the companies that have properties in this area. You told us previously that the reason for this is twofold—you are looking for quality management teams and companies utilizing a partnership approach. Are there more companies that qualify under those criteria now than last October? Can you tell us about them?
EL: Unfortunately, with the difficult times hitting the exploration industry, many players have left or are in the process of leaving the James Bay. I take comfort that the companies I follow continue in the area, even expanding their land positions.
I highlight works by Azimut Exploration Inc. (TSX.V:AZM), Quest Uranium Corporation (TSX.V:QUC), Abitex Resources Inc. (TSX.V:ABE), Golden Tag Resources Ltd. (TSX.V:GOG), Strateco Resources Inc. (TSX.V:RSC) and others that continue to show the polymetallic endowment of the area.
TGR: You were following four companies operating in that area, Midland Exploration, Virginia Mines, Eastmain Resources and Sirios Resources Inc. (TSX.V:SOI) (NYSE:SOI). The stock performance of these companies has been relatively flat over the last six months, while other junior miners have experienced significant gains. Can you address why you think the stock price of these companies continues to be flat? Do you feel there is still substantial upside for any of these companies?
EL: Though some exploration companies have had significant gains in the last six months, these have been an exception as most have languished in new lows. The adversity to risk has affected many and I believe it is just a question of time before the fundamental values of strong management, good projects and strong financial position will appear on radar screens, and quality explorers will appreciate.
Virginia Mines has started to receive the US$ 100,000 per month royalty payment on Éléonore and has enthusiastically initiated its important summer exploration program after a winter of extensive compilation works. I believe they have generated interesting new gold targets. They certainly are an experienced and focused team and I believe they are very well exposed for more discoveries.
Midland Exploration retains its partnership model and is assembling an important land package in James Bay, among other areas. Their ability to attract a major such as Agnico-Eagle suggests a good working relationship.
Eastmain Resources is very active on the Eau Claire gold deposit and in-fill drilling continues to show high-grade gold intercepts. The Eastmain mine project will gain enormously for logistics when the Route 167 Extension will be completed. A paved road to a site does give value and I believe this project will attract attention.
Sirios remains focused on the James Bay; however, current market conditions have considerably affected its ability to be very active.
TGR: Where do you think the price of gold will go in the near term, and what do you see as its effect on the miners?
EL: I believe the present price range is very good for all serious industry players. I expect a price range between US$775/oz. to $975/oz in the short term. In essence, I think gold has attained a new solid plateau at $800/oz. and spikes above $1000/oz. will be more frequent in late 2009 to 2010. This type of scenario does not create micro-inflation in the mining industry (which gold above $2,000/oz could foster) and provides nevertheless a robust environment. It's important to note that the USA remains the biggest holder of gold with China fast approaching.
Éric Lemieux, MSc, P. Geo., is a Mining Analyst who joined Laurentian Bank Securities (“LBS”) in January 2008. Prior to joining LBS, Eric worked for nine years as a consultant responsible for applying Regulation NI 43-101- for the Autorité des marches financiers (“AMF”) as well for the New Brunswick Securities Commission. Eric had previously worked at the Montreal Exchange and prior to that had managed exploration projects for Cambior, Noranda and Soquem. Eric holds two master’s degrees, one in Mineral Economics from the Colorado School of Mines (1997) and in another in Metamorphic-Structural Geology from Laval University in Quebec City (1992). Eric hold a B. Sc. in Geology from Laval University (1989).
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