In these difficult financing days the phrase "Go big or go home" has been turned on its head for juniors. There is heightened fear among investors that juniors in general cannot pull off or sell big, complex mining projects. Soto assuage those fears, many precious metals juniors are downsizing project scope and flocking to higher grades to ensure less daunting capital cost estimates or sexier cash flow scenarios. Grade has always been King. It just happens that as financing options go famine, King Grade turns out to be a tyrant.
There are different shades of the race to make mining projects more palatable. For Extorre Gold Mines (TSX: XG) even a modest-sized high-grade project looks to be worth making yet more modest in scale and even higher in grade. Extorre already has top notch grades at its Cerro Moro project in Argentina, with 1.35 million ounces gold equivalent @ 7.4 g/t gold and 498 g/t silver in indicated resources. Not so long ago Extorre figured Cerro Moro would make a fine project at 1,300 tonnes per day with capital costs around $207 million.
But this week Extorre made it known that it was looking at a smaller, higher grade option for Cerro Moro that would cost around $100 million less to build, initially, and operate at 600 tonnes per day. Ramp up to higher production rates would then follow. To scale back capital costs, Extorre CEO Trevor Mulroney reasoned, "is an important consideration given the state of current capital markets."
And where a junior has both high and low grade projects, the former often wins out. Late last year Sabina Gold & Silver (TSX: SBB) offloaded its Hackett River zinc-silver project, selling it to Xstrata for C$50 million (while retaining sizeable production royalties), to focus on its more manageable Back River gold project, both of which are in the Canadian Arctic. Back River is no fruitfly—Sabina sees it as a 300,000 ounce per year gold mine—but in comparison, Hackett River is a giant, with estimated capital costs in the billion dollar range.
In a similar vein, Pretium Resources (TSX: PVG) has put its stock in the Brucejack gold project. Brucejack is a stone's throw from Pretium's Snowfield project, which resource wise is an over-heavy-weight comprising 26 million ounces gold in resources. Yet Snowfield bows to Brucejack as far as grade goes—5 million ounces indicated at 17.3 g/t gold and 10 million ounces inferred @ 25.5 g/t Au. Pretium has, for the time being, placed its bets there.
Even those whose chief projects are to remain bulky, high grade factors moreso than ever in exploration. Next door to Pretium, for instance, Seabridge Gold (TSX: SEA) operates the KSM gold project, which is contiguous and even bigger than Pretium's Snowfield. KSM holds 38 million ounces gold @ 0.55 g/t and 10 billion pounds copper @ 0.21 percent in resources. Though KSM as a whole is without a doubt Seabridge's chief focus, it also recently said it would start to explore for a high grade core, the type which has been found at other similar mega deposits such as Bingham Canyon and Grasberg. To test the high-grade theory Seabridge is drilling 11 deep holes at KSM.
Or there is Lumina Copper (TSX: LCC) and its billion-tonne Taca Taca copper-gold porphyry in Chile where it has started to emphasize a near surface high grade zone. This might, Lumina reasons, make a fair starter pit, which could then, presumably, accelerate cash flow and pay back on capital costs were the project to be built. Similarly Exeter Resource (TSX and Amex: XRA) is also looking at initially mining a gold ‘rich' oxide cap at relatively low capital cost at its massive Caspiche gold/copper porphyry project in Chile's Maricunga region.
In going after grade the hope for juniors, in some of these cases, is that banks and markets will be more liable to bite on a smaller—if potentially tastier—morsel. As well, in a junior gold market where a million or two ounces gold in resources seems increasingly common, grade looks to be an important way to differentiate oneself from the competition. One risk in sacrificing size for grade, however, is that a junior may diminish its chances for takeover by making a project seem less sensible for intermediates or majors. Big producers may be hungry for growth, but they are also picky eaters. It has proven a difficult palate for juniors to please.