Junior secures major funding for 2012
Skillful execution of project generator model allows Millrock to mount C$12M exploration program in disturbing financial markets
Last updated 6/24/2012 at Noon
While most juniors are cinching their belts and scaling back programs, Millrock Resources Inc. has C$7.5 million of exploration slated for its array of gold and copper-gold properties in Alaska in 2012, not to mention a healthy C$4.5 million budget for its copper-gold prospects in Arizona.
Millrock President and CEO Greg Beischer said the scarcity of venture capital available to the junior exploration sector was palpable at the Cambridge House World Resource Investment Conference held in Vancouver, B.C., on June 3-4.
"Things are dire," he told Mining News during a June 13 interview. "I think that companies that have money are conserving it, because there is no telling when they will be able to raise money again - those that don't have money are in big trouble."
The grim scene at the investment conference reaffirmed Beischer's resolve to embrace the project generator model.
"Even though it was disturbing to see what is going on in the financial markets, it was gratifying for us, because we, now more than ever, believe in our business model," Beischer said. "This is going to be one of the biggest years of exploration that we have ever done, because of the model that we have chosen."
Approximately 93 percent of the some C$12 million of exploration spending on Millrock properties this year will come from global miners Teck Resources Ltd., Kinross Gold Corp., Vale S.A. and Inmet Mining Corp. - leaving only about C$1 million to be shouldered by the project generator.
The project generator model is allowing Millrock to capitalize on its exploration expertise and first-hand geological knowledge of Alaska and southeastern Arizona. With this vantage the company seeks out grassroots gold and copper projects, completes early prospecting and mapping, and then vends the promising targets out to third party candidates that can afford to spend the millions of dollars needed to advance them from grassroots to economically viable mineral deposits.
One of the primary downsides to this model is that if the project generation successfully discovers a world-class deposit, the explorer must share its rewards with its deep-pocketed partner. The advantage, though, is that by allowing a third party to do the heavy lifting the project generator needs to spend very little of its own funds - reducing exploration risk, limiting dilution from the constant need to raise money and exposing its shareholders to a large amount of exploration spending for their investment.
Millrock's skillful execution of the project generator model allows it cover the larger portion of its overhead through the collection of fees from its partners.
"We have income from 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," 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.
"Even though we don't completely cover our overhead with our management fees and annual payments, we have a very strong shareholder base that we can go to and who we have created extreme value for," explained Millrock COO Sarah Whicker.
"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 C$1.65 million financing in June and a C$1 million financing in August - yet the project generator's properties were subjected to C$16 million of exploration spending in 2011 and are expected to receive C$12 million this year. Yet, Millrock still has about C$3 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. "We are hoping the markets improve or we make a big discovery before then."
Another key advantage of Millrock's execution of the project generator model is that the company employs its full staff year-round.
"We are just trying to take some of the peaks and valleys out of the picture, both risk-wise and people-wise," the Millrock CEO explained.
In October of last year Millrock further mitigated its risk by entering into a strategic alliance with Vale in which the global mining giant agreed to front an initial US$1 million for the project generator to seek out a world-class porphyry deposit in Alaska.
The deal with Vale 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 the geological knowledge of Alaska and track record to do 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 Resources Inc.
Under St. George's leadership, Millrock's geological team has generated one designated project that caught the interest of Vale.
In early June Millrock announced that it had 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 world-class 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 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.
A ZTEM geophysical survey was flown over Audn earlier this year and Millrock feels that with the work completed this year the porphyry copper-gold prospect will be ready for drilling in 2013.
The company also plans to generate several other designated projects for Vale to look at.
"We will be proposing more designated projects over the six to eight months," said Beischer.
Return to Oxide Ridge
Estelle, an expansive gold project situated about 160 kilometers (100 miles) northwest of Anchorage, tested Millrock's resolve to fully embrace the project generator model.
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.
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 the promising gold prospect or fully embracing the project generator model on which the company is built. After some deliberation, the Vancouver, B.C.-based junior chose to partner with the diversified miner.
A four-hole, 1,500-meter drill program carried out last year 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 Oxide Ridge.
"Oxide Ridge caught our interest early on," explained the Millrock CEO. "It is a brand-new showing that we spotted from the air and we sampled along the base and there was gold in the talus fines."
The average grade of 24 talus fines samples collected here in 2008 is 2.32 g/t gold.
Testing this talus - the broken rocks collected at the base of steep slopes characteristic of this region of the Alaska Range - led Millrock geologists to find gold in bedrock.
Further soil sampling outlined a broad arsenic- and gold-in-soil anomaly in the valley adjacent to the Oxide Ridge outcrop. Taking into consideration that the gold could have eroded from the gold-bearing areas already identified by Millrock geologists, the company couldn't be sure that the geochemical anomaly represented gold lurking below. But a coincident geophysical (induced polarization) anomaly gave Teck and Millrock a target to test.
SE11-01 cut 450.7 meters of variably altered intrusive rock with quartz veins and stockworks 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," St. George said upon receiving the results in November.
An eight-hole drill program designed to find the high-grade heart of Oxide Ridge is slated to start on July 1.
"We are quite excited about it," said the Millrock CEO. "Our partner Teck has been great - they really like this prospect."
Mutually beneficial partnership
Kinross is another major that has faith in Millrock's ability to discover world-class gold deposits in Alaska. While the Toronto-based gold miner partners with many junior companies around the globe, Millrock tops a short list of "mutually beneficial partnerships" featured on Kinross' website.
In 2012 Kinross has budgeted about 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 remarkably 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.
Humble Oil Co. originally investigated this property for its iron potential, due to its extremely strong magnetic signature.
Core from this late 1950s drilling - stored in a facility in Southcentral Alaska - has provided Millrock geologists with a peek at what lies below the surface at Humble.
"What we know of the geology, it is really reminiscent of the Pebble deposit. We have got a strong geochemical anomaly. We have got ZTEM geophysical anomalies that are coincident with the geochem, and we know by the little bit of drilling that was done by the Humble Oil Co. back in the 1950s that the right kind of rocks are down there," Beischer told Mining News in 2011.
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 that targeted conductive zones with coincident multi-element soil geochemical anomalies indicative of a buried porphyry deposit.
"We have seen the rocks and we are encouraged. We are hoping to go back and drill more later this year," Beischer said.
In the meantime, Kinross and Millrock are gearing up to drill Council, a 900-square-mile land package that blankets a region that has produced some 500,000 ounces of placer gold.
The drilling, scheduled to start in mid-July, will target what appears from the surface to be a high angle, northwest trending fault at the Elkhorn Creek zone.
"We are going to drill six short holes to test a super geochemical anomaly and very interesting looking structure," said the Millrock CEO.
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
Millrock isn't completely immune to the tough financial markets. Though the project generator has been able to secure exploration funds from global firms, partnerships with junior explorers are virtually nonexistent this year.
"We have been marketing our un-partnered properties and we haven't really seen a lot of bites. It seems that some of the bigger players are waiting to see what happens," said Whicker.
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.
"Bluff, Zackly, Cristo, Distin and Fortymile are ready to drill. We have done all the work and they have great drill targets," said Beischer.
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 carried out 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 Sumitomo Metal Mining Co. Ltd.'s recently discovered Naosi zone at that company's Stone Boy project located approximately 2,000 meters to the southeast.
All four holes drilled at Wolf cut gold mineralization. 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.
Drilling by Sumitomo at Naosi has returned intercepts up to 7.92 meters averaging 7.8 g/t gold and 19.7 g/t silver.
Despite the encouraging results, Crescent isn't able to raise the funds to mount a follow-up program in 2012.
"They are in a tough spot because they would have difficulty raising money. So, they are just waiting it out," Beischer told Mining News.
Despite the lack of activity this year, the Millrock CEO said Crescent plans to exercise its option at Uncle Sam and he would like to see the junior pick up some other projects Millrock has generated in the Pogo Mine area.
"I honestly believe that there will be other ore bodies found in that area and it is very underexplored so far," he said. "There is going to be more mines there and I would hope they would focus on that area."
Bluff is another promising gold project in Millrock's portfolio that is suffering from the lack of venture capital.
Bluff - located about 22 miles (35 miles) southwest of Council - was optioned to Valdez Gold Corp. in 2010. But, when that junior merged with Ryan Gold Inc. last year to form Ryan Gold Corp. - a Yukon-focused explorer under the leadership of renowned prospector Shawn Ryan - the option on Bluff was dropped.
Drilling conducted by BHP Billiton plc in the 1980s cut several significant intersections in the three zones at Bluff - Daniels Creek, Saddle and Koyana Creek - including 5.48 g/t gold over 10.9 meters, 4.19 g/t gold over 4.5 meters, and 1.93 g/t gold over 16.3 meters.
Based on the work completed by BHP, Daniels Creek is estimated to contain 3 million metric tons averaging 3.43 g/t gold for 300,000 ounces; Saddle is estimated to contain 1.5 million metric tons averaging 3.77 t/t gold for 165,000 ounces and Koyana Creek is estimated to contain 2 million metric tons averaging 0.69 g/t gold for 40,000 ounces.
Despite having a high-grade historical resource of more than 500,000 ounces, Millrock has not been able to secure a partner.
"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 an expand it - but no one has the money."
In the meantime, the project generator model is allowing Millrock to thrive in tough markets, which should put the explorer in a good position when investor confidence once again returns.
"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.