Tyhee hopes for a gold Discovery
2006-01-13 15:02 ET by Will Purcell
Remember the debacle called GMD Resource Corp.? There is nothing like a good gold market to revive the unhappiest of projects. The Discovery gold property north of Yellowknife was a driving force that took GMD's shares from pennies to a crest of $7.50 in the mid-1990s. When the gold market collapsed in 1997, the Discovery promotion, GMD and its promoter, Don Farrell, went for a nasty ride.
Early in 1998, the Vancouver Stock Exchange temporarily halted trading in shares of GMD and its sister company, LMX Resources Ltd. The move followed revelations that Mr. Farrell funneled $3-million in unsecured loans from GMD to two other companies. GMD apparently lent Mr. Farrell's private holding company $1-million and sent $2-million to LMX.
Mr. Farrell resigned as president and three other directors quit, leaving Dr. David Webb, who joined GMD's board in 1995, to take over for several months. Discovery seemed dead when Dr. Webb quit GMD's board in 2000, but he remained one of the few believers. His Tyhee Development Corp. now is busy trying to turn the old play into a mine.
The property contains an intriguing resource, but Tyhee's shares remain in a long snooze typical of the sort induced by historical nightmare. Tyhee picked up the project five years ago when gold was scraping along at $260 (U.S.) per ounce and its shares were bumbling along at about 40 cents. Dr. Webb described the acquisition as a contrarian move. "We were told we were absolute idiots to buy gold."
The price of gold is now double and Dr. Webb evidently feels quite clever, but Tyhee's shareholders have yet to see the light. The promotion started well and the stock traded as high as $1 in 2002. It still topped 75 cents early in 2004, but a steady slide pushed it close to a dime late last year. Dr. Webb and Tyhee may soon get to work on investors, rounding up promotable news.
The Discovery play
Tyhee picked up part of its gold project early in 2001, when it bought the main Discovery property from GMD for $265,000 in cash. Days later, Tyhee added the nearby Nicholas Lake play, for $225,000. The two properties cost nearly $500,000 and Tyhee had barely $100,000 in the bank at the time.
Dr. Webb liked Discovery when he was with GMD, and he staked the Nicholas Lake part of the project in the mid-1980s on his own. He optioned the property to a few explorers over the next 15 years. The last was Royal Oak Mines Ltd. When it went bankrupt in 1999, Dr. Webb got the play back.
The project had a defined resource when Tyhee picked it up. The Ormsby zone on Discovery contained about 800,000 tonnes of rock, with an estimated grade of 20 grams of gold per tonne. That pointed to a potential 510,000 ounces. The company also had about 450,000 tonnes of rock in the Main zone at Nicholas Lake. With an average grade of about 11 grams per tonne, that pointed to another 160,000 ounces.
Tyhee expanded its resource over the past few years. The company has a measured and indicated resource of 1.05 million ounces, based on an average grade of 9 grams per tonne. The company also has 425,000 ounces listed as an inferred resource, based on an average grade of 8 grams per tonne. Tyhee used a minimum cut-off of 3.5 grams per tonne for its calculations.
The company is completing a new resource statement. Results are due shortly, but Dr. Webb said there would be little further expansion to the ounce count. That may limit the promotability, although there will be increased confidence, as the company tightened its drilling within the deposit.
Dr. Webb said the plan was to build the play to a level that would catch the market's eye. For Tyhee, that meant producing at least 100,000 ounces of gold per year. Based on a typical life of 10 years, a deposit would need a million ounces to produce at that rate.
The plan
Tyhee quietly drilled up proof it has those ounces and it is now shifting its effort to getting a mine running. The company would still like to keep a drill turning through the year, if it can spare the cash. More assays from the play could attract some interest to Dr. Webb's slumbering puppy and help investors forget the GMD experience.
The real news will be on the engineering side, rarely a market pleaser. The new resource statement could come within days and that information will form the basis of a prefeasibility study. Much of the background data are complete, so the study could be ready in just a few more weeks.
Meanwhile, Tyhee is working on the permitting side of the process. Dr. Webb said they were a little bit weird, as the company went to work on getting permits before it had a deposit. "That is because we were certain we had a deposit." Of course, GMD's shareholders heard that one too.
Getting permits and environmental approvals can be lengthy and costly processes in the Northwest Territories, but Tyhee has a good jump. "We know what our bug and bunny counts are, our fish and water flows." The company also knows some encouraging things about its rock.
The company achieved a gold recovery of over 97 per cent using a bulk cyanide process. Tyhee plans to use gravity flotation and cut back its cyanide use by a factor of 10. That will cost about 2 per cent on the recovery side, which translates to about 20,000 ounces of gold. The loss seems worthwhile, as the plan works better environmentally and should be cheaper.
The company is making its final submissions for permitting, having completed the preliminary reports, scoping sessions and community consultations. This last round provides answers to the questions that came up in the earlier submissions. Tyhee hopes the process will take another six months and lead to government approval.
Dr. Webb thinks his company could have all its permits and a final feasibility study before the end of the year. That would leave it to come up with several million dollars late this year. If events unfold along the company's perhaps rosy timetable, Tyhee would spend 2007 building and ramping up its mine, leading to commercial production in 2008.
A feasibility peek
Tyhee completed a scoping study on the project a few years ago. It had just half the resource that it currently touts, so the numbers need adjustment. Still, the earlier effort offers some valuable clues. The original study estimated operating costs at about $206 (U.S.) per ounce. With gold still under $300 (U.S.) per ounce, the market adopted a who-cares attitude.
Investors remain unimpressed with Tyhee's story, but that could change with the new study and gold running well above $500 (U.S.) an ounce. The company added some lower-grade rock into the mix, boosting its ounce count and adding to its potential costs. Still, the move could pay off, as a larger mine would have inherently lower operating costs. The original plan called for a 500-tonne-per-day mine, but Tyhee is now assuming its mine will run at 1,500 tonnes per day.
The company thinks it can mine Discovery for well below $300 (U.S.) per ounce. Tyhee will likely use a more conservative gold price of $425 (U.S.) an ounce in its economic evaluation. That will detract from the bottom line, but speculators would undoubtedly evaluate the play using the prevailing price, which would offer much more glitter.
Tyhee expects its mine will cost about $75-million. That is a challenge for a company with a 15-cent stock, but Dr. Webb thinks he can borrow most of the money. Tyhee needs about $15-million in underground development before it heads to the bank, but half the work is complete.
Tyhee needs a minimum of $5-million to complete feasibility and go shopping for a loan, but its directors are working with a more practical $8-million figure. At the end of August, Tyhee had a working capital deficiency of just over $1-million, so getting there will be a challenge, unless Dr. Webb can prod his market dog awake.
Early last fall, the company decided to issue 40 million units, priced at 20 cents each. The sale would have added $8-million to Tyhee's treasury and the attached warrants offered a shot at $16-million more. Investors remained unenthused, and the company recently closed the sale of just 14.3 million units, priced at a dozen pennies.
The sale brought in $1.7-million, and the 15-cent warrants could add another $2.1 million. That will leave Tyhee short of its cash needs over the next year. "We are still going balls to the wall, despite the fact our treasury is getting a little thin," said Dr. Webb.
Tyhee added a penny on Thursday, closing at 17 cents on 1.9 million shares.
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