Lake Shore, West Timmins team up to take on historic gold district

27th August 2009 By: Liezel Hill

TORONTO (miningweekly.com) - TSX-listed Lake Shore Gold has agreed to buy exploration junior West Timmins Mining, in a move that the companies hope will create a formidable new player in the century-old gold mining camp of Timmins, in Canada's Ontario province.

Lake Shore currently produces gold from the Timmins mine, which it processes at its Bell Creek mill.

However, the two companies have a joint venture (60% Lake Shore and 40% West Timmins) on the Thunder Creek project, right next door to the Timmins operation, and having both projects under a consolidated ownership ceiling will create significant potential - both in cost savings and opportunities to speed up development, Lake Shore CEO Tony Makuch said on Thursday.

In addition to its 40% interest in Thunder Creek, West Timmins has about 120 km2 of prospective exploration property in close proximity to Thunder Creek.

The plan is to combine the Timmins and Thunder Creek projects into a new 'Timmins West complex', and Lake Shore is already planning to start exploring Thunder Creek "aggressively" from the Timmins ramp and mine shaft as soon as the acquisition closes.

"When you look at these assets, they just naturally fit together, and they are going to be developed the most rapidly and most efficiently by looking at them together," commented West Timmins director Michael Jones.

If all goes to plan, bulk sampling could begin at Thunder Creek, where the companies have intercepted encouragingly high-grade results, by the end of 2010, Makuch told analysts and investors on a conference call.

Overall, by potentially piggybacking on the existing Timmins mine infrastructure, permits, closure plans, management and work force, the development of Thunder Creek could be fast-tracked by as much as three years.

The company currently plans to build up to 500 000 t/m at the Timmins mine, producing between 120 000 to 160 000 oz/y.

"Over at Thunder Creek, we envision that we would probably have the same thing. So, our concept at this point in time is somewhere around a one-million tons a year operation that we can try and build from," Makuch said.

The development of the two projects into a new gold complex will be made easier by the fact that the existing Timmins shaft was purposefully designed for future expansion.

"The Timmins deposits are known to go down below 2 000 m and we have set ourselves up to go down as deep as we need to go," he said.

For now, the company will consider deepening the Timmins mine shaft from 710 m to 1 200 m, and will also decide over the next year whether to double the capacity of its Bell Creek mill, from 1 500 t/d to 3 000 t/d.

The alternative would be to build a new standalone mill west of Timmins to process the Timmins West ore, Makuch said.

When viewed together, the Thunder Creek and Timmins orebodies present many similar geological characteristics to the grand old mines that operated previously in the Timmins camp, Makuch added.

The Timmins district, which West Timmins CEO Darin Wagner describes as "one of the great gold camps in the world", has produced an estimated 70-million ounces over the last 100 years.

C$1-BILLION MARKET CAP

With the acquisition, the companies are aiming to create Canada's "next midtier gold-miner", and expect the enlarged firm will have a market capitalisation of some C$1-billion, Makuch said.

West Timmins investors will receive 0,73 of a Lake Shore Gold share per West Timmins share held, valuing West Timmins at around C$319-million.

After the acquisition closes, current Lake Shore Gold shareholders will own 67% of the enlarged company and West Timmins shareholders will have 33%.

Although the spotlight for now is on Timmins and Thunder Lake, Lake Shore and West Timmins both also bring other assets to the table.

Lake Shore is currently dewatering and rehabilitating the existing shaft and workings at its Bell Creek property and is excited about a new discovery made as a result of an advanced exploration programme that began earlier this year.

The combined company will also have exploration assets in Mexico, Quebec and elsewhere in Ontario.

Lake Shore Gold is 40%-owned by Hochschild Mining, which said separately that it supports the West Timmins transaction.

Shares in Lake Shore slid 1,3% on Thursday, to C$3,08 apiece by 15:49 in Toronto.

West Timmins gained 1,4%, to C$2,23 a share.