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Eastmain Resources updated resource estimate creates buying opportunity?

1.6 million ounces and plenty of potential to expand makes Toronto listed Eastmain Resources (TSE:ER) an compelling proposition at current prices.

Investors perhaps do not fully understand the significance of the Company’s recent press release, which resulted in a market correction  that now values Eastmain well below many of its peers. However as the market becomes more confident in this explorer, located in one of the most mining friendly jurisdictions in the world, the valuation gap should narrow considerably.

Last week Eastmain announced its updated NI 43-101 mineral resource estimate for its Eau Claire Gold Deposit. Fully owned by Eastmain, Eau Claire forms part of its Clearwater Property, which is host to one of three known gold deposits in the James Bay region of Québec.

By all accounts, at 1.6 million (total measured, indicated and inferred) ounces of gold capped to 100 grams per tonne, the updated resource estimate marks an impressive 62% growth in the combined open pit and underground gold resource. The updated resource estimate, which includes a  combined Measured and Indicated Resource of approximately 3.354 million tonnes with an average grade of 5.39 grams per tonne gold (g/t) for 582,000 ounces gold and an Inferred resource of 5.322 million tonnes with an average grade of 5.96 g/t gold, containing 1.02 million ounces,  underpins the value of Eau Claire.

A closer look at the resource estimate further reveal Eau Claire’s true potential.

The 4 g/t cut-off global sensitivity table shows a total of 4.531 million tonnes containing 1.3 million ounces of gold at a grade of 9.17 g/t capped or 1.4 million ounces at gold grades of 9.62 g/t uncapped. This table considers a much denser sample distribution due to closer spaced drilling and larger diameter core. Uncapped grades within this table for Measured, Indicated and Inferred of 12.88 g/t, 7.47 g/t and 20.47 g/t gold respectively are what give Eau Claire’s reported open pit resource such robust grades. 

Where most open pit-grades lie within a range from 0.3 to 2.0 g/t gold, Eau Claire’s total open pit resource contains 4.127 million tonnes at 4.27 g/t gold (4.74 g/t uncapped). This comprises Measured and Indicated Open Pit resources containing 452,000 ounces gold (502,000 ounces gold uncapped), at an average grade of 5.15 grams per tonne gold (5.72 grams per tonne gold uncapped) within the top 200 meters of the deposit. In addition, Eau Claire’s Inferred Open Pit resources amount to 115,000 ounces gold (127,000 ounces gold uncapped) at an average grade of 2.56 grams per tonne gold (2.83 grams per tonne gold uncapped).

Within the Open Pit resource, capped grades at the Measured category of 6.05 g/t are 60% higher than those of the Indicated owing to tighter drill spacing and larger core diameters. In fact near the surface where there has been extensive sampling, there is 150,000 tonnes of rock containing 118,000 ounces of gold at 24.6 g/t within the P to S veins. 

Meanwhile, Eau Claire’s underground resource estimates remain robust with total underground resources including 4.548 million tonnes at 7.08 g/t capped grade containing 1.03 million ounces of gold (1.04 million ounces of gold at 7.11 g/t uncapped).

With a current total global metal resource fast approaching 2 million ounces of gold (0.5 g/t cut-off grade sensitivity) and the ultimate potential now in the 3- to 5-million-ounce range, the updated mineral resource estimate clearly demonstrates Eau Claire’s potential for both open pit and underground mineral resources at significant grade.

According to Eastmain President and CEO, Dr. Donald J. Robinson, detailed delineation drilling and surface sampling has led to an improved understanding of mineralization while establishing that the Eau Claire gold deposit has excellent potential for both open pit and underground mineral resources at significant grade. Eau Claire has potential for adding additional resource ounces in the future, according to Robinson.

Given that the updated resource estimate does not include subset veins lying within the estimated pit area, or substantial infill sampling completed between veins sets or drilling completed in 2010, there is indeed potential to expand both the open pit and underground gold resources at Eau Claire.

The company has launched an aggressive 25,000-metre definition and exploration drill programme, together with continued infill sampling to expand potentially open-pit material between high-grade veins at Eau Claire for 2011. Work will also continue to define resources for important by-product minerals like tellurium, which appears to occur more abundantly than gold at Eau Claire.

A comparison between the new resource estimate and the previous resource estimate in 2005 justifies the optimism in Eastmain. For starters, the new resource estimate is based on an additional 193 holes (42,218m) for a total of 395 drill holes. The new MI&I resource estimate has seen a 27% increase in gold grade and a 47% increase in size (capped). At 11.47g/t gold (4.0 g/t cut-off), capped Measured grade, the most advanced resource category, is 40% higher than the Indicated capped grade of 8.18 g/t gold reported in 2005.

Eau Claire’s grades are healthy. To put matters in perspective, grades of Measured and Indicated resources at the Detour Lake Gold Project for instance are 1.39 g/t and 0.99 g/t (cut-off grade 0.5 g/t) while those of the Rainy River project are 1.21g/t and 1.0 g/t (open pit) respectively. Grades of Measured and Indicated resources of Rainy River for underground are 5.66 g/t and 5.18 g/t respectively.

With confirmed open pit potential, increased Measured and Indicated as well as global resources and more exploration activities in store at Eau Claire, the resource is set to increase. The recent correction meanwhile may well prove to be too good to ignore for investors looking for undervalued gold plays.

Macquarie Equities Research maintained its ‘outperform’ stance and target price of C$2.50, based on a in situ US$100/oz EV valuation for Eastmain’s Eau Claire resources.