Cartier conserving cash: Chimo transaction coming?

Cloutier believes the company has drilled enough at its Chimo project to show that the former mine has the potential to host resources to interest any potential bidder. Drilling stopped in May to conserve cash in the face of market insouciance at what he believes were good results and even though the gold price has subsequently increased, he is reluctant to restart drilling even though the company has about C$5 million in the bank.Is there a transaction in the wings? O3 Mining, which comprises a spinout of non-core assets from Osisko Mining via a reverse takeover of Chantrell Ventures and a combination with Alexandria Minerals, has acquired all the properties around Chimo while Agnico Eagle, a Cartier shareholder, is the main miner in the district."I hope I am not here at Christmas. Many decisions must be made by November when there are some milestone dates," Cloutier said during a site visit.But prior to any potential transaction Cloutier wants to close what he sees as a valuation gap between Cartier's C$27 million market capitalisation and a back-of-the-envelope $10 per ounce, $100 million potential take-out valuation."We need to reduce the discrepancy between our market capitalisation and the obvious value we have at Chimo as we don't want to leave any value on the table. We are there, it's going to happen, it's going to get messy and it's going to happen fast," he said. A high-grade gold sample from the Chimo mine in Quebec StrategyWhen the gold sector turned downward in 2012, Cloutier set out a strategy to deliver ounces in the ground without prospecting with the drill bit. Together with VP exploration Gaetan Lavalliere, he drew up a list of targets in the well-known gold districts of Quebec and identified financially stressed companies and started acquiring former mines when the company's board of directors expected him to suggest going on care and maintenance. "Instead, we said we should go out shopping. The plan was to spend $10 million and find one million ounces with a discovery cost of $10/oz," he said.Cartier picked up Wilson for $42,000 (it had about 42,000 ounces) and bought Chimo for $261,000. Chimo was found in 1942 and has been mined in three separate periods, most recently by Cambior and quickly Cartier found it had left 300,000oz in the mine."We are one of a group of juniors that started where there is unfinished business on mines that went out of business in previous down cycles in northern Quebec. This brings our industry near-term potential ounces which is what mid-tier and senior producers are looking for at a time when there is a severe lack of ounces and there has been an uptick in the price of gold," Cloutier said.He describes Chimo as sub-shovel ready, having mineralisation similar to what was mined in the past and with similar metallurgy, and a lot of infrastructure. "We are in a mining friendly area which has the benefit of proximity to infrastructure, quality workforce and accepted mining culture and all that accelerates moving into development. They are tipping points and game changers in the economics of a project and Chimo has that," he said.The next task was targeting deep extensions at Chimo and Cartier spent some $4.2 million proving mineralisation extends below the 800m-deep shaft down to 1,600m and where it sees 3-4g/t grade over a 20m width. "We have drilled with a high level of targeting and have had hit after hit after hit. Because we have historical mines, we have the benefit of being able to key our drill results into legacy data, so they are more reliable and robust. We see grade and widths similar to what Cambior was mining at the end and it is notable that 45% of the value Cambior got from the mine was produced in the last year of its nine years of operation," Cloutier said.After 109 holes for 50,000m, he believes the team has shown enough indication of the potential left at Chimo. Deep drilling under the 6N1 zone of the old Chimo mine showed mineralisation continues at depth to 1,200m, which potentially justifies extending the Chimo shaft below its current 1,000m depth."Our objective was to demonstrate that [Chimo] is alive and kicking at depth and laterally rather than complete a 43-101 [mineral resource estimate]. Our drill spacing was made for that and included deep holes with lots of splays. We have on average 75m spacing but the legacy data from the mine can support the geostatistics to calculate a resource, rather than basing a resource on the drilling alone," he said.The gold-bearing zone at Chimo is inside a shear fracture that dips at about 75 degrees. There are three main structural corridors with the richest parts of the deposit where these are crosscut by other structures. Gold is associated with arsenopyrite and quartz veining and is non-refractory. Past operators obtained about 94% recovery with about 25% coming out in a gravity circuit. Gaetan Lavalliere and the old school mine model of Chimo in Quebec Cartier has completed wire frame modelling for an internal mineral resource estimate and possible mine economics, which Cloutier calls "napkin studies". These go beyond the mineral itself to encompass the benefit of the existing infrastructure in the project area, with ballpark figures to build a shaft run around US$50,000 per metre and $5,000/m for a drift."Our challenge is how we convey the value of not having to build a shaft or drifts and knowing the rock mechanics because we have the hard data about this. Spending money doing a NI 43-101 resource estimate would have limited value to the companies which may be thinking of buying us," he said.Future upsideA reluctance to drill is not because the company has exhausted its targets. The suspended Phase III drilling programme aimed to further extend the 6N1 zone to depth as well as deepen the 5N4 zone, a few hundred metres to the east, to a depth of 1,400m."This is the exploration plan, but we are holding out to protect our treasury. We want to keep a $5 million treasury, so we have a stronger bargaining position in any possible deal negotiation. We will have a better position with $5 million in the bank than if we drill now and only have $1 million. We want to be able to stare down the majors. We will renew drilling if we can do a premium flow-through charity financing that gives us a 70-75% premium on the share price. If the market gives us money, we know exactly where to drill next, but it is about weighing the options and managing the risk," he said.If Cartier can attract a buyer for Chimo, Cloutier may look to repeat the process as the company has the Wilson, Benoist and Fenton projects which are also former mines.Shares in Cartier Resources (TSXV:ECR) are trading at C15¢, valuing the company at $27 million.

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