Agnico-Eagle poised to triple production

Agnico-Eagle Mines (AGE-T) is proceeding with plans to boost daily production at its Laronde gold mine in Quebec to 5,000 tons.

In the mid-1990s, the company discovered extensive gold-silver-copper-zinc mineralization at depth, following which it began sinking shaft 3 and devised plans to expand daily capacity to 3,600 tons from the original 2,000. However, higher-than-expected ore thicknesses encountered in zones accessible from shaft 3 forced the company to rethink the expansion, and last year the surface plant was redesigned to accommodate 5,000 tons.

At this rate, Laronde’s annual gold production is expected almost to triple, to 337,000 oz. in 2004 at a cash operating cost of US$104 per oz., making the mine one of the least costly in the world.

The revised expansion plan will require an extra US$34-million capital investment spread over the next 3.5 years. The investment will provide for delayed underground development at depth due to the availability of high-grade, easily accessible ore from the adjoining El Coco property, newly acquired from Barrick Gold (ABX-T).

Compared with earlier plans, the 5,000-ton expansion is expected to result in a greater rate of return and a shorter payback period, owing to a reduction in the amount of capital required upfront and increased production in the first few years.

Using a long-term gold price of US$300 per oz., Agnico-Eagle calculates that the rate of return on the US$34-million investment is 36% with a payback period of just over two years. The overall rate of return on the entire US$218-million expansion project is 16% with a payback period of less than five years. About US$120 million of the US$218 million remains to be spent over the next 3.5 years.

Agnico-Eagle says that with US$82 million in cash and bullion, plus the projected cash flow from operations in 2000-2002, it will have sufficient funds to complete the expansion. However, to augment working capital, a long-term bank facility is being negotiated.

Under the terms of the El Coco acquisition, Agnico-Eagle will pay Barrick a 50% net profits royalty on production from within an area that extends 500 metres from the property boundary with Laronde. For the remaining two-thirds of the property not subject to this royalty, Barrick will receive a 4% net smelter return. The agreement calls for Agnico to pay US$4 million in advance.

Resources at El Coco are pegged at 2.4 million tons grading 0.23 oz. gold per ton, of which 869,000 tons grading 0.37 oz. gold (or 322,000 contained ounces) are in the possible category.

Underground drilling at El Coco will begin immediately, with one drill stationed on Laronde’s 20th-level exploration drift (2,800 ft. below surface) and a second on Level 7 of shaft 3 (3,600 ft. below surface). The program is designed to upgrade El Coco’s 322,000-oz. gold resource into the probable reserve category.

Production from El Coco is expected to begin as early as the first quarter of 2000.

In the longer term, Agnico-Eagle plans to extend the 20th level drift to the east, first across El Coco and then across the company’s Sphinx property, immediately to the east. Together, El Coco and Sphinx cover a 2.2-mile extension of the geological structures present at Laronde.