Dumagami sheds image as a `marginal’ producer

With the start-up of its spanking new 2,000-ton mill in Quebec’s bustling Bousquet-Cadillac area now scheduled for late May, Dumagami Mines will soon be shedding its long held perception as a marginal deposit to one with major tonnages and rising grades.

Coming in debt free and with $5 million still in the bank, this new gold-copper-silver producer should prove a real money-maker from day one.

Under the wing of Agnico-Eagle Mines, the Dumagami story represents another feather in the hat of Paul Penna, president and chief executive officer of both companies. For under budget and ahead of schedule, his team has established a record that will be difficult to match in these days of soaring costs.

Dumagami’s financing, too, was a neat and clean package — $44.5 million of equity money through Levesque, Beaubien Inc. and Wood Gundy Inc. and $5.8 million of flow-through financing from Agnico itself.

Total cost of the project from the day it was decided to go underground to actual production will be just under $50 million. And for this, Dumagami installed a first class plant, put down a production shaft to a depth of 3,185 ft. and carried out 20,000 ft of drifting, 100,000 of underground diamond drilling and close to 50,000 ft of surface drilling. This has established a 10 year ore supply that is being expanded rapidly and which is showing a marked improvement in grade with depth.

“We do things cheap but not cheaply,” quipped Penna.

Operating costs here should be on the low side, for this Bousquet/ Cadillac gold belt is already recognized as one of the most productive and lowest cost of Quebec’s gold areas which, by 1990, will be turning out some 500,000 oz annually.

In recognition of the contributions made to the Agnico corporate group and to Dumagami in particular by the late Donald LaRonde, P. Eng., this big new enterprise is to be known as the Donald J. LaRonde Mine.

(Mr LaRonde joined the Agnico group in 1973 as manager of its gold mine at Joutel, a post he held until 1979 when he became consulting engineer to the corporate group. He was intimately involved in the Dumagami project until his untimely death in April, 1986.)

Sparking the real turning point in Dumagami’s fortunes was a surface drill hole put down in the first quarter of 1986 near its west boundary with Lac Minerals. No 86-3, it returned 59.0 ft grading 0.23 oz at a vertical depth of 2,650 ft representing an extension of its key west zone. (That hole certainly proved good news for Lac, too.)

Drives are now going out to this west zone on four new levels — 10th, 14th, 20th and 21st. If this work lives up to expectations, it should add about one million tons of new ore over and above currently reported reserves of 5.5 million tons averaging 0.134 oz, mine manager Eberhard Scherkus tells The Northern Miner. And based on drill indications, grade too will likely be up, he says. New parallel zone

Management is getting a little excited about a new parallel zone picked up in exploratory surface drilling. Dubbed the South zone, it is located near the west boundary, just 165 ft south of the main zone. While still relatively small, it is readily accessible and grades well above mine average — 250,000 tons of 0.35 oz. While this is not included in the above ore reserve figures, it will be mined as a sweetener with the initial low grade open pit ore as soon as milling starts.

Finding this new parallel ore opens a whole new ball game explorationwise, says manager Scherkus. In fact there are already indications of more new south ore at depth.

Encouraged by recent drill findings both from surface and underground, a broad re-assessment of the whole structural ore picture is currently under way. And it looks encouraging.

Now that the geologists have a better handle on the nature of the gold deposition, new attention will be directed east of currently known ore zones. Thirty three new claims have recently been acquired extending the already large property to the northeast.

In addition to defined economic reserves, there are very substantial tonnages of sub-marginal grade material that could be economically mined in the event of any significant increase in the price of gold. At the recent annual meeting in Montreal, chief geologist David Rigg told shareholders there is in excess of 26 million tons, working on a grade of 0.072 oz.

As previously reported, targeted rate for the new mill is 1,500 tons of Dumagami ore daily. This is expected to yield 63,300 oz gold, 90,000-100,000 oz silver and 1,875,000 lb of copper annually. The remaining 500-ton capacity will be reserved for Goldex Mines, another Agnico affiliate.

At current metal prices such an output would yield gross revenues of approximately $37,100,000 annually or a cash operating profit of over $15 million based on estimated operating costs of $41 per ton. It is expected the work force will total 185 when commercial operations commence.

An agreement has already been made with Noranda for the treatment of the company’s copper concentrate. Too, an agreement has been reached with Lac Minerals that will permit mining right up to the west boundary. Lac will likewise mine its new Bousquet 2 mine to the common boundary. In other words, no ore pillar is to be left between these two big new mines.

Of the 9,170,342 shares of Dumagami currently outstanding, 2,084,064 shares (22.7%) are held directly by Agnico-Eagle, while an additional 1,206,200 shares (13.2%) are held by Mentor Exploration and Development in which Agnico holds 1,629,134 shares or 47.1%.