Hungry to expand beyond its single LaRonde gold mine in northwestern Quebec,
Under a previous deal, Agnico had been earning a 60% stake in Lapa by spending $3.5 million on exploration and paying Breakwater $200,000 in cash over five years. Had that earn-in been achieved, Agnico could have further boosted its stake to 80% by paying another $1 million and completing an independent feasibility study.
Under the new deal, Agnico is increasing its ownership to 100% by paying Breakwater US$7.93 million plus two net smelter return royalties: a 1% royalty on gold production from the Tonawanda portion of Lapa, and a 0.5% royalty on gold production from the Zulapa portion.
Upon closing, Agnico will shell out an additional US$1 million to Breakwater as an advance on future royalties, and then pay another US$1 million should Lapa’s inferred resource reach 2 million oz. gold.
Based on additional drilling carried out by Agnico last year, the inferred resource at Lapa stands at 3.3 million tons grading 0.25 oz. per ton (3 million tonnes at 8.5 grams gold per tonne), or 816,000 contained ounces gold, based on an upper cutoff of 1.5 oz. per ton and a gold price of US$300 per oz.
(Prior to Agnico’s involvement, Breakwater had delineated a resource at Lapa of 1.9 million tons grading 0.19 oz. gold.)
Agnico’s discovery cost at Lapa, including both acquisition and exploration, is about US$11 per oz. gold.
For its part, Breakwater, a junior zinc producer, plans to use most of the proceeds to reduce debt, with the balance retained as working capital. (While Breakwater has not yet released its first-quarter results, the company’s current liabilities and long-term debt at the end of 2002 totalled $113 million.)
Agnico is spending US$2.5 million exploring Lapa this year, with five drills in operation: two drills are probing the eastern limit, as well as at depth; a third is carrying out infill drilling; a fourth is obtaining samples for metallurgical testing; and a fifth is focused on exploration at depth.
The company has released results from two more holes: no. 16 intersected 12.1 ft. (from a down-hole depth of 4,186 ft.) grading an uncut 0.52 oz. gold per ton; and no. 18B cut 9.2 ft. (from 2,047 ft.) of 0.2 oz. per gold. So far, Agnico’s geologists have traced Lapa’s key contact zone over a vertical distance of 2,800 ft. and a horizontal distance of 1,600 ft.
Initial metallurgical tests on core samples have yielded favourable results, and tests on larger samples should be completed by the end of the third quarter.
In the past few months, Agnico also acquired the nearby Normand Lake and Chibex North properties, on the same geological trend as Lapa, and bought out Breakwater’s 66.7% interest in the Chibex South property for $75,000 and a 0.66% NSR.
As a result, Agnico-Eagle now controls properties covering 12 miles on the geological structure that hosts Lapa’s Contact zone.
Agnico has reported a first-quarter net loss of US$6.2 million (US7 per share) on mining revenue of US$30.1 million, compared with a net profit of US$500,000 (US1) on revenue of US$25.5 million a year earlier. Earnings were affected by a non-cash charge of US$1.7 million, net of tax, representing the cumulative effect of adopting Financial Accounting Standards Board Statement no. 143.
Owing to a 30,000-ton rock fall in two production stopes at LaRonde, first-quarter gold production was below expectations at 55,005 oz., compared with the 60,259 oz. gold produced in the first quarter of 2002. Production was sold at US$350 per oz., up from US$300 per oz. a year earlier.
Cash operating costs soared to US$169 per oz. from US$129 per oz. as a result of lower gold and byproduct zinc production and a stronger Canadian dollar, which were only partly offset by higher silver and copper output.
Total cash operating costs at LaRonde, including the El Coco royalty paid to Barrick Gold, rose to US$243 per oz. from US$161 per oz.
As a result of the rockfall, Agnico expects its 2003 gold production to be about 300,000 oz., or 20% lower than the previous target of 375,000 oz., plus 4 million oz. silver, 42,676 tonnes zinc and 11,804 tonnes copper.
Cash costs are expected to be US$180 per oz., or US$55 per oz. higher than first anticipated.
The company stresses that the rockfall is a “timing issue, as a opposed to a loss of gold production,” since the mining of 10 gold-rich mining blocks at depth, originally scheduled for this year, is being pushed back to 2004 and replaced with already-developed zinc-silver blocks in the upper part of the mine.
Even with the rockfall, some 42% of LaRonde’s mill feed in the first quarter was sourced from ther gold-rich lower levels of the mine. Agnico ended the period with US$141 million in cash and equivalents and US$144 million in long-term debt.
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