Agnico-Eagle’s costs rise as output falls (January 26, 2004)

Higher byproduct credits for copper, zinc and silver resulted in lower-than-expected costs in the fourth quarter at the LaRonde gold mine in northwestern Quebec.

The news comes as owner Agnico-Eagle Mines (AGE-T) struggles to ramp up LaRonde to full capacity, having suffered first a major underground rockfall in March 2003 and then a host of problems ranging from too much downtime at the mill to delays in mining higher-grade ore blocks.

The company responded to those problems by slashing its production-rate target to below 300,000 oz. gold per year from 375,000 oz.

In the fourth quarter, Agnico produced 70,299 oz. gold, down from 75,235 oz. a year earlier. Byproduct credits consisted of: 1.2 million oz. silver (compared with 1.1 million oz. in the final three months of 2002); 24.7 million lbs. zinc (26.6 million lbs.); and 5.7 million lbs. copper (4 million lbs.).

Fourth-quarter cash costs amounted to US$210-220 per oz., up from US$198 per oz. in the year-earlier period but better than the US$250 anticipated. Total cash costs included the US$40-per-oz. El Coco royalty payable to Barrick Gold (ABX-T), though this had declined from a year earlier, when it was US$70 per oz.

On the plus side, Agnico-Eagle’s realized prices in the fourth quarter were higher across the board: US$395 per oz. for gold, compared with US$318 per oz. a year ago; US$5.27 per oz. silver, compared with US$4.51 in the fourth quarter of 2002; US43 per lb. zinc, compared with US34 per lb.; and US94 per lb. copper, compared with US71 per lb.

The recent quarter also saw improved recoveries for silver, zinc and copper.

Meanwhile, Agnico hoisted more than 635,000 tons from underground in the fourth quarter, up 13% from the third quarter. At surface, 627,000 tons of ore were milled for an average daily throughput of 6,815 tons, up 10% from the third quarter.

By December, daily milling rates had approached an impressive 7,400 tons of ore, allowing minesite operating costs to hold steady at C$49 per ton.

For 2004, LaRonde is confident it can match its revised goal of producing 300,000 oz. gold, 4.7 million oz. silver, 120 million lbs. zinc, and 24 million lbs. copper, all at a total cash operating cost of US$155-165 per oz., based on by-product credits that are well below current spot prices.

On the exploration front, Agnico has released some enticing high-grade gold intercepts encountered at the Lapa property, 7 miles east of LaRonde on the Cadillac structural break. One hole, no. 118-03-35D, cut a true thickness of 37.1 ft. grading 0.41 oz. gold per ton (14 grams gold per tonne) at a depth of 3,942 ft. down-hole. Mineralization occurs in a silicified zone within Piche-group volcanic rocks near the southern contact of Cadillac-group sediments. The company says this deep mineralization is being characterized by:

— greater thicknesses in excess of 15 ft., reaching 25-37 ft. at depth and to the west, which might allow for cheaper bulk-mining methods;

— decreasing total sulphides (arsenopyrite, stibnite, pyrrhotite) from 5% in the upper block to 0-1% at depth, which improves metallurgical recoveries;

— increasing silicification at depth, overprinting biotitic alteration seen in the upper block, which translates into even better rock quality at depth, and consequently easier mining.

— increasing frequency of coarse visible gold at depth, which also improves recoveries.

As of October 2003, resources Lapa stood at 722,000 oz. gold in 2.5 million tons in the indicated category grading 0.29 oz. gold per ton plus an inferred 462,000 oz. gold in 1.9 million tons of 0.25 oz. gold.

Last spring, Agnico bought out its partner in Lapa, zinc-miner Breakwater Resources (BWR-T), for almost US$8 million in cash plus two royalties, and now holds a 100% interest. Combined with a few more recent acquisitions, Agnico now controls properties covering a 12-mile portion of the structure that hosts Lapa’s key Contact gold zone.

Agnico further added to its asset base last summer by buying Barrick’s Bousquet gold property, immediately west and south of LaRonde, for C$5 million in cash, C$2 million in Agnico shares and a 2% net smelter return royalty.

Agnico will report its full quarterly and year-end financial results on Feb. 25.

Meanwhile, Toronto-based junior gold explorer Queenston Mining (QMI-T) has kicked off an 8-hole, 6,000-metre (20,000-ft.) drilling campaign on its Pandora property. The property consists of 38 claims and covers a 4.5-km (2.8-mile) portion of the Cadillac break immediately west of the Lapa property.

Queenston will test for a possible extension (on to Pandora) of Lapa’s Contact zone, which remains open at depth and to the west. Some of the best drill results from Lapa are only 275 metres (900 ft.) east of the Pandora property.

Queenston will collar at least two holes 100 metres (330 ft.) west of the border with Lapa in an effort to intersect both the Contact and Contact South zones at a vertical depth of around 1,400 metres (4,600 ft.).

In 2003, a 15-hole drilling program by Queenston confirmed that the Contact zone continued on to the Pandora property and that its upper limits were at a depth of 950 metres (3,100 ft.). Intersections at this presumed upper limit included 3.5 grams gold over 2.5 metres and 3.3 grams over 3.2 metres.

Queenston received similar results from drilling at its Central Contact and Keel Contact zones, 1.5 km and 700 metres west, respectively, of the property boundary with Lapa.

Both sides of the boundary area were extensively drilled to a depth of about 400 metres (1,300 ft.) in the late 1980s by what was then known as American Barrick Resources (Pandora) and by Breakwater (Lapa). Barrick outlined 2.2 million inferred tonnes grading about 4.5 grams gold (2.4 million tons of 0.13 oz. gold) in two zones named North Branch and South Branch, while Breakwater defined 1.9 million tonnes of 6.5 grams gold (2.1 million tons of 0.19 oz. gold) in the Tonawanda zone, which is about 100 metres above Agnico’s Contact zone discovery.

Another junior eyeing the depth potential of the Cadillac break is Rouyn-Noranda-based Radisson Mines (rds-v), which is gearing up for work on its O’Brien mine property, two properties west of Pandora and a few kilometres southeast of LaRonde.

Radisson will drill at least six holes, each to a depth of 1,000 metres (3,300 ft.), to test the depth extension of zones defined over a 2-mile portion of the Cadillac break, just east of the former-producing high-grade O’Brien gold mine.

Radisson recently closed a C$459,000 financing underwritten by First Associates whereby Augen Limited Partnership 2003 and Northern Precious Metals Limited Partnership subscribed for 685,000 and 335,000 flow-through units, respectively, priced at 45 per apiece. One unit comprises a class A share and a warrant allowing its holder to buy another class A share for 65 within two years.

At presstime, Radisson shares were trading at 63.

Radisson hopes to place a second tranche of units that could raise an additional $921,000.

Radisson’s financing agreement with First Associates replaces an earlier one with Groupe TGLP, which was cancelled in December 2003.