McWatters suspends mining

McWatters Mining (MCW-T) has suspended all mining at its Sigma-Lamaque open-pit gold mine in Val d’Or, Que., and will review the viability of continuing operations at its nearby Kiena underground gold mine.

The company says the suspension is necessary for financial reasons and that 120 employees have been laid off.

For the first nine months of 2000 at Sigma-Lamaque, McWatters produced 43,686 oz. gold from both open-pit and underground operations at a total production cost of US$272 per oz. Underground mining was phased out in August, after 63 years.

During 2000, McWatters had boosted the daily capacity of Sigma’s mill by 50% to 3,000 tonnes and began studying a further expansion to 4,000 tonnes by mid-2001.

In order to restart operations at Sigma-Lamaque and ensure Kiena’s longer-term viability, McWatters intends to raise funds to complete a mill expansion and relocate route 117, which passes over mineralized zones at Sigma.

Regarding Kiena, McWatters says it will continue mining there for another three months, after which time the operation will undergo a review.

During the first nine months of 2000, the company produced 65,071 oz. gold from Kiena at a total production cost of US$271 per oz.

For the first nine months of 2000 (its most recent financial statement), McWatters posted a net loss of $18.1 million (or 27 per share) on revenue of $47.9 million, compared with a loss of $5 million (12 per share) on revenue of $52.5 million during the corresponding period in 1999.

On Sept. 30, 2000, McWatters had current liabilities of $28.6 million plus long-term debt and capital leases totalling $9.1 million. Current assets were pegged at $18.1 million, including $4.9 million in cash, investments and bullion.

The company created a little breathing room in November by completing a $3-million convertible-debenture financing.

Closing out 2000, McWatters’ hedging program comprised options at US$290 per oz. for 12,000 oz. gold per quarter up until late 2004, as well as contingency forward sales contracts at US$320 per oz., for a maximum of 11,700 oz. gold per quarter until late 2005.

McWatters’ reserve base at the end of 1999 stood at 16.2 million tonnes grading 3.02 grams gold per tonne at Sigma-Lamaque and 2.6 million tonnes of 4.1 grams gold at Kiena.

Standard & Poor’s responded to the suspension by lowering its corporate credit, senior secured, and senior unsecured debt ratings on McWatters to CCC from B. S&P placed the ratings on creditwatch with “negative implications.”