Osisko marches ahead at Canadian Malartic

Osisko Mining (OSK-T) foresees better days ahead at its flagship 100%-owned Canadian Malartic gold mine in the town of Malartic, west of Val-d’Or, Que.

The Montreal-based miner says the setbacks experienced during its first full year of operations in 2012 are behind it, as it ramps-up the mill to 55,000 tonnes a day in the second half of 2013.

Osisko plans to stabilize the mill at 50,000 tonnes a day by July before expanding to 53,000 to 55,000 daily tonnes, allowing it to achieve its 2013 production guidance of 485,000 to 510,000 oz. gold. Cash costs are anticipated to fall within $780 to $825 per oz., which is a 9% to 14% drop from 2012.

Gold grades for 2013 should average 1 gram per tonne, with gold recovery coming in at 87%.

In 2012, the gold producer had a few hiccups at the open-pit mine including a fire at the mill that resulted in 10 days of downtime in May, coupled with low equipment availability, noise restrictions and poor weather.

In the fourth quarter it said production was mainly impacted by a month-long delay in completing a 940,000-tonne blast over previously mined underground stopes to tap into the deposit’s north pit wall, or higher-grade zones.

The company’s president and CEO Sean Roosen said on a recent conference call that it experienced a “few issues” in the quarter that dampened output, including delays with the Crown Pillar blast, which was finally blasted in late October, but impacted Osisko’s ability to mine higher grades.

“[The fourth quarter] was affected . . . average grade coming down to 0.87 and the year ended 2012 at 0.96 grams, which is basically on life-of-mine grade,” Roosen said.

Fourth-quarter production came in at 101,544 oz. at a cash cost of US$903 per oz., bringing full-year output to 388,478 oz. at average cash costs of US$909 per oz.

Quarterly gold sales equalled 111,104 oz. at a sales price of US$1,709 per oz., bringing full-year sales to 394,603 oz. at an average price of US$1,669 per oz. gold.

Earnings for the quarter were $9.6 million, or 2¢ a share — a 74% drop from a year ago.

Roosen pointed out that several non-cash items contributed to the decline in earnings, including a $10.9-million impairment charge it took on its 9.5% stake in Ryan Gold (RYG-V).

“Ryan Gold took the impairment on their property for 2012 on their Yukon land package, and as a significant shareholder we had to incur that writedown as well.”

Another item that affected the bottom line was a $5.1-million loss on the 7.8-million Queenston Mining shares Osisko bought from Agnico-Eagle Mines (AEM-T, AEM-N), as part of its 2012 takeover of Queenston.

Queenston lost 66¢ per share in value since Osisko bought Agnico’s 9.5% interest to when the takeover deal closed on Dec. 28. “Under international financial reporting standards, we had to take a non-cash charge of $5.1 million there,” Roosen says, adding that the company had an “unusually high” tax rate during the quarter, thanks to the non-deductible losses.

But despite the losses, the miner recorded a full-year profit of $78.4 million, or 20¢ per share. The Canadian Malartic mine, its sole operating asset, generated $240 million in earnings from operations in 2012.

To add flexibility to the project, Canadian Malartic’s operating parameters were recently modified to improve access to the deposit’s northern portion, and execution of its blasting operations.

“This is a phase one on the modification, so the parameters are key in terms of us being able to do more in-pit mine scheduling to manage grade, as we come into the end of first quarter and into second quarter, and set the stage for us to achieve our guidance this year of 485,000 to 510,000 oz. production,” Roosen said.

Updated gold reserves at the mine stand at 10.1 million oz. from 310.6 million tonnes grading 1.01 grams gold. Osisko admits that tonnes have fallen compared to the 2012 reserve estimate, but the grade has slightly increased from previously being 0.99 gram.

Since operations started in 2011, 600,000 oz. gold have been mined from the deposit.

In 2013, the gold miner plans to spend $220 million on capital expenditures on all its projects. About $98 million of that will be at Canadian Malartic, $10 million at the Hammond Reef gold project in northern Ontario and $70 million at the Upper Beaver project it recently acquired from Queenston.

The Upper Beaver gold property is located near Kirkland Lake, Ont., where Osisko intends to develop a 1,300-metre exploration shaft this year. The remaining $42 million of the 2013 capex guidance will go towards regional exploration, including its early stage projects in Mexico, Roosen said.

The company spent $229 million on its projects last year, with $154 million at Canadian Malartic and $58 million at Hammond Reef. The rest was spent on exploration and corporate expenses.

Osisko anticipates filing an environmental impact assessment for Hammond Reef in the near future. A feasibility study is slated for the first half of 2013.

Osisko closed Feb. 26 at $6.15 per share. It has 389 million shares outstanding.