Hudbay picks up QMX Gold’s Snow Lake mine

The opportunity to acquire the past-producing Snow Lake gold mine and mill in Manitoba from financially strapped QMX Gold (TSXV: QMX) emerged a couple of months ago, Hudbay Minerals (TSX: HBM; NYSE: HBM) has confirmed, but says “there is no immediate plan to put the mine back into production.”

Under the agreement, Hudbay will acquire the assets for US$12.3 million in cash. It has also agreed to a contingency payment of $5 million on the third anniversary of the sale’s closing date, if the gold price is equal to or greater than US$1,400 per oz.

The mine, formerly called the New Britannia mine, produced 1.4 million oz. gold over its lifetime, according to QMX Gold. Of that amount, 822,550 oz. gold was mined from the deposit by Kinross Gold (TSX: K; NYSE: KGC) and High River Gold, between 1995 and 2005, at which point the operation was placed on care and maintenance.

The acquisition gives Hudbay its fourth mine in the province and shows the company’s commitment to northern Manitoba, Scott Brubacher, Hudbay’s director of corporate communications, states in an email response to questions.

Brubacher notes that the company is marking the 100th anniversary of its Flin Flon deposit this year, and has recently built its Lalor mine ($440 million), the Reed mine ($70 million) and invested $20 million expanding the north ramp at its 777 mine.

Brubacher said the agreement with QMX Gold represents fair value for both parties and provides Hudbay with longer-term flexibility to deliver greater value out of Lalor and the Snow Lake area.

The next step, he says, is to assess what long-term value can be realized at the project.

“Hudbay needs to conduct further technical work before making any decision on refurbishment or providing any estimate on costs,” he explained. “There is no immediate plan to put the mine back into production.”

The acquisition “consolidates our land ownership in a prospective camp where we have a history of exploration and operating success,” he says, and “it adds potential flexibility to the processing options at Lalor, which currently has a 15-year mine life.”

It’s not the first time QMX Gold has tried to sell Snow Lake. In August 2013, QMX entered into an agreement to sell 100% of the asset for $20 million to Liberty Mines, a nickel exploration company that owned two former producing nickel mines and production facilities near Timmins, Ont.

Liberty Mines later became Northern Sun Mining (TSX: NSC; US-OTC: LBEFF), which in January 2014 reached an agreement with QMX Gold to extend the closing of the proposed acquisition to March of that year. In July 2014, the companies agreed to another delay and a second extension of the closing date until September 2014.

QMX Gold, formerly Alexis Minerals, acquired the Snow Lake project from its previous operator, Garson Gold, through a share acquisition bid that closed in January 2010.

According to a feasibility study on Snow Lake completed in November 2010, the mine would produce 80,000 oz. gold per year over five years at average cash costs of US$640 per oz., after an initial capital cost of $39.7 million over 12 months. The base case used a weighted average gold price of US$1,149 per oz.

The 2010 feasibility outlined measured and indicated resources of 5.47 million tonnes grading 4.24 grams gold per tonne for 728,000 contained oz. gold, and inferred resources of 2.37 million tonnes grading 4.43 grams gold for 336,700 contained oz. gold.

QMX did not respond to a request for comment on the sale before press time.