Determined not to remain a one-mine company,
The company is exploring the Lapa deposit, 7 miles east of LaRonde, under an earn-in agreement with owner
Agnico can earn a 60% interest in Lapa and become operator by spending $3.5 million on exploration and paying Breakwater $200,000 in cash over five years. The company can then acquire another 10%, prior to a feasibility study, by paying Breakwater $1 million, and then another 10% by arranging for an independent feasibility study.
Based on work carried out by Breakwater in the 1980s and more recent drilling by Agnico, Lapa has an inferred resource of 3.3 million tons grading 0.249 oz. gold per ton, (or 3 million tonnes at 8.53 grams gold per tonne), equivalent to 815,000 contained ounces. The estimate is based on a gold price of US$300 per oz.
Breakwater’s previous resource estimate was 1.9 million tons at 0.19 oz. gold.
Agnico’s ongoing drilling aims to extend Lapa’s main Contact zone to the east and at depth where it remains open. To date, 11 of Agnico’s 16 holes have intersected gold mineralization (including visible gold), and the work has traced the Contact zone over a length of 1,300 ft. and to a depth of 2,000 ft.
The deepest hole, no. 118-03-04A, cut 99.1 ft. grading 0.26 oz. gold and contained visible gold. However, one of the highest-grade intervals — 12.5 ft. of 0.60 oz. gold per ton at a depth of 2,251 ft. — came from hole 118-02-08, which had no visible gold.
Beginning in March, Agnico will carry out a US$2.2-million drilling campaign. Four drills will concentrate on infill drilling on 150-ft. centres, conduct deep drilling to test the downdip extension of the deposit, test the eastern extent of the Contact zone, and provide mineralization for metallurgical tests.
“Due to the high-grade gold and potential operating synergies arising from the proximity of this property to LaRonde, Lapa is an important part of our regional development and growth strategy,” says Agnico-Eagle President Sean Boyd.
The second gold property Agnico is considering developing, Goldex, is 35 miles east of LaRonde.
At a gold price of US$300 per oz., Goldex has an indicated resource of 13.7 million tons grading 0.073 oz. gold, while the inferred resource is 5.6 million tons at 0.075 oz. gold. The total number of contained ounces is 1.4 million.
Despite writing-down Goldex several years ago to a value of $0, Agnico did complete substantial work at the property, including, in 1996, a 114,000-ton bulk sample that confirmed the grade.
“It was one property we did keep during the downturn in gold prices, because we always believed it had potential,” says Boyd. “Now we’re taking a totally different approach than the last time we looked at it.”
Agnico first studied Goldex as a stand-alone mine producing at a rate of 5,000 tons per day; it is now being re-evaluated based on a 10,000-ton-per-day mining rate and its potential “synergies” with LaRonde.
Production hoist
In particular, Goldex could make use of the original 16-ft. production hoist from LaRonde’s Penna shaft, as well as surface ventilation installations and potentially a headframe.
Agnico also has available at LaRonde primary and secondary crushers, together with a mothballed milling circuit with a capacity of 2,000 tons per day.
The mining method might be long-hole in the thicker areas, with perhaps a combination of long-hole with shrinkage in the upper parts of the deposit. Agnico has already looked at potential shafts sites and says “there doesn’t appear to be any problem.”
Chief Operating Officer Ebe Scherkus says that based on a mining rate of 10,000 tons per day, 20-25% of the gold could be recovered from a gravity circuit, and about 70% would remain in a pyrite concentrate that could be trucked to LaRonde for cyanidation.
The company has hired a firm specializing in rock mechanics to re-evaluate the mining method and development options. The work will be incorporated into a new feasibility study, due to be released at Agnico’s annual meeting in June.
As it is, Agnico believes Goldex could add 225,000 oz. to the company’s annual production, with a cash cost below US$200 per oz., assuming a 10,000-ton-per-day operation and reduced operating costs from economies of scale and regional synergies.
“This is a diversification of our production base away from one mine, and it removes . . . the ‘zinc stigma’ perceived by some in relation to LaRonde,” says Boyd.
“This regional growth strategy is relatively low risk — there are no serious permitting, political, environmental or technical issues associated with it — and it’s extremely tax-effective, because it makes use of LaRonde’s large available tax pools.”
LaRonde
Meanwhile at LaRonde, Agnico has rebounded from some operational problems during the summer and posted a stronger fourth quarter, highlighted by improved earnings, increased production and growing reserves.
Earnings in the period were US$816,000 (US1 per share) on mining revenue of US$31.6 million, up from a net loss of US$748,000 (2 per share) on revenue of US$26.5 million in the fourth quarter of 2001.
For all of 2002, Agnico earned US$4 million (6 per share) on revenue of US$108 million, up from a net loss of US$5.4 million (9) on US$96 million in 2001.
Production in the fourth quarter amounted to 75,235 oz. gold (compared with 66,372 oz. last year), 1.1 million oz. silver (597,000 oz.), 12,080 tonnes zinc (15,257 tonnes), and 1,809 tonnes copper (642 tonnes).
Of note, Agnico has instituted operational improvements to reduce congestion and increase ventilation at the deeper levels of the mine.
For 2002, there was record gold production of 260,183 oz. (234,860 oz. in 2001 plus 3.1 million oz. silver (2.5 million), 49,059 tonnes zinc (57,329 tonnes) and 4,053 tonnes copper (up from 1,860 tonnes due to much-improved recoveries).
The total operating cost per ounce of gold rose US$18, to US$240, in the fourth quarter, and shot up US$32, to US$237, for all of 2002.
Says Boyd: “What our operating experience to date has demonstrated, since the expansion in early October, is that in the critical areas of grade, metallurgical recoveries, mining conditions, and hoisting and processing capacity, we have met or exceeded our expectations. As a result, we’re in a good position to achieve our production and cost targets for 2003.”
As Scherkus explains, “it’s going according to plan, but this isn’t going to be a straight-line improvement — there are other improvements to come.”
With the expansion in early October of the mill capacity to 7,000 from 5,000 tons, Agnico expects to be able to produce in 2003 a record-high 375,000 oz. gold at a record-low total cash cost of US$125 per oz.
Balance sheet
The company says its balance sheet is the strongest in its history, with nearly US$280 million in available cash resources, no gold sold forward, and increasing net free cash flow.
Based on a gold price of US$310 per oz., Agnico expects to generate cash flow from operations in 2003 of more than US$50 million, of which about US$21 million would be net free cash flow.
The company expects to spend a further US$29 million on capital expenditures at LaRonde in 2003.
The total reserves at LaRonde have risen 23%, year over year, to stand at a record 4 million oz. gold hosted by 41.7 million tons grading 0.1 oz. gold per ton, 2.03 oz. silver per ton, 3.32% zinc and 0.37% copper (or 37.8 million tonnes grading 3.4 grams gold per tonne).
A further 648,000 tons at 0.1 oz. gold, 0.43 oz. silver, 0.55% zinc and 0.17% copper make up an indicated resource, whereas 23 million tons at 0.17 oz. gold, 0.38 oz. silver, 0.08% zinc, 0.33% copper are inferred.
In all, some 8.1 million oz. of reserves and resources have been defined at LaRonde.
20-North zone
Agnico’s ongoing underground exploration campaign a
t LaRonde has now defined the eastern limit of the key zone 20-North, though it remains open for expansion to the west and at depth.
Agnico has evaluated several strategies for gaining access to deep ore below the current 7,350-ft. Penna shaft, including rehabilitating the now-dormant shaft 1, sinking a new shaft to 10,000 ft., and various shaft-winze-ramp combinations.
The company also studied several mining rates, and preliminary findings suggest that exploiting the deeper ore would be economic based on the current resource and capital costs of US$45-60 per oz.
Results of this scoping study will be further detailed at the annual meeting.
“Our number-one priority during the first half of 2003 is to optimize LaRonde and get it performing up to its full capability so we can maximize our gold output, minimize our costs and generate maximum free cash flow,” says Boyd. “Secondly, we’ll focus on developing regional opportunities, which are really centred around LaRonde.”
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