Agnico-Eagle ramps up Pinos Altos

Agnico-Eagle Mines‘ (AEM-T, AEM-N) new Pinos Altos gold-silver mine in Mexico had a remarkable second quarter with notable gold production amid the company’s less-than-stellar period. 

Overall, Agnico saw second-quarter profits drop to US$68.6 million from US$100.4 million last year largely because of a foreign-currency translation loss and taxes. 

Located in the mountainous Sierra Madre gold belt in Chihuahua state, the Pinos Altos mine and its satellite Creston Mascota operation produced a record 51,066 oz. gold at total cash costs of US$299 per oz. This represents a 42% increase in production and a US$66-per-oz. cost reduction compared to a year ago. 

Compared to the previous quarter, costs at the open-pit and underground operation improved by US$13 per oz., whereas production increased by 6%. Company-wide cash costs averaged US$565 per oz., while production totalled 239,328 oz. in the quarter.

The Toronto-based and Quebec-focused miner says the improvements at Pinos Altos were mostly due to Creston Mascota coming online and higher mill throughput.

During the three months ending June 30, 2011, the Pinos Altos mill churned through 4,711 tonnes daily, compared to the previous quarter’s 3,575 tonnes per day.

The company says the mill is performing above the initial 4,000-tonne-per-day design capacity thanks to the installation of two other tailing filters in 2010.

“We keep on working hard to optimize the mine,” says Guy Gosselin, Agnico-Eagle’s vice-president of exploration, who explains that the company is still boosting the daily tonnage throughput from underground. “Going forward, we should be able to reduce the number of contractors on site and continue to tweak and push and optimize the mill.”

He points out the company will be mining more high-grade material underground, but estimates that the operating cash cost will be around US$400 per oz.

Late last December, Agnico poured its first gold at Creston Mascota, which is the first satellite deposit to be developed at Pinos Altos. The stand-alone, heap-leach mine reached commercial production in March 2011.

For the second quarter, Creston Mascota contributed 9,449 oz. to Pinos Altos’ production.

The mine complex, including Creston Mascota, has reserves of 3.3 million oz. gold and 92 million oz. silver from 44.2 million tonnes grading 3.2 grams gold per tonne and 64.8 grams silver per tonne.

This year, Pinos Altos alone is slated to produce 168,000 oz. gold and 2.2 million oz. silver, and about 175,000 oz. gold and 2.3 million oz. silver a year from 2012 through 2015. The mine has a 15-year life.

Creston Mascota is anticipated to add another 31,000 oz. gold and 65,000 oz. silver in 2011, and to average 55,000 oz. gold and 120,000 oz. silver per year from 2012 through 2015. 

Mineralization on the property occurs in epithermal, low-sulphidation quartz-adularia vein systems with breccias and stockworks carrying gold and silver, which are associated with the Santo Nino and Reyna de Plata structures outlining the main horst structure. Gold-silver mineralization also occurs in quartz-calcite-adularia veins associated with the Mascota-Carola-Bravo structures.

Agnico says the most important mineralization found on the property is in four zones hosted by the Santo Nino fault: the El Apache, Oberon de Weber, Santo Nino and Cerro Colorado zones.

More than 60% of Pino Altos’ current reserve is in the steeply dipping Santo Nino zone.

Owing to the improved mill capacity and growing underground reserves, Agnico is evaluating ways to enhance capacity of the underground Pinos Altos mine either through increased truck haulage or a production shaft. The study is expected to be done in late 2011.

For the year, Gosselin says the company has earmarked about US$11 million for exploration in Mexico. It plans to drill 9,000 metres at the mine site, 24,000 metres at the 110-sq.-km Pinos Altos property, and some 5,800 metres at its other Mexican prospects.

The exploration goals at Pinos Altos include upgrading resources to reserves, and expanding resources and reserves laterally and at depth. The miner will largely focus on the underground portion of the Cerro Colorado zone (adjacent to the main Santo Nino pit), along with satellite Creston Mascota, Cubiro and Bravo zones, and the Reyna de la Plata zone.

Agnico will try to figure out whether the Creston Mascota deposit and the Bravo zone are connected, since drilling continues to show that the deposit extends to the south toward Bravo.

It is also considering underground exploration as part of a scoping study at Cubiro, as the area’s rugged topography makes surface drilling difficult.

Reyna de la Plata, a parallel zone about 1 km north of Santo Nino, could also be developed into another satellite operation.

Agnico acquired the Pinos Altos property in 2006 and, after completing a positive feasibility study on the past-producing asset, it began mine construction in 2007. A year later, it started pre-stripping the Santo Nino pit. In July 2009, Agnico poured its first doré bar from the heap-leach operation, and officially launched the mine in November of that year. A year later, it started producing from underground as well. 

Gosselin says the company primarily wanted locals to run the operation, and so taught them how to mine underground. He adds that since most of the mines in Mexico are open-pit operations, a lot of training was required. Locals now comprise more than 95% of the workforce at Pinos Altos. 

“We are proud of that achievement, and to import our knowledge from our underground mines in Quebec and transfer it to the local people,” Gosselin says. 

He adds that the ramp-up of the underground mining is going pretty well and says he doesn’t foresee any operating hurdles at the mine.

 However, Gosselin concedes the company is taking precautions to safeguard its workers and assets from the escalating drug-related violence in the region. 

 “We know safety is a concern in Mexico. We know there are certain security concerns regarding all of the narcotic activity in the northern portion of Mexico… We expect the government will make the situation better. There’s not much we can do on our side to solve the issue outside of having good practice while travelling and operating over there.”

He quickly adds that “we consider Mexico more an opportunity than a challenge,” noting that the country is politically stable, relatively close to its Quebec operations, hosts much economic mineralization, and is mining-friendly.

It’s so good, in fact, that Gosselin says that the company is evaluating and eyeing other advanced properties in the country. 

Earlier this year, Agnico bought an 18.6% stake in junior Colibri Resource (CBI-V), which has three properties in Sonora. The neighbouring state is home to 14 significant gold deposits, and Colibri’s namesake project is near Mexico’s largest operating gold mine, La Herradura. Newmont Mining (NMC-T, NEM-N) owns 44% of the mine and Fresnillo (FRES-L) holds the rest. 

The company can earn up to 75% of the Colibri gold project by dishing out US$3 million on exploration over the next three years and by completing a positive feasibility within five years. It also needs to provide US$1.45 million over seven years in option payments. 

A big reason Agnico chose to develop the Colibri is its location. “It’s in the right address,” Gosselin says. “It’s like being around the Cadillac break in Abitibi. The land position is along trend with La Herradura.” 

The company is targeting 5,000 metres of exploration drilling on the Colibri project this year. Gosselin concedes that the project is early stage and low-grade, but it would be easy to mine as a heap-leach operation.  

When asked what other projects the comp
any is looking at, Gosselin answers: “I won’t give you the secret of what’s going to be coming. But we do see that there’s a good amount of opportunity over there for Agnico-Eagle.”