Agnico’s LaRonde expanding, losses shrinking

Improved production and cash flow from the LaRonde gold-copper mine, near Val d’Or, Que., helped Agnico-Eagle Mines‘ (AGE-T) bottom line in the second quarter, but not enough to require black ink.

For the three months ended June 30, the company posted a net loss of US$1.1 million (or 2 per share), compared with a year-ago net loss of US$3.4 million (6 per share). Revenue between the two periods more than doubled to US$28.8 million. Cash flow from operations was US$3.6 million, a US$6.5-million turnaround from the year-ago, US$2.9-million deficit.

For the first half of the year, the company’s net loss was just under US$1.4 million (2 per share), compared with a US$6.9-million (13-per-share) loss in the same period of 2000. Revenues climbed to US$49.6 million from the year-ago US$23.3 million.

During the quarter, LaRonde churned out 65,937 oz. gold, more than double the 31,114 oz. produced a year earlier. The increase is attributed to last October’s mill expansion to 5,000 tons per day. Total cash costs fell US$159 per oz. to US$134 per oz.

The company saw declines in the average prices realized for most of its metals produced during the quarter. Gold fell about 7% to US$267 per oz., silver was off 11.5% to US$4.59 per oz. and zinc dropped more than 17% to US42 per lb. Copper, which gained US8 per lb. to 88, was the only bright spot.

Earlier this summer, the company announced plans to further increase daily production at LaRonde to 7,000 tons. The company raised US$76 million via the issuance of 10.4 million shares to help fund the expansion. Including the undrawn portion of its bank facility, the company has US$112.3 million of available liquidity. Capital expenditures for 2001 are pegged at US$35.5 million.

The expansion is expected to increase gold production to 341,000 oz. in 2002, 373,000 oz. in 2003 and 396,000 oz. in 2004, up from an estimated 229,000 oz. for 2001. Cash costs should decrease by 15% with the extra output. Assuming a gold price of US$280 per oz., the rate of return is pegged at 20%. Paypack is foreseen in three years.

Reserves at LaRonde currently stand at 33.7 million tons grading 0.1 oz. gold and 2.34 oz. silver per ton, plus 0.32% copper and 4.4% zinc. The property also hosts a resource of 25.4 million tons grading 0.18 oz. gold, 0.85 oz. silver, 0.73% copper and 0.41% zinc. The resource sits beneath the reserve and extends to 9,900 ft. below surface, where it remains open.

On the exploration front, Agnico-Eagle had five rigs active on two fronts at the end of the quarter. The company is extending the 20th Level exploration drift on the El Coco property to the east of LaRonde and detailed drilling is targeting Level 235 horizon at the bottom of the LaRonde reserve outline. The holes are also aimed at the felsic volcanic-sedimentary contact, which hosts the high-grade Zone 20 South in the upper part of the LaRonde mine.

Delineation drilling above level 110 to level 106 on Zone 20 South, for production purposes, has returned encouraging results. They include:

• 26.2 ft. grading 0.59 oz. gold and 4.46 oz. silver per ton, 0.56% copper and 5.35% zinc;
• 19 ft. of 0.55 oz. gold and 3.09 oz. silver, 0.39% copper and 5.42% zinc;
• 16.7 ft. of 0.67 oz. gold, 5.62 oz. silver, 0.39% copper and 10.36% zinc; and
• 18.4 ft. of 0.56 oz. gold and 4.3 oz. silver, 0.51% copper and 6.85% zinc.

In other news, Agnico has proposed a statutory plan of arrangement to Mentor Exploration and Development (MV-V). Under the plan, Agnico would acquire a 50.5% stake in Mentor, in which Agnico already has a 49.5% stake.

Agnico would issue about 369,00 shares valued at $4.8 million. Mentor shareholders would receive 0.21 of an Agnico share for every Mentor share held.

About half of Mentor’s 24% interest in Sudbury Contact Mines (SUD-T) would be distributed to Mentor shareholders prior to Agnico-Eagle’s acquisition. Sudbury Contact is a 57%-held subsidiary of Agnico-Eagle Mines.

The deal represents a 58% premium over Mentor’s recent closing price.