Shares of Armistice Resources (AZ-T) surged 55% to close at 24¢ on Nov. 24 after the company announced it expects gold production at its McGarry underground mine in Ontario to start in December, followed by gold sales in the first quarter of 2012.
The company’s initial target production rate from the mine in the Kirkland Lake area of northeastern Ontario is 25,000 oz. gold for 2012, and rises to 40,000 oz. in 2013 at cash costs of US$600 to US$650 per oz. produced.
The McGarry property is adjacent to the past-producing Kerr Addison mine, which produced 12 million oz. gold over a 58-year mine life from 1938-1996.
“The original thesis for exploration at McGarry, going back twenty years, was that it held the downward fault extension of Kerr Addison,” Todd Morgan, Armistice Resources’ president and chief executive, explained in a telephone interview. “So they sank the shaft down six hundred eight-six metres because they thought the top of the orebody was down at about six hundred metres. So a lot of the infrastructure went down to that level. Because we have all that infrastructure in place, we can start mining relatively quickly while we grow the resource beyond exploration we have done already.”
Morgan notes that Armistice will be initially mining from the 686-metre level upwards. “There are resources below six hundred eighty-six metres, and we’ll get there in due course – but not until we’ve exhausted going back to surface.”
The property straddles the Larder Lake Break, which extends from Val-d’Or, Que., to Kirkland Lake, Ont. It is to the east of the past-producing Kerr Addison mine.
Between 1985 and 1989 Armistice spent more than $30 million on exploration and development of the McGarry project, including deepening, enlarging and refurbishing the shaft to production capacity. The work also involved installing a mining plant to sustain production to 1,219 metres, completing 3,048 metres of underground development and more than 76,200 metres of exploration drilling.
Last month Armistice retained consulting firm Soutex to help identify the best facility to meet its custom-milling requirements.
The company’s mining plant and shaft are at the eastern end of Barber Lake and accessible by a short gravel road from Highway 66. McGarry is 40 km east of the town of Kirkland Lake and less than 1 km west from Virginiatown.
The shaft was originally sunk in the late 1980s but the company ran into continued difficulty. First it was hit by 1987’s market crash. When the project got going again in the 1990s, it got “side-swiped by Bre-X,” Morgan explains, and was put on care and maintenance until 2002.
New management took over in 2004 and a major financing was completed in 2006.
Armistice used the funds to de-water the project, conduct more exploration drilling and undertake test mining and bulk sampling. The work was nearing completion at the end of 2008, when the financial crisis struck.
Afterwards, the company put together a mine plan that was completed in the first half of 2009.
“The results have always been solid. But bringing a really large project like this into production for a junior mining company is definitely a challenge, and I can see that not a lot of companies give it a shot,” Morgan says.
Indicated resources measure 446,335 tonnes grading 7.89 grams gold per tonne for 112,000 contained oz. gold, at a cut-off grade of 51.4 grams per tonne. Inferred resources add 156,036 tonnes grading 5.83 grams gold per tonne, for 29,000 contained oz. gold.
In terms of exploration, Armistice has nearly tripled the number of holes it has drilled since July. The 61 holes total more than 20,422 metres, with 44 holes drilled on the Kerr Addison property and 17 drilled on the McGarry property. It plans to announce the findings from holes 17-22 shortly. The company’s exploration activities are part of this year’s $2.5-million surface diamond-drilling campaign.
At the end of October Armistice raised $14.1 million in an equity offering, which will be spent on bringing the McGarry project into production; an expanded exploration program next year from the surface of the Kerr Addison; making the company debt-free; and the McGarry properties, including the McGarry mine’s underground portion.
At presstime the junior traded at 23¢ within a 52-week band of 14.5¢ to 55¢. It has 184 million shares outstanding.
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