Brigus improves at Black Fox, boosts guidance

VANCOUVER — Halifax-based producer Brigus Gold (TSX: BRD;  NYSE-MKT: BRD) is adjusting to challenging market conditions at its Black Fox gold mine in the town of Matheson, Ont. Despite volatile gold prices — which hit a 46-month low at US$1,179 per oz. in late June — the company registered a 7% jump in gold revenues during the second quarter, on the back of a 28% increase in gold production to 23,300 oz.

In chairman and CEO Wade Dawe’s late August letter to shareholders outlining Brigus’ mid-term production strategy at its Black Fox mill complex, he said the company has several areas of focus: production growth, cost management, capital preservation, focused exploration initiatives and organic growth within the Timmins camp.

And the company appeared to  check off many of those boxes during the first half. On the operations side, Brigus had record production at Black Fox. The company cranked out 50,000 oz. gold, despite a one-time suspension of milling activities in the second quarter related to higher-than-normal water levels in Black Fox’s holding and water management facilities.

Thanks to higher mining rates from Black Fox’s underground operations, Brigus has increased its 2013 production guidance by 5,000 oz. gold to 95,000–105,000 oz. gold.

The company is keeping a firm grip on its operating costs, with all-in sustaining costs averaging  US$1,184 per oz. over the past six months. That number does, however, exclude a series of non-routine events during the second quarter, including a net realizable value adjustment on long-term stockpiled ore and suspending milling operations. According to CFO Jon Legatto, Brigus expects its all-in costs to fall in line with the US$1,100 per oz. level the company saw during the first quarter, for the rest of 2013.

Brigus is pulling promising drill results from Black Fox and its redefined Grey Fox satellite zones. In late April the company released results from underground resource-expansion drilling at Black Fox’s lower East zone, which were highlighted by 18 metres grading 6.45 grams gold per tonne from 220 metres depth in hole EX-02A, 15 metres of 3.4 grams gold from 205 metres depth in hole EX-09A and 29.4 metres grading 2.98 grams gold from 232 metres depth in hole EX-11A.

Brigus also completed a resource update at Grey Fox that saw the deposit’s open-pit and underground average grades jump by 31% and 14%. The company’s 147, Contact and Grey Fox South (GFS) zones were upgraded to 4.3 million indicated tonnes averaging 3.7 grams gold for 507,400 contained oz. The resource was split between underground and open-pit ounces, with average underground grades of 6.2 grams gold, while open-pit average grades sit around 2.6 grams gold.

“The 147, Contact and GFS zones all remain open for future expansion, and three drill rigs will continue to expand their resource for the remainder of the year,” commented senior vice-president of exploration Howard Bird.

He added that the Black Fox orebody remains open at depth and along strike, and includes gold reserves to a maximum depth of 500 metres, noting that regional orebodies — along with the Destor-Porcupine fault — often extend to depths of more than 1,000 metres.

One aspect that remains in question for Brigus, however, is its balance sheet. The company reported a cash balance of $21 million at the end of June, which was negatively impacted by the mill shutdown. The company’s adjusted cash flow from operations over the first six months of 2013 totalled $35 million.

Brigus has decreased its long-term debt by $7.3 million this year, and expects to have “sufficient” capital to meet its operating and financing requirements over the next year. 

During that period the company has $2 million to pay quarterly on its senior secured notes, as well as some capital payments expected to total up to 4 million. 

Following a $3-million capital cutback, Brigus estimates it has $21.5 million in spending through year-end.

“We’ve taken some costs from operating as well. So we reduced our head count as indicated. We have price reductions from key suppliers. So our cost profile on a per-ounce basis is dropping, and our capital requirements are also in a state of decline,” Dawe said after the company’s second-quarter results.

Brigus has traded within a 52-week window of 45¢ and $1.06 per share. The company has followed its peers upward as gold prices have returned to the US$1,400 per oz. level, bouncing off a two-year low in early July, en route to a 61¢-per-share close at press time. Brigus maintains 232 million shares outstanding for a $141.5-million market capitalization.