Cambior buys into Poderosa (September 07, 2004)

Cambior (CBJ-T) is buying into the Poderosa gold mine, 475 km north of Lima, Peru.

It has negotiated to buy an initial 55.3% interest in the Peruvian mining company Compania Minera Poderosa from a group of private shareholders. The cost is about US$31 million, to be paid as US$25 million in cash and about 2.2 million common shares. There may be a contingent payment of US$6 million subject to resolution of outstanding tax legislation.

Cambior plans to complete due diligence in the next few weeks. The deal should close one month later.

As at June 30, the estimated proven and probable reserves (at a gold price of US$350 per oz.) were 563,000 tonnes grading 18.8 grams gold per tonne (or 341,000 oz. contained gold). Cambior has reviewed Compania Minera Poderosa’s geological resources and has estimated that there may be an inferred 3.3 million tonnes averaging 12.8 grams gold per tonne (primarily from 29 veins).

The Poderosa mine has produced 1.25 million oz. since 1982. It is currently producing at 100,000 oz. per year with a projected cash cost of US$175 per oz in 2004. The company operates two mills, one at 600 tonnes per day (Maranon) and the other at 200 tonnes per day (Santa Maria). Poderosa employs about 800 non-unionized staff.

Compania Minera Poderosa owns about 60% of the 5km by 80km Pataz batholith, an area that produces 400,000 oz. gold per year. The granodiorite batholith is intersected by multiple veins trending northwest and dipping 20 to 45 to the east. Mining access is through adits, with mining on high grade veins averaging 1.2 metres in width and extending for hundreds of metres along strike and for at least 100 metres down dip. Last year, the average grade mined was 18 grams gold per tonne.

The quartz veins are sulphide-bearing and average about 20% sulphide (predominantly pyrite with lesser galena, sphalerite and arsenopyrite).

In a webcast conference call, the president and CEO of the company, Louis Gignac, explained that Cambior has been working in the Pataz batholith area since 1993. The company expects to be able to increase reserves and resources in the area. He used the example of past experience at the mine: in 2000, Compania Minera Poderosa produced 64,000oz. gold and had 152,000 oz. in reserves. Last year the company produced 90,000 oz. gold and the reserves had increased by 180,000 oz., to 340,000 oz. The investment that was spent to firm up these reserves was about $40 per oz.

Compania Minera Poderosa also purchases high grade ore from smaller mines. Last year this accounted for 9,251 oz. of gold.

As at June 30th Poderosa had outstanding bank and creditor’s debts that totaled US$34.7 million. This included US$18 million in shareholder’s advances. By the end of this year one half of this liability will have been paid. The third party debt should be repaid by the end of the third quarter 2006.

Poderosa pays about a 2% net smelter royalty that is projected to rise by 1% (subject to decisions made by the Peruvian government).