Canamax entering period of consolidation: Lenton

Shareholders and analysts who attended the recent Toronto annual meeting of Canamax Resources (TSE) were reminded of how much the mining industry has changed in the past couple of years. Only two years ago, the 49.7% owned Amax Gold affiliate was riding on the crest of the flow- through exploration wave and aggressively promising to bring five gold mines into production by 1992.

As production plans were announced at four mines, the company’s shares climbed to a high of $14.37 in 1987 and former president John Hansuld succeeded in attracting a sizable European following.

But the euphoria of the flow- through era seemed a long way off at this year’s annual meeting, where Wayne Lenton, Hansuld’s successor, promised to make the most of three mines that last year churned out 91,113 oz. of the yellow metal at a cost of (US$323) per oz.

Having reduced the exploration team to 12 from 30 and moved to the offices of affiliate Canada Tungsten Mining (TSE) in Vancouver, “Canamax is entering a period of consolidation,” said Lenton, who expects gold production to increase this year to about 100,000 oz.

In a bid to reduce a debt load, that now stands at around $19.6 million (excluding the Manitoba Potash sale) and establish a sound financial base, the company has sold off a number of assets including a 51% stake in the Manitoba Potash project to EMC Group of France.

Operations at Bell Creek and Kremzar mines in Ontario and the Ketza River mine in the Yukon are being reviewed as Canamax attempts to keep its production costs down this year.

At the Ketza mine, which produced 39,097 oz. last year, oxide reserves should be depleted by the fourth quarter of this year when a decision will be made on whether to go ahead and mine 180,000 tons of sulphide ore grading 0.33 oz. gold per ton.

According to Lenton, the absence of any exploration at depth leaves the door open for an increase in sulphide reserves.

Meanwhile, a change in the Bell Creek mining method from longhole mining to shrinkage stoping contributed to an increase in costs that led indirectly to a first-quarter loss of $3.9 million or 18 cents a share. Having produced 27,778 oz. gold last year at a cost of $348 per oz., Bell Creek has nevertheless a bright future, Lenton said.

By contrast Kremzar, which ranks as Canamax’ most expensive mine, will remain a high-cost operation as work crews bid to reach higher-grade ore. It produced 24,238 oz. gold in 1989 at a cost of $408 per oz.

As Canamax has hedged its 1990 gold output to realize a minimum US$425 per oz., the current softening in prices won’t be a problem this year. “But when gold is trading at around US$360 per oz., you have to take a serious look at what you are doing,” said Lenton.

Shares of Canamax traded recently at $1.45 in a 52-week range of $3.85 and $1.12.