Costs, Camp Caiman economics sink Cambior (August 08, 2005)

Rising costs for energy and raw materials outweighed a 14% increase in revenues, and trimmed Cambior‘s (CBJ-T) earnings by 41% during the three months ended June 30.

The company posted net earnings of US$1 million (or nil per share) on revenue of US$ 89.4 million during the recent second quarter, compared with net earnings of US$1.7 million (US1 per share) on US$78.3 million during the corresponding period of 2004. Cash flow from operations rose by 18% to US$11.3 million.

The latest quarter’s top line benefited from a firmer gold price, consolidation of the Niobec niobium mine in northeastern Quebec in July 2004, and the start of mining at the Montgomery bauxite mine in Guyana in late 2004.

Meanwhile, second-quarter gold production slipped by about 11% to 172,000 oz., while mine operating cost climbed by 21% to US$273 per oz., as the Omai mine’s Fennel pit was depleted late last year.

The company realized an average of US$400 per oz. for its second-quarter production, up from US$362 an oz. a year earlier. That compares with the quarter’s average gold price of US$427 per oz. The company also delivered some 26,000 oz. of gold into its prepaid gold forward sales agreement; it also closed out its remaining 9,500 oz. hedge book. At the end of June, the company’s delivery commitments amounted to 169,000 oz., down 17.6% from the end of 2004.

“Our gold production is on target, following another strong quarter at Rosebel, but we continue to be affected by increasing costs due to increased prices for energy and other raw materials, the strength of the Canadian dollar and the shortage of qualified miners at our Sleeping Giant and Mouska mines," said Cambior’s CEO Louis Gignac in a prepared statement.

With mining operations ceased, production from the Omai mine in Guyana was almost halved to 33,800 oz. of gold at US$362 per oz., year-ago costs rang in at US$225 per oz. Omai will continue to process low-grade ore stockpiled during its early years of operation until late September.

Production from the Doyon division also slipped by 8% to 39,400 oz. at US$345 per oz., off from the year-ago 42,800 oz. at US$334. Cambior says that disappointing results from Doyon are being partially offset by positive reserve development at Mouska, where a shaft-deepening project wrapped up in October. Cambior also asserts that the results represent a steady improvement since a major restructuring at the Doyon mine in September 2004.

Production from the Sleeping Giant mine in northwestern Quebec was flat at 9,200 oz., but costs soared by nearly 70% to US$439 per oz. The company attributes the poor performance to high employee turnover and a shortage of experienced miners for the remote mining operation. The situation is expected to continue for at least the rest of the year as new workers are recruited and trained.

The Rosebel mine in neighbouring Suriname provided Cambior’s lone glimmer of light, with production totalling 89,600 oz. at US$190 apiece. The mine began commercial production in February of 2004. Capacity there was boosted during the quarter with the acquisition of a shovel, five haulage trucks and other ancillary equipment. A second phase of construction, including a crusher system to handle hard-rock ore and an effluent treatment system was completed for US$16.5 million, about $2.5 million below budget.

Some 25,200 metres worth of development drilling during the first five months of the year has boosted Rosebel’s reserves by 11%. The drilling focussed on the project’s Royal Hill deposit and added some 265,000 contained oz. of gold to the reserve base.

The 170-sq.-km Rosebel project comprises six deposits: Pay Caro, East Pay Caro, Kollhoven, Royal Hill, Mayo, and Rosebel. The deposits lie within 15 km of each other.

At the beginning of July, the deposits were home to reserves totalling 52.4 million tonnes grading 1.51 grams gold per tonne, for more than 2.5 million contained ounces of gold. More than half of the ounces are split between the Pay Caro and Royal Hill deposits. The reserve estimate is based on cut grades of 0.5 to 0.7 grams gold and a gold price of US$400 per oz.

Since the production began in mid-February of 2004, reserves at Rosebel have increased by 27% or 642,000 oz. via additional drilling and the conversion of resources to reserves owing to higher gold prices; reserves at the beginning of 2004 were estimated using a US$350-per-oz. gold price.

Cambior is in the midst of an 8,000-metre drill campaign on the Rosebel deposit, and plans a 14,000-metre follow-up drilling program at Royal Hill during the second half of the year. Limited drilling will also target the Pay Caro and East Pay Caro deposits.

In all, the company plans to spend some $5.4 million on reserve development, including 52,000 metres of drilling in 2005. Another $2.8 million will go toward exploration on the Rosebel Concession, the surrounding Headley’s Reef and Thunder Mountain Exploration permits. Work is also planned on six exploration permits in the Sarakreek district south of the Brokopondo water reservoir where the company is joined by some local partners.

In French Guiana, Cambior tabled a feasibility study of the Camp Caiman open-pit gold project. The study is centred on a probable reserve totalling 12.3 million tonnes grading 2.82 grams gold per tonne, for 1.1 million contained ounces of gold. The estimate employs a gold price of US$425 per oz.

Around 35% of the reserve is contained with the Scout pit, which contains mostly sparolite ore; Pit 88, adjacent to the east, is home to the balance of the reserves, which comprise equal amounts of higher-grade saprolite and fresh rock.

The deposits remain open at depth along the north extension of the 88 pit and the western extension of the Scout pit. Future drilling will target geochemical anomalies on adjoining exploration permits. Exploration continues within trucking distance of Camp Caiman.

A fleet of 40-tonne articulated trucks and excavators are planned to mine at an average mining rate of 27,000 tonnes of ore and waste per day. At that rate, Camp Caiman is expected to churn out some 124,000 oz. of gold annually for 7 years. The milling rate is initially pegged at 5,500 tonnes per day, as mostly soft ores are processed during the first five years of operation.

Processing will include a crushing and grinding circuit followed by a leach and carbon-in-pulp (CIP) circuit. Power would be supplied from the national utility company. The average recovery rate is pegged at 77.8%, with saprolite ore expected to yield 93% of its gold, transitional ores 80%, and primary mineralization just 58%. In all, total gold production would weigh in at 1.1 million oz.

Construction of the US$114.7 million project is slated to take 21 months; financing and permits are anticipated by the second quarter of 2006. All told, the proposed project generates an unimpressive rate of return of 10.4%, based on a US$425-per-oz. gold price. Life-of-mine sustaining capital is figured at US$4.4 million.

The company says the project’s overall price tag could come in lower owing to incentives of up to 25% of the capital costs from the Government of France. Negotiations are ongoing and formal requests will be filed in early September. The project already benefits from a tax-holiday on mining profits for the first 10 years; gold production is subject to a royalty of around US$1.50 per oz., payable to the local government.

Camp Caiman still requires an important environmental permit and operating permit, both of which are expected by the end of June 2006. Both are subject to a public consultation process slated to wrap up at the end of February 2006.

Meanwhile, in the boardroom, Kazuo Shuto recently resigned from his seat on Cambior’s board of directors owing to increased involvement as a director of Jipangu.

Formerly a major shareholder, Japanese-based Jipangu sold off its stake in Cambior in early 2004.The private gold investment fund first took a 12.4% stake in Cambior in May 2000 after a hedge book gone wrong almost sank the miner. Its stake had reac
hed as high as 28%.

By the end of June, Cambior’s long-term debt was US$71.4 million, up US$6.2 million from the end of 2004; cash and equivalents were US$33 million lower at US$22 million.

Cambior’s shares were off 40, or around 13.5%, at $2.57 in late afternoon trading in Toronto following the news on August. 8.