Lower grades sink Richmont (April 29, 2004)

Lower gold grades and a stronger Canadian dollar pushed Richmont Mines (RIC-T) into the red to the tune of $1.1 million in the first three months of 2004.

The loss comes to 7 per share, and is a far cry from the tidy profit of $197,760 (or 1 per share) turned in the corresponding period of 2003. Likewise, revenue between the two periods slipped by about 30% to just shy of $6.9 million. Cash flow from operations (before net change in non-cash working capital) fell 71% to $397,713.

Production at the Beaufor mine near Val d’Or, Que., fell 18% to 9,817 oz. as grades slipped to 5.8 grams gold per tonne from 7.5 grams. The lower production also reflects 20,000 tonnes of extracted ore that was not processed before the end of the quarter. Richmont says the leftover ore will be processed during the second quarter. Cash costs at the mine increased to US$334 per oz. from US$244 a year earlier.

At the end of 2003, Beaufor had proven and probable reserves of around 907,000 tonnes grading 7.9 grams gold, or 232,000 contained ounces. Richmont owns a 50% interest in the mine, with 69.3%-owned subsidiary Louvem Mines (LOV-V) holding the remaining half.

Gold sales from the Hammerdown mine near King’s Point, Nfld., totalled 5,221 oz. produced at a cash cost of US$323 per oz., compared with year-ago sales of 6,076 oz. produced at US$233 apiece. The increased costs are attributed to 23% lower grades. Richmont expects the mine’s reserves to be depleted by the end of the second quarter.

Richmont realized an average of US$417 for each ounce of gold sold during the first quarter, up from US$ $371 per oz. a year earlier.

On the exploration front, surface installations and the underground ramp portal have been completed at the East Amphi property. The ramp is headed to a depth of 200 metres to allow for drilling in the main zone; surface drilling continues. The company plans to spend $7 million to define a major portion of the 250,000 oz. of gold resources during 2004.

Richmont picked up East Amphi, and the nearby Fourax property, both in the Abitibi region, late last year by paying McWatters Mining (MWA-T) $7 million in cash plus a 2% net smelter return royalty.

In central Nfld., the company will begin a second round of 3,000 metres worth of exploration drilling on the Valentine Lake gold project in June. Six recently completed due diligence holes there generally returned 3.4-17 grams gold per tonne over widths from 2-50 metres from the property’s main zone. Previous drilling by BP Minerals returned up to 9.1 grams gold per tonne over 9.6 metres, 6.3 grams gold over 4.6 metres, 7.4 grams over 4 metres, and 9.12 grams over 3 metres. The zone remains open laterally and at depth.

Based on the latest results, Richmont staked another 323 claims to boost the property to around 173 sq. km.

Richmont can earn a 70% stake in the property by paying Mountain Lake Resources (MOA-V) $25,000 in cash and spending $2.5 million on exploration by Oct. 31, 2007. Of that, Richmont must spend $500,000 in 2004, with $150,00 spent during the due diligence period.

Noranda (NRD-T) retains a 2% net smelter return (nsr) royalty on base metals production plus a 1.5% nsr on the first 250,000 oz. of gold; the gold nsr climbs to 3% on any ounces over that. Under a deal inked in 2002, Mountain Lake, which already has a half-interest, can acquire the balance of the property from Noranda by spending $2.5 million over the next 5 years.

At the end of March, had no long-term debt and working capital of $30 million.

For its part, Richmont’s subsidiary Louvem Mines saw its first-quarter earnings fall nearly an order of magnitude to $76,919 (or nil per share); revenue slipped 38% to $1.9 million; and cash flow from operations dropped 86% to $110,073. At quarter’s end, Louvem also had no long-term debt and working capital stood at $2.1 million.

Louvem awaits the results of a recently completed, $250,000 exploration program on its 81%-owned Monique property, 16 km east of the Beaufor mine.