McWatters suspends mining at Sigma

McWatters Mining (MCW-T) has suspended underground gold mining at its Sigma-Lamaque complex in Val d’Or, Que.

The shutdown has resulted in 197 of the complex’s 250 employees being laid off for an anticipated 5-month period.

During the shutdown, McWatters will continue to operate the Sigma-Lamaque mill at the full capacity of 2,000 tonnes per day, with feed coming from the company’s East Amphi mine (situated 25 km west of the mill), as well as from Sigma-Lamaque’s open-pit mines.

McWatters is also undertaking a full review of the Sigma-Lamaque operations, with an associated feasibility study due for completion in the fourth quarter. The study will attempt to prove the viability of an operation at Sigma-Lamaque that would coordinate open-pit and underground mining to produce 100,000 oz. gold annually at a cash cost of US$200-225 per oz. over 10 years.

“It was the right time to do it,” says McWatters President Claire Derome of the suspension. “The new resource we found at surface at Sigma-Lamaque has given us the flexibility now to see the operation in a much different fashion than when we made the acquisition in September 1997.”

Regarding the employees who were laid off, Derome comments, “Their initial reaction was one of uncertainty, but I think that after the explanation that management was able to give them, they see that when they come back in five months, they will have ahead of them a 3-year mining plan showing real profitability for Sigma in the long term. So at the same time that it is bad news, it carries good news for Sigma and the future of McWatters.”

From April to August 1999, production from East Amphi is expected to total 130,000 tonnes grading 5.9 grams gold per tonne, or 25,000 oz. gold.

During 1999, McWatters plans to mine 350,000 tonnes grading 2.75 grams gold from open pits at Sigma-Lamaque for a total production of 30,000 oz. gold. With underground operations at Sigma-Lamaque resuming in five months, McWatters’ total production for 1999 is now expected to reach 170,000 oz. gold at a cash operating cost of US$225 per oz.

Since acquiring the Sigma-Lamaque complex, McWatters has spent $9.7 million on underground exploration and development work and on modern mining equipment. These efforts have boosted underground reserves and resources at Sigma-Lamaque by 30%, and a construction program has increased the daily production capacity from the underground operations to 1,200 from 700 tonnes.

Last summer, McWatters discovered significant surface resources on its Sigma-Lamaque property and drilled more than 350 holes totalling 25,000 metres. These new resources include the Sigma 2000 discovery, which is part of the ongoing feasibility study and is expected to contribute to continued open-pit mining at Sigma-Lamaque.

For the year ended Dec. 31, 1998, McWatters recorded a net loss of $4.5 million (or 14 cents per share) on revenue of $73.9 million, compared with a loss of $697,000 (5 cents per share) on revenue of $22 million in fiscal 1997, which represented only 111 days of production from the Kiena and Sigma-Lamaque mines. Operating income for 1998 was $61,000 (nil per share) compared with operating income of $401,000 (2 cents per share) for the previous fiscal year.

For the fourth quarter of 1998, McWatters lost $2.6 million (7 cents per share) on revenue of $18.1 million, compared with a loss of $992,000 (3 cents per share) on revenue of $19.3 million for the corresponding period in 1997.

In 1998, McWatters produced a total of 169,255 oz. gold from its Kiena, Sigma-Lamaque and East Amphi mines at a cash operating cost of US$255 per oz. and a total production cost of US$281 per oz. By comparison, during the last three and a half months of 1997, gold production totalled 50,922 oz. at a total production cost of US$283 per oz. For all of 1997, total production from Kiena and Sigma-Lamaque was 177,579 oz. at a cash cost of US$268 per oz.

In the recent fourth quarter at Kiena, gold production totalled 22,203 oz. at a cash operating cost of US$211 per oz., whereas the Sigma-Lamaque complex produced 20,152 oz. at US$330 per oz.

In 1998, McWatters spent $4.1 million and $8.3 million at Kiena and Sigma-Lamaque, respectively, as part of a program designed to reduce operating costs and increase mine life. At the East Amphi property, acquired for $3 million in January 1998, the company spent $845,000 on exploration and development during the past year.

The other highlight of 1998 for McWatters was its merger with Minorca Resources on the basis of 0.555 of a McWatters share for each Minorca share. Minorca’s chief asset had been its liquid assets, valued at $5.7 million.

On Jan. 1, 1999, the reserves and resources in the proven, probable and possible categories at Kiena, Sigma-Lamaque and East Amphi, as well as at McWatters’ newly developed Ramp Vein, Fayolle (90% interest) and Black Cliff (50%) deposits, totalled 40.4 million tonnes grading 4.53 grams gold. This translates into 5.89 million contained ounces, up from 3.08 million oz. in 1998. Of this total, some 10.7 million tonnes grading 4.35 grams gold (1.49 million contained ounces) are in the proven and probable category.