McWatters trims production estimate

Lower-than-expected-grades at its Sigma-Lamaque open-pit operation in Val d’Or, Que., have McWatters Mining (MWA-T) looking to raise up to $7 million to remove troublesome waste.

A syndicate, led by Dundee Securities, will sell up to $7 million worth of units at 16 apiece. One unit comprises one share plus half a warrant. A whole warrant can be used to buy one share at 16 over six months, and at 20 per share thereafter.

Proceeds will be used to add trucks and drilling capacity to Sigma-Lamaque, with the goal of removing an additional 500,000 tonnes of waste in the next quarter.

McWatters says the waste backlog (and resultant lower-than-expected grades and stockpile levels) has hampered the operation since production began in early April.

The company plans to adjust its rate of ore throughput to build up inventory. Mining at the daily rate of 5,000 tonnes is to begin in the fourth quarter.

McWatters resumed milling in late November, after construction work boosted daily capacity to 5,000 from 3,000 tonnes.

With the changes, McWatters has cut its 2003 production forecast to 80,000-85,000 oz. gold at US$255-265 per oz. That’s down from the originally planned 100,000-110,000 oz. at $US200-210 per oz. McWatters expects the operation to be producing at feasibility levels in 2004.

At last report, Sigma-Lamaque’s reserves stood at 10.4 million tonnes grading 2.67 grams per tonne. Life-of-mine production is pegged at 856,000 oz.; cash costs are to average US$165 per oz.; and the operation is expected to run until 2008.

McWatters re-acquired full ownership of Sigma-Lamaque after paying $20 million and issuing nearly 84 million treasury shares for Soquem’s 40% stake. Another $2 million is due by mid-2005.

In other news, the company intends to place $7 million worth of flow-through shares at 18 per share, with proceeds earmarked for exploration of the nearby East Amphi property.

McWatters is in the midst of a $9-million, 10-month underground exploration program at East Amphi, with $6 million of that total budgeted for 2003. Included are 15,000 metres of drilling aimed at expanding reserves and resources below the 230-metre level down to the 450-metre level.

At last count, East Amphi’s underground reserve totalled 1.4 million tonnes grading 4.16 grams per tonne, all of which were above the 230-metre level.

A feasibility study at East Amphi envisages annual underground production of 45,000 oz. gold at a cash cost of US$227 per oz. Completed by SNC Lavalin (snc-t), the study pegs capital costs at $13.5 million, and the after-tax internal rate of return is just over 33% at a gold price of US$315 per oz.

McWatters plans to treat material from East Amphi at the East Malartic mill, about 20 km west of Val d’Or. McWatters picked up the mill and related properties from Barrick Gold (ABX-T) (T.N.M., March 9/03). The company figures it will take about $2 million to modify the mill to handle East Amphi ore at the daily rate of 1,500 tonnes.

Both private placements are subject to regulatory approval and the sale of at least $6 million in units.

The syndicate, which also includes Sprott Securities and Griffiths McBurney, will receive shares and broker warrants as partial payment for its services.