Osisko marches ahead at Canadian Malartic

Osisko Mining (OSK-T) projects better days ahead at its flagship, 100%-owned Canadian Malartic gold mine near Val d’Or, Que.

The Montreal-based miner says the setbacks that it endured in 2012, during its first full year of operations, are mainly behind it as it ramps up the mill to 55,000 tonnes a day during the second half of 2013.

Osisko plans to stabilize the mill at 50,000 tonnes a day by July, before expanding to 53,000-55,000 daily tonnes, allowing it to achieve its 2013 production guidance of 485,000 to 510,000 oz. gold. Cash costs are anticipated to fall within $780-$825 per oz., a 9-14% drop from 2012.

Gold grades for 2013 should average 1 gram per tonne with gold recovery coming in at 87%.

In 2012, the gold producer had a few hiccups at its flagship open-pit mine —located in Quebec’s Abitibi gold belt, near the town of Malartic — including a fire at the mill that resulted in 10 days of downtime in May, coupled with low equipment availability, noise restrictions and poor weather.

 In the fourth quarter it said production was mainly impacted by a month-long delay in completing a 940,000-tonne blast over previously mined underground stopes to tap into the deposit’s north pit wall or higher-grade zones.

The company’s president and CEO Sean Roosen said on a recent conference call that it experienced a “few issues” in the quarter that dampened output, including delays with the Crown Pillar blast, which was finally blasted in late October, but impacted Osisko’s ability to mine higher grades.

“Q4 was affected by that, average grade coming down to 0.87 and the year ended 2012 at 0.96 grams which is basically on life of mine grade,” Roosen notes.

Fourth quarter production came in at 101,544 oz. at a cash cost of US$903 per oz., bringing full year output to 388,478 oz. at average cash costs of US$909 per oz.

Quarterly gold sales equaled 111,104 oz. at a sales price of US$1,709 per oz., bringing full-year sales to 394,603 oz. at an average price of US$1,669 per oz. gold.   

Earnings for the quarter were $9.6 million, or 2¢ a share — a 74% drop from a year ago.

Roosen points out several non-cash items attributed to the decline in earnings, including a $10.9-million impairment charge it took on its 9.5% stake in Ryan Gold (RYG-V).

“Ryan Gold took the impairment on their property for 2012 on their Yukon land package, and as a significant shareholder we had to incur that write down as well.”

Another item that affected the bottom line was a $5.1-million loss on the 7.8 million Queenston Mining shares Osisko bought from Agnico-Eagle Mines (AEM-T, AEM-N), as part of its 2012 takeover of Queenston.  

Queenston lost 66¢ per share in value since Osisko bought Agnico’s 9.5% interest to when the takeover deal closed on December 28. “Under IFRS rules, we had to take a non-cash charge of $5.1 million there,” Roosen says, adding the company also had an “unusually high” tax rate during the quarter thanks to the non-deductible aforementioned losses.

Despite those losses, the miner recorded a full-year profit of $78.4 million, or 20¢ per share. The Canadian Malartic mine, its sole operating asset, generated $240 million in earnings from operations in 2012.

To add flexibility to the project, Canadian Malartic’s operating parameters were recently modified to improve both the access to the deposit’s northern portion, and the execution of its blasting operations.

“This is a phase one on the modification, so the parameters are key in terms of us being able to do more in-pit mine scheduling to manage grade as we come into the end of Q1 and into Q2 and set the stage for us to achieve our guidance this year of 485,000 to 510,000 ounces of production,” Roosen comments.

Updated gold reserves at the mine stand at 10.1 million oz. from 310.6 million tonnes grading 1.01 grams gold. Osisko admits compared to the 2012 reserve estimate, tonnes have fallen, but the grade has slightly increased from 0.99 gram previously.

Since operations started in 2011, about 600,000 oz. gold have been recovered from the deposit.

For 2013, the gold miner plans to spend $220 million in capex on all its projects. About $98 million of that will be at Canadian Malartic, $10 million at the Hammond Reef gold project in northern Ontario, and $70 million at the Upper Beaver project it recently acquired from Queenston.

The Upper Beaver gold property is located near Kirkland Lake, Ont., where Osisko intends to develop a 1,300-metre exploration shaft this year. The remaining $42 million of the 2013 capex guidance will go towards regional exploration including its early-stage projects in Mexico, Roosen says.

Last year, the company spent $229 million on its projects, with $154 million of that at Canadian Malartic and $58 million at Hammond Reef. The rest was spent on exploration and corporate expenses.

Osisko soon anticipates filing an environmental impact assessment for Hammond Reef. A feasibility study is slated to be out in the first half of 2013.

Osisko closed Feb. 26 at $6.15 per share. It has 389 million shares outstanding.