Richmont to buy McWatters’ East Amphi (December 22, 2003)

Montreal-based Richmont Mines (RIC-T) will acquire the East Amphi and Fourax properties from embattled McWatters Mining (MWA-T) in return for $7 million in cash. The properties are near Malartic in northwestern Quebec.

The agreement calls for McWatters personnel to complete an ongoing, $6-million exploration program at East Amphi by year-end. Richmont will both manage the work and reimburse McWatters accordingly.

McWatters will be entitled to receive a 2% net smelter return royalty once 300,000 oz. gold have been produced from East Amphi and Fourax. Richmont can buy back the royalty for $1.5 million at any time after production starts.

According to a 2002 study by SNC Lavalin (SNC-T), East Amphi hosts proven and probable near-surface reserves of 1.4 million tonnes grading 4.16 grams gold, or 183,090 contained ounces gold.

Richmont is confident it can convert further resources into reserves and delineate additional resources.

East Amphi and Fourax are 15 km from Richmont’s Camflo mill, which is running at 60% capacity.

McWatters will use proceeds from the sale to repay a portion of a bank loan and other obligations arising from a gold-hedging program of the Sigma-Lamaque Limited Partnership.

McWatters will now focus on establishing the economic viability of its suspended Sigma-Lamaque gold mine in Val d’Or, Que. A $2-million drilling program is planned for the project, where mining and milling have been suspended since early October.

McWatters says “preliminary indications from [consultants] RSG Global are that tonnage and grade for the open pit could be reduced.”

In the third quarter, McWatters lost $5.9 million (or 1 per share) on revenue of $8.1 million, compared with a loss of $467,000 (nil per share) on $5.1 million in the corresponding period of 2002.

The company produced 14,866 oz. gold in the quarter, all from Sigma-Lamaque, at a total production cost of US$538 per oz. In the year-earlier period, McWatters cranked out 9,511 oz. gold at a total cost of US$287 per oz., all from the nearby underground Kiena mine. The company received an average of US$360 per oz. for its production in the recent quarter, up from US$319 per oz. a year earlier.

In November, McWatters sold Kiena to Toronto-based Western Quebec Mines (WQM-T) for $2 million in cash, up to $1 million for inventory and equipment, and 4% and 2% net smelter return royalties on Kiena’s existing and future resources, respectively. Additional staged payments are also due if the Kiena mill resumes operation.

The Kiena deal is expected to close before year-end.

Western Quebec owns or controls two properties contiguous to Kiena, which is under Lac Montigny. The wholly owned, former-producing Shawkey property holds resources, within its 22 zone, of 900,000 tonnes grading 4 grams gold per tonne. Also, Western Quebec’s 67%-owned subsidiary, Wesdome Gold Mines (wdg-v), owns the Wesdome property, which hosts resources of 2.8 million tonnes at 4.3 grams gold.

Western Quebec intends to spend $5 million next year cutting an exploration drift from Kiena into Shawkey and drilling known zones.