Sudbury Contact passes gold assets to mothership

Shifting its attention to diamonds, Sudbury Contact Mines (SUD-T) is selling all its precious-metal assets for C$3.3 million to its parent company Agnico-Eagle Mines (AGE-T).

The purchase price was based on a valuation prepared by consultants Watts, Griffis and McOuat, which estimated a fair market value in the range of C$3.0-3.5 million.

The assets comprise 10 projects in Canada and the U.S.: Charlebois in Quebec; Mossehead and Colchester in Newfoundland; Blacksheep in Idaho; and Camp Douglas, Empire, Jakes Wash, NSR, Saw Tooth and Trend, all in Nevada.

The two most-valuable properties were deemed to be NSR, valued at C$800,000, and Trend, valued at C$545,000.

NSR is situated 120 miles southeast of Winnemucca, Nev., and covers 306 lode claims in the Cortez-Battle Mountain gold trend, in proximity to the Pipeline, Cortez, Cortez Pediment and Cortez Hills deposits.

At the nearby, 137-lode-claim Trend property, Agnico will be able to acquire a 51% interest from NDT Ventures (NDE-V) by paying US$350,000, spending US$1.5 million on exploration and issuing 210,000 Sudbury Contact shares.

The deal should close on Sept. 30, when Sudbury Contact will hold a special meeting to consider, among other things, a name change to Contact Diamond Corporation.

Sudbury Contact will use the proceeds from the gold-asset sale for general corporate purposes. These funds will complement new money that came into the company in August via a $5.2-million private placement of 3.5 million flow-through shares priced at $1.50 apiece.

This private placement reduced Agnico’s shareholding in Sudbury Contact from 49.8% to 44.2%.

All cashed up now, Sudbury Contact can focus on exploring for diamonds at its 100%-owned Timiskaming Diamond project, situated just west of Cobalt, Ont.

On this 65,000-ha property, Sudbury Contact has discovered three diamond-bearing kimberlites, named KL-01, KL-22 and 95-2, and has carried out mini-bulk sampling on 95-2.

Sudbury Contact plans to spend $4 million this fall and winter on an airborne survey and soil sampling in order to generate drill targets. The program will also include delineation drilling on the KL-01 and KL-02 kimberlites.

Meanwhile in Nunavut, Sudbury Contact has entered into a letter agreement with privately held Trigon Exploration Canada Ltd. to earn up to a 60% interest in the latter’s 320,000-ha IC/LO property in the Kugaaruk/Repulse Bay regions.

The IC/LO property is between BHP Billiton‘s (BHP-N) 100%-owned Qilalugaq property and the Amaruk joint venture property of BHP Billiton and Diamonds North (DDN-V).

Sudbury Contact can earn an initial 49% interest by paying $480,000 to Trigon to cover a portion of the latter’s claim-staking costs and by spending an additional $400,000 on sampling and processing over the rest of 2004. Sudbury can boost its interest to 51% by paying another $500,000, and can earn a further 9% by spending an additional $3 million on exploration.Strong quarter

For its part, Agnico-Eagle remains busy at its flagship LaRonde gold mine in western Quebec and its nearby, advanced Lapa gold project.

Second-quarter production from the underground LaRonde mine showed improvements across the board: 65,233 oz. gold (60,157 oz. last year); 1.5 million oz. silver (1 million oz.); 37.5 million lbs. zinc (27 million lbs.); and 5.1 million lbs. copper (5 million lbs.)

The rise in output came on the back of record quarterly tonnage of 753,000 tons of ore, or 8,276 tons per day from the mine’s single shaft.

Even sweeter, realized prices for all four metals were substantially higher in the recent quarter: US$393 per oz. gold (US$349 per oz. last year); US$6.22 per oz. silver (US$4.57); US47 per lb. zinc (US35); and US$1.26 per lb. copper (US73).

Thanks to the higher by-products, total operating costs in the second quarter nosedived to just US$169 per oz. gold from US$340 per oz. a year earlier.

The company, as a result of all this good news, posted vastly improved second-quarter earnings of US$8.8 million (US11 per share) on mining revenues of US$45.7 million, compared with the year-ago loss of US$3.8 million (US5) on revenues of just US$30 million.

For all of 2004, Agnico expects LaRonde to produce 293,000 oz. gold, 5.5 million oz. silver, 155 million lbs. zinc and 23.2 million lbs. copper at a total cash operating cost of US$70-80 per oz. — down from an original cost target of US$155-165 per oz.

At Lapa, Agnico has initiated a US$30-million program of shaft sinking, underground development, drilling and metallurgical studies.

The 2,700-ft.-long, 16-ft. wide shaft is due for completion in the first half of 2006. It will provide access for underground drilling and bulk sampling of the deposit, which is characterized by coarse, visible gold.

If results from this work is positive, Agnico envisages extending the shaft to 4,500 ft. below surface and beginning commercial production at a rate of about of 125,000 oz. gold per year, with ore trucked 7 miles west to the LaRonde mill.

The current work at Lapa is being financed by a C$23-million flow-through financing of 1 million shares priced at C$23 apiece, or a 33% premium to Agnico’s stock price at the time the financing was announced in August.

As of June 30, Agnico had US$99 million in cash and equivalents, and had earlier spent US$11.8 million buying a 14% stake in Swedish junior gold explorer Riddarhyttan Resources.

Riddarhyttan owns the Suurikuusikko gold deposit in Finland, which hosts a resource of 9.1 million tons of 0.18 oz. gold per ton (8.3 million tonnes of 6.1 grams gold per tonne), or about 1.6 million oz. contained gold.