McWatters lowers production estimate

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

The company has engaged a syndicate, led by Dundee Securities, to sell up to $7 million worth of units at 16 apiece. One unit comprises one share plus half a warrant. One warrant is good for one share at 16 each over six months, and 20 per share thereafter.

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

McWatters says the waste backlog (and resultant lower-than-expected grades and stockpile levels) has been the predominant factor hampering the operation’s performance since commercial production began in early April.

The company also plans to adjust its rate of ore throughput to help build up inventory. The company hopes to be mining at a rate of 5,000 tonnes per day during the fourth quarter.

McWatters restarted milling activities at Sigma in late November, after completing construction work that led to an increase in milling capacity to 5,000 from 3,000 tonnes per day.

With the changes, McWatters has cut its 2003 production forecast to 80,000-85,000 ounces of gold at US$255-US$265 per oz. in 2003. That’s down for the originally planned 100,000-110,000 ounces at $US200-$US210 per oz. McWatters expects the operation to produce 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 expected to average US$165 per oz. The operation is expected to run until 2008.

McWatters recently re-acquired full ownership of Sigma-Lamaque, having paid $20 million and issued nearly 84 million treasury shares for Soquem‘s 40% stake. Another $2 million is due by mid-2005.

East Amphi

Best efforts will also be used to place another $7 million worth of flow-through shares at 18 per share. Proceeds will fund exploration of the nearby East Amphi property.

McWatters is in the midst of a $9-million, 10-month-long underground exploration program at East Amphi. McWatters plans to spend $6 million in 2003. Included is 15,000 metres of drilling aimed at boosting reserves and resources below the 230-metre level down to the 450-metre level.

At last count, East Amphi’s underground reserve tallied to 1.4 million tonnes running 4.16 grams per tonne; all above the 230-metre level.

The program also includes underground ramp and exploration drift development.

A feasibility study at East Amphi envisages an underground operation producing 45,000 oz. gold at a cash cost of US$227 per oz. annually. Completed by SNC Lavalin, the study pegs capital costs to develop the project at $13.5 million. 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 recently acquired 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 about 1,500 tonnes per day.

Both private placements are subject to, among others, regulatory approval and at least $6 million in units being sold.

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

McWatters shares plunged 2.5, or nearly 15% of value, in early traded in Toronto following the news on June 19.